[This is an English translation prepared for reference purpose only. Should there be any inconsistency between thetranslation and the original Japanese text, the latter shall prevail.][Cover]Document to be filed:Annual Securities Report

Provisions to base upon:

Article 24, paragraph 1 of the Financial Instruments and Exchange
Act

Filing to:

Director-General of the Kanto Local Finance Bureau

Date of filing:

March 22, 2024

Business year:

39th term (from January 1, 2023 to December 31, 2023)

Company name (Japanese):日本たばこ産業株式会社 (Nihon Tabako Sangyo KabushikiKaisha)Company name (English):JAPAN TOBACCO INC.

Title and name of representative:

Masamichi Terabatake, Representative Director and President, Chief
Executive Officer

Location of head office:1-1, Toranomon 4-chome, Minato-ku, Tokyo, Japan

Telephone number:+81-3-6636-2914 (Main)

Contact person:

Hiromasa Furukawa, Senior Vice President, Chief Financial Officer,
Corporate Communications

Place of contact:

1-1, Toranomon 4-chome, Minato-ku, Tokyo, Japan

Telephone number:+81-3-6636-2914 (Main)

Contact person:

Hiromasa Furukawa, Senior Vice President, Chief Financial Officer,
Corporate Communications

Places where the document is available for Tokyo Stock Exchange, Inc.
public inspection:(2-1, Nihonbashi-kabutocho, Chuo-ku, Tokyo)

A. Company Information
I. Overview of the Group
1. Trends in Principal Management Benchmarks(1) Management Benchmarks (Consolidated)
International Financial
Reporting Standards

Term

Accounting period

35th term

36th term

37th term

38th term

39th term

From January 1,
2019 toDecember 31,
2019

From January 1,
2020 toDecember 31,
2020

From January 1,
2021 toDecember 31,
2021

From January 1,
2022 toDecember 31,
2022

From January 1,
2023 toDecember 31,
2023

Revenue

2,175,626
2,092,561
2,324,838
2,657,832
2,841,077(Millions of yen)
Profit before income taxes
465,232
420,063472,390
593,450
621,601(Millions of yen)
Profit for the year
361,622
312,029
340,181444,174
485,310(Millions of yen)
Profit attributable to ownersof the parent company
348,190
310,253
338,490442,716
482,288(Millions of yen)Comprehensive income(loss) for the year
365,816
132,883
540,258
998,229
668,217(Millions of yen)
Total equity
2,743,611
2,599,495
2,886,081
3,616,761
3,912,491(Millions of yen)
Total assets
5,553,071
5,381,382
5,774,209
6,548,078
7,282,097(Millions of yen)
Equity attributable to ownersof the parent company per
1,501.12
1,421.92
1,583.10
1,994.78
2,157.46
share
(Yen)
Basic earnings per share
195.97174.88190.76249.45271.69(Yen)
Diluted earnings per share
195.87174.80190.68249.36271.63(Yen)
Ratio of equity attributable toowners of the parent
47.95
46.88
48.65
54.07
52.60
company to total assets(%)
Ratio of profit to equity
attributable to owners of the
13.16
11.97
12.70
13.94
13.09
parent company(%)
Price earnings ratio (PER)
12.41
12.02
12.17
10.67
13.42
(Times)Net cash flows fromoperating activities
540,410
519,833
598,909483,799
567,014(Millions of yen)
Net cash flows frominvesting activities(123,571)
5,354(97,499)(101,822)(126,129)(Millions of yen)
Net cash flows fromfinancing activities(333,832)(297,404)(353,138)(306,176)(270,500)(Millions of yen)
Cash and cash equivalents at
the end of the year
357,158
538,844
721,731866,885
1,040,206(Millions of yen)
Number of employees
61,97558,30055,38152,64053,239[Separately, average numberof temporary employees][7,116][6,681][6,942][6,726][8,193](Person)Notes: 1. The Group prepares the consolidated financial statements in accordance with International Financial Reporting Standards (hereinafter,“IFRS”).
2. The yen amounts are rounded to the nearest million.

1(2) Filing Company’s Management Benchmarks (Non-consolidated)
Term

35th term

36th term

37th term

38th term

39th term

Accounting period

From January 1,
2019 toDecember 31,
2019

From January 1,
2020 toDecember 31,
2020

From January 1,
2021 toDecember 31,
2021

From January 1,
2022 toDecember 31,
2022

From January 1,
2023 toDecember 31,
2023

Net sales

660,805
596,887
592,220542,181
537,261(Millions of yen)
Ordinary income
278,968
240,491
278,809273,734
185,665(Millions of yen)
Net income
262,469
241,752
216,896
283,461
184,788(Millions of yen)
Share capital
100,000
100,000
100,000
100,000
100,000(Millions of yen)
Total number of sharesissued2,000,000
2,000,000
2,000,000
2,000,000
2,000,000(Thousands of shares)
Net assets
1,417,365
1,390,011
1,344,696
1,368,643
1,179,577(Millions of yen)
Total assets
2,614,357
2,597,930
2,487,979
2,363,267
2,293,951(Millions of yen)
Net assets per share
798.18782.73757.10770.57664.12(Yen)
Cash dividends per share
(Yen)
154
154
140
188
194
[Interim dividends per share]
[77]
[77]
[65]
[75]
[94]
(Yen)
Net income per share
147.72
136.27122.23159.72104.10(Yen)
Diluted net income per share
147.65136.21
122.18159.66104.07(Yen)
Equity ratio
54.2
53.5
54.0
57.9
51.4
(%)
Return on equity (ROE)
18.05
17.24
15.88
20.91
14.51
(%)
Price earnings ratio (PER)
16.47
15.43
19.00
16.66
35.02
(Times)Dividend payout ratio
104.3
113.0
114.5
117.7
186.4
(%)
Number of employees
7,464
7,366
7,154
5,819
5,940
[Separately, average numberof temporary employees][1,221][1,183][1,174][461][257](Person)Total shareholder return
(%)
98.9
92.1
105.9
126.0
171.0
[Comparative indicator:[118.1][126.8][143.0][139.5][178.9]Dividend-included TOPIX](%)
Highest share price
2,899.0
2,437.5
2,417.0
2,871.5
3,858.0(Yen)
Lowest share price
2,179.0
1,796.5
1,898.0
2,000.0
2,537.5(Yen)
Notes: 1. The financial statements of the filing company are prepared in accordance with Japanese GAAP.
2. The yen amounts are rounded to the nearest million.
3. The yearly highest share price and the yearly lowest share price on and after April 4, 2022 were those recorded on the Tokyo Stock
Exchange (Prime Market) while those before that date were those recorded on the Tokyo Stock Exchange (First Section).

22. History(1) Background of the Company’s Transition to Stock Company
Before it became a stock company, Japan Tobacco Inc. (hereinafter, “the Company”) was formerly Japan Tobacco andSalt Public Corporation, or JTS. JTS was established on June 1, 1949 with the “Aim to bring soundness and efficiency
to the operation of the national government monopolies.” JTS, serving as the main body for conducting operations of
the tobacco monopoly system and other government monopolies, contributed to establishing stable supply of tobaccoand securing tobacco-derived financial revenues.
However, the growth in demand for cigarettes in Japan began to slow in the mid-1970s as the result of demographic
trends and growing concern about health risks associated with smoking. This trend continued, such that growth inindustry sales essentially stopped. In addition to the structural change, the Japanese domestic tobacco market was
virtually opened to foreign tobacco suppliers, triggering competition between domestic and foreign tobacco products
in Japan, and foreign countries stepped up pressure on Japan to take further market-opening measures, which weredifficult to implement within the framework of the monopoly tobacco sales system. Amid such pressure as well as
moves toward the reform of government-run public corporations, Ad Hoc Commission on Administrative Reform wasestablished in March 1981 to conduct research on the public corporation system. In its third report (July 30, 1982), thecommission proposed drastic reform of the monopoly system and the public corporation system.
In response to this proposal, the government conducted a comprehensive review of these systems and drafted bills to: Abolish the tobacco monopoly law in order to liberalize tobacco imports and establish a tobacco business law inorder to make necessary adjustments related to the tobacco business.
 Abolish the JTS law, reorganize JTS as stock company so as to enable it to pursue rational corporate management
as much as possible and establish the Act on Japan Tobacco Inc., which provides for a necessary minimum level ofregulation in light of the corporation’s need to compete with foreign tobacco companies on an equal footing in thedomestic market following the liberalization of tobacco imports.
These bills were enacted on August 3, 1984 in the 101st session of the Diet and promulgated on August 10 of thesame year.
(2) Status of the Company After Its Incorporation
The Company was incorporated on April 1, 1985, pursuant to the Act on Japan Tobacco Inc. (Act No. 69 of August 10,
1984; hereinafter, the “JT Act”), and all of the start-up capital was provided by the Japan Tobacco and Salt Public
Corporation, or JTS. When incorporated, the Company succeeded all the rights and obligations of JTS.
The main changes since the incorporation of the Company are as follows:

3

Date
April
April

1985
1985

March

1986

October
July

1988
1991

September 1993
October

1994

November 1994
May

1995

June

1996

April

1997

April

1998

December 1998
May
July

1999
1999

October

1999

March

2003

March

2004

June

2004

March

2005

April

2005

April

2007

January
March

2008
2009

March

2010

March

2011

March

2012

February 2013
March
2013
March

2015

Details of change
Japan Tobacco Inc. was incorporated.
The Business Development Division was established to promote active development of new
businesses.
Subsequently until July 1990, in order to reinforce the promotion system for each business,this division was transformed into business departments such as pharmaceutical, food, etc.
Fukuoka and Tosu Factories were closed and Kitakyushu Factory was built to modernize andstreamline tobacco production.
By June 1996, nine more tobacco factories were closed down to further streamline the tobacco
production system.
The communication name “JT” was introduced.
The Head Office was relocated from 2-1, Toranomon 2-chome, Minato-ku, Tokyo, to 12-62,
Higashi-Shinagawa 4-chome, Shinagawa-ku, Tokyo to make way for the construction of the
new Head Office building (the former JT head office building)
The Central Pharmaceutical Research Institute was established to reinforce the internal
pharmaceutical research and development capabilities.
The initial public offering of the Company shares held by the Japanese government. (394,276
shares)The Company shares were listed on the First Section of the Tokyo, Osaka and Nagoya Stock
Exchanges.
The Company shares were listed on the Kyoto, Hiroshima, Fukuoka, Niigata and Sapporo
Stock Exchanges.
The Head Office was relocated from 12-62, Higashi-Shinagawa 4-chome, Shinagawa-ku,
Tokyo to 2-1, Toranomon 2-chome, Minato-ku, Tokyo
The second public offering of the Company shares held by the Japanese government. (272,390
shares)In accordance with the abolition of the salt monopoly, the Company ended its salt monopoly
business.
The Tobacco Mutual Aid Pension scheme was united with the Employees’ Pension scheme.
The Company signed an agreement with Unimat Corporation to form a business alliance in thesoft drinks businessand acquired a majority stake in the company.
The Company acquired a majority stake in Torii Pharmaceutical Co., Ltd. through a tender
offer.
The Company acquired the non-US tobacco business of RJR Nabisco Inc.
The Company acquired the food business of Asahi Kasei Corporation, including eightsubsidiaries such as Asahi Foods Corporation.
Through the business alliance with Torii Pharmaceutical Co., Ltd., research and development
functions in the prescription drug business were concentrated in the Company while promotionfunctions were united within Torii Pharmaceutical Co., Ltd.
In order to establish a basis for future profit growth in the Domestic Tobacco Business, Sendai,
Nagoya and Hashimoto Factories were closed down.
In order to establish a basis for future profit growth in the Domestic Tobacco Business,
Hiroshima, Fuchu, Matsuyama and Naha Factories were closed down.
The third public offering of the Company shares held by the Japanese government. (289,334
shares)In order to establish a basis for future profit growth in the Domestic Tobacco Business, Ueda,
Hakodate, Takasaki, Takamatsu, Tokushima, Usuki, Kagoshima and Miyakonojo Factories
were closed down.
The Company ceased to produce, sell and use Marlboro brand cigarette exclusively in Japan
upon the expiration of the exclusive license agreement.
The Company acquired shares issued of Gallaher Group Plc of the United Kingdom.
The Company acquired the shares of Katokichi Co., Ltd. through a tender offer.
In order to restructure the Domestic Tobacco Business in ways to make it more competitive,
Kanazawa Factory was closed down.
In order to restructure the Domestic Tobacco Business in ways to make it more competitive,
Morioka and Yonago Factories were closed down.
In order to restructure the Domestic Tobacco Business in ways to make it more competitive,
Odawara Factory was closed down.
In order to restructure the Domestic Tobacco Business in ways to make it more competitive,
Hofu Factory was closed down.
The Mild Seven brand was renewed as “MEVIUS” in Japan.
The fourth public offering of the Company shares held by the Japanese government.
(253,261,800 shares)
In order to further strengthen the competitiveness of Domestic Tobacco Business, Koriyama,
Hamamatsu and Okayama Printing Factories were closed down.
4

Date
July

2015

January

2016

March

2016

June
October

2018
2020

January

2022

March

2022

Details of change
The Company transferred shares the Company held in Japan Beverage Holdings Inc., JT AStar Co., Ltd. and others, and JT beverage brands “Roots” and “Momono Tennensui.”Subsequently, the Company withdrew from manufacture and sale of JT beverage products in
September 2015 and the Beverage Business Division was closed down in December 2015.
The Company acquired the non-U.S. tobacco business of Natural American Spirit from the
Reynolds American Inc. group.
In order to further strengthen the competitiveness of Domestic Tobacco Business, Hiratsuka
Factory was closed down.
The Company began selling heated tobacco products (HTP) nationwide.
The Head Office was relocated from 2-1, Toranomon 2-chome, Minato-ku, Tokyo to 1-1,
Toranomon 4-chome, Minato-ku, Tokyo.
In order to further strengthen the competitiveness and profitability of tobacco business, the two
tobacco businesses, Domestic Tobacco Business and International Tobacco Business, were
unified, and the tobacco business headquarter function was consolidated at the headquarters in
Geneva.
In order to further strengthen the competitiveness and profitability of tobacco business,
Kyushu Factory was closed down.

Note: The stock split at a ratio of five to one was conducted as of April 1, 2006 and the stock split at a ratio of 200 to one wasconducted as of July 1, 2012.

5

3. Business Description
The Group, consisting of the Company, its 221 consolidated subsidiaries and 18 companies accounted for by theequity method, is a global company operating the Tobacco Business, the Pharmaceutical Business and the Processed
Food Business. The main business activities operated by the Group and the relationship of each subsidiary or affiliate
to the Group’s business activities are stated below.
The following three segments are the same as the segmentation of reportable segments in “V. Accounting, 1.
Consolidated Financial Statements, (1) Consolidated Financial Statements, Notes to Consolidated Financial
Statements, 6. Operating Segments, (1) Outline of Reportable Segments.”
Tobacco Business
The Tobacco Business consists of the manufacture and sale of tobacco products in various countries around the world,with JT International S.A. as the core company.
Major subsidiaries and affiliates
JT International S.A., LLC JTI Russia, Gallaher Ltd., JTI Polska Sp. z o. o., LLC Petro, JTI Tütün Ürünleri Sanayi
A.Ş., TS Network Co., Ltd., Japan Filter Technology, Co., Ltd.
Others: 166 consolidated subsidiaries and
14 companies accounted for by the equity method
Pharmaceutical Business
The Pharmaceutical Business consists of research and development, manufacture, sale and promotion of prescription
drugs. The Company concentrates on research and development while Torii Pharmaceutical Co., Ltd. manufactures,
sells and promotes drugs (including the Company’s products).
Major subsidiaries and affiliates
Torii Pharmaceutical Co., Ltd., Akros Pharma Inc.
Processed Food BusinessIn the Processed Food Business, TableMark Co., Ltd. and certain other subsidiaries are engaged in manufacture andsale of frozen and ambient foods, and seasonings.
Major subsidiaries and affiliates
TableMark Co., Ltd.
Others: 21 consolidated subsidiaries and2 companies accounted for by the equity method
In addition to the reportable segments mentioned above, the Group runs businesses including business relating to therent of real estate. There are 23 consolidated subsidiaries and 2 companies accounted for by equity method deemed as
subsidiaries and affiliates not affiliated to any reportable segment.

6

The following business activities diagram shows the matters described above.
(As of December 31, 2023)

Approval of license and sale of tobacco products
JT International S.A.
LLC JTI Russia
Gallaher Ltd.
JTI Polska Sp. z o. o.
LLC Petro
JTI Tütün Ürünleri Sanayi A.Ş.

Purchase of materials

TobaccoBusinessJapan
TobaccoInc.

Reference: tobacco business in Japan
Consignment of domestic
products distribution, etc.
TS Network Co., Ltd.

Japan Filter Technology, Co., Ltd.
Purchase of materials

Others: 166 consolidated subsidiaries and
14 companies accounted for by the equity method
Consignment of
manufacturing and sale ofproducts, etc.
Torii Pharmaceutical Co., Ltd.
PharmaceuticalBusiness

Clinical development inoverseas, consignment of survey
Akros Pharma Inc.

TableMark Co., Ltd.

Processed FoodBusiness

Others: 21 consolidated subsidiaries and2 companies accounted for by the equity method* In addition to the reportable segments mentioned above, the Group runs businesses including business relating to the rent of real estate.
There are 23 consolidated subsidiaries and 2 companies accounted for by equity method deemed as subsidiaries and affiliates notaffiliated to any reportable segment.

7An overview of each of the fields of research and development, procurement, manufacturing and sales in eachbusiness is as follows.
Tobacco Business
The Group’s tobacco business has the third largest sales volume in the world (excluding China National Tobacco
Corporation), sells products in at least 130 countries and territories. The Group’s portfolio includes 3(Note 1) of the top
10 selling global brands of combustibles(Note 2).
Notes: 1. According to fiscal 2022 data.
2. Combustibles include all tobacco products excluding contract manufactured products, waterpipe, HTP, oral and E-Vapor.

<Research and development>
The Group is committed to strengthening its R&D capabilities to ensure a long-term competitive advantage. The focus
areas in the R&D activities are the development of new leaf tobacco varieties, improvement of tobacco leafs and theirprocessing, enhancement of aroma and taste, upgrading manufacturing technology, and continuous progress on
RRP(Note)-related technologies. The Group has been striving to add value to the products in these focus areas in a cost
efficient manner. It has established a global research platform in Japan, which focuses on the fundamental researchand product technology development. To best meet consumers’ needs and preferences, the market teams arecontinuously engaged in the product development.
Note:

Reduced-Risk Products (RRP) are products with potential to reduce the risks associated with smoking such as HTP and E-Vapor
products.

<Procurement of tobacco leaves>
The supply of tobacco leaves, raw materials used in manufacturing tobacco products is affected by a variety of factors,
such as climate conditions, agricultural product prices, and energy costs. As a result of an increase in costs, the supply
of tobacco leaves has been unstable, leading to the rise in tobacco leaf prices. Given these circumstances, the Grouphas been striving to secure a stable supply and ensure competitive leaf purchase prices. This will be achieved throughfurther vertical integration and strengthening of the relationships with the leaf suppliers.
<Manufacturing>
The Group has a global manufacturing footprint in order to manufacture quality tobacco products that secure
consumers’ reliability trust. The Group operates 5 factories in Japan (3 tobacco manufacturing and 2 tobacco-related
factories), and 33 factories in 27 other countries (including tobacco-related factories). In a limited number of cases, theGroup also partners with competing manufacturers under contracts and/or license agreements to manufacture theGroup’s products.
<Marketing>To enhance brand loyalty, the Group is conducting extensive and effective marketing activities in accordance to thevarious regulations and standards.
Globally, the marketing activities are focused on Global Flagship Brands (hereinafter, “GFB”)(Note), while
complementing the brand portfolio by promoting local brands as well. In RRP, the Group is also developing the
Ploom, Logic and other brands.
Note:

GFB consists of four brands, which serve as flagships of the Group’s brand portfolio - Winston, Camel, MEVIUS and LD.

 Retail prices
In setting a retail price for a product, the Group considers various factors, including positioning of the brand,
perceived value of the product, retail prices of competing products, and the margin. In addition, there are regulations
that influence the price-setting decisions. For example, some countries adopt a fixed retail price requirement, andforms of excise taxation on tobacco products (specific and/or ad valorem) differ among the countries. Retail pricechanges most often occur in case of tax increase. Globally, governments increase taxes to secure tax revenues andpromote public health.
8

<Sales (distribution)>
To ensure that the products are delivered to consumers, the Group makes sure to use optimal distribution networks foreach market complying with the restrictions and in accordance with established local business practices, and otherfactors. The distribution networks of the Group can be independent distribution networks or local agencies anddistributors.
There are various sales channels for tobacco products; chain stores such as convenience stores, gas stations andsupermarkets, small independent retailers, vending machines, and online stores. The contribution of each channel tothe total industry sales varies from market to market. Accordingly, the Group develops different trade marketing
initiatives for each market, depending on the focus channels as well as consumer trend and competitors’ strategies.
Pharmaceutical Business
The Group commenced the Pharmaceutical Business in 1987. The Group’s mission is to build world-class, uniqueR&D capabilities and reinforce its market presence through innovative drugs. The Pharmaceutical Business iscurrently focusing on the research and development, manufacture, and sales and promotion of prescription drugs.
In December 1998, the Company acquired a majority of the outstanding shares in Torii Pharmaceutical Co., Ltd.
(hereinafter, “Torii Pharmaceutical”). After the acquisition, all manufacture, sales and promotion functions were
integrated under Torii Pharmaceutical, while all R&D functions were grouped under the Company.
In April 2000, the Company established an R&D base outside Japan by adding a clinical development function to
Akros Pharma Inc., a Group company based in the state of New Jersey, United States.
In order to make stable profit contribution, the Group is maximizing the value of each product, enhancing the R&D
pipeline, exploring opportunities for strategic in- or out-licensing and strengthening collaboration with license partners.
<Research and development>
R&D activities are the foundation of the Group’s Pharmaceutical Business and are critical for its long-term growthand profitability. These R&D activities focus mainly on the fields of circulatory organs, kidneys and metabolism,
immune disorders and inflammation, and brain centers. In the fiscal year ended December 31, 2023, the Groupinvested ¥32.2 billion in these fields.
 R&D process
The Central Pharmaceutical Research Institute is responsible for discovery research, drug development, and preclinical trial research. The Company’s pharmaceutical development division and the Group company Akros Pharma
Inc. undertake clinical trials and handle the application process to receive certification for any new drugs. Concerningcompounds out-licensed for development and commercialization outside Japan, the licensees implement thesubsequent processes.
<Manufacturing>
Because the manufacture of the Group’s pharmaceutical products at the Group’s factories was discontinued in 2020,
all pharmaceutical product manufacturing processes are now outsourced.
<Sales and promotion>
 Sales and promotion outside JapanAt present, the Group does not have its own sales organization for pharmaceutical products outside Japan. The Groupout-licenses the right to develop and commercialize outside Japan for certain compounds in the development stage andreceives royalties from the partners linked to their sales performance.

9 Sales and promotion in Japan
Torii Pharmaceutical is mainly responsible for sales of the Group’s pharmaceutical products to pharmaceuticalwholesalers and promotion to medical facilities. Promotional activities are conducted by 282 medical representatives(MRs) stationed at Torii Pharmaceutical’s 7 regional sales headquarters across Japan.
CORECTIM® Ointment for treatment of atopic dermatitis, Riona® Tablets, a hyperphosphatemia treatment,
REMITCH®, a drug for treating pruritus in dialysis patients, CEDARCURE® Japanese Cedar Pollen Sublingual
Tablets, and MITICURE® House Dust Mite Sublingual Tablets are the main products.
Processed Food Business
The Group started its Processed Food Business in 1998. Since then, the Group has been expanding the businessthrough organic growth as well as business investments in the form of M&As and strategic partnerships.
In 2008, the Group acquired Katokichi Co., Ltd., a major frozen food manufacturing company in Japan, through atender offer. The Group’s processed food business was transferred over to Katokichi Co., Ltd. as part of theintegration. In 2010, Katokichi Co., Ltd. changed its corporate name to TableMark Co., Ltd. to pursue synergies andfoster a sense of unity within the group.
At the end of the current fiscal year, this business is operated by TableMark Co., Ltd., Fuji Foods Corporation, andother Group companies. TableMark Co., Ltd., which operates mainly in Japan, handles the frozen and ambient foods,
mainly frozen udon noodles, packaged cooked rice and frozen okonomiyaki (Japanese savory pancakes). Fuji Foods
Corporation handles the seasonings business, which focuses on seasonings including yeast, kelp and bonito extracts,combination seasonings and processed seasonings for direct consumer consumption such as oyster sauce.
The Group’s major products include “Reito-Sanuki-Udon” (frozen noodles), “Takitate-Gohan” (packaged cookedrice), and the “Vertex” (yeast extract seasonings) in particular.
<Research and development>
The Group devotes its efforts to the development of innovative products that meet consumers’ needs and preferences.
In order to meet the diversifying needs of consumers, the Group works to develop value-added products using its
original techniques.
Specifically, the Group has used its original techniques for fermentation, baking, and freezing to recreate and preserve
the taste and texture of fresh bread, and developed frozen bread products which allow consumers to simply enjoy thetaste of freshly baked bread at home. In addition, in the area of frozen noodles the Group developed a new production
method, the “Tannen-jikomi” weaving and maturing process. This enabled the Group to realize udon noodle productswith higher quality and higher added value.
<Procurement>
The first step to produce safe foods is to procure safe and high-quality raw materials. For the procurement, the Group
reviews quality assurance certificates submitted by its suppliers. The Group also carries out monitoring inspections tocheck agrochemical residues as well as conducts regular inspections at processing factories to ensure compliance with
the Group’s internal standards, in addition to the Food Sanitation Act and other relevant laws.
Furthermore, the Group examines the safety of production sites for raw materials which are procured from overseas.
Concerning agricultural farms, the Group checks not only soil and water, but also how products are cultivated andhow agrochemicals are handled. Breeding farms and fish farms are also inspected.
<Manufacturing>
The Group operates 16 factories in Japan and 8 outside Japan. The Group outsources manufacturing of someprocessed foods to domestic and international contract manufacturers. Excluding one factory(Note) that began
operations in fiscal 2020, all of the Group factories inside and outside Japan, as well as the factories of the Group’sbusiness partners, that produce frozen foods, have achieved ISO 22000 or FSSC 22000 certification. Under the ISO
22000 and FSSC 22000 standards, continuous improvements are made following effective rules to control sanitationand other key issues. These rules are set based on the HACCP concept and their effectiveness is tested using scientificevidence.
Note: This factory is currently progressing toward ISO 22000 and FSSC 22000 certifications.
10<Marketing>
The Group analyzes the market from consumers’ point of view and, by its technology, it has been striving to provide
products with new values to expand the market and increase its place there. The Group has been striving for effective
marketing in order to improve consumer awareness of its products.
<Sales and distribution>
The Group has been striving to enhance profitability through sales division structure optimization and its initiatives toincrease its presence in supermarkets and convenience stores, by offering a wider range of products while also seeking
better shelf space.
<Food safety>
To ensure that consumers can continue to enjoy the products safely, the Group has established Quality Control Centersin Tokyo and Qingdao (China), and it not only inspects and monitors the raw materials it uses from the productplanning and development stages, but also makes inspections at factories at the time of production and before
shipment, and carries out safety management throughout the product manufacturing process. The Group seeks
assessment and advice on its initiatives from external food safety experts. The Group reflects the experts’ knowledge
and viewpoints in its business by actively incorporating them into food safety controls. Details of the food safety
activities, including the discussions described in the above “Procurement” and “Manufacturing” sections, are disclosed
on the website, etc.

11

4. Status of Subsidiaries and Affiliates(As of December 31, 2023)

Name

Location

Capital(Millions ofyen)

Relationship
Holding
Interlocking ofrate ofofficers
votingFinancial
rights
Officer of Employee assistance Business relationship(%)
theof theCompany Company

Principal
business

Facilityleasing(Consolidated subsidiaries)
221 companies
JT International Holding B.V.
*1

Netherlands

Thousandsof USD Tobacco
1,800,372

100.0

Yes

Yes

No

No

No

JT International S.A.
*1

Switzerland

Thousandsof CHF Tobacco
923,723100.0(100.0)

No

No

No

Approval of licenseand sale of tobacco
products

No

LLC JTI Russia*2

Russia100.0(100.0)

No

No

No

No

No

Gallaher Ltd.

U.K.

100.0
(100.0)

No

No

No

No

No

JTI Polska Sp. z o. o.

PolandThousandsof RUB Tobacco
157,751
Thousands
of GBP Tobacco
50,374
Thousandsof PLN Tobacco
200,000

100.0(100.0)

No

No

No

No

No

LLC Petro

RussiaThousandsof RUB Tobacco
328,439100.0(100.0)

No

No

No

No

No

JTI Tütün Ürünleri Sanayi A.Ş.

TurkeyThousandsof TRY Tobacco
148,825100.0(100.0)

No

No

No

No

No

TS Network Co., Ltd.
*1

Taito-ku,Tokyo

460 Tobacco

85.3

No

Yes

No

Consignment of
tobacco products
distribution

Yes

Japan Filter Technology, Co., Ltd.
*1

Sumida-ku,
Tokyo

461 Tobacco

100.0

No

Yes

No

Purchase of filter for
tobacco products

Yes

Torii Pharmaceutical Co., Ltd.
*3

Chuo-ku,Tokyo

5,190 Pharmaceutical

54.8

No

No

No

Co-development andsale of products

Yes

Akros Pharma Inc.

U.S.A.

Thousandsof USD Pharmaceutical1

100.0(100.0)

No

Yes

No

Clinical developmentin overseas,consignment ofsurveyNo

TableMark Co., Ltd.
*1

Chuo-ku,Tokyo

22,500 Processed Food

100.0

No

Yes

Yes

No

Yes

Netherlands

EUR
Tobacco15

23.0(23.0)

No

No

No

No

No

Other 209 companies*1(Companies accounted for by theequity method)
18 companies
Megapolis Distribution B.V.

Other 17 companies

12Notes: 1. Descriptions in the “Principal business” column are names of segments.
2. The figures in parentheses in the “Holding rate of voting rights” column are indirect holding rates included in the figures outside theparentheses.
3. “Interlocking of officers” includes interlocking of officers of associated companies and secondment of officers of the Company.
4. *1: These companies are classified as specified subsidiaries. Companies that fall under the category of specified subsidiaries included
in “Other 209 companies” are as follows.
JTI-Macdonald Corp., JTI Tütün Ürünleri Pazarlama A.Ş., JT Canada LLC Inc., JT International (Philippines) Inc., JTI
Processadora de Tabaco do Brasil Ltda., Japan Tobacco International Manufacturing Co., Ltd., JT International Distribuidora
de Cigarros Ltda., PT Karyadibya Mahardhika, JT International Asia Manufacturing Corp., JTI (UK) Management Ltd., Al
Nakhla Tobacco Company S.A.E., Logic Technology Development LLC., JTI Cigarette and Tobacco Factory Co. Ltd., JT
International Bangladesh Limited
5. *2: Revenue (excluding revenue between consolidated companies) accounts for more than 10% of the Group’s consolidated revenue.
Key operating results information for that company is as follows.

Name
LLC JTI Russia

Key operating results (Millions of yen)
Profit before Profit for the
Revenue
Total equity
income taxes
year
286,101
95,94575,089175,441

Total assets
246,561

6. *3: This company files Annual Securities Report.
7. Consolidated subsidiary JT International Bangladesh Limited is insolvent, with liabilities exceeding assets by ¥155,890 million.

13

5. Status of Employees(1) Consolidated Companies(As of December 31, 2023)

Segment

Number of employees (Person)
46,698[7,763]
1,338
[59]
4,299
[253]
904
[118]
53,239[8,193]

Tobacco BusinessPharmaceutical Business
Processed Food BusinessCommon company-wide services within the filingcompany
Total

Notes: 1. The number of employees indicates the number of working employees, and the average number of temporary
employees during this fiscal year ended December 31, 2023 is given in parentheses separately.
2. The number of employees in the “Common company-wide services within the filing company” row is the number of
those working for departments unclassifiable to specific segments, such as the administrative department.

(2) Filing Company (the Company)(As of December 31, 2023)
Number of employees(Person)
5,940
[257]

Average age (Year old)

Average years of service(Year)

41.4

Average annual salary (Yen)

15.2

9,270,004

The numbers of employees by segment are as follows.
Segment

Number of employees (Person)
4,781
[236]
715
[16]
24
[0]
420
[5]
5,940
[257]

Tobacco BusinessPharmaceutical Business
Processed Food BusinessCommon company-wide services within the filingcompany
Total

Notes: 1. The number of employees indicates the number of working employees, and the average number of temporary
employees during this fiscal year ended December 31, 2023 is given in parentheses separately.
2. The number of employees in the “Common company-wide services within the filing company” row is the number of
those working for departments unclassifiable to specific segments, such as the administrative department.
3. The number of employees includes contract employees (32), employees on leave (200) and employees transferred to
the Company (87), but excludes employees transferred from the Company (607).
4. Average years of service include years of service at Japan Tobacco and Salt Public Corporation.
5. Average annual salary (including taxes) includes bonuses and surplus wages.

(3) Status of Labor Union
In the Group, the labor-management relations are stable and there are no matters that should be reported.

14

(4) Metrics Related to Diversity
Metrics related to diversity in the fiscal year ended December 31, 2023 are as follows.
a. Disclosure pursuant to the Act on the Promotion of Women’s Active Engagement in Professional Life and the Act
on Childcare Leave, Caregiver Leave, and Other Measures for the Welfare of Workers Caring for Children or
Other Family Members.
Ratio of female
employees inmanagerial
positions (%)

Ratio of male
employees taking
childcare leave(%)

Differences in wages between male and female
employees (%)

The Company

8.3

84.4

TS Network Co., Ltd.

1.7

100.0

JT Logistics Co., Ltd.

All
employees

Employees

Temporaryemployees

75.5

75.6

104.7

34.4

77.6

66.0

–

100.0

91.7

84.6

130.0

Japan Filter Technology, Co., Ltd.

5.1

60.0

65.8

75.2

87.3

JT Plant Service Co., Ltd.

4.1

100.0

77.3

81.3

104.9

Fuji Flavor Co., Ltd.

4.2

66.7

84.7

79.2

107.3

Torii Pharmaceutical Co., Ltd.

10.6

96.8

80.3

83.9

43.3

TableMark Co., Ltd.

6.8

84.6

60.7

63.2

74.2

Fuji Foods Corporation

11.0

100.0

62.5

67.4

100.6

KS FROZEN FOODS CO., LTD.

14.3

100.0

62.7

86.4

78.3

NIHON SHOKUZAI KAKO
CO.,LTD.

–

100.0

50.4

66.2

84.7

Foodlec Co., Ltd.

–

–

66.9

82.1

49.4

Sunburg Co., Ltd.

–

100.0

71.4

72.2

89.3

KatokichiSuisan Co. Ltd

12.5

–

67.6

82.2

74.7

IIPINGSYANG FOODSCORPORATION

–

*

79.9

82.8

92.6

KOYO-FOODS, LTD.

–

100.0

73.3

70.5

80.1

JT CREATIVE SERVICE
CO.,LTD.

21.4

100.0

72.6

89.6

48.4

JT BusinessCom Inc.

23.3

150.0

71.4

94.0

106.9

Notes: 1. The number of employees includes those who are regular employees and those who are non-regular employees in full-timeindefinite-term employment.
2. Temporary employees include part-timers and employees on limited-term contracts, and exclude dispatched workers.
3. All employees include employees and temporary employees.
4. For the ratio of female employees in managerial positions, transferred employees are counted as employees at the company towhich they are transferred.
5. The ratio of male employees taking childcare leave is determined by calculating the acquisition rate of childcare leave, etc. andtime off for childcare purposes under Article 71-4, item (ii) of the Ordinance for Enforcement of the Act on Childcare Leave,
Caregiver Leave, and Other Measures for the Welfare of Workers Caring for Children or Other Family Members (Ordinance ofthe Ministry of Labor No. 25 of 1991), in accordance with provisions of the Act on Childcare Leave, Caregiver Leave, andOther Measures for the Welfare of Workers Caring for Children or Other Family Members (Act No. 76 of 1991). Transferred
employees are counted as employees at the company to which they are transferred. In some cases, employees whose spouses
gave birth in the prior fiscal years may take childcare leave in the current fiscal year, thereby conceivably resulting in an
acquisition rate exceeding 100%.
6. An asterisk (*) indicates no male employees eligible for childcare leave.
7. A dash (-) indicates that there are no employees under the respective category.
8. Differences in wages between male and female employees indicate the proportion of women’s wages to men’s wages. It is
attributable to differences in distribution of personnel by grade, not differences in wages for equivalent work. Transferred
employees are counted as employees at the company to which they are transferred.

b. Consolidated Companies

The Company and theconsolidated
subsidiaries

Ratio of female
employees in managerial
positions (%)

Ratio of male employees
taking childcare leave (%)

Differences in wages
between male and female
employees (%)

23.5

87.7*

70.3*

Notes: 1. Calculated to include employees who are regular employees and those who are non-regular employees in full-time indefiniteterm employment.
15

2. For the ratio of female employees in managerial positions, transferred employees are counted as employees at the company towhich they are transferred.
3. The ratio of male employees taking childcare leave is determined by calculating the acquisition rate of childcare leave, etc. andtime off for childcare purposes under Article 71-4, item (ii) of the Ordinance for Enforcement of the Act on Childcare Leave,
Caregiver Leave, and Other Measures for the Welfare of Workers Caring for Children or Other Family Members (Ordinance ofthe Ministry of Labor No. 25 of 1991), in accordance with provisions of the Act on Childcare Leave, Caregiver Leave, andOther Measures for the Welfare of Workers Caring for Children or Other Family Members (Act No. 76 of 1991). Transferred
employees are counted as employees at the company to which they are transferred.
4. An asterisk (*) indicates the ratio derived solely from domestic consolidated subsidiaries that have performed such calculations,and accordingly such ratio does not include consolidated subsidiaries that have not performed such calculations.
5. Differences in wages between male and female employees indicate the proportion of women’s wages to men’s wages. It is
attributable to differences in distribution of personnel by grade, not differences in wages for equivalent work. Wages include
base salary and incentives such as bonuses. Transferred employees are counted as employees at the company to which they aretransferred.

16

II. Review of Operations
1. Management Policy, Business Environment, Issues to Be Addressed, Etc.
The following includes forward-looking statements determined, unless otherwise indicated, as of the filing date.
(1) Management Principle
The Group’s management principle is based on the pursuit of the 4S model. The model requires the Group to fulfill
our responsibilities to our valued consumers, shareholders, employees and the wider society, carefully considering therespective interests of these four key stakeholder groups, and exceeding their expectations wherever we can.
The Group intends to attain sustainable profit growth over the mid- to long-term through the pursuit of the 4S model.
Since attaining sustainable profit growth requires the Group to continue to provide new value and satisfaction to
consumers, the Group believes it is essential to steadily make business investments for future profit growth from midto long-term perspective.
The Group believes that the pursuit of the 4S model will lead to a consistent increase in corporate value in the mid- tolong-term and therefore that it is the best approach to serve the interests of all stakeholders.
(2) JT Group Purpose
The Group operates in a business environment that has ever increasing levels of uncertainty and complexity due todiscontinuous changes occurring on a wide range of scales, be it the nature, society or the individual. In response tothis, the Group has formulated the JT Group Purpose to clarify the direction for being a sustained entity. Specifically,
we identified the area in which we will be needed by the society for the future and in which we should provide value
over the long term as “human enrichment” and defined “Fulfilling Moments, Enriching Life” as the JT Group Purpose
based on the idea that we want to continue to be entrusted with and contribute to the area. Moreover, so that we canrealize the JT Group Purpose, we have formulated our Business Purposes for each business in line with this. The
Group aims to realize the JT Group Purpose by producing results and making achievements through theimplementation of business strategies and the practice of the behavioral guidelines.
The area of “human enrichment” undergoes changes in various ways with the times and the people, and the Group
strives to evolve constantly so that we can continue to be entrusted by society and make valuable contributions to thearea in the future.
＜JT Group Purpose＞<Business Purpose>
Tobacco Business: Creating fulfilling moments. Creating a better future.
17

Pharmaceutical Business: Respecting science, technology and people, we will contribute to patients’ lives.
Processed Food Business: Bringing Joy to Meals and Fun to the Table.
(3) Resources Allocation Policy
The Group’s mid- to long-term resources allocation policy is to prioritize business investments for sustainable profit
growth(Note) in the mid- to long-term, while striking a balance between profit growth through business investments andshareholder returns, based on the 4S model and the JT Group Purpose.
Of the Group’s core businesses, the Group regards the tobacco business as the core business and profit growth engine,
so it places top priority on business investments that will lead to the sustainable profit growth of the tobacco business.
On the other hand, the Group will make necessary investments for the Pharmaceutical Business and the Processed
Food Business to complement profit growth for the Group as a whole.
Note: Investment towards the growth of the tobacco business is our highest priority. Pursue growth of adjusted operating profit at constant
FX through quality top-line growth through the continuous provision of new values and satisfaction to customers and society.

(4) Group-Wide Profit Targets and Policy on Shareholder Return
The Group has set group-wide profit targets and a mid- to long-term guidance on shareholder return in the “Business
Plan 2024” in accordance with our management principle and the resources allocation policy.
In the “Business Plan 2024,” due to a large-scale strategic investment in the most promising HTS(Note 1), the Group
expects adjusted operating profit at constant FX for fiscal 2024 at the same level as in the previous year. However, as
the pace of growth of HTS will be more rapid toward the latter half of the business plan period, the Group expects a
mid single digit annual average growth rate in adjusted operating profit at constant FX during the period. The Groupaims to achieve a mid to high single digit annual average growth rate over the medium and long term.
In terms of “prioritize business investments for sustainable profit growth in the mid- to long-term” and of “strike abalance between profit growth through business investments and shareholder returns” under the resources allocation
policy based on the 4S model and the JT Group Purpose, our shareholder returns policy is set as follows: Aim to enhance shareholder returns by realizing the Company’s mid- to long-term profit growth, while maintaining
a solid financial base(Note 2)
 Target a dividend payout ratio of about 75%(Note 3), a competitive level(Note 4) in the capital markets
 Consider implementing a share buy-back program, mainly taking into account the Company’s financial outlook of
the respective year and mid-term capital needs.
Notes: 1. Heated tobacco sticks. High temperature heated tobacco products.
2. The Company will maintain a solid financial base that secures stability in case of changes in business environment such as
economic crises and flexibility enabling expeditious responses to business investment opportunities.
3. To be in the range of approximately ±5%.
4. Monitor the shareholder return trends of global Fast-Moving Consumer Goods (FMCG) companies which have a stakeholder
model similar to our 4S model and have realized strong business growth.
5. Actual results, performance or achievements, or those of the industries in which we operate, may differ from any future results,
performance or achievements expressed or implied by the forward-looking statements. For details of risks related to the Group,
please refer to “II. Review of Operations 3. Business and Other Risks.”(5) Business Environment and Basic Strategies for Attaining Group-Wide Profit Targets
i. Business environment
The business environment in which the Group operates is characterized by an increasing degree of uncertainty,
such as the emergence of geopolitical risks, and foreign exchange risks in a hyperinflation market. Enhancing
adaptability to such a changing environment is critical to achieve sustainable profit growth by overcoming theuncertain business environment and adequately executing business on a global scale. “Adaptability” refers to
the ability to assume a wider range of contingencies than in the past, during the planning phase, and to quickly
and flexibly respond to changes and events that surpass the assumptions so that the Group can deal withuncertainty over the future. The Group believes that how well and how quickly companies can overcome
uncertainties will continue as the key to determine their competitiveness.
Moreover, in view of the forward march of digital technology, changes in the consciousness and behavior of
consumers, and the shift towards greater awareness of ESG and sustainability, the Group believes that, rather
18

than merely responding passively while enhancing its adaptability to such a changing environment, the Groupshould initiate transformation itself and accelerate evolution to an organization that will lead this revolution.
The Group formulates its business plan, a three-year plan that is renewed each year on a rolling basis in order tospeed up responsiveness and strengthen competitiveness while keenly identifying challenges in our operating
environment, which presents increasing uncertainties.
ii. Basic strategies
As basic strategies for attaining the targets, the Group will strive for “achieving quality top-line growth,”“strengthening cost competitiveness,” and “strengthening business foundations,” implementing the strategies
based on the concept of selection and focus.
Mainly, the Group places emphasis on “achieving quality top-line growth,” concentrating resources in key
brands and product categories, in order to increase value added to products and services, as described in thefollowing explanations of basic strategies for each business.
Concerning “strengthening cost competitiveness,” the Group aims at improving profitability and enhancing
cash generation capability by optimizing business and corporate costs and establishing quick and efficientbusiness operation systems, while leveraging the efforts of maintaining and enhancing quality. Additionally, theGroup will reinforce its business continuity capabilities, while seeking to improve cost competitiveness.
When “strengthening business foundations,” it is critical to accurately identify changes in the businessenvironment and to keep ourselves ready to readjust in order to meet challenges without being constrained byprecedents. The Group will make continuous improvement efforts from that perspective. In addition, the Groupwill maximize synergies by leveraging the global footprint as represented by the diversity of the Group’s global
workforce, which represents at least 100 nationalities, and by promoting collaboration on a global scale. As theGroup strongly believes that the quality of human resources is the key to business activity and performance, itwill strengthen human resource development.
(6) Business Environment and Basic Strategies by Segment
Tobacco Business
The tobacco business is the Group’s core business and profit growth engine and aims for mid to high single digit
annual average growth rate over the mid- to long-term in adjusted operating profit growth rate at constant FX.
i. Business environment
The tobacco industry is evolving and there are many types of tobacco products available in this marketplace
today, including cigarettes, HTP, E-Vapor products, fine cut tobacco, cigars, pipe, oral, waterpipe and kretek.
HTP uses tobacco leaf, but instead of burning the leaf, it uses methods such as heating the leaf to generate
tobacco vapor (which includes compounds derived from the tobacco leaf) for the user to enjoy, and has been
growing steadily, particularly in countries around the world. The products are taxed and regulated as tobacco
products in principle because they use tobacco leaves. Development of HTP (including heated tobacco sticks
that use high-temperature heating) is an area of keen interest for all market players, and the Group expects
innovation to drive further growth. Moreover, the size of the oral market has been growing particularly inEurope and the U.S. Such smokeless tobacco products, which enable users to enjoy the characteristic tobacco
taste and flavor directly through their nose or mouth, include snus containing tobacco leaf and nicotine patches
containing no tobacco leaf. In the market for E-Vapor products, which instead of using tobacco leaf vaporize
liquids containing nicotine so that the generated vapor can then be enjoyed by the user, the Group has a certain
market size, notably in the U.S. and across Europe. As E-Vapor products do not use tobacco leaf, they havebeen subject to regulations and taxation that differs from that of tobacco containing products in many markets.
However, changes in regulation and taxation of such products has emerged in some countries in recent years.
Approximately 5.4 trillion(Note 1) combustibles(Note 2) are consumed annually around the world, reaching global
sales of approximately USD800 billion(Note 1). China is by far the largest market, accounting for over 40% of
global combustibles industry volume, but is almost exclusively operated by a state monopoly, China National
Tobacco Corporation. Indonesia, the U.S., Russia, Turkey, Egypt, Germany and Japan are the following sevenlargest markets(Note 1). Excluding China National Tobacco Corporation, there are four major global tobacco
players: Philip Morris International Inc., British American Tobacco Plc., the JT Group and Imperial Brands Plc.
In terms of RRP, besides these four companies, there are a multitude of mid- or small-scale producers selling EVapor products.
19

In general, the market dynamics of combustibles(Note 3) are distinctively different between mature and emerging
markets. In mature markets, combustibles industry volume tends to decline and these movements can reflectvarious factors, such as limited economic growth, tax increases, tightening regulations and demographic
changes among others. In addition, down-trading is prevalent in these markets, as limited growth of income
inclines consumers to seek more value in comparatively affordable tobacco products. In emerging markets, on
the other hand, combustibles industry volume is trending higher in some countries, particularly across theMiddle East and Africa, driven by population growth and economic development. As personal income
generally increases year on year, consumers have been looking for quality and trading up to products in a higher
price range.
Global combustibles industry volume(Note 1) has been decreasing in recent years, although at a sustainable pace.
However, more importantly, the profit-generating structure of the tobacco industry remains solid, and despite
environmental difficulties, the Group expects industry value to continue growing in the 2022-2024 period, withprice increases more than compensating for the volume contraction, particularly in combustibles. These trends –decline in combustibles industry volume and increase in value – are expected to continue. In addition, due toconsumer demand and other factors, the market mix for HTP, E-Vapor products and related products varies
from country to country, but the main markets for RRP include the U.S., Japan, Italy, and the U.K. Comparedto that of combustibles(Note 3) the size of the market is still small, but it is growing year after year and the RRP
market is forecast to expand going forward, driven by growth in HTP.
Notes: 1. According to fiscal 2022 data. Including fine cut tobacco.
2. Combustibles include all tobacco products excluding contract manufactured products, waterpipe, HTP, oral and EVapor.
3. Including fine cut tobacco.

ii. Basic strategies<Quality top-line growth> Concentration of management resources on combustibles and RRP
As combustibles are expected to remain the largest category in the tobacco industry as a whole over the mid- tolong-term in terms of volume and sales, their importance will be undiminished. As such, the Group will seek
improvement of Return On Investment (ROI) in part through increased cost efficiency by enlisting continuous
improvement efforts, while carrying out market investment and consistently implementing pricing initiatives
looking toward top-line growth. Moreover, we aim to achieve sustainable growth by leveraging strong brandportfolio and taking share of the respective markets.
As we expect further expansion of RRP market, mainly heated tobacco sticks (HTS), we will continue increase
our presence in the market as the pillar of the future business growth. By investment with priority to HTS, we
will accelerate the global development of Ploom X, and aim to expand our share in the HTS category under the
Ploom brand. In addition, we will strengthen our organizational capabilities to support these initiatives.
 Maintaining and increasing shares in the key markets through brand equity enhancement
Over the past years, the Group’s tobacco business has grown its share in most of the key markets throughsuperior brand equity.
In order to further grow market share, the Group will continue strengthening its brands, especially throughconsistent investments in the GFB. At the same time, the Group will also strengthen its local brands. These
diverse local brands allow the Group to meet the unique preferences of the consumers and complement thebrand portfolios in the diverse markets and regions where the Group is active. The Group will continue to focus
the investments in innovation, as it is one of the most effective methods to enhance brand equity.
The Group’s innovation efforts will focus on strengthening five key elements which add value to its tobacco
products: 1) tobacco blends, 2) flavors, 3) filters and other non-tobacco materials—these three are importantelements to determine quality of taste—4) capability to process these innovations into products and 5) package
design, which is critical to visual quality.
<Strengthening cost competitiveness>
The tobacco business will persistently pursue continuous cost efficiency improvement of the operations, inparticular with respect to the global supply chain, with an emphasis on agility and efficiency without
20

compromising quality. The Group will enhance its cost competitiveness by optimizing the global supply chain
through various initiatives, including: further vertical integration in global leaf procurement; extended use ofcommon non-tobacco materials; increased collaboration among suppliers; flexible procurement to benefit fromattractive market prices; and improved inventory management for both tobacco and non-tobacco materials.
Furthermore, enhanced productivity through realignment of manufacturing process and optimal level of capital
expenditures will ensure conversion cost containment. The Group is also determined to improve its business
continuity capability by securing options for sourcing and geographically spreading critical functions.
Specifically, the Group has been striving to ensure a framework of multiple supply sources, optimal
manufacturing capacity allocation on a global basis and diversification of production capability for priority
SKUs (Stock Keeping Units).
The Group will improve the margin through increased cost efficiency while maintaining quality, and enhance
cash flow generation by optimizing working capital and capital expenditures.
<Strengthening business foundations>
Commencing from fiscal 2022, the Group unified the organization structure of the tobacco business andconsolidated the tobacco business headquarter function at the headquarters in Geneva. Under the neworganization structure, based on the idea of consumer centricity, the Group will be committed to strengthening
its global organizational power through maximizing utilization of global resources, speeding up the decision
making process, and effective and efficient business operation systems while at the same time, aiming tostrengthen capabilities in the digital realm and in product development. By being able to swiftly allocate
resources based on a system of prioritization from a global perspective, the Group will also strengthen the value
provided to consumers.
Furthermore, the Group believes that human resource development is the key driver of sustainable profit growthin the tobacco business.
The Group sells products in at least 130 countries and territories, and the global workforce of employees
representing at least 100 nationalities works regardless of nationality, gender, and age. The Group maximizes
synergies by leveraging this diversity and promoting collaboration on a global scale. As the Group believes thatthe quality of human resources is the key to business activity and performance, it will strengthen humanresource development and enhance its ability to recruit, develop, and retain employees on a global basis.
The tobacco business remains committed to increasing its presence as a leading global tobacco manufacturer
and further strengthening its role as the core business and profit growth engine of the Group, by steadily
implementing the above business strategies.
Pharmaceutical Business
The Group’s Pharmaceutical Business will strive to make profit contribution to the Group through the promotion of
R&D on next-generation strategic products and by maximizing the value of each product.
i. Business environment
The global pharmaceutical market continued to grow, with an average annual increase of about 4.9% over the
past five years, to USD1,472.5 billion in 2022, up 2.7% year on year(Note). While increasing health awareness,population growth and development of public healthcare systems result in a higher demand for more advanced
drugs, governments are strengthening their control on drug prices by holding back medical costs, due mainly tothe rapidly aging society and fiscal deficits.
In order to control medical care expenses, the Japanese government has been promoting the use of genericdrugs, leading the generic drugs market to expand in the Japanese pharmaceutical market. Additionally, adrastic reform of the drug pricing system has been conducted a gradual price reduction each year from 2021,
and the situation remains challenging for the industry.
It is not easy to discover promising drug development targets and, amid stricter approval standards for new
drugs, the global competitiveness in development is intensifying. The Company possesses R&D capabilities forcreating world-class, original drugs, and competes with numerous companies, not only those in Japan, but also
global companies, including large pharmaceutical companies and start-up companies.
21

Note:

Copyright © 2024 IQVIA.
Created based on IQVIA World Review (Data Period, Year 2018-2022)
Reprinted with permission

ii. Basic strategies<Stable profit contribution>
To make stable profit contribution, the Group will step up efforts to promote R&D on next-generation strategic
products and seek optimum timing for out-licensing, and maximize the value of each product, as key tasks tostrengthen the earnings base further.
 Promoting R&D on next-generation strategic products and seeking optimum timing for out-licensing
Promoting R&D on next-generation strategic products is a key task from the perspective of the sustainable
development of the Group’s Pharmaceutical Business. Market launch of new drugs is becoming increasingly
difficult every year. However, the Group will explore appropriate drug development opportunities by collecting
information concerning unmet needs of medical facilities around the world. The Group will also conduct
flexible research management, carefully tailored to each drug candidate.
With the intensification of worldwide R&D competition in recent years, it is essential to define a sophisticateddevelopment strategy that takes into account of the requirements of medical facilities and implementation ofclinical tests quickly. In order to accelerate the speed of the R&D and swiftly provide the new drugs the Grouphas created to patients around the world, the Group not only promotes in-house development but also continues
to out-license compounds to other companies, particularly global pharmaceutical companies, and aggressively
explore alliance opportunities.
 Maximizing the value of each product
Since 2014, the Company has launched Riona® Tablets (hyperphosphatemia treatment), CORECTIM®
Ointment for treatment of atopic dermatitis, and ENAROY® Tablets for treatment of anemia associated withchronic kidney disease, and the Company’s subsidiary Torii Pharmaceutical has launched MITICURE® House
Dust Mite Sublingual Tablets, CEDARCURE® Japanese Cedar Pollen Sublingual Tablets, and ORLADEYO®
Capsules for suppression of the attacks in hereditary angioedema, all in Japan. Outside Japan, the licensing
partners are currently selling Stribild® Combination Tablets (anti-HIV drug), Genvoya® (anti-HIV drug) andMekinist® (melanoma and NSCLC treatment), etc. In order to maximize the contribution to medical facilities
through these products, the Company will work to steadily spread the products in the market in close
partnership with Torii Pharmaceutical and the Company’s licensing partners.
The Group recognizes, in order to conduct these various activities in an effective manner, the urgent
requirement of training personnel who can collect accurate information regarding unmet needs at medical
facilities and the latest pharmaceutical research, and use the information to formulate a sophisticateddevelopment strategy and a strategy to maximize product value, and global personnel capable of competingwith academia and pharmaceutical companies around the world. The Group will concentrate efforts on its
initiatives for these purposes.
Processed Food Business
The Group’s Processed Food Business aims to contribute to the earnings of the Group through mid- to long-term
profit growth driven by high-quality expansion in the top line.
i. Business environment
In 2022, annual consumption of frozen food in Japan(Note) increased 3.0% to approximately 2.98 million tons
from the previous fiscal year. Domestic market size on a consumption basis including imports(Note) grew 10.5%
from the previous fiscal year to ¥1,206.5 billion, and exceeded ¥1 trillion for the sixth consecutive year.
We expect the Japanese processed food industry to continue to grow as lifestyles change including an increaseof double-income households. This change leads to a growing consumer need for simpler and shorter cooking
22

times. Frozen foods can help meet the diverse needs of consumers with its abundant variety and convenience inrecreating freshly served taste.
The Company’s subsidiary, TableMark Co., Ltd., is competing against major players like Maruha Nichiro,
Nichirei Foods, Ajinomoto Frozen Foods and Nissui as well as a multitude of mid- or small-scale producers,
although the Group is starting to see segregation of competition within the industry according to the productcategories these competitors respectively own. These competitors are not the only ones the Group needs to keep
an eye out on. The Group believes it is necessary to monitor trends in sales channels amid the expansion ofprivate brand products by various distribution companies; and the reorganization of wholesale entities. The
Group also needs to be aware of the continuing risk of price fluctuations in raw materials due to global foodshortages.
Note: Japan Frozen Food Association (2022 data)ii. Basic strategies<Quality top-line growth>
The Processed Food Business focuses primarily on frozen and ambient foods, including staple food products
such as frozen udon noodles, packed cooked rice, and frozen okonomiyaki, as well as seasonings. In the area of
product line-up, the Group plans to create products that offer good value for the price from consumers’
perspective while using its unique technology. This will be achieved by improving the ability to identify
consumers’ needs, generate ideas based on the identified needs, and transform the generated ideas into products.
Concerning marketing, the Group will develop effective and efficient advertising and promotional activities inline with this product strategy and reinforce the trade marketing capabilities. By adopting these measures, theGroup aims to further expand its market share.
<Strengthening cost competitiveness>
In the Processed Food Business, the Group has a variety of cost containment programs, including strengthening
the raw materials procurement capabilities, efficiently managing the distribution network, and improving the
productivity of the Group factories. In addition, consistent group-wide efforts will be made to lower fixed costs,
including more efficient use of sales activity expenditures, through better selection and focus of promotional
activities. By these means, the Group will work to improve cost competitiveness.
<Strengthening business foundations> Food safety control
Looking ahead, the Group will continue to manage the businesses while taking all possible measures to ensure
food safety control from the four perspectives of food safety, food defense, food quality, and foodcommunication in order to deliver safe and high-quality food products to consumers.
Regarding food safety, the Group will seek to minimize risks by utilizing food safety management systems
already introduced.
Regarding food defense, the Group will further promote the already implemented Food Defense Program inorder to prevent purposeful attacks.
Regarding food quality, the Group will pursue “deliciousness,” which should be the fundamental quality offoods. The Group will also seek to enhance product added value and consumer satisfaction through continued
improvement in accordance with inquiries and information from consumers.
Regarding food communication, the Group will conscientiously listen to the voices of consumers and actively
provide information so as to make the Group’s activities more visible to the outside.
 Human resource development
Development of human resources that support the business activities is critically important. Competencedevelopment programs as well as appropriate career paths of the employees will be created and implemented inorder to develop personnel with various skills including marketing expertise and product development
knowhow.
23

In summary, under the 4S model and the JT Group Purpose, the Group will enhance its ability to adapt to changes,
implement bold and expeditious reforms of mindset and behavior, and consistently execute its growth strategy.
Through these initiatives, the Group will achieve sustainable profit growth and continuously increase corporate value
in the mid- to long-term.

24

2. Concept and Initiatives for Sustainability
The following includes forward-looking statements determined, unless otherwise indicated, as of the filing date.
(1) Overview of Sustainability
The Group believes that contributing to the development of society through its business activities is essential for longterm growth of the Group, and that efforts to achieve sustainability in its business and society have long been
considered fundamental to management. The Group has established a sustainability strategy underpinned by its
materiality identified with respect to its business and wide range of stakeholders based on the 4S model, its
management principle, and the JT Group Purpose. The Group will address social issues and achieve sustainablegrowth in its business by harnessing the driving force of the entire Group.
a. GovernanceImportant issues of sustainability are deemed matters to be resolved by and matters to be reported to the Boardof Directors. Specific instances of this in recent years have included resolution by the Board of Directors withrespect to revising materiality. This has also included reporting to the Board of Directors regarding the JT
Group Environment Plan along with focus areas, aspirational goals, targets and progress of each business, andalso regarding formulation of the JT Group Sustainability Targets, which serve as Group-wide targets forsustainability based on the revised materiality.
In addition, since 2020, the Sustainability Advisory Forum has been held regularly to discuss the Group’s
sustainability issues. With the Chief Sustainability Officer acting as Chairman, the forum is attended by headsof the Group’s businesses and corporate divisions. In 2023, three forums were held, thereby serving as aplatform for discussing and sharing information regarding issues and topics such as formulation of the JT
Group Sustainability Targets based on the revised materiality, initiatives for reducing greenhouse gas (GHG)
emissions and progress achieved toward such targets, initiatives for respecting human rights and governance,sustainability issues in each business, the Corporate Sustainability Reporting Directive (CSRD), andstakeholder engagement. Details of the discussions at the forum are reported regularly to the President andDirectors.
b. Strategy
Based on the belief that as nature, society, people’s lives are intertwined, sustaining our ways of living, and theactivities of corporate entities, will depend on the sustainability of the environment and society in which we
exist, the Group, with its management principle of pursuing the 4S model, has formulated the JT Group
Materiality for five challenges identified based on the JT Group Purpose and discussed at the Board of
Directors. Based on the JT Group Materiality, the JT Group Sustainability Targets have been set in order toclarify the specific details of our initiatives. In realizing the JT Group Purpose, the Group is contributing to thatsustainability through its commitment to working on the JT Group Materiality with specific initiatives based on
the JT Group Sustainability Targets.

25

JT Group Purpose
Fulfilling Moments, Enriching LifeJT Group Materiality
As nature, society, and people’s lives are intertwined, sustaining our ways of living, and the activities of corporate entities, will
depend on the sustainability of the environment and society in which we exist. In realizing the JT Group Purpose, we are contributing
to that sustainability through our commitment to working on the issues identified in our materiality.

Living with the Planet

Preserve a
harmonious
relationship between
our environment,
people, andcorporateorganizations
through initiatives toimprove our impact
on environment

Value Creation that
Exceeds Consumer
Expectations

Create diverse
products andservices beyond
consumer
expectations

Investing in Our
People andSupporting Their
GrowthInvest in people tosupport theirdevelopment withattention to diversity,and enhance humancapital by fostering a
corporate culture thatmaximizes
individuality andability of each
personResponsible Supply
Chain Management

Good Governance

Create a sustainablesupply chain capableof withstanding
sudden changes inthe businessenvironment, by
tackling social issues
such as respecting
human rights orpreservation of ourenvironment

Enhance ourgovernance byimproving our
stakeholder
satisfaction andcontinue to be atrustworthy
corporate entity

JT Group Sustainability Targets(For the JT Group Sustainability Targets, please refer to “d. Metrics and targets.”)c. Risk management
The Group defines risks that may affect the Group, and closely observing these trends, takes measures toprevent these risks from actualizing and to minimize the impact in the event that they are actualized.
Furthermore, the Group has established a system that can comprehensively understand and manage all of theserisks, and the risk management process consists of the following four steps. By appropriately managing theserisks in seeking to attain sustainable profit growth over the mid- to long-term, the Group adequately leverages
opportunities in giving rise to strategic business expansion.
(Risk identification)
The person in charge of risk management promotion (currently Senior Vice President, Corporate Governance,
Compliance), who is designated by the President, will understand all risks that may affect the Group.
(Risk evaluation)
Each Executive Officer will evaluate the risks for their own departments from the viewpoint of the possibilityof actualization and the amount of impact in the event of actualization, select significant risks to provide
prioritized response, and report to the person in charge of risk management promotion.
Based on the above, the person in charge of risk management promotion will determine significant risks to theGroup that may cause significant loss regarding the achievement of the Group’s management targets andbusiness strategy, and report to the President.
(Formulation of plans to address risks)Significant risks to the Group are reported to the person in charge of risk management promotion and thePresident after plans to address risks are designed by each Executive Officer.
(Monitoring of plans to address risks)The progress of plans to address the Group’s significant risks is regularly reported to the person in charge ofrisk management promotion and the President by each Executive Officer.
For details, please refer to “II. Review of Operations 3. Business and Other Risks.”
d. Metrics and targets
Based on the revised materiality, the JT Group Sustainability Targets have been set. The JT Group
Sustainability Targets establish initiatives for addressing various sustainability issues of the Group based on the26

JT Group Materiality, and encompass sustainability initiative targets for all of our businesses. For the JT Group
Sustainability Targets, please refer to the following.
・JT Group Sustainability Targets: https://www.jt.com/sustainability/pdf/JTGS_TargetsE_202402.pdf

For the JT Group Environment Plan, focus areas, aspirational goals, targets and progress of each business forfiscal 2022, please refer to the following. For results of fiscal 2023, please check the Integrated Report 2023, tobe released in June 2024.
・JT Group Environment Plan:
https://www.jt.com/sustainability/environment/pdf/EP2030_FY22_EN.pdf
・Tobacco Business:
https://www.jt.com/sustainability/strategy/materiality_strategy_sdgs/pdf/Tobacco_sustainability_strategy_FY2
2.pdf
・Pharmaceutical Business:
https://www.jt.com/sustainability/strategy/materiality_strategy_sdgs/pdf/Pharmaceutical_sustainability_strategy_FY22.pdf
・Processed Food Business:
https://www.jt.com/sustainability/strategy/materiality_strategy_sdgs/pdf/Processed_food_sustainability_strateg
y_FY22.pdf
The JT Group’s Environment Plan and targets have been carried over or updated and integrated into the JT
Group Sustainability Targets. Moreover, sustainability targets previously set by the tobacco, pharmaceuticaland processed food businesses have also been incorporated, and new targets have been set. Reporting of the JT
Group Sustainability Targets will commence with fiscal 2024 results in 2025.
(2) Climate change
Climate change is the biggest environmental challenge facing society and our business. The effects of climate change,such as global warming and modified weather patterns, will have serious implications for our supply chain given thatour products are mainly agriculture-based, but also for our own operations based in various locations around the world.
The Group is committed to tackling this issue. In February 2022, the Group decided to commit to achieve Net Zero for
its entire value chain by 2050. As a milestone, the Group aims to be Carbon Neutral for its own operations by 2030. In
support of this, the Group has set more ambitious 2030 science-based reduction targets and in 2022, they werevalidated by the Science Based Targets initiative (SBTi) as being in line with the 1.5°C scenario.
Our approach to addressing climate-related risks is aligned with the recommendations of the Task Force on Climaterelated Financial Disclosures (TCFD).
For details, please refer to the Company’s Integrated Report(https://www.jt.com/investors/results/integrated_report/index.html).
a. GovernanceThrough its business-wide enterprise risk management (ERM) process, the Group has identified climate change
as one of its most critical risks, and has accordingly been making progress in identifying and assessing such risk
at the national and local level. Plans to address climate change risks and progress thereof are regularly reported
to Directors, and such information is appropriately shared and discussed at meetings of the Board of Directors
as necessary. For the details of governance structure, please refer to JT website(https://www.jt.com/about/corporate_governance/index.html).

27

b. Strategy
The Group conducts scenario analysis based on multiple climate change scenarios (1.5°C, 2°C and 4°C). For
the analysis based on these scenarios, the Representative Concentration Pathways (RCP) scenarios (RCP2.6,
RCP4.5, RCP8.5) provided by the Intergovernmental Panel on Climate Change (IPCC) are used. As a result of
the scenario analysis, two main climate change risks, “carbon pricing (raising carbon taxes)” and “the impact onleaf tobacco growing due to changes in environmental conditions,” were identified. The Group’s plan is to
mitigate these risks by continuing to implement climate-related initiatives across its value chain and address
areas for improvement.
<Scenario analysis results>
・Transition risk: carbon pricing (raising carbon taxes)
ImpactA carbon tax is imposed on raw or secondary materials, or services used in each phase of the agricultural value chain(e.g. agricultural chemicals, agricultural machinery, processing machinery, storage and distribution). Rising carbon taxes
may increase procurement cost of tobacco leaf and other materials. It may also lead to additional company expenditure
due to tax increases for the Group’s direct operations. Based on multiple scenarios, calculation results indicate potential
financial impact ranging from ¥0.7 billion to ¥15.0 billion in real terms for the effects of raising carbon taxes attributableto rising temperatures. Financial impact is calculated by multiplying the GHG emissions forecast for 2050 in regions
where carbon taxes may exist, by the carbon tax level in those locations. GHG emissions in 2050 are predicted based on
the expected reduction in emissions of the Group and sales growth.

Mitigation
plan

The Group manages this risk by reducing its energy consumption through capital investment and energy saving
programs, as well as renewable energy programs (onsite generation of renewable energy, purchasing green energy). In
addition to actively promoting decarbonization of vehicles used in business activities, the Group is also working with andsupporting its respective suppliers in terms of understanding their climate change risks and appropriately implementing
mitigation measures.

Physical risk: the impact on crop growth conditions
ImpactChanges in atmospheric carbon dioxide levels could affect tobacco leaf growth. There is also a risk of shifts in thepresence and prevalence of tobacco crop pests and diseases related to climate change. Other risk factors include water
scarcity and higher-than-average temperatures and unusual precipitation patterns. All of these could impact theavailability and quality of key natural resources for the Group, including tobacco leaf. Such issues could occur in one ormore of our tobacco sourcing countries. Based on multiple scenarios, calculation results indicate potential financial
impact ranging from ¥8.0 billion to ¥37.0 billion for an increase in procurement cost of tobacco leaf.

Mitigation
plan

The Group manages this risk by shifting leaf growing regions based on the climate-related impacts it identified andimplementing climate change adaptation measures (e.g. smart agriculture and breeding). The Group also introduces
measures to improve yield in growing regions, and to mitigate increased costs and a potential decrease in procurement
volumes. Thus far, the Group has attempted to establish a resilient supply chain. It also has built strong relationships with
its suppliers while having a geographically diversified supply chain. As a result, the Group currently sources tobacco leaf
efficiently and consistently from more than 30 countries.

c. Risk management
The Group formulates plans to address risks upon having evaluated climate change risks through its enterpriserisk management (ERM) process. When formulating such plans, the Group takes into account risks specific toeach country and region identified through its country-level climate change scenario analysis. The Group thenestablishes a clear order of priority for addressing such risks drawing on assessment of its overall business risk
and assessment specific to respective countries and regions.
d. Metrics and targets
The Group has been committed to achieving net zero across the entire value chain by 2050 in order to fulfill its
social responsibility with its sights set on mitigating climate change risks and constructing a decarbonizedsociety. As a milestone in that regard, the Group aims to be Carbon Neutral for its businesses by 2030, with its
target of reducing Scope 1 and 2 GHG emissions by 47% against a 2019 base year. Additionally, the Group has
set targets pertaining to introduction of renewable electricity as an initiative that contributes to reduce GHG
emissions, and it has been working on the targets.
28

Furthermore, the Group has been taking steps to achieve a 28% reduction in Scope 3, Category 1 GHG
emissions by 2030 against a 2019 base year, with its sights set on achieving Net Zero. The Group’s latest GHG
emissions are as follows.
(1,000 tons CO2e)
Fiscal 2022
Scope 1

340

Scope 2277

Total (Scope 1 + 2)

617

Scope 3, Category 1

6,960

For the Group’s targets and results of fiscal 2022, environmental data/external verification, and data calculationand consolidation methods, please refer to JT website.
・JT Group Sustainability Targets:
https://www.jt.com/sustainability/environment/index.html
・Results based on the JT Group Environment Plan 2030:
https://www.jt.com/sustainability/environment/pdf/EP2030_FY22_EN.pdf
・Environmental data/external verification, and data calculation and consolidation methods:
https://www.jt.com/sustainability/environment/data_verification/index.html
For fiscal 2023 environmental data, please check the Integrated Report 2023, to be released in June 2024.
(3) Human capital
To show us the way forward in a social and business environment defined by discontinuous change, the Group has
formulated the JT Group Purpose of “Fulfilling Moments, Enriching Life” that will help assure the sustainability ofour businesses and the society in which it operates. Not only does the JT Group Purpose depict realms in which theGroup is to provide value in the future of society, but it also serves as the driving force for carrying out various
initiatives that include formulating and executing mid- to long-term strategies, developing new businesses, engaging
in sustainability activities, and forming the corporate culture. Given that each and every employee of the Group serves
as the starting point for all activities aimed at realizing the JT Group Purpose, the Group recognizes that theirsignificance will continue to grow going forward. Underpinned by this awareness, the Group has defined humancapital as follows, and strives to enhance the definitions, as it continues to enlist the basic concepts set forth in the JT
Group Human Resources Management Philosophy.
a. Governance
As a responsible employer, listening to the voices of our employees is crucial, and the Group strives to achieve
continuous improvement toward ensuring that it provides fulfilling workplace environments by communicatingwith them through multiple channels. Specifically, the Group conducts an Employee Engagement Survey (EES)
encompassing all employees of the Group and also carry out a PULSE survey conducted at each office andfactory, thereby enabling us to identify, assess, and promptly address challenges encountered by eachorganization from the Group level to the office and factory level.
Moreover, the Group considers that it is its responsibility to provide a safe and healthy work environment for
all employees of the Group. To such ends, The Group aligns its health and safety standards with ISO 45001(OHSAS 18001) and always meets or exceeds legal requirements.
The Company furthermore strives to build a comprehensive health support system, thereby having the President
issue a Health Management Declaration and assigning the Senior Vice President in charge of People & Culture
to serve as the person in charge of health management promotion. Specifically, the Group has engaged
initiatives in order to ensure that every employee is able to take care of their physical and mental health. Suchinitiatives include assigning on-site health staff (physicians and public health nurses) at 11 key locations
nationwide and arranging health consultations on an individual basis.
29

These initiatives related to human resources and progress thereof are reported to the President and the Board of
Directors as necessary.
b. Strategy<Human capital at the Group>
The Group has been proceeding with efforts that involve enhancing personnel initiatives carried out in seeking
to more clearly define and expand its human capital. The Group has defined human capital as “human resources”
who support our corporate activities, “corporate culture” that shapes decision-making criteria and patterns of
behavior with respect to our activities, and “ownership (individual independence)” embraced in a manner that
produces a virtuous cycle between human resources and corporate culture. the Group has also establishedmetrics for status of each definition as well as progress and results achieved with respect to human capital
activities (personnel initiatives) linked to them. As such, the Group will work to steadily expand our humancapital by regularly monitoring such metrics.
<Human resource>
Given that the Group has long contended that “diversity of people is a source of our competitiveness,” theGroup is committed to recruiting human resources equipped with different backgrounds and values, such as age,gender, self-identification, sexual orientation, disability, ethnicity, religion and nationality, as well as
experience and expertise. Furthermore, the Group strives to ensure that every member of its workforce driving
the Group’s corporate activities is able to maximize their abilities. Going forward, the Group will further focus
on strategically recruiting and supporting growth of human resources. This includes human resources who
promote expansion and optimization its existing businesses (tobacco business, pharmaceutical business, andprocessed food business), human resources who drive the development of new businesses catering to humanenrichment amidst likely changes over time, and human resources who lead and manage the Group’s business.
Moreover, employees’ mental and physical safety and health is of utmost importance underpinned by “People
come first” approach in serving as a company consistently preferred by diverse human resource. The Group
strives to improve systems so that the career path and work-life balance desired by its employees in various
stages in life, seeking to ensure vibrant work settings within the Group.
<Corporate culture>
Corporate culture (shared values embraced throughout the organization) is one that is vital when diverse humanresource drives corporate activities together as a member of the Group. The Group believes that ensuring thatthese values take root within the organization, thereby shaping the Group’s decision-making criteria andpatterns of behavior with respect to corporate activities, is crucial to sustainably create unique values that arecharacteristic of the Group.
The Group has cultivated a culture of sincerity and support for mutual growth based on a strong sense of ethics.
While the Group continues to embrace this culture, it also strives to foster a corporate culture that is suitable forthe times and distinctive to the Group by encouraging employees to take on challenges more than ever before
and promoting internal and external collaboration in order to provide society with various forms of “humanenrichment” in the time of uncertainty where diversification of values is progressing.
<Ownership (individual independence)>
The Group seeks to create values distinctive to the Group while maximizing the abilities of its diverse humanresource. This calls for ensuring a virtuous cycle whereby its organizational values are transmitted in the formof decision-making criteria and patterns of behavior among its diverse human resource (interaction between
human resources and corporate culture), while ensuring that each individual shapes the corporate culture of theGroup. To such ends, the Group believes that the notion of taking ownership is important in terms ofproactively implementing and promoting the core values and behavior (behavioral guidelines) of the Groupafter each individual understands and embraces the JT Group Purpose.

30

Accordingly, the Group has defined human capital as “human resources,” “corporate culture,” and “ownership(individual independence),” and it will take steps to expand human capital of the Group through a process ofpromoting, verifying, and improving personnel initiatives linked to these definitions.
c. Risk management
Whereas the Group engages in various initiatives in seeking to attract talented people with top priority assigned
to a diverse workforce going forward, if the Group could not sufficiently fulfill such needs as retaining humanresources due to the negative social image placed on tobacco business or other such circumstances, futurebusiness operations may become difficult, thus having a negative impact on the Group’s business performance.
The Group strongly believes that the quality of human resources is the key to business activity and performance.
Furthermore, as the Group has adopted the “Human Resources Management Philosophy” based on the belief
that a diversified employee base is a major factor of its competitiveness, the Group seeks to attract talented
people worldwide, and further strengthen development and retention.
Specifically, the Group sets attractive and competitive remuneration levels, which involves establishing
benchmarks specific to each region and business. Moreover, the Group is enhancing its discussion process for
ensuring an environment conducive to enabling individuals to form careers aligned with their aspirations andpreferences. In addition to recruitment for career-track positions whereby career paths of employees are
determined based on their experience across a wide range of fields, the Group also hires people for specific job
categories beginning with the stage of initial corporate employment, and engages in career recruitment carriedout on the basis of job assignments.
Furthermore, the Group works to develop human resources by providing growth opportunities to all employeesof the Group, such as by carrying out training applicable to all employees, including executives, which provides
them with the necessary skills for their individual careers. At the same time, the Group maintains and improvesa motivating work environment, which includes the promotion of diversity, provides a fair nomination andcompensation system and operates fairly, and establishes systems and a corporate culture that respects diversity.
d. Metrics and targets
Having set qualitative and quantitative targets across multiple fields that play a role in enhancing human capitalof the Group, the Group engages in initiatives while monitoring various metrics in that regard.
In particular, for the empowerment of women under “Diversity, equity & inclusion,” the Group has set its target
that “women’s representation in managerial positions is to reach 30% by 2030,” and it will further promote
such initiatives. The proportion of female managers in the Group is 23.5% (1,437 women) as of the end of
December 2023. (The proportion in the Company alone is 8.3% (82 women)). Three out of 15 Members of theBoard and Audit & Supervisory Board Members are women as of the filing date of this Annual Securities
Report.
Also, as metrics, the Group will set rates for childcare leave to provide support to its employee in balancing
work and family life, and injury rates in line with its vision of Zero workplace injuries. The Group will also
monitor such status.
For details, please refer to “Diversity, equity & inclusion,” “Talent attraction,” “Attractive working conditions,”“Health and safety,” “Development support,” and “Internal and external collaboration” presented in the JT
Group Sustainability Targets.
・JT Group Sustainability Targets: https://www.jt.com/sustainability/pdf/JTGS_TargetsE_202402.pdf

31

3. Business and Other Risks
Listed below are major items that, among those relating to the review of operations and accounting revealed in the
Annual Securities Report, are recognized by management as items that may significantly influence financial position,
operating results and cash flows of consolidated companies. These items include items that may significantly affectthe achievement of the Group’s management targets and business strategy as well as items that may significantly
influence investor decisions from the viewpoint of proactive information disclosure.
However, the risks described below do not constitute an exhaustive list of all the risks related to the Group, and risks
not described below also exist. All of the risk factors may potentially have an effect on investment decisions.
The following includes forward-looking statements determined, unless otherwise indicated, as of the filing date.
<Risk Management System>
The Group defines risks that may affect the Group, and closely observing these trends, takes measures to preventthese risks from actualizing and to minimize the impact in the event that they are actualized. Furthermore, theGroup has established a system that can comprehensively understand and manage all of these risks, and the risk
management process consists of the following four steps. By appropriately managing these risks in seeking toattain sustainable profit growth over the mid- to long-term, the Group adequately leverages opportunities in giving
rise to strategic business expansion.
(Risk identification)
The person in charge of risk management promotion (currently Senior Vice President, Corporate Governance,
Compliance), who is designated by the President, will understand all risks that may affect the Group.
(Risk evaluation)
Each Executive Officer will evaluate the risks for their own departments from the viewpoint of the possibility ofactualization and the amount of impact in the event of actualization, select significant risks to provide prioritizedresponse, and report to the person in charge of risk management promotion.
Based on the above, the person in charge of risk management promotion will determine significant risks to theGroup that may cause significant loss regarding the achievement of the Group’s management targets and businessstrategy, and report to the President.
(Formulation of plans to address risks)Significant risks to the Group are reported to the person in charge of risk management promotion and thePresident after plans to address risks are designed by each Executive Officer.
(Monitoring of plans to address risks)The progress of plans to address the Group’s significant risks is regularly reported to the person in charge of risk
management promotion and the President by each Executive Officer.
(1) Risks Relating to the Business, Profit Structure and Management Policy of the Groupa. Significance of tobacco revenue from the main market in consolidated revenue
The Group sells products in at least 130 countries and regions. Among these, tobacco revenue in the mainmarkets, such as Japan, Russia, and the U.K., makes a significant contribution to the Group’s revenue.
Accordingly, the manifestation of various risks that exist in the environment for the tobacco business, such as adecrease in tobacco demand, tax increases, regulations and other factors (for details of risks relating to thetobacco business, see “(2) Risks Relating to the Group Businesses, Risks Relating to the Tobacco Business”
below), or negative impacts in main markets arising from a relative increase in country risk caused by factors
such as a change in the political environment, a change in economic conditions, a change in the social
environment, a change in the legal system, or the occurrence of riots, terrorism or war, could result in aworsening of Group performance, including revenue from the Tobacco Business deteriorating.
The Group is working to maintain and grow tobacco revenue from its main markets by optimizing its productportfolio, reinforcing trade marketing capabilities and implementing measures for effective promotions. In
addition, by further strengthening the business base not only in main markets but also globally, the Group will
strive to secure various markets in which it is possible to sustainably generate profits without depending only
on specific main markets.

32

b. Business expansion
The Group worked proactively to obtain external resources for the business expansion, such as the acquisitionof the RJR Nabisco Inc.’s non-U.S. tobacco business (acquired in 1999 for approximately USD7.8 billion, or¥944.0 billion as calculated by the exchange rate at the time of the acquisition; the same applies hereinafter), as
well as the acquisition of Gallaher Group Plc (acquired in 2007 for approximately GBP 7.5 billion, or ¥1,720.0
billion), the acquisition of Katokichi Co., Ltd. (now TableMark Co., Ltd.) (acquired in 2008 for approximately¥109.0 billion), and the acquisition of the non-U.S. tobacco business of Natural American Spirit (acquired in2016 for approximately USD5.0 billion, or ¥591.4 billion). In an effort to expand its business, the Group willconsider acquisitions, capital movements, business tie-ups and cooperative arrangements with other companies
and may execute when the Group judges such transactions would contribute to the future earnings of the Group.
However, should such transactions not generate the expected outcome, or should a significant, unforeseen
problem be discovered after the acquisition, same may negatively affect the Group’s business performance.
Examples that may have such an impact include a failure to carry out marketing, operational, personnel,
technological or organizational integration due to geographical or cultural differences; a failure to maintainsustained demand for the products of a business subject to acquisition or tie-up, or manufacture and sell said
products; a failure to continue the Group’s present operations; a failure to retain personnel with superior
capabilities at an acquired business or maintain the motivation of its employees; a failure to apply the Group’s
internal control system to an acquired business; a failure to build an effective brand and product portfolio; afailure to link sales and market strategies of different product lines; or a dispersal of management’s attention
from the Group’s present operations.
Also, as a result of the acquisitions, the Group has recorded a substantial amount of goodwill and intangible
assets in the consolidated statements of financial position, and the amounts of goodwill and intangible assets
account for 35.9% (¥2,616.4 billion) and 2.8% (¥207.0 billion) of the consolidated total assets, respectively, asof the end of the current fiscal year. The Group believes that the abovementioned goodwill and intangible assets
appropriately reflect the future profitability that will result from the unleashing of synergy effects of eachbusiness value and integration; however, if it is determined that this expected outcome does not materialize as aresult of factors such as changes in the business environment or competitive forces, or if the discount rateapplied becomes higher, the Group may incur an impairment loss that negatively impacts the Group’s
performance.
When carrying out acquisitions, capital movements, business tie-ups and cooperative arrangements with othercompanies to expand its business, the Group utilizes timely and appropriate external knowledge and evaluations,and makes decisions using the Board of Directors, etc. upon deliberations with related top management
regarding the appropriateness of acquisition costs, contract conditions, etc. In addition, after acquisition, theGroup incorporates the status of the acquired company’s business operations into each business’s Business Planand regularly monitors such status, and takes actions, such as following up and understanding signs of
impairment, to maximally realize synergy.
The Group views the role of the Pharmaceutical Business and the Processed Food Business in the Group as thatof supplementing sustainable profit growth over the mid- to long-term, and believes that also in the future thesebusinesses will make a stable and even larger profit contribution. However, although the Group plans tocontinue to invest in these businesses, this investment is not guaranteed to generate the returns that the Group
anticipates.
c. Effects of foreign exchange and interest rate fluctuations
The Company reports its consolidated financial statements indicating all figures in yen; however, overseas
Group companies report their financial statements in other currencies such as Russian ruble, euro, British pound,
Taiwanese dollar, US dollar, and Swiss franc. Accordingly, the results, assets, and liabilities of overseas Group
companies are converted into yen when the consolidated financial statements of the Company are prepared andindicated in yen therein. As a result, those figures are affected by fluctuations from the currency used byoverseas Group companies in their accounts settlement against the yen. The Group’s overseas businesses
account for more than half of revenue and adjusted operating profit, and foreign exchange fluctuations may
have a significant effect on the consolidated financial statements.
JT International Holding B.V. (hereinafter referred to as “JTIH”), which is responsible for consolidating thefinancial results of the Group’s tobacco business outside Japan, uses the US dollar for its financial reporting.
However, JTIH does business through consolidated subsidiaries and affiliates around the world, some of which
use foreign currencies other than the US dollar. This means that the Group’s consolidated results are affected
not only by exchange rate fluctuations between the Japanese yen and the US dollar but also by those between
33

the US dollar and other foreign currencies used by the consolidated subsidiaries and affiliates of JTIH for theirfinancial reporting.
In addition, any liquidation, sale or significant drop in the value of a foreign Group company whose foreign
currency denominated stock was acquired by the Company will result in the recording of an investment loss
with respect to said company in the consolidated financial statements of the Company and this loss will beaffected by the exchange rate fluctuation between the yen and the foreign currency that was used to acquire said
stock.
Furthermore, most of the Group’s international transactions are subject to the effects of foreign currency
exchange rates. As an example of this risk, in the tobacco business, the Group uses foreign-grown leaf tobacco.
While this leaf tobacco is procured to some degree in US dollars, the tobacco products that contain it are sold in
the local currencies of various countries. Therefore, should the US dollar appreciated against these various local
currencies, this may have a negative effect on profitability at the Group.
Furthermore, the Group holds financial assets, such as bank deposits and government bonds, and financial
liabilities, such as bank loans and bonds. The fluctuation of interest rates pertaining to these assets andliabilities may affect the performance and financial position of the Group as these fluctuations affect thevariance of interest income and interest expense and the price of financial assets and financial liabilities.
In addition, the Group’s business performance and financial position may be affected in the event that theamount of plan assets, amount of retirement benefit obligations, etc. of the Group fluctuate due to thefluctuation of foreign exchange markets or interest rate levels.
The Group formulates and implements a foreign exchange hedge policy and an interest rate hedging policy,
taking into consideration the current condition of the foreign exchange market and interest rates in acomprehensive manner, and the results are regularly reported by division with responsibility for financial
matters to the President and the Board of Directors of the Company.
d. Natural disasters and other contingency situations
The Group has expanded its business in various countries and regions in the world, and is working to further
strengthen and expand its global business base in the tobacco business in particular. Recently, natural disasters
such as earthquakes, tsunamis, typhoons or floods, or infectious disease, have occurred in Japan and overseas.
Future large-scale natural disasters or human-made disasters such as suspension of infrastructure, politicalinstability, fires and bombings, spread of infectious diseases, or other such unforeseen emergencies, may
negatively affect the Group’s business performance. Such effects may be caused by supply shortages fromdamage to suppliers; disruptions to traffic, logistics services or sales channels; suspension of utilities such as
electric or water; declines in demand; employees suffering damage in a disaster; or stoppages of product supply
due to logistics disruption.
The Group prepares against the occurrence of natural disasters and unforeseen circumstances, and carries out
initiatives to increase employee’s disaster prevention awareness, such as continuously gathering and sharingcrisis management-related information during the quiet period in addition to the introduction of a safety
confirmation system that confirms the safety of employees and their families, and disaster prevention training.
Furthermore, in order to keep losses from damage to a minimum, the Group insures key assets, such asbuildings, machinery, equipment and inventory, with casualty insurance as appropriate. In addition, in the eventof natural disasters or other contingency situations occurring, the Group will review the Business Continuity
Plan and revise it if necessary, and swiftly and flexibly respond so that it can carry out its Business Continuity
Plan based on appropriate information gathering and the assessment of the situation.
e. Climate change
The Group has formulated the JT Group Sustainability Targets encompassing specific targets and initiatives
linked to its materiality identified with respect to its business and wide range of stakeholders based on the 4S
model, its management principle, and the JT Group Purpose.
Based on its recognition that climate change associated with global warming constitutes a key challenge that
may affect business and society at large, the Group has set targets related to climate change under “Living with
the Planet” in the Group Materiality. The Group also has identified risks and opportunities relating to climatechange by conducting climate change scenario analysis based on recommendations of the Task Force on
Climate-related Financial Disclosures (TCFD). According to this analysis, an increase of the carbon tax burden,34

etc. as transition risks and changes to the habitat of tobacco leaves due to the intensification of climate change,
etc. as physical risks may negatively affect the Group’s business performance.
To fulfill its social responsibility towards constructing decarbonized society, the Group aims to achieve net-zero
GHG emissions across its entire value chain by 2050, and it has been making progress in carrying out initiatives
that include reducing fossil fuel consumption, transitioning to non-fossil fuels, and making greater use ofrenewable electricity. The Group has also been engaging in initiatives to secure stable procurement of leaf
tobacco by developing leaf tobacco varieties and improving cultivation systems taking into account factors suchas changes in crop growth conditions. The Group will put in place a system in order to enable it to moreaccurately grasp, and create appropriate responses to the way that climate change affects its business, reflect itin the business strategy and further promote appropriate information disclosure.
f. Country risk
The Group has expanded its business in various countries and regions in the world. Geographical expansion
increases exposure to country risks, such as a change in the political environment, a change in the economic
conditions, a change in the social environment, a change in the legal system, or the occurrence of riots,
terrorism or war. If materialized, these risks could negatively affect the Group’s business performances due toblockage to supply chains or distribution networks, damage to assets or facilities, or difficulties in allocation of
personnel or sales management.
Furthermore, the Group conducts business in countries that are subject to economic sanctions. Although theGroup manages its business operations appropriately and lawfully in accordance with these various economic
sanctions, if it is acknowledged that the Group has violated the sanctions, the Group would be at risk of being
subject to large monetary penalties or other such consequences. Also, if there is a development such as a change
in the details of the sanctions, this may negatively affect the Group’s business performances by, for example,
making the Group unable to continue operating in the countries subject to the sanctions. Even if the Groupobeys the sanctions, simply operating in the countries subject to the sanctions may have a detrimental effect on
the public image of the Group.
In the Russian market, the Group is fully committed to complying with all applicable sanctions, regulations, etc.
while continuing business operations. In parallel, given the continued challenging and complex environment,
we continue to evaluate various options, including the potential transfer of ownership of our Russian tobacco
business. As this moment, the Company is unable to reasonably estimate the outlook and the impact onfinancial results.
The Group gathers and monitors information pertaining to country risk in each country and region in which it
has expanded its business, and works for stable business operations while ascertaining geopolitical factors.
Furthermore, by strengthening and expanding its global business base and securing multiple markets that cancontinuously generate profits, the Group is working to minimize the negative effects on the Group’s businessperformance in the event that country risks are realized in specific markets.
g. Changes in consumer preferences and behaviors
Uncertainties in the business environment in which the Group operates, such as the contraction of the global
economy and a slowdown in economic growth, continue to increase. Within this, the Group recognizes that
continuing to provide new value and satisfaction to consumers for continuous profit growth is important, and is
working to enhance product and service added value based on changes in consumer preferences and behaviors.
However, in the event that consumer preferences and behaviors change due to a deterioration of the economy,
etc. and the Group is unable to appropriately respond, the Group’s business performance could be negatively
affected due to factors such as consumers in existing businesses leaving and the loss of opportunities for growth.
In order to continue to provide new value and satisfaction to consumers, the Group identifies consumer
preferences by analyzing market trends and carrying out qualitative and quantitative consumer surveys, andworks to realize high value-added products that conform to consumers’ preferences such as by improving
existing products and developing new products. For example, in the tobacco business, the Group has improved
existing RRP products by increasing the convenience sought by consumers and developed new products, andhas secured high-quality products, such as combustibles(Note), and set appropriate prices.
In the Processed Food Business, the Group is developing products that take health into consideration due toincreasing health consciousness recently.
Note:

Combustibles include all tobacco products excluding contract manufactured products, waterpipe, HTP, oral and E-Vapor.
35

h. Competition with rival companies
The Group is a global company operating the Tobacco Business, the Pharmaceutical Business and theProcessed Food Business. It rigorously competes with rival companies engaged in any of these businesses, andgoing forward, competition may further intensify.
In the tobacco business, the Group expanded its business by building on its self-sustaining growth and byacquiring the RJR Nabisco Inc.’s non-U.S. tobacco business and Gallaher Group Plc. As a result, itscompetitive relationships with global players operating tobacco business such as Phillip Morris International
Inc. and British American Tobacco Plc. as well as strong firms operating in localized markets are observed.
In the Pharmaceutical Business, the Group competes with numerous companies, not only those in Japan, butalso global companies, including large pharmaceutical companies and start-up companies. In the Processed
Food Business, the Group is starting to see segregation of competition within the industry according to the
product categories these competitors respectively own. The Company’s subsidiary, TableMark Co., Ltd., iscompeting against major players like Maruha Nichiro, Nichirei Foods, Ajinomoto Frozen Foods and Nissui aswell as a multitude of mid- or small-scale producers.
Each business and market share fluctuates under multiple factors including competition, regulations, pricing
strategies, changing consumer preferences and behaviors, heightened societal interest in health issues, brandstrengths and economic conditions occurring in different markets not to mention short-term fluctuations causedby temporary factors such as the introduction of new products by the Group and other companies and thespecial promotional activities effected for them. A lower market share or decreased competitiveness due tothese factors may negatively affect the Group’s business performance.
In this competition with rival companies, the Group assumes that it will continue to provide new value andsatisfaction to consumers in order to realize continuous profit growth. To that end, the Group provides productsthat match the changes in consumer preferences and behaviors, optimizes its product portfolio, reinforces thetrade marketing capabilities and carries out effective promotional activities, and constantly considers andimplements measures such as further increasing cost efficiency and securing multiple markets that cancontinuously generate profits.
i. Instability in raw material procurement and transport costs
The Group has a global manufacturing footprint, and procures various types of raw materials from Japan andvarious countries around the world. The status and costs of procurement are affected by factors such as weather
and other natural phenomena, impacts on supply chains due to rising country risks, the balance between supply
and demand, and exchange fluctuations. Furthermore, there is the risk that increases in transport costs will befurther exacerbated going forward due to increasing personnel expenses in the logistics industry, which arecaused by labor shortages, and rising crude oil prices. In the event that the Group is unable to stably secure thenecessary amount of raw materials, or in the event that raw material procurement costs and costs to transport
products rise, the Group’s business performance may be negatively affected due to being unable to guarantee
the stable supply of products and other factors.
In order to reduce the risks associated with these raw material procurement costs and transport costs becoming
unstable, the Group prepares for unforeseen circumstances and secures multiple suppliers. Furthermore, theGroup continuously monitors raw material prices, and efficiently uses raw materials, such as by reviewing
product specifications as appropriate, upon confirming manufacturing processes and quality. Similarly, theGroup continuously monitors crude oil prices and trends in the logistics industry, and reviews transport
methods and streamlines them as appropriate. In addition, by reinforcing its relationship with suppliers, theGroup increases its procurement abilities for key raw materials, and carries out the necessary response, such as
working to improve the internal sourcing ratio for the procurement of tobacco leaves.
j. Supply chain risks
The Group has established a sustainability strategy underpinned by its materiality identified with respect to its
business and wide range of stakeholders based on the 4S model, its management principle, and the JT Group
Purpose. The Group has identified “responsible supply chain management” in the Group’s materiality,
underpinned by its awareness that appropriately maintaining and managing the supply chain is a significant
matter for the continuation of its business activities. In various countries and regions in the world where theGroup has expanded its business, it collaborates with stakeholders, such as suppliers, and works on
36

procurement activities that take the environment and society into consideration. However, in the event thatenvironmental or human rights issues occur or laws and regulations are violated in the supply chain, theGroup’s business performance could be negatively affected due to factors such as the impairment or decline of
public trust in the Group.
Based on the JT Group Supplier Standards, the Group is working to establish a sustainable supply chain, suchas by carrying out initiatives to introduce supplier screening in accordance with the evaluated ESG items andmonitoring them regularly, and understanding potential risks related to compliance, human rights, theenvironment and occupational safety and health. Agricultural Labor Practices (ALP) were formulated in the
tobacco business based on “tackling child labor,” “respecting worker rights” and “ensuring workplace healthand safety,” which work to maintain and manage the tobacco leaf supply chain.
k. Litigation
Some of the Company’s subsidiaries are defendant in lawsuits filed by plaintiffs seeking damages for harmallegedly caused by smoking or vaping, the marketing of tobacco or E-vapor products, or exposure to tobaccosmoke. As of the fiscal year end date, there were smoking/vaping and health-related cases pending in whichsome of the Company’s subsidiaries were named as defendant or for which the Company may have certain
indemnity obligations pursuant to the agreement for the Company’s acquisition of RJR Nabisco Inc.’s non-U.S.
tobacco business. In addition, the Company and/or some of its subsidiaries are also a defendant in lawsuitsother than the smoking/vaping and health-related cases.
The Group is unable to predict the outcome of currently pending or future lawsuits. A decision unfavorable to
the Group and payment of substantial amount of monetary compensation could materially affect its businessperformance. Moreover, regardless of the results of these lawsuits, critical media coverage may reduce social
tolerance of smoking, strengthen public regulations and prompt the filing of a number of similar lawsuits
against the Group, forcing it to bear litigation costs and materially affecting its business performance. Apartfrom smoking/vaping and health-related ones, the Group also may become the defendant in further litigation.
Should any problems arise on the Group’s product quality, this may lead to claims seeking profit liability. Suchlitigation cases may negatively affect the Group’s business performance or manufacture, sale, and import andexport of its products, should the outcome of any such claims prove unfavorable.
The Group has prepared a system in order to deeply cooperate internally and externally where the Group
responds to litigation cases pertaining to the Group in a timely and appropriate manner by quickly
understanding the information regarding the case, sharing information to management and relevant departments,
coordinating with an outside lawyer if necessary and considering policies to deal with the situation going
forward.
Regarding major litigation cases to which the Group is a party, please refer to “V. Accounting, 1. Consolidated
Financial Statements, (1) Consolidated Financial Statements, Notes to Consolidated Financial Statements, 38.
Contingencies.”
l. Difficulty in maintaining human resource competitiveness
Whereas the Group engages in various initiatives in seeking to attract talented people with top priority assigned
to a diverse workforce going forward, if the Group could not sufficiently fulfill such needs as retaining humanresources due to the negative social image placed on tobacco business or other such circumstances, futurebusiness operations may become difficult, thus having a negative impact on the Group’s business performance.
The Group strongly believes that the quality of human resources is the key to business activity and performance.
Furthermore, as the Group has adopted the “Human Resources Management Philosophy” based on the belief
that a diversified employee base is a major factor of its competitiveness, the Group seeks to attract talented
people worldwide, and further strengthen development and retention.
Specifically, the Group sets attractive and competitive remuneration levels, which involves establishing
benchmarks specific to each region and business. Moreover, the Group is enhancing its discussion process for
ensuring an environment conducive to enabling individuals to form careers aligned with their aspirations andpreferences. In addition to recruitment for career-track positions whereby career paths of employees are
determined based on their experience across a wide range of fields, the Group also hires people for specific job
categories beginning with the stage of initial corporate employment, and engages in career recruitment carriedout on the basis of job assignments.
37

Furthermore, the Group works to develop human resources by providing growth opportunities to all employeesof the Group, such as by carrying out training applicable to all employees, including executives, which provides
them with the necessary skills for their individual careers. At the same time, the Group maintains and improvesa motivating work environment, which includes the promotion of diversity, provides a fair nomination andcompensation system and operates fairly, and establishes systems and a corporate culture that respects diversity.
m.Infringement of intellectual property rights
In order to achieve “quality top-line growth,” the Group utilizes various intellectual properties, enhances
product and service added value and actively acquires the rights to these intellectual properties. Under suchcircumstances, if an outside party infringes the Group’s intellectual property rights, the Group’s technology andbrands may not be sufficiently protected, which in turn could lead to negative effects on the Group’s businessstrategies and financial position. Or, if it is acknowledged that the Group’s products and services have infringed
on the intellectual property rights of an outside party, the Group may risk having to pay compensation fordamages, or becoming unable to provide the products and services, which could negatively affect the Group’sbusiness strategies and the financial position.
In order to avoid the risk of infringement of the Group’s intellectual property rights by an outside party, theGroup prepares measures to acquire the rights of intellectual properties and appropriately manage its
intellectual property rights. Furthermore, in order to prevent the infringement of the intellectual property rights
of an outside party before it occurs, the Group responds timely and appropriately, such as by investigating andmonitoring the status of intellectual property rights.
n. Environmental regulations
The Group carries out research and development and production, the processes of which are subject to a wide
variety of legal restraints in various countries and regions in the world related to environmental protection withrespect to hazardous substances, waste and other effects. In the future, if environmental pollution or a similar
problem occurs as a result of the Group’s business activities, or if environmental regulations are introduced orexisting ones are changed, the Group’s business performance may be negatively affected due to factors such as
being liable for damages for environmental pollution, the decline of corporate reputation, the incurring ofadditional expenses for capital expenditures, etc. to respond to regulations or restrictions on existing businessactivities.
In order to prevent environmental pollution, the Group continuously monitors the establishment and revision ofenvironment-related laws and regulations, thoroughly observes environment-related laws and regulations, suchas by making them well known to relevant departments, and appropriately responds as necessary. For example,
the Group confirms the status of compliance with environment-related laws and regulations annually withinternal audits in accordance with ISO 14001, primarily at manufacturing facilities. In addition, the Groupestablishes an even stronger environmental management system by being audited by an outside agency once
every three years.
Furthermore, the Operational Review and Business Assurance Division of the Company and the auditing
divisions of the Group companies in Japan perform environmental audits, and make evaluations from an
objective viewpoint. The results of these audits are reported to management and shared with relevant
departments, which leads to the improvement of the Group’s overall environmental management system.
o. Information security
In the operation of business, the Group utilizes various types of information technology to efficiently performbusiness and operations. To that end, in the event that damage to systems, or leaks of confidential information
occur as a result of unforeseen circumstances, such as attacks by illicit access or computer viruses to the Groupand suppliers, or disasters, the business performance of the Group may be negatively affected due to temporary
suspension of information systems, the decline of public trust, the loss of competitive advantage and the bearingof expenses to appropriately respond to these events.
The Group has clarified its position on initiatives for information security, put in place a variety of rules inrelation to information security in order to comprehensively and continuously promote information security
measures, and works to protect and manage information assets, such as the systems and data owned by theGroup, in an appropriate manner. Furthermore, the Group works to reinforce information security from the
aspect of both hardware and software. In regard to hardware, the Group continuously carries out technological38and operational inspections and improvements related to security for key systems including requests to
suppliers. In regard to software, the Group works to educate employees on security, such as by carrying out
information security e-learning that is applicable to all employees.
(2) Risks Relating to the Group Businesses
Risks relating to the Tobacco Businessa. Decreasing tobacco demand
Demand could also decrease depending on the economic conditions, other societal conditions, trends inregulations, price rises, tax increases and other factors, although the trends in demand will vary from region toregion. Should demand decrease, sales volume may decrease, and this may negatively affect the Group’sbusiness performance.
The Group strives to provide products that can capture changes in consumer preferences and behaviors andoptimize our product portfolio. While pursuing self-sustaining growth by adopting a balanced approach toinvesting in markets in which it already has a strong base, as well as in markets with high growth potential, theGroup takes the view that searching for and exploiting growth opportunities through the acquisition of external
resources is also a valuable strategic option, and it is working to secure positions in multiple markets capable ofgenerating continuous profit, rather than in just one specific market. With regard to issues such as tax increases
and strengthened smoking regulations, the Group is implementing measures such as gathering information on
regulatory trends with greater speed and accuracy, actively cooperating in policymaking that leads to fair andbalanced regulation by engaging in constructive dialogue with government-affiliated participants (including
regulators) and other stakeholders, setting prices appropriately so as to minimize the impact of higher taxation,and pursuing further cost efficiency.
b. Taxes levied on tobacco
In countries around the world, governments are discussing increases in tobacco excise taxes to secure publicfinances and promote public health, and are actually raising taxes in some cases. Some countries are also
implementing increases in taxes such as consumption tax or value-added tax (VAT) with the aim of improving
public finances.
It is difficult to predict changes in the types of taxes or tax rates imposed on tobacco products in various
countries, and if tax hikes are implemented at an unexpected timing, frequency or rate of increase, or in a region
where tax hikes were not anticipated, the Group may be unable to react to such tax hikes promptly andappropriately.
Increases in tobacco taxes may, if accompanied by a hike in retail prices, push down demand, move consumers
toward lower priced brands, or cause or increase illicit trade such as smuggling and counterfeiting. On the other
hand, if there is no retail price hike, such tax increases may cause the earnings structure of the tobacco businessto deteriorate. As such, either case may negatively affect the Group’s business performance.
The Group is implementing measures such as offering products that match the changing preferences andbehaviors of consumers, optimizing its product portfolio, securing positions in multiple markets capable ofgenerating continuous profit rather than in just one specific market, gathering information on trends pertaining
to tax increases with greater speed and accuracy, engaging in constructive dialogue with governments andregulators, setting prices appropriately so as to minimize the impact of higher taxation, and pursuing further
cost efficiency.
c. Regulations on tobacco products

Situation overseas

The regulatory environment for tobacco is getting stricter year by year, in the wake of the Framework
Convention on Tobacco Control (FCTC), which came into force in February 2005.
The purpose of the FCTC is to control continuously and substantively the proliferation of smoking. Itsprovisions include price and tax measures; non-price measures to reduce demand (including protection frompassive smoking, testing and measuring the contents and emissions of tobacco products and their information
disclosure, product packaging and labeling, regulations on tobacco advertising, promotion and sponsorship),39

and measures related to the reduction of tobacco supply (including prevention of illicit trade and prohibition ofsale of tobacco products to minors). The Japanese government ratified the framework in June 2004.
All Parties to the FCTC are obligated to develop, implement, periodically update and review strategies, plansand programs for tobacco control. However, each party, has a right to determine the content, scope and specificimplementation method of their own tobacco control. After coming into force, the Parties of FCTC continue
their discussions through regularly holding the Conferences of the Parties (COP) in order to develop the
protocols (for which additional ratification, acceptance, accession and other are required to the FCTC Parties)
and guidelines in view of implementation of each FCTC provision.
Specific regulations are also undertaken in each country. For example, Russia, a main market of the Group,
enacted the comprehensive tobacco control law in February 2013 and has gradually been implementing it sinceJune 2013. The law includes a retail display ban; restrictions on sales of tobacco products in certain retailstores; a ban on advertising, sponsorship and promotions; the introduction of minimal pricing; a ban on
smoking in public places; and anti-illicit trade measures.
In addition, the EU revised the EU Tobacco Product Directive (EU TPD) announced in July 2001 and it enteredinto force in May 2014. The revised Directive includes the tightening of packaging and labeling regulations;
restrictions on the use of additives including menthol for cigarettes and Fine Cut; restrictions on tobacco
product flavors; regulations related to electronic cigarettes; and anti-illicit trade measures. Each member state
has introduced their national regulations based on the revised Directive. In November 2022, a decision was also
made to apply restrictions on tobacco product flavors, etc., which had been applied to some tobacco products up
until now, to HTP, and looking forward, for HTS new restrictions are expected to be introduced in each country.
Furthermore, the Australian government introduced plain packaging in December 2012, which prohibits
displaying logos, brand images or promotional text on tobacco packages. The regulation only allows productnames to be displayed in the prescribed color, font, font size and font color. Various countries including France,
the U.K. have also introduced and legislated similar regulations, while other countries have been discussing or
determining its implementation.
For example, there are signs of increasing regulations on electronic cigarettes, such as the introduction ofregulations banning the sale of some flavored electronic cigarettes by the U.S. federal government.
Although it is difficult to accurately predict the content of future laws and regulations relating to sales activities,
marketing, packaging and labeling, tobacco products and smoking, the Group expects various regulations,
including those like the ones above, to spread across Japan and other countries.


Situation in JapanThe Tobacco Business Act, related acts and statutes and voluntary standards set forth the regulations for thesale and promotion activities of tobacco products in Japan that include the indication of warning labels on
tobacco product advertisements and packages that urge caution over the relationship between the consumptionof tobacco products and health.
In November 2003, the Ordinance for Enforcement of the Tobacco Business Act was revised including thewording of the cautions over the relationship between the consumption of tobacco products and health indicatedon tobacco product packages and, starting July 2005, all tobacco products sold in Japan have been in
conformity to the revised regulations. In addition, the Japanese Minister of Finance has indicated a “Guideline
for Advertising of Tobacco Products” (hereinafter, “Advertising Guideline”) based on the Tobacco Business
Act, Article 39 (warning labels) and Article 40 (recommendations, etc. relating to advertising). The Advertising
Guideline was revised in March 2004 in accordance with the revision of the Ordinance for Enforcement of the
Tobacco Business Act mentioned above (for details, see (3) c. (i), Notes 2 and 3 below).
The Tobacco Institute of Japan (TIOJ) has established voluntary standards regarding the advertising and sales
promotion activities for tobacco products. We comply with these standards together with all other TIOJ
members. In February 2016 under the Financial System Council tobacco business subcommittee meeting, a newlabeling sub-committee was established, which performed a specialized investigation in relation to means of theAdvertising Guideline. The labeling sub-committee reported the results of its investigation to the tobacco
business subcommittee in June 2016, and as a result of further discussions conducted within the tobacco
business subcommittee, “Review of Warning Labels Regulations / Advertising Regulations” was published on
December 28, 2018. Based on the aforementioned review and a promulgation of a partial amendment of theOrdinance for Enforcement of the Tobacco Business Act; the Advertising Guideline; and Related Notices of the
Tobacco Business Act on June 14, 2019, the Tobacco Institute of Japan revised the voluntary standards on thesame day (for details of the amendment of the Ordinance for Enforcement of the Tobacco Business Act and theAdvertising Guideline, see (3) c. (i), Notes 4 and 5 below). There are four criteria in this revision: the revision40

of standards for tobacco products; establishment of new rules for HTP; establishment of new rules for HTP
devices; and establishment of new rules for business activity relating to tobacco and television advertising to
advocate the improvement of smoking manners.
With regard to the caution on tobacco product packages, the revision required (a) caution statement changes on
tobacco product packages by July 1, 2020 and (b) more restrictive advertisement measures for tobacco products.
The changes in (a) included wording revision, which reflects the latest scientific knowledge, and increasing thearea of the statements at least 50% on the surface. With regard to (b), the measures included more effective
ways to prevent minors’ access to internet advertisements and new restrictions on the size and presentation
methods for point-of-sale advertising.
The enactment of the Partial Amendment of the Health Promotion Act (Act No. 78 of July 25, 2018)(hereinafter, the “Act”) in July 2018 strengthened measures to prevent unwanted passive smoking at facilities
used by numerous people. The Act classifies the facilities into three types in terms of measures to take: Facility
Type 1 includes schools, hospitals and administrative agencies; Facility Type 2 includes restaurants, offices,
factories and any other facilities that do not fall under Facility Type 1 or facilities whose main purpose is notfor smoking; and other facilities that do not fall in Facility Type 1 or 2 whose main purpose is to provide aplace for smoking (includes public smoking areas, bars that are mainly for smoking, and tobacco retailers where
on-premise smoking is allowed). Facility Type 1 prohibits smoking within its site but allows designated outdoor
smoking areas if they meet all of the requirements. Facility Type 2 prohibits indoor smoking but allows
designated smoking rooms, etc. after meeting certain criteria. Additionally, a restaurant can allow indoor
smoking once it meets certain requirements. Facilities whose main purpose is to provide a place for smoking
allow smoking within their sites. The Act was enacted fully on April 1, 2020, and the Group recognizes that the
number of smoking places will diminish as a result. The Group forecasts a certain level of impact on its
business performance while it is difficult to predict the anticipated changes in smoking environment.
Impact on the Group’s business performance

Although it is impossible to predict the content of future laws, regulations and industry guidelines relating tosales activities, marketing, packaging and labeling, tobacco products and smoking, the Group expects
regulations like the above and new regulations (including those of local governments) to diffuse in countries
where the Group sells its tobacco products.
The Group’s position is to support any regulation relating to tobacco that is appropriate and reasonable.
Nevertheless, if regulations such as those mentioned above are tightened, or if the Group is unable to respond to
this tightening of regulations in a timely and appropriate manner, subsequent declines in tobacco demand or
market share, costs for compliance with new regulations or other factors may negatively affect the Group’sbusiness performance. In the tobacco business, the Group is implementing measures such as gathering
information on regulatory trends with greater speed and accuracy, and engaging in constructive dialogue withgovernments, regulators, and various stakeholders.
d. Illicit trade such as smuggling and counterfeiting
One of the most serious issues in the tobacco industry is the increase of illicit trade, including smuggling andcounterfeit product distribution. Motivations for illicit trade are believed to include the high profit margin of
tobacco products and cross-border price gaps arising from different taxation systems and tax levels among
countries. As historical evidence shows, illicit trade in a market tends to increase after a steep tax increase.
Illicitly traded products not only significantly damage the credibility of brands and the companies that own
those brands, but also negatively affect governments’ tax revenues. Therefore, the Group and other tobaccocompanies are working together with governments to eliminate illicit trade.
The Group is making efforts towards countermeasures, such as by concluding cooperation agreements tocounter illicit trade with the governments and all its provinces and territories. Even so, growth in illicit tradesuch as smuggling and counterfeiting of tobacco products may negatively affect the Group’s businessperformance because of consequences including damage to its brand equity or the need for substantial expenses
for countermeasures and the like to eliminate illicit trade. In order to protect consumers and society, as well as
the business and the reputation of the Group, the Group has formed an Anti-Illicit Trade team that works toprevent illicit trade. The Anti-Illicit Trade team works with the Group’s various markets to prevent genuine
products being diverted into illegal channels, and cooperates with law enforcement to remove illegal tobacco
products from the marketplace. Making use of public-private partnerships, the team maintains proactive
41

dialogues with governments and law enforcement authorities in various countries in relation to the threat posedby illicit trade, and has established programs around the world to educate law enforcement on how to recognize
counterfeit products.
The Group also deploys and operates a Track and Trace system for tobacco products, enabling it to track andanalyze the movement of products through the supply chain. For more than a decade, this Track and Tracesystem has played an important role in its compliance policy, and although it was at first a voluntary initiative,
legislation has recently been drawn up to make such Track and Trace systems mandatory in some countries. In
addition to systems already deployed in the United Arab Emirates, Saudi Arabia and Russia, etc., an EU
directive for the first regional-level tobacco products Track and Trace system applicable to all member statescame into force in May 2019.
Furthermore, in accordance with its rigorous compliance policy, the Group implements measures to prevent
illicit trade, such as by dealing only with reputable business partners, and raising awareness among consumersof the negative impact of purchasing unregulated products.
Risks relating to the Pharmaceutical Businessa. Research and development, manufacture and sale of pharmaceutical products
The Pharmaceutical Business engages in research and development so as to swiftly provide original andrevolutionary new drugs to patients around the world. New drug development requires the Group to invest
enormous amounts of time and money, and the hurdles to discovering new drugs become higher every year. In
some cases, development is delayed or canceled when the anticipated results in terms of efficacy and safety
cannot be confirmed during development or when unexpected side effects occur during development. Suchcases may have a negative impact on the performance of the Group by failing to achieve the expected
investment returns, or by delaying said returns, amongst other effects.
In addition, although the pharmaceuticals thus developed undergo stringent examinations before being
approved by the governmental agencies with jurisdiction in various countries around the world, if unexpectedside effects and the like are discovered after the product goes on sale that subsequently develop into asuspension of sales or a product recall, such a situation could negatively impact the performance of the Groupby causing a decline in revenue, the occurrence of expenses related to the suspension of sales or product recall,or the decline of public trust in the Group.
The Pharmaceutical Business maximizes effective use of its resources by focusing on fields of treatment where
it can leverage the small-molecule drug knowledge and platform that it has built up over the years, and is also
working to shorten research and development time, and reduce R&D costs, by utilizing AI and data science toimprove the efficiency of drug discovery research. Furthermore, through collaborative initiatives withcompanies and academic institutions in Japan and overseas aimed at establishing proprietary drug discovery
technology, the Pharmaceutical Business seeks to construct a stable earnings base by accelerating R&D, raising
the hit rate for drugs discovered, and broadening the pipeline by actively licensing and adopting newcompounds.
With regard to side effects, the Pharmaceutical Business collects and evaluates safety information after
pharmaceutical products are launched, and takes other measures necessary to ensure the safety and appropriate
use of its pharmaceutical products.
b. Regulation and healthcare policy
The Pharmaceutical Business operates under regulations, imposed by the policies of various countries, that seek
to ensure the quality, effectiveness and safety of pharmaceutical products. The environment in which thepharmaceutical industry operates is expected to remain challenging, due to such factors as attempts by various
governments to control healthcare costs, and the drastic reform of the drug pricing system in Japan. In the eventthat pharmaceutical regulations are made more stringent, the Group may incur additional costs to ensure that
products comply with strengthened rules. In the event of drug prices being lower than expected as a result of
trends in healthcare systems or regulatory policies, including reform of drug price standards, Group revenue
may decline. In either case there would be negative effects on the performance of the Group.
The Pharmaceutical Business is working on other appropriate measures to deal with these issues, in addition tofollowing pharmaceutical regulations and drug price standards, such as continuous monitoring of regulatory
trends to get a grasp of the details of amendments at an early stage. With regard to drug prices, in addition to42

continuously creating innovative products, the Pharmaceutical Business is putting together the evidence that
demonstrates the scientific basis for the value they provide.
c. Dependency on specific licensees/contract manufacturers
The Group’s Pharmaceutical Business has been striving to make stable profit contribution to the Group throughthe promotion of R&D on next-generation strategic products and by maximizing the value of each product.
With regard to research and development, the Group is further broadening pre-clinical research themes as wellas constructing a high-precision research strategy that emphasizes “first in class” discoveries. Its aim is to use
these to drive forward R&D for next-generation strategic products, while implementing initiatives at the perfecttime to maximize the value of licensing activities for proprietary compounds, and cooperating closely withlicensing partners. In addition, manufacture of each product is contracted to external manufacturers, and theGroup seeks to maintain close relationships with these companies. In the event that agreements with thesecontract manufacturers are changed or terminated, or in the event that the partnership suffers from delays orcongestion, the returns expected at the point at which the agreement was concluded may not be achieved, or
returns may be delayed, with a resulting negative impact on the performance of the Group.
When considering a partnership, the Pharmaceutical Business makes a judgment as to whether to approve or
reject based on a multilateral analysis and evaluation. When concluding an agreement, it anticipates risks that
could emerge, and engages in discussions to form a consensus on how to mitigate them. In addition, evenduring a partnership it seeks to enhance the quality of the relationship by working continuously to maintain anddevelop it further.
Risks relating to the Processed Food Businessa. Food safety and quality
The mission of the Processed Food Business is to provide consumers with safe and high-quality food. The
frozen and ambient foods business and the seasonings business that make up the two core operations are each
responsible for food safety control functions, and take all possible measures to ensure food safety control
during the operation of the business. However, in the event that problems related to food safety or quality occurthat exceed those anticipated by the Group, in addition to a decline or impairment of public trust in the Group,
costs related to product recalls and demands for compensatory damages may be incurred, which could
negatively impact performance.
In addition to conducting continuous quality assurance activities aimed at providing safe and secure products
from the four perspectives of food safety, food defense, food quality, and food communication, the Processed
Food Business confirms their effectiveness through periodic audits. With the objective of constructing amanagement system platform to achieve the highest levels of food safety, the Company has drawn up policies,
rules and guidelines related to food safety control for the Processed Food Business as a whole, and monitors theinitiatives of each operating company in their operation. In addition, excluding one factory that began
operations in fiscal 2020, all of the Group’s factories inside and outside Japan, as well as the Group’s business
partners’ factories that produce frozen foods, have achieved certification under the ISO 22000 or FSSC 22000
international standards for food safety management. The one remaining factory is currently in the process ofobtaining certification for both ISO 22000 and FSSC 22000.
b. Food regulations
The Processed Food Business is subject to a variety of legal restrictions, such as the Food Safety Basic Act, theFood Sanitation Act, and the Food Labeling Act. The mission of the Processed Food Business is to provide
consumers with safe and high-quality food, and the Group operates a thorough program of compliance to ensure
conformity with all these legal restrictions. However, in the event that legal restrictions are introduced orchanged, additional costs may be incurred to comply with these regulations, or existing business activities may
be restricted, leading to a negative impact on the Group’s business performance.
In addition to conducting advance preparations by continuously monitoring for regulatory introductions andamendments, gathering information as appropriate, and considering additional countermeasures, the Processed
Food Business responds to circumstances as required.

43

(3) Other Factors Which May Materially Affect Investment Decisions
a. Relations with the Japanese government and the Minister of Finance
The JT Act obligates the government to continue to hold more than one-third of all the Company’s sharesissued. As of December 31, 2023, the government held 33.35% of all the Company’s shares issued. As aconsequence, the Japanese government is able to have a substantial influence on proposals for ordinary
resolutions at the Company’s General Meetings of Shareholders such as the election of Members of the Board.
Furthermore, the Japanese government has the veto power for special resolutions for such actions as mergers,
capital reductions or amendments to the Articles of Incorporation.
In addition, the Minister of Finance has the authority to supervise the Company under the JT Act and Tobacco
Business Act. Under the JT Act, the scope of the Company’s businesses includes the “manufacture, sale andimportation of tobacco products and ancillary businesses, as well as businesses required for attaining theobjective of the Company,” and “business required for attaining the objective of the Company” are subject tothe Minister of Finance’s approval. Consequently, the Minister of Finance’s approval is required in order for
the Company to engage in new businesses outside the scope of currently approved businesses (for details, see c.
(ii) below).
As mentioned above, in addition to the Japanese government’s rights as a shareholder of the Company, thegovernment has the authority to supervise the Company and other powers under the JT Act and Tobacco
Business Act. Since it cannot be guaranteed that the interests of the government will always coincide with theinterests of other shareholders, this may have a negative effect on the interests of other shareholders.
Under the “Act on Special Measures for Securing Financial Resources Necessary for Reconstruction from theGreat East Japan Earthquake,” which was promulgated on December 2, 2011, the government makes it aprinciple to secure revenue to fund reconstruction resources until the fiscal year ended March 31, 2023. To thisend, it is required for an examination to be made of the feasibility of selling the Company’s shares byreassessing the framework under which the government holds the shares, while taking into consideration theframework of the country’s commitment to tobacco-related business based on the Tobacco Business Act andthe like.
b. Purchasing of leaf tobacco
The Tobacco Business Act requires the Company to annually enter into purchase contracts with tobacco
growers regarding the aggregate cultivation area for specific varieties of leaf tobacco and the prices for leaf
tobacco by variety and grade. The Company must purchase all leaf tobacco produced pursuant to such contracts,
except for any not suited for the manufacture of tobacco products. When the Company decides the aggregate
cultivation area and the prices of leaf tobacco for its contracts with tobacco growers, it is required to respect theopinion of the Leaf Tobacco Council (hatabako shingi kai), which consists of members appointed by theCompany with the approval of the Ministry of Finance from among the representatives of domestic leaf tobacco
growers and academic appointees (for details, see c. (i) below). Much like many other agricultural products inJapan, production costs for domestically grown leaf tobacco is higher than those of foreign-grown leaf tobacco
to the extent that the purchasing price for the former (before redrying) is approximately three times that of thelatter (after redrying). The obligation to purchase virtually all leaf tobacco produced in Japan may adversely
impact the Group’s relative competitiveness because other global tobacco companies use foreign-grown leaf
tobacco only.

44

c. Legal matters relating to the business of filing company(i) Tobacco Business Act (Act No. 68 of August 10, 1984)
Description
1. Purpose

The object of this Act is, in consideration of the tax relating to tobacco products as a
portion of the treasury revenue incidental to the abolishment of the tobacco monopoly
system, to promote a sound development of the tobacco industry in our country bymaking necessary adjustments in the production and purchase of domestically produced
leaf tobacco as raw material for tobacco products and in business activities etc. ofmanufacture and sale of the tobacco products, whereby it will contribute to ensuring
treasury revenue and a sound development of the national economy. (Article 1)
2. Cultivation and(1) When intending to purchase the domestically produced leaf tobacco, Japan Tobaccopurchase of
Inc. (hereinafter, “JT”) shall enter into agreements in advance with those who intend
domestically grownto cultivate leaf tobacco for the purpose of selling it to JT regarding the cultivation
leaf tobacco for use
area for each item of leaf tobacco and the prices for each item and each grade of theas raw material
leaf tobacco. (Article 3)(2) JT shall purchase all leaf tobacco produced pursuant to such agreements, except thosewhich are not suitable as raw materials for tobacco products. (Article 3)(3) In the case where JT intends to enter into an agreement, JT shall consult with the Leaf
Tobacco Council that JT establishes, and respect its opinion concerning the total
cultivation area and the prices of leaf tobacco. (Articles 4 and 7)(4) The Leaf Tobacco Council shall deliberate on the price of the leaf tobacco so that
subsequent production of leaf tobacco is ensured, by taking into account the
production costs, commodity prices and other economic conditions. (Article 4)(5) JT shall determine the regional breakdown of the aggregate cultivation area for therespective items of leaf tobacco seeking the opinion of the Japan Tobacco Growers
Association (hereinafter, “JTGA”) and, within the scope of such regional breakdown,
enter into agreements with growers. (Article 5)(6) If a member grower of a tobacco growers association entrusts JTGA with entering
into an agreement regarding fundamental matters of the agreements such as the priceof leaf tobacco, JT shall establish said fundamental matters with JTGA and suchagreement shall be deemed as a part of the agreements executed between JT and said
grower. (Article 6)
3. Manufacture of(1) No tobacco products shall be manufactured by any party other than JT. (Article 8)
tobacco products(2) JT shall obtain the approval of the Minister of Finance on the maximum wholesale
price for each item of tobacco products. (Article 9)(3) JT shall make efforts to ensure a smooth supply of tobacco products taking into
account regional demand conditions for tobacco products. (Article 10)
4. Sale of tobacco(1) A party wanting to engage in the sale of tobacco products imported by themselves
shall register with the Minister of Finance, who establishes necessary regulations
products
relating to said registration and registered party (hereinafter, “Specified Distributor”).
(Articles 11 to 19)(2) A party wanting to engage in the wholesaling of tobacco products shall, for the time
being, register with the Minister of Finance, who establishes necessary regulations
relating to said registration and registered party. (Articles 20 and 21)(3) A party wanting to engage in the retailing of tobacco products shall, for the time
being, obtain the approval of the Minister of Finance, who establishes necessary
regulations relating to said registration and registered party (hereinafter, “Retailer”).
(Articles 22 to 32)(4) If JT and a Specified Distributor want to sell manufactured or imported tobacco
products, the list price of each item, and any subsequent change thereof, shall beapproved by the Minister of Finance for the time being. Necessary regulations are inplace with respect to the approval: for example, the Minister of Finance shall grant
approval unless it deems such price is unfair to consumers, etc. (Articles 33 to 35)(Note 1)

(5) A Retailer is only permitted to sell tobacco products at list prices that have been
approved by the Minister of Finance. (Article 36)

45

Description
5. Other(1) JT or a Specified Distributor shall indicate the wording as prescribed by Ordinance ofthe Ministry of Finance for warning consumers of the relationship between the
consumption of tobacco products and health prior to the commencement of sale of thetobacco products that it manufactured or imported. (Article 39)(Notes 2, 4)(2) Advertisers of tobacco products shall give due consideration to the prevention ofsmoking by persons under 20 years of age, etc. and make efforts lest suchadvertisement should be made to an excessive extent. The Minister of Finance may
implement necessary measures with respect to advertisers. (Article 40)(Notes 3, 5)

Notes: 1. The so-called list price system is maintained for the time being as a means to prevent confusion in the distribution
order, a well-established constant that materialized after the list price system was adopted in 1904.
Tobacco is a luxury item different from the so-called public property and public services and, in a distribution market
completely liberalized after the opening of import markets and other factors, the Company and Specified Distributors
stipulate prices on application (POA) to the Minister of Finance based on their respective, independent management
decisions.
Concerning the approval of list prices, the Company understands that a government delegate gave the following
explanation of the gist of the process at the 1984 Diet deliberations on the proposed Tobacco Business Act:
Pertaining to tobacco product list prices, under the Tobacco Business Act, in the event an application is made forthe approval of list prices, the Minister of Finance may exceptionally deny approval if it deems such list priceunfair to consumers or unfairly low in comparison with wholesale prices of domestic products or import prices ofimported products. In all other cases, the Minister approves list prices in line with the spirit of Tobacco BusinessAct.
2. In November 2003, the Ordinance for Enforcement of the Tobacco Business Act was revised and the wording of
warnings concerning tobacco consumption and health indicated on tobacco product packages was changed to specify
risks related to eight items, four of which are diseases associated with direct smoking (lung cancer, heart attack,stroke and emphysema), while the other four are smoking by pregnant women, passive smoking, addiction tosmoking and youth smoking. Each tobacco product package must indicate, on its main surfaces, a warning regarding
at least one of the four items associated with direct smoking and at least one of the other four items. The Ordinancestipulates, among others, (1) that these warnings must be rotated throughout the year in ways to ensure that theyreceive equal exposure on each product item and each type of package and (2) that the display must occupy 30% ormore of the main surfaces of the package. In addition, the Ordinance stipulates that when wording like “mild” and“light” are used on the package, they must be accompanied by a warning that clarifies that such words do not meanthat the risk to their health is lower than other tobacco products so as to prevent consumers from misunderstanding
the relationship between the consumption of tobacco products and health. The Company has been adhering to thisrule since July 1, 2005.
3. In March 2004, the “Guideline for Advertising of Tobacco Products” was revised to stipulate that the outdoor
advertising of tobacco products (posters, billboards, etc.) shall generally be prohibited. It also specifies mattersconcerning the presentation and content of the health warnings that accompany tobacco advertising.
4. In June 2019, the Ordinance for Enforcement of the Tobacco Business Act was revised and the wording of warnings
concerning tobacco consumption and health indicated on tobacco product packages was changed. According to therevision of this Ordinance, new warnings were established for HTP. Also, the Ordinance stipulates that a tobacco
product package must indicate, on its front main surface, warnings about the effects on others and, on its back main
surface, warnings about the prevention of smoking by minors, (persons under 20 years of age) and the effects on thesmoker. The display of these warnings must occupy 50% or more of each main surface of the package. In addition,
the Ordinance stipulates that when wording like “mild” and “light” are used on the package, they must be
accompanied by a warning on the front main surface of the package that clarifies that such words do not mean thatthe risk to their health is lower than other tobacco products. Because the display of nicotine and tar levels on tobacco
product packages may mislead consumers into thinking that the displayed levels indicate a lower risk to their health,the Ordinance also stipulates that the package must indicate that the actual intake levels of nicotine and tar could
vary from the displayed levels depending on the consumer’s smoking style. The display of these warnings is requiredfor HTP and cigarettes with a certain volume (cigarette sales volume of 0.1 billion or more cigarette equivalent units
from April 2018 to March 2019) shipped from April 1, 2020 and for other products shipped from July 1, 2020.
5. In June 2019, the “Guideline for Advertising of Tobacco Products” was revised to limit the locations where tobacco
products can be advertised and, excluding distribution by mail, etc., where tobacco product samples, leaflets,
brochures, pamphlets, etc. can be distributed to locations where tobacco products are sold, designated smoking areas
and locations restricted to use by adults only. It also specifies matters concerning the presentation and content of thehealth warnings that accompany tobacco advertising and the matters concerning the devices used to heat HTP.

46

(ii) Act on Japan Tobacco Inc. (Act No. 69 of August 10, 1984)
Description
1. Purpose

2. Stock

3. Scope of business4. Monitoring

Japan Tobacco Inc. (“JT”) is a stock company whose purpose is to engage in business
related to the manufacture, sale, and importation of tobacco products in order to attain theobjectives set forth in Article 1 of the Tobacco Business Act. (Article 1)
The Japanese government must continue to hold more than one-third of all Japan
Tobacco Inc. (“JT”) shares issued (excluding shares of a class for which it is provided
that the voting rights may not be exercised for all the matters that are subject toresolution at the General Meeting of Shareholders; the same shall apply to the following
items). (Article 2, paragraph 1)
Whenever JT intends to solicit subscribers for an issuance of shares or subscription rights
to shares of JT, or deliver shares (excluding own shares), subscription rights to shares(excluding subscription rights to treasury shares), or issuance of bonds with subscription
rights to shares (excluding bonds with subscription rights to treasury shares) at the timeof share exchange or delivery, the approval of the Minister of Finance is required.
(Article 2, paragraph 2)
The disposal of JT shares held by the government shall be effectuated within the
maximum range stipulated by resolution of the Diet based on the budget of thecorresponding year. (Article 3)
JT shall engage in the following businesses in order to attain the objectives stated in 1
above.
(1) business of manufacture, sale and importation of tobacco products(2) business incidental or relating to the business in the preceding item(3) other business required for attaining the object of JT
JT shall obtain authorization from the Minister of Finance before engaging in any
business corresponding to (3) above. (Article 5)(1) The appointment or dismissal of Members of the Board, Executive Officers(sikkoyaku at a company with committees), and Audit & Supervisory Board
Members require authorization from the Minister of Finance. (Article 7)(2) Amendments to JT’s articles of incorporation, appropriations of surplus (except
disposal of losses), and any merger, corporate split, or dissolution of JT requireauthorization from the Minister of Finance. (Article 8)(3) JT shall formulate a business plan prior to each business year and obtain
authorization from the Minister of Finance. Any change thereof also requires
authorization from same. (Article 9)(4) Within three months after the closing of each business year, JT shall issue its balance
sheet, statement of income, and business report to the Minister of Finance. (Article
10)(5) Transfers of manufacturing facilities or similar material assets require authorizationfrom the Minister of Finance. (Article 11)(6) The Minister of Finance shall monitor JT in accordance with this Act as well as the
Tobacco Business Act and may implement necessary measures in the execution ofsame. (Articles 12 and 13)

47

(iii) Acts relating to tobacco excise taxes (including tobacco special excise taxes)
Description
National Tobacco
Excise Tax

National Tobacco
Special Excise Tax

Local Tobacco Excise Tax

Tobacco Excise Tax

Tobacco Special
Excise Tax

Municipal Tobacco
Prefectural Tobacco
Excise Tax
Excise Tax(also applies to special(also applies to Tokyo)
wards)

1. Tax item (Note 1)

2. Taxpayers (Note 2)

Manufacturers of tobacco products or those who Manufacturers of tobacco products, Specified
remove tobacco products from bonded areas
Distributors or wholesalers selling to Retailers

3. Tax base (Note 3)

Number of cigarettes removed from the
manufacturing site or bonded area (for tobacco
products other than cigarettes, prescribedcigarette count conversion)

Number of cigarettes relating to sales to
Retailers (for tobacco products other thancigarettes, prescribed cigarette countconversion)

4. Tax rate (Note 4)¥6,802 per 1,000
cigarettes¥1,070 per 1,000
cigarettes¥6,552 per 1,000
cigarettes

5. Declaration andpayment (Note 5)

Tobacco product manufacturers are to declareand pay taxes for each month’s shipment by theend of the following month. Parties removing
tobacco products from bonded areas are to
declare and pay taxes by the time of extraction

For sales of tobacco
products relating tosales locations of
Retailers locatedwithin a given
prefecture, adeclaration andpayment of taxes is to
be made to that
prefecture for eachmonth’s transfer by theend of the followingmonth

For sales of tobacco
products relating tosales locations of
Retailers locatedwithin a given
municipality, adeclaration andpayment of taxes is to
be made to thatmunicipality for eachmonth’s transfer by theend of the followingmonth¥820 per 1,000
cigarettes

Notes: 1. Article 3 of the Tobacco Excise Tax Act, Article 4 of the Act Concerning Special Measures for Financing Debt
Transferred to the General Accounts, and Article 1, paragraph 2 and Articles 4 and 5 of the Local Tax Act
2. Article 4 of the Tobacco Excise Tax Act, Article 5 of the Act Concerning Special Measures for Financing Debt
Transferred to the General Accounts, and Article 74-2, paragraph 1 and Article 465, paragraph 1 of the Local Tax
Act
3. Article 10 of the Tobacco Excise Tax Act, Article 7 of the Act Concerning Special Measures for Financing Debt
Transferred to the General Accounts, and Articles 74-4 and 467 of the Local Tax Act
4. Article 11, paragraph 1 of the Tobacco Excise Tax Act, Article 8, paragraph 1 of the Act Concerning Special
Measures for Financing Debt Transferred to the General Accounts, and Articles 74-5 and 468 of the Local Tax Act
5. Articles 17 to 20 of the Tobacco Excise Tax Act, Article 12 of the Act Concerning Special Measures for Financing
Debt Transferred to the General Accounts, and Articles 74-10 and 473 of the Local Tax Act
6. In the event the tax system relating to tobacco subject to high excise taxes is examined, on a general basis, as part ofa revision of the tax system by the government each year and the tax system is revised, a decision is made upon the
deliberation and resolution of the legislature subsequent to the determination of government policy throughdeliberation by the Tax System Council and other bodies. Relevant government policy is determined once cabinet
approval of a bill is secured following the cabinet’s approval of an outline of the tax reform proposal.

48

(iv) Taxation methods applied to tobacco products other than cigarettes
The tax base for the tobacco excise tax is held to be the number of cigarettes, but based on the fact that the
number of tobacco products other than cigarettes is not understood, the following tobacco product categories
are converted into the equivalent of single cigarettes, based on the respective category weights.
Classification

Tax base

Conversion method

Tobacco products for smoking
Pipe tobacco
Number of cigarettes resulting
from conversion by weight(Note)

Cigar tobacco
Flake tobacco

Converted at the rate of 1 g per cigaretteConverted at the rate of 2 g per cigarette

HTP

Separate (refer to the figure below)

Chewing tobacco products
Snuff products

Number of cigarettes resulting
from conversion by weight

Converted at the rate of 2 g per cigaretteNote: The tax base for little cigars (a cigar contains less than 1 g of tobacco per cigar) specifies that one little cigar be converted into theequivalent of one cigarette.

HTP were categorized as “pipe tobacco” before the 2018 Tax Reform, and were converted to cigarettes at therate of 1 g per cigarette, with the cigarette excise tax rate being applied to the resulting number. After thereform a new tax category was established for HTP on October 1, 2018, with these tobacco products being
converted to cigarettes at a rate prescribed by the new conversion methods described below. Moreover, withregard to the review of the form of excise taxation for such HTP, transitional measures were devised to allow
staged implementation between October 1, 2018 and October 1, 2022.
Tax base of HTP
Number of cigarettes
Conversion method
resulting frombefore reformconversion by weight

Conversion method(A)

HTP is converted at the rate of 1 g per cigarette

The prescribed weight of HTP(Note 1) of 0.4 g converts to 0.5
cigarettes
Conversion method
Based on the average retail price per cigarette(Note 2), the retailafter reform(C)
price of HTP (excluding the equivalent of consumption tax) isconverted to 0.5 cigarettes.
Notes: 1. Weight does not include weight of filter and certain other goods
2. Calculated by dividing the total of the national and local tobacco excise tax per cigarette, and a figure equivalent totobacco special excise tax, by 60%
Number of cigarettes
resulting fromconversion by weightand price(B)

Conversion volume during the transitional measures period (tax base)On and before September 30, 2018

Revision(A) × 1.0

October 2018(A) × 0.8 + {(B) + (C)} × 0.2

October 2019(A) × 0.6 + {(B) + (C)} × 0.4

October 2020(A) × 0.4 + {(B) + (C)} × 0.6

October 2021

(A) × 0.2 + {(B) + (C)} × 0.8

October 2022{(B) + (C)} × 1.049[Main movements relating to the tobacco tax system and the Company’s responses]
Month/Year
Item
May
1986 1986 Tax Reform

Description
Tax increase equivalent to ¥900 per 1,000
cigarettes

April

1989 1989 Tax Reform

April1997 1997 Tax Reform

Following the introduction of theconsumption tax, “tobacco consumptiontax” changed to “tobacco excise tax” andtaxation formula unified to a unit tax[Revision of Local Tax Act]
Local Tobacco Excise Tax revenue
transferred from the Prefectural Tobacco
Excise Tax to the Municipal Tobacco
Excise Tax[Revision of Consumption Tax Act]
Consumption tax rate revised from 3% to
5%December 1998 1998 Tax ReformMay

1999 1999 Tax ReformJuly

2003 2003 Tax ReformJuly

2006 2006 Tax Reform

October2010 2010 Tax Reform

April2014 2014 Tax Reform

April2016 2015 Tax Reform

April2017 2015 Tax Reform

April

2018 2015 Tax Reform

The Company’s response
Fixed price revised byamount equivalent to tax
increase
Basically, fixed pricerevision unnecessary

Fixed price revision
unnecessary

Prices raised by ¥10 per packfor some brands in an effort
to revise fixed prices overall
by the amount equivalent tothe consumption tax rate
revision
Act Concerning Special Measures for
Basically, price per cigaretteFinancing Debt Transferred to the General raised by ¥1
Accounts established and ¥820 per 1,000
cigarettes of Tobacco Special Excise Tax
introduced[Revision of Special Taxation Measures
Fixed price revision
Act and Local Tax Act]
unnecessary
Tax revenue transferred from Tobacco
Excise Tax to Prefectural Tobacco Excise
Tax and Municipal Tobacco Excise Tax
Acts revising portions of the Income Tax Price per cigarette raised by
Act, Local Tax Act, among others,
approx. ¥1established and tax increase by ¥820 per
1,000 cigarettes
Acts revising portions of the Income Tax Amount equivalent to tax
Act, Local Tax Act, among others,
increase shifted to fixed priceestablished and tax increase by ¥852 perof all brands with some
1,000 cigarettes
prices increased higher thansaid amount
Acts revising portions of the Income Tax With exception of some
Act, Local Tax Act, among others,
brands, prices increased
established and tax increase by ¥3,500 per higher than the amount
1,000 cigarettes
equivalent to tax increase[Revision of Consumption Tax Act]
With exception of some
Consumption tax rate revised from 5% to brands, prices raised by ¥10or ¥20 per pack to revise
8%
fixed prices overall by theamount equivalent to theconsumption tax rate revision
Acts revising portions of the Income Tax For former third-class
Act, Local Tax Act, among others,
products, prices raised byestablished and tax increase by ¥1,000 per ¥30 to ¥50 per pack1,000 cigarettes for former third-classproducts
Based on 2015 Tax Reform, tax increase
For former third-classby ¥1,000 per 1,000 cigarettes for former products, prices raised bythird-class products¥30 per pack
Based on 2015 Tax Reform, tax increase
For former third-classby ¥1,500 per 1,000 cigarettes for former products, prices raised bythird-class products¥40 per pack50

Month/Year
Item
October 2018 2018 Tax Reform

Description
Tax increase based on 2018 Tax Reform(Note 1)

October

Based on 2015 Tax Reform, tax increaseby ¥3,932 per 1,000 cigarettes for former
third-class products
Tax increase based on 2018 Tax Reform(Note 1)2019 2015 Tax Reform

2018 Tax Reform

October

October

October

2019 Tax Reform[Revision of Consumption Tax Act]
Consumption tax rate revised from 8% to10%2020 2018 Tax Reform

Tax increase based on 2018 Tax Reform(Note 1)2020 Tax Reform

Tax increase based on 2020 Tax Reform

2021 2018 Tax Reform

Tax increase based on 2018 Tax Reform(Note 1)2020 Tax Reform

Tax increase based on 2020 Tax Reform

2022 2018 Tax Reform

Tax increase based on 2018 Tax Reform(Note 1)The Company’s response
With exception of somebrands, prices increased
higher than the amountequivalent to tax increase
For former third-classproducts, prices raised by¥90 per pack
With exception of somebrands, prices increased by amargin lower than theamount equivalent to tax
increase
Prices raised by ¥10 per packfor some brands in an effort
to revise fixed prices overall
by the amount equivalent tothe consumption tax rate
revisionWith exception of somebrands, prices increased
higher than the amountequivalent to tax increase
With exception of somebrands, prices increased
higher than the amountequivalent to tax increase
With exception of somebrands, prices increased
higher than the amountequivalent to tax increase
With exception of somebrands, prices increased
higher than the amountequivalent to tax increase
With exception of somebrands, prices increased by amargin lower than theamount equivalent to tax
increase

Notes: 1. The review of tobacco excise tax caused by the 2018 Tax Reform resulted in an increase in the national and local
tobacco excise tax rate of ¥3,000 per 1,000 cigarettes, with the establishment of a new tax category for HTP, and areview of the form of excise taxation based on the characteristics of these products. These reviews, viewed fromthe perspective of mitigating radical change, etc., have been respectively devised as transitional measures, with theformer implemented in three stages, in which each stage consists of a ¥1,000 increase per 1,000 cigarettes between
October 2018 and October 2021 (with no increase in the rate of excise tax in October 2019), and with the latter
implemented in five stages between October 2018 and October 2022.
2. The Outline of the 2024 Tax Reform Proposals approved by the Cabinet of Japan on December 22, 2023 specifies
that tax measures to secure financial resources for strengthening defense capabilities, including tobacco excise tax,
are to be implemented in accordance with the Outline of the 2023 Tax Reform Proposals. Regarding tobacco
excise tax, national tobacco excise tax rate will be raised after filling the tax burden gap between cigarettes and
HTP, and financial resources equivalent to ¥3 per cigarette will be secured together with the increase in tax
revenue from the appropriateness of taxation. The Outline of the 2024 Tax Reform Proposals also specifies thatthe intent of taking necessary legislative measures at an appropriate time based on the results of the study inaccordance with the Outline of the 2023 Tax Reform Proposals and the basic direction described above will beclarified in the supplementary provision of the tax law related to the 2024 tax reform. Furthermore, the Outline of
the 2023 Tax Reform Proposals approved by the Cabinet of Japan on December 23, 2022 specifies that the
tobacco excise tax rise will be implemented gradually after predictability is ensured while giving sufficientconsideration to the impact on domestic leaf tobacco farmers.

51

4. Management Analysis of Financial Position, Operating Results and Cash Flows
Major notes concerning the operating results from the viewpoint of the management are as follows. The following
includes forward-looking statements determined, unless otherwise indicated, as of the filing date.
(Non-GAAP financial measures)
The Group also discloses certain non-GAAP financial measures that are not required or defined under IFRS, which isthe accounting standard the Company applies. These non-GAAP financial measures are used internally to manage
each of the business operations to understand their underlying performance, in view of the Group’s target for mid- tolong-term sustainable growth, and the Group believes that these financial measures are useful information for users of
the financial statements to assess the Group’s performance.
Adjusted operating profit
Adjusted operating profit presented is operating profit (loss) less amortization cost of acquired intangibles arisingfrom business acquisitions and adjustment items (income and costs). Adjustment items (income and costs) are
impairment losses on goodwill, restructuring income and costs, and other items.
Furthermore, growth rate in adjusted operating profit (AOP) at constant FX is also presented as additional
information. The Group has set its group-wide target for annual average growth rate in AOP at constant FX, at mid
to high single digit over the mid- to long-term, and will continue to pursue this goal.
Constant FX
Adjusted operating profit at constant FX is a financial benchmark that excludes foreign exchange effects calculated
and translated using the foreign exchange rates of the previous year from core revenue or from adjusted operating
profit for the current fiscal year in the Tobacco Business. Adjusted operating profit results at constant FX excludes
the increase in revenue or profit caused by inflation in some markets calculated using certain methods.
Core revenue
Regarding tobacco business, core revenue is disclosed. Core revenue excludes revenue related to the distribution
business and contract manufactured products, among others.
(Hyperinflationary accounting adjustments)
The Group applies accounting adjustments to the underlying financial statements of the subsidiaries in thehyperinflationary economy as required by IAS 29, “Financial Reporting in Hyperinflationary Economies.”(RRP)
Reduced-Risk Products (RRP) are products with potential to reduce the risks associated with smoking such as HTP
and E-Vapor products.
HTP uses tobacco leaf, but instead of burning the leaf, it uses methods such as heating the leaf to generate tobacco
vapor (which includes compounds derived from the tobacco leaf) for the user to enjoy. The Company’s portfolio
includes heated tobacco sticks (HTS) that use high temperature heating, and infused tobacco capsules (Infused) thatuse low temperature heating.
Conversely, E-Vapor products do not use tobacco leaf, instead using electrical heating of a liquid inside a device or
specialized cartridge to generate vapor for the user to enjoy.

52

Analyses and examinations concerning the operating results from the viewpoint of the management are as follows.
(1) Business Resultsa. Consolidated results(Billions of yen)
Fiscal year ended
December 31, 2022

Fiscal year ended
December 31, 2023

2,657.8

2,841.1

6.9%

Adjusted operating profit

727.8

728.0

0.0%

Operating profit

653.6

672.4

2.9%

Profit attributable to owners of theparent company

442.7

482.3

8.9%

Revenue

Change<Revenue>
Revenue increased by 6.9% from the previous fiscal year to ¥2,841.1 billion due to increases in the Tobacco Businessand the Pharmaceutical Business. Core revenue(Note) at constant FX increased by 6.1% from the previous fiscal year.
<Adjusted operating profit>
Adjusted operating profit at constant FX increased by 5.2% from the previous fiscal year mainly due to an increase in
the Tobacco Business. Adjusted operating profit including foreign exchange effects was ¥728.0 billion, the same level
as the previous fiscal year, due to unfavorable currency movements as a result of the Japanese yen appreciating against
several local currencies.
<Operating profit>
Operating profit increased by 2.9% from the previous fiscal year to ¥672.4 billion due to a decrease in amortization
cost of acquired intangibles arising from business acquisitions and an increase in gains on sale of real estate inadjustment items.
<Profit attributable to owners of the parent company>
Profit attributable to owners of the parent company increased by 8.9% from the previous fiscal year to ¥482.3 billion
due to an increase in operating profit as well as decreases in financing costs and income taxes.
Note:Core revenue at constant FX is the sum of core revenue at constant FX from tobacco business and revenue
from the Pharmaceutical Business, Processed Food Business and other.

b. Segment results
Tobacco BusinessTobacco Business(Billions of cigarette equivalent units, Billions of yen)
Fiscal year ended
ChangeDecember 31, 2023

Fiscal year ended
December 31, 2022

Total volume

527.3

540.1

2.4%

Combustibles volume(Note 1)

519.4

531.3

2.3%

7.9

8.8

11.8%

2,315.2

2,478.6

7.1%

754.0

749.8

(0.6)%

RRP volume(Note 2)
Core revenue
Adjusted operating profit<Total volume>(Note 3)(Note 4)
Total volume increased by 2.4% from the previous fiscal year to 540.1 billion cigarettes due to consistent growth inmarket share in Asia and EMA and increase in industry volume in some markets, despite decrease in industry volume
53

in the markets in Western Europe. Combustibles volume increased by 2.3% from the previous fiscal year due toincreases mainly in EMA. RRP volume increased by 11.8% from the previous fiscal year mainly due to consistent
growth in market shares in the HTS category in Japan and the products being launched into new markets. Market
share grew in various markets, including the key markets of Italy, Taiwan, Japan, the Philippines, and Russia.
The combined volume of combustibles, including manufacturing under contracts, and RRP manufactured in the fiscal
year ended December 31, 2023 increased by 32.1 billion cigarette equivalent units, or 6.1%, from the previous fiscal
year to 558.4 billion cigarette equivalent units.
<Core revenue from tobacco business and adjusted operating profit>
Core revenue from tobacco business increased by 7.1% from the previous fiscal year due mainly to favorable pricing
effects mainly in Western Europe and EMA, consistent growth in market share in Asia and EMA, and favorable
foreign exchange effects. Adjusted operating profit decreased by 0.6% from the previous fiscal year due tounfavorable foreign exchange effects. RRP-related revenue (Note 2) increased by 8.3% from the previous fiscal year to¥81.6 billion due to increases in RRP volume and market share.
Core revenue from tobacco business at constant FX and adjusted operating profit at constant FX increased by 6.4%
and 4.4%, respectively, from the previous fiscal year.
(Note 1)

Combustibles include all tobacco products excluding contract manufactured products, waterpipe, HTP, oraland E-Vapor.

(Note 2)

RRP volume does not include volume from devices and associated accessories, etc., while RRP-related
revenue includes revenue from devices and associated accessories, etc.

(Note 3)

Industry volume and market share were estimated by the Company.

(Note 4)The Tobacco Business segment has been divided into three clusters (Asia, Western Europe and EMA).
Asia includes the entire Asian region, including Japan, Western Europe includes the Western European
region, EMA includes Africa, the Middle East, Eastern Europe, Turkey, Americas, and all Global Travel
Retail (duty-free markets). Asia includes Taiwan, Japan, the Philippines, etc., Western Europe includes
Italy, the U.K., Spain, etc., and EMA includes Turkey, Romania, Russia, etc. For details, please refer to “V.
Accounting, 1. Consolidated Financial Statements, (1) Consolidated Financial Statements, Notes toConsolidated Financial Statements, 6. Operating Segments, (2) Revenues and Performances of Reportable
Segments.”

Pharmaceutical Business(Billions of yen)Pharmaceutical Business
Revenue
Adjusted operating profit

Fiscal year ended December
31, 2022
82.9
11.1

Fiscal year ended December
31, 2023
94.9
17.4

Change14.4%
56.2%<Revenue and adjusted operating profit>
Revenue increased by 14.4% from the previous fiscal year due to one-time income pertaining to license agreements
for licensed compounds and an increase in revenue at Torii Pharmaceutical Co., Ltd., which is a consolidated
subsidiary of the Company.
Adjusted operating profit increased by 56.2% from the previous fiscal year due to an increase in revenue despite anincrease in research and development expenses.
Processed Food Business(Billions of yen)
Processed Food Business
Revenue
Adjusted operating profit

Fiscal year ended December
31, 2022
155.5
3.5

Fiscal year ended December
31, 2023
153.9
6.8
54

Change(1.1)%
95.2%

<Revenue and adjusted operating profit>
Revenue was generally at a similar level as that of the previous fiscal year due to the absence of revenue from transferof the bakery business, despite growth in sales of products for commercial use from recovery of eating out demand in
addition to price revisions in the frozen and ambient foods.
Adjusted operating profit increased by 95.2% from the previous fiscal year due to the effects of price revisions and theeffects of an increase in sales of products for commercial use from recovery of eating out demand in the frozen andambient foods, despite an increase in costs of raw materials and other costs.

55

(2) Financial Position and Cash Flow Positiona. Financial position
AssetsTotal assets as of December 31, 2023 increased by ¥734.0 billion from the end of the previous fiscal year to ¥7,282.1
billion. This was due mainly to an increase in cash and cash equivalents, as well as to an increase in goodwill resulting
from foreign exchange effects.
Liabilities
Total liabilities as of December 31, 2023 increased by ¥438.3 billion from the end of the previous fiscal year to¥3,369.6 billion. This was due mainly to increases in borrowings and tobacco excise tax payables.
EquityTotal equity as of December 31, 2023 increased by ¥295.7 billion from the end of the previous fiscal year to ¥3,912.5
billion. This was mainly due to an increase in exchange differences on translation of foreign operations, as well as anincrease in retained earnings as a result of the recording of profit attributable to owners of the parent company, despite
payment of cash dividends.
b. Cash flow position
Cash and cash equivalents at the end of the current fiscal year increased by ¥173.3 billion from the end of the previous
fiscal year to ¥1,040.2 billion. Cash and cash equivalents at the end of the previous fiscal year was ¥866.9 billion.
Net cash flows from operating activities
Net cash flows from operating activities during the current fiscal year were ¥567.0 billion, compared with ¥483.8
billion provided in the previous fiscal year. This was mainly due to the generation of a stable cash inflow from thetobacco business, despite payments of income taxes and increases in inventories and prepaid tobacco excise taxes.
Net cash flows from investing activities
Net cash flows used in investing activities during the current fiscal year were ¥126.1 billion, compared with ¥101.8
billion used in the previous fiscal year. This was mainly due to the purchase of property, plant and equipment,
intangible assets, and securities.
Net cash flows from financing activities
Net cash flows used in financing activities during the current fiscal year were ¥270.5 billion, compared with ¥306.2
billion used in the previous fiscal year. This was mainly due to the payment of cash dividends and redemption ofbonds, despite an increase in short-term borrowings.
(3) Results of Production, Orders Received and Sales
The Group conducts production and sales of broad and various products in the Tobacco Business, PharmaceuticalBusiness and Processed Food Business. Moreover, the types, formats, content volumes, and packages of their products
are broad, and major products are not based on a made-to-order basis. For this reason, size of production and orders
received are presented neither in the amount of money nor in volume by segment.
Therefore, results of “production, orders received and sales” are presented in connection with the operating results bysegment in “(1) Business Results.”
Regarding business partners which are the source for 10% or more of the Group’s total revenue, the revenue fromsuch partners and the percentage of total revenue are as follows.
Fiscal year ended December 31, 2022
Business partner

Megapolis Group

Amount(Billions of yen)
387.5

Fiscal year ended December 31, 2023

Percentage
14.6

Amount(Billions of yen)
371.0

Percentage
13.1

Note:The Group’s Tobacco Business sells products to Megapolis Group, which runs logistics and wholesale businesses mainly in Russia.
56

(4) Material Accounting Policies
a. Adoption of IFRSHaving acquired RJR Nabisco’s non-U.S. tobacco business in 1999 and Gallaher Group Plc in 2007, the Grouphas been growing steadily as a global company and sells products in at least 130 countries and territories. In thiscontext, the Group has decided to opt for an adoption of IFRS from the fiscal year ended March 31, 2012 basedon the Japanese authorities’ permission for the listed companies conducting financial and business activities
internationally to adopt IFRS voluntarily from the fiscal year ended March 31, 2010. Upon the adoption of
IFRS, the Group aims to diversify the group’s sources of financing through international markets and to
improve quality of business management.
b. Significant accounting estimates and judgment on estimates
Preparation of consolidated financial statements of the Group requires the management to make estimates andassumptions in order to measure income, expenses, assets and liabilities, and disclose contingencies as of the
fiscal year end date. These estimates and assumptions are based on the best judgment of the management,
considering past results and various factors deemed to be appropriate as of the fiscal year end date. Given theirnature, actual results may differ from those estimates and assumptions.
The estimates and assumptions are continuously reviewed by the management. The effects of a change in theestimates and assumptions are recognized prospectively, including the period reviewed.
As for the estimates and assumptions that may have a material effect on the amounts recognized in the
consolidated financial statements of the Group, please refer to “V. Accounting, 1. Consolidated Financial
Statements, (1) Consolidated Financial Statements, Notes to Consolidated Financial Statements, 4. Significant
Accounting Estimates and Judgments.”(5) Target Management Benchmarks
The Group considers the most important issue to achieve sustainable profit growth over the mid- to long-term, basedon the 4S model, its management principle, and the JT Group Purpose. In order to measure the performance of thebusinesses that form the foundation for sustainable profit growth, the Group considers it appropriate to exclude foreignexchange effects, temporary factors and special factors, and have set a group-wide profit target of mid to high single
digit annual average growth rate over the mid- to long-term in adjusted operating profit at constant FX.
Adjusted operating profit at constant FX in the fiscal year ended December 31, 2023 increased by 5.2% from theprevious fiscal year, exceeding the previous year’s results despite the challenging business environment.
Analyses and examinations concerning the operating results for the fiscal year ended December 31, 2023 are included
in “II. Review of Operations, 4. Management Analysis of Financial Position, Operating Results and Cash Flows, (1)Business Results.”
For details of management policies aimed at achieving group-wide profit targets, please refer to “II. Review ofOperations, 1. Management Policy, Business Environment, Issues to Be Addressed, Etc.”(6) Factors Causing Significant Effects on Operating Results, Etc.
Along with the expansion of the tobacco business overseas and its contribution to the results, foreign exchange
fluctuation greatly impacts consolidated financial statements. Adjusted operating profit at constant FX in the fiscal
year ended December 31, 2023 increased by 5.2% from the previous fiscal year, while adjusted operating profit
including foreign exchange effects was the same level as the previous fiscal year due to unfavorable foreign exchange
effects. Unfavorable foreign exchange effects are also expected to arise in the fiscal year ending December 31, 2024.
In order to mitigate foreign exchange risk, the Group is working to implement a natural hedging strategy by matching
revenue currencies to payment currencies. The Group hedges some foreign exchange risks using derivatives or foreign
currency-denominated interest-bearing debt, etc.
With regard to factors causing significant effects on the Group’s operating results, etc. including the above, pleaserefer to “II. Review of Operations 3. Business and Other Risks.”57

(7) Basic Policies of Financing Activities
The Group’s basic policies of financing activities are as follows.
a. Group Cash Management Systems
To maximize the total group cash efficiency, the Group gives first priority to utilizing internal financing mainlyby the Group Cash Management Systems (CMS), where legally permissible and economically viable.
b. External financing
Short-term working capital needs are normally financed through short-term borrowings from financial
institutions or through commercial paper, or a combination of both; mid- to long-term financing is done throughlong-term borrowings from financial institutions, bond or equity, or a combination of those.
For secure and efficient financing, the Group continues to diversify its financing means as well as the financial
institutions, and set up secure financing means, such as multiple committed facilities.
c. External investments
Investments with financial institutions should be transacted ensuring safety, liquidity and optimal yield.
Speculative dealings in pursuit of profit margin are not allowed.
d. Financial risk management
The Group is exposed to financial risks such as credit risk, liquidity risk, foreign exchange risk, interest raterisk, and market price fluctuation risk. The Group manages such risks according to the risk management
policies and procedures to avoid or mitigate such risks. The major financial risk management status is reported
regularly to the President and the Board of Directors of the Company.
It is the Group’s policy that derivatives are only used if it is intended to mitigate risks of transactions for actual
business needs, and speculative and trading transactions are not allowed.
For more details on financial risk management, please refer to “V. Accounting, 1. Consolidated Financial
Statements, (1) Consolidated Financial Statements, Notes to Consolidated Financial Statements, 33. Financial
Instruments, (2) Financial Risk Management to (8) Market Price Fluctuation Risk.”(8) Analysis of Capital Resources and Liquidity of Funds
a. Funding requirements
Funds are mainly allocated for capital expenditure, working capital and acquiring external capital resources aswell as the repayment of borrowings, the payment of interest and dividends, the acquisition of treasury sharesand the payment of income taxes.
Scheduled material capital expenditures and approaches to procuring funds are as presented in “III. Facilities, 3.
Plans for New Installation and Retirement of Facilities.”b. Resources of funds
The necessary funds are mainly procured from net cash flows from operating activities, borrowings fromfinancial institutions and bond and commercial paper issuances.
<Cash flows>
Please refer to “(2) Financial Position and Cash Flow Position, b. Cash flow position.”<Interest-bearing debt>

58

Amounts of interest-bearing debt of the Group to be repaid or redeemed as of December 31, 2023 are as follows.

Book
value
Short-term borrowings
209.0
Long-term borrowings
24.4(current portion)
Long-term borrowings
123.0
Bonds
785.9
Total
1,142.3
Note: Lease liabilities are excluded.

(Billions of yen)
Due after
four years
Due after
throughfive years
five years
-

209.0

Due after
one yearthrough
two years-

Due after
two years
throughthree years-

Due after
three years
throughfour years
-

24.4

-

-

-

-

-

233.3

2.8
111.1
113.9

0.2
0.2

20.2
20.2

0.1
100.0
100.1

100.0
584.5
684.5

Due within
one year(Long-term debt)
Bonds issued (including the current portion) as of December 31, 2022 and as of December 31, 2023 accountedfor ¥737.3 billion and ¥785.9 billion, respectively, and long-term borrowings from financial institutions(including the current portion) accounted for ¥157.2 billion and ¥147.4 billion, respectively. Long-term leaseliabilities totaled ¥40.1 billion as of December 31, 2022 and ¥38.2 billion as of December 31, 2023.
As of December 31, 2023, the long-term debt was rated A2 (stable) by Moody’s Japan K.K., A+ (stable) by
S&P Global Ratings Japan Inc., and AA (stable) by Rating and Investment Information, Inc. (R&I). These
ratings are among the highest ratings for international tobacco companies.
These ratings are affected by a number of factors such as developments in the major business markets, thequality of execution of the business strategies, and general economic trends that are beyond the Group’s control.
The ratings may be withdrawn or revised at any time. Each rating should be evaluated separately from otherratings. Under the JT Act, bonds issued by the Company are secured by statutory preferential rights to theproperty of the Company. These rights give bondholders precedence over unsecured creditors in seeking
repayment, with the exception of national and local taxes and other statutory obligations.
(Short-term debt)
Short-term borrowings from financial institutions totaled ¥63.7 billion as of December 31, 2022 and ¥209.0
billion as of December 31, 2023. There was no commercial paper outstanding. Short-term lease liabilities
totaled ¥20.2 billion as of December 31, 2022 and ¥21.4 billion as of December 31, 2023.
c. Liquidity
The Group has historically had, and expects to continue to have, significant cash flows from operating activities.
The Group expects that cash generated from operating activities will continue to be stable and cover funds
needed for regular business activities. As of December 31, 2023, the Group had ¥567.7 billion in committedlines of credit from major financial institutions both domestic and international, of which 76.2% was unused. In
addition, the Group has a commercial paper program, uncommitted lines of credit, a domestic bond shelfregistration, and a euro MTN program.

5. Important Operational Contracts
No items to report.

6. Research and Development Activities
Research and development activities are mainly undertaken at the Company’s Tobacco Science Research Center andCentral Pharmaceutical Research Institute.
Research and development expenses of the Group during the fiscal year ended December 31, 2023 amounts to ¥75.1
billion and the research objectives and research and development expenses by each segment are as follows. The
above-mentioned research and development expenses include ¥8.8 billion relating to D-LAB, which was set up by the
corporate divisions of the Company for the purpose of research and development, and to basic research not affiliatedto any segment.
59

(1) Tobacco Business
The Group is committed to strengthening its R&D capabilities to ensure a long-term competitive advantage. The focus
areas in the R&D activities are the development of new leaf tobacco varieties, improvement of tobacco leaves andtheir processing, enhancement of aroma and taste, upgrading manufacturing technology, and continuous progress on
RRP-related technologies. The Group has been striving to add value to the products in these focus areas in a cost
efficient manner. It has established a global research platform in Japan, which focuses on the fundamental researchand product technology development. To best meet consumers’ needs and preferences, the market teams arecontinuously engaged in the product development. Research and development expenses for the Tobacco Business is¥33.1 billion.
(2) Pharmaceutical BusinessR&D activities are the foundation of the Group’s Pharmaceutical Business and are critical for its long-term growthand profitability. These R&D activities focus mainly on the fields of circulatory organs, kidneys and metabolism,
immune disorders and inflammation, and brain centers. Research and development expenses for the PharmaceuticalBusiness is ¥32.2 billion.
(3) Processed Food Business
Regarding R&D in the Processed Food Business, the Group devotes its efforts to the development of innovative
products that meet consumers’ needs and preferences. Research and development expenses for the Processed FoodBusiness is ¥0.9 billion.

60III. Facilities
1. Outline of Capital Expenditures
In the fiscal year ended December 31, 2023, the Group made capital expenditures totaling ¥125.4 billion.
For the tobacco business, the Group made business investments of ¥105.1 billion, for the purpose of RRP-related
investments and renovation, maintenance and renewal of manufacturing equipment. In the Pharmaceutical Business,
we spent ¥7.3 billion on enhancing and strengthening research and development structures and the like. In theProcessed Food Business, we invested ¥5.8 billion in improvement, maintenance and renewals of production
capability.
* Capital expenditures include land; building and structures; machinery and vehicles; and other property, plant and equipment, as well as
goodwill, right of trademark, software and other intangible assets, necessary for production improvements at factories and other facilities,
strengthening competitiveness and executing business in a variety of fields, excluding assets acquired through business combinations.

2. Main Facilities
Main facilities of the Group (the Company and its consolidated subsidiaries) are as follows.
(1) Filing Company (the Company)(As of December 31, 2023)
Book value (Millions of yen)
Office and factory name
(Location)

Kita-kanto Factory(Utsunomiya-shi, Tochigi)

Segment

AmountTools,
furnitureandfixtures

Total

Numberofemployees(Person)

150

2,062

6,038

12,324272

20,696292

TobaccoTobaccomanufacturing
facilities

223

2,309

6,063

10,413275

19,060270

TobaccoTobaccomanufacturing
facilities

116

5,831

7,601

16,514324

30,270313

TobaccoResearch anddevelopment
facilities

34

644

1,739

0

1,688

4,071

87

Pharmaceutical

Research anddevelopment
facilities

75

2,687

16,89452

2,400

22,033

570

Generaladministration

Other

-

-

5,892

49

1,487

7,428

2,179

Other

54

1,950

2,720

118

291

5,079

1,845

Kansai Factory

Tobacco Science ResearchCenter(Aoba-ku, Yokohama-shi,
Kanagawa)

Size(thousandm2)

Buildings Machinery,equipment
andandstructures vehicles

Tobaccomanufacturing
facilities(Note 1)
(Fushimi-ku, Kyoto-shi,
Kyoto)

Land

TobaccoTokai Factory(Iwata-shi, Shizuoka)

Description(Note 1)
Central Pharmaceutical
Research Institute(Takatsuki-shi, Osaka)(Note 1)
Head Office(Minato-ku, Tokyo)
Regional Sales
Headquarters (47)

Tobacco(Each prefecture)(includes
administration)(Note 2)61

(2) Domestic Subsidiaries(As of December 31, 2023)
Book value (Millions of yen)
Office and factory name
(Location)

Segment

Description

Land
Size
(thousandm2)

AmountMachinery,
Buildings
equipment
andandstructures
vehiclesTools,
furnitureandfixtures

Total

Numberofemployees(Person)TS Network Co., Ltd.
Head Office and other 24
distribution bases(Head Office: Taito-ku,
Tokyo)

TobaccoDistribution
facilities

35

721

13,931

1,325

416

16,393

1,765

TobaccoMaterial
manufacturing
facilities

100

583

3,493

3,441

193

7,710

358

PharmaceuticalPharmaceuticals
manufacturing
facility and other

2

312

1,307

426

275

2,320

583

Processed Food

Frozen foodproduction
facilities

154

3,931

10,212

9,798

180

24,121

1,346(Note 2)
Japan Filter Technology,
Co., Ltd.
Head Office and other 2
factories(Head Office: Sumida-ku,
Tokyo)Torii Pharmaceutical Co.,Ltd.
Headquarters, otherregional sales
headquarters, etc.
(Head Office: Chuo-ku,
Tokyo)(Note 2)
TableMark Co., Ltd.
Head Office and other 5
factories(Head Office: Chuo-ku,
Tokyo)(3) Foreign Subsidiaries(As of December 31, 2023)
Book value (Millions of yen)
Office and factory name
(Location)

Segment

JTI Polska Sp. z o. o.
(Poland)AmountTools,
furnitureandfixtures

Total

Numberofemployees(Person)532

318

14,142

52,135

1,236

67,8312,550

TobaccoTobaccomanufacturing
facilities

194

124

4,989

8,341

2,690

16,144

1,038

TobaccoTobaccomanufacturing
facilities

232

164

889

6,845

163

8,061

951

(Note 2)

(Turkey)Size(thousandm2)

Machinery,
Buildings
equipment
andandstructures
vehiclesTobaccomanufacturing
facilities

LLC Petro

JTI Tütün Ürünleri Sanayi
A.Ş.

Land

Tobacco(Note 1)
(Russia)

Description

Notes: 1. Companies have land leased to entities other than the consolidated companies.
2. Companies have land leased from entities other than the consolidated companies.
3. Book values include right-of-use assets.

62

3. Plans for New Installation and Retirement of Facilities(1) Outline of Capital Expenditures
Regarding the mid- to long-term resource allocation of the Group, it will place top priority on business investmentsthat will lead to sustainable profit growth in the mid- to long-term based on the 4S model, its management principle,
and the JT Group Purpose. Of the reportable segments, the Group positions the Tobacco Business as the core businessand profit growth engine and places top priority on business investments that will lead to its sustainable profit growth.
On the other hand, the Group will make necessary investments for the Pharmaceutical Business and the Processed
Food Business to complement profit growth for the Group as a whole.
Based on this policy, the Group plans capital expenditures (facility construction and expansion) totaling ¥154.0 billion
in the fiscal year ending December 31, 2024.
As the Company and its consolidated subsidiaries have wide-ranging plans for capital expenditure, figures aredisclosed by segment.
The Group’s actual capital expenditures may differ significantly from the planned figures mentioned above as a resultof a number of factors including those presented in “II. Review of Operations, 3. Business and Other Risks.”

Segment

Tobacco Business

Capitalexpenditureplan for the
fiscal year
endingDecember 31,
2024(Billions of
yen)
134.0

Pharmaceutical Business

9.0

Processed Food Business

10.0

Main purpose of investment

Expenditures for RRP-related investments andalso strengthening of production capabilities,
and maintenance and renewal for
manufacturing facilities
Expenditures for the development andreinforcement of R&D capabilities
Expenditures for the expansion of production
capacity, and improvements, maintenance andupgrading of productivity

Funding

Internallygenerated funds
Same as above
Same as above* Capital expenditures include land; building and structures; machinery and vehicles; and other property, plant andequipment, as well as goodwill, right of trademark, software and other intangible assets, necessary for production
improvements at factories and other facilities, strengthening competitiveness and executing business in a variety of fields,
excluding assets acquired through business combinations.

(2) Sales or Retirement of Important Facilities, etc.
There were no other plans for sales or retirement of important facilities except for the regular renewal of facilities asof December 31, 2023.

63

IV. Filing Company
1. Information on the Company’s Shares(1) Total Number of Shares Authorizeda. Total number of shares authorizedClass

Total number of shares authorized (Share)

Ordinary shares

8,000,000,000

Total

8,000,000,000

b. Number of shares issued

Class

Number of sharesissued(Share; as ofDecember 31, 2023)

Number of sharesissued(Share; as ofthe date of filing:
March 22, 2024)

Ordinaryshares2,000,000,000

2,000,000,000

Total

2,000,000,000

2,000,000,000

Name of financial instruments
exchange where the stock of theCompany is traded or the nameof authorized financial
instruments firms association
where the Company is registered
Tokyo Stock Exchange
Prime Market–

Details(Note 2)–

Notes: 1. The provisions of Article 2 of the JT Act prescribe that the Japanese government must continue to hold more than onethird of all shares issued by the Company (excluding shares of a class for which it is provided that the voting rights
may not be exercised for all the matters that are subject to resolution at the General Meeting of Shareholders).
2. The Company’s standard class of shares with no rights limitations. Its share trading unit is 100 shares.

64

(2) Status of Subscription Rights to Sharesa. Stock options
Subscription rights to shares issued pursuant to the Companies Act are as follows. Also, the matters presented
below reflect the situation as of the last day of the Company’s fiscal year (December 31, 2023). Matters thathave undergone change between the last day of the Company’s fiscal year and the last day of the end of themonth before the date of filing (February 29, 2024) are presented in parentheses [ ], while other matters haveundergone no change since the last day of the Company’s fiscal year.
Note that the stock option plan was abolished in fiscal 2020 (excluding the stock options already granted). The
granted stock options could be exercised when the stock option holder loses all positions as Member of theBoard, Audit & Supervisory Board Member or Executive Officer. The Company does not plan to change thisexercise condition going forward.
•

Stock options based on resolutions taken at meetings of the Board of Directors held between December 21, 2007 and September 16,
2011
December 21,
September 19,
September 28,
September 17,
September 16,
Resolution date
2007
2008
2009
2010
2011
Members of theMembers of theMembers of theMembers of theMembers of the
Board
Board
Board
Board
Board
11 persons
11 persons
9 persons
9 persons
8 persons
Positions and number Executive Officers Executive Officers Executive Officers Executive Officers Executive Officersof persons granted(excluding persons (excluding persons (excluding persons (excluding persons (excluding persons
serving as Member serving as Member serving as Member serving as Member serving as Memberof the Board)of the Board)of the Board)of the Board)of the Board)
16 persons
14 persons
14 persons
14 persons
15 persons
Number of
21 units
46 units
16 units
41 units
43 units
subscription rights to[18 units][36 units]
sharesClass of shares to be Ordinary sharesissued upon exercise (the Company’sSame as left
Same as left
Same as left
Same as leftof subscription rights standard class ofshares with noto shares
rights limitations)
Number of shares to
4,200 shares
9,200 shares
be issued upon
3,200 shares
8,200 shares
8,600 shares
exercise of[3,600units][7,200units](Notes 1, 6)(Notes 1, 6)(Notes 1, 6)(Notes 1, 6)(Notes 1, 6)
subscription rights tosharesPaying due upon
exercise of¥1 per share
Same as left
Same as left
Same as left
Same as leftsubscription rights tosharesExercise period of
From January 9,
From October 7, From October 14, From October 5,
From October 4,
subscription rights to 2008 to January 8, 2008 to October 6, 2009 to October 13, 2010 to October 4, 2011 to October 3,
shares
2038
2038
2039
2040
2041
Issue price of sharesin cases where shares
will be issued as a¥581,269 per unit ¥285,904 per unit ¥197,517 per unit ¥198,386 per unit ¥277,947 per unit
result of exercise ofsubscription rights tosharesAdditional paid-in
capital in issue pricein cases where shares
will be issued as aresult of exercise ofsubscription rights toshares(Note 2)Same as left

Same as left

Same as left

Same as left

Conditions forexercising
subscription rights toshares(Note 3)Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

The approval of theBoard of Directors
Assignment ofis required for thesubscription rights to assignment ofsharessubscription rights
to shares.
Provisions foracquiring(Note 4)
subscription rights toshares65

Resolution date
Matters regarding
delivery ofsubscription rights toshares accompanied
by reorganization

December 21,
2007

September 19,
2008

September 28,
2009

September 17,
2010

September 16,
2011(Note 5)Same as left

Same as left

Same as left

Same as left

Notes: 1. Number of shares to be issued upon exercise of subscription rights to shares
The class of shares to be issued upon exercise of subscription rights to shares shall be ordinary shares. The number of shares to beissued upon exercise of each subscription right to shares (hereinafter, “Number of Shares Granted”) shall be one. However, in cases
where the Company conducts stock split (including stock allotment without contribution; hereinafter, the same shall apply todescription of stock split) or stock consolidation of ordinary shares of the Company after the date on which the Company allots
subscription rights to shares (hereinafter, “Allotment Date”), the Number of Shares Granted shall be adjusted according to thefollowing formula.
Number of Shares Granted
after adjustment=

Number of Shares Granted
before adjustment



Ratio of stock split or stock
consolidation

Any fraction of less than one share that occurs as a result of the above adjustment shall be rounded down to two decimal places.
In the case of a stock split, the Number of Shares Granted after adjustment shall be applied on and after the date following the basedate (if the base date is not specified, on and after the effective date), while in the case of stock consolidation, it shall be applied on andafter the effective date. However, in cases where stock split is conducted subject to approval of the proposal to reduce surplus andincrease capital or reserve fund at the General Meeting of Shareholders of the Company and where the base date for stock split is set
on or before the date of conclusion of that General Meeting of Shareholders, the Number of Shares Granted after adjustment shall beapplied retrospectively to the date following that base date, on and after the date following the date of conclusion of that General
Meeting of Shareholders.
In addition, in cases where the adjustment of the Number of Shares Granted is proper, the Company shall conduct adjustments deemednecessary after the Allotment Date. When adjusting the Number of Shares Granted, the Company shall notify Subscription rights toshares Holders or make public notice of necessary information by the date before the date on which the Number of Shares Granted
after adjustment is applied. However, in cases where the notice or public notice by the date before the date of the application is
impracticable, the Company shall later do so as soon as possible.
2. Additional paid-in capital in issue price in cases where shares will be issued as a result of exercise of subscription rights to sharesa. Capital amount that will be increased in cases where shares will be issued as a result of the exercise of subscription rights to sharesmust be a half of the maximum capital increase amount obtained by the calculation pursuant to Article 17, paragraph 1 of theRegulation on Corporate Accounting. If the obtained figure has a fraction less than ¥1, the figure is rounded up to the nearest yen.
b. Capital reserves that will be increased in cases where shares will be issued as a result of the exercise of subscription rights to sharesmust be the amount obtained by subtracting the capital amount to be increased as specified in a. above from the maximum capitalincrease amount described in a. above.
3. Conditions for exercising subscription rights to sharesa. The person who is a holder of subscription rights to shares and is recorded in the registry of subscription rights to shares(hereinafter, “Subscription rights to shares Holder”) may exercise his/her subscription rights to shares only if he/she forfeit his/her
all position as Member of the Board (including sikkoyaku at a company with committees), Audit & Supervisory Board Member
and Executive Officer of the Company
b. In cases where Subscription rights to shares Holders waive their subscription rights to shares, they cannot exercise those
subscription rights to shares.
4. Provisions for acquiring subscription rights to shares
In cases where proposal a., b. or c. below is approved at the General Meeting of Shareholders of the Company (if a resolution by theGeneral Meeting of Shareholders is not necessary, it is read as “in cases where the resolution of the Board of Directors or the decisionby the representative Executive Officer (sikkoyaku at a company with committees) is made”), the Company may acquire subscription
rights to shares on the date separately provided for by the Board of Directors. In this case, the Company shall, in exchange foracquiring each subscription right to shares, deliver money at the amount obtained by multiplying the value per share calculated
according to the following formula by the Number of Shares Granted (if adjusted pursuant to Note 1 above, the Number of Shares
Granted after adjustment) to the Subscription rights to shares Holders of respective such subscription rights to shares.
Value per share = Closing price for regular transactions of ordinary shares of the Company on the Tokyo Stock Exchange (if there isno closing price, the base price thereof on the following business day) on the date on which such proposal isapproved at the General Meeting of Shareholders of the Company (if a resolution by the General Meeting of
Shareholders is not necessary, it is read as “the resolution of the Board of Directors or the decision by the
representative Executive Officer (sikkoyaku at a company with committees) is made”) – ¥1
a. Proposal to ask approval of a contract of merger where the Company is not to be the surviving company
b. Proposal to ask approval of a contract or plan of company split where the Company would be the split company
c. Proposal to ask approval of a share exchange contract or share transfer plan where the Company becomes a whollyowned subsidiary
5. Matters regarding delivery of subscription rights to shares accompanied by reorganization
In cases where the Company merges (limited to cases where the Company is to be extinguished as a result of the merger), splits andabsorbs or splits and incorporates (limited to cases where the Company becomes the split company in either case), or exchanges or66

transfers shares (limited to cases where the Company becomes a wholly-owned subsidiary in either case) (collectively, hereinafter,“Reorganization”), the Company shall, in each case, deliver subscription rights to shares of the companies as listed in Article 236,
paragraph 1, item (viii), sub-items (a) to (e) of the Companies Act (hereinafter, the “Company Subject to Reorganization”) to the
Subscription rights to shares Holders that have subscription rights to shares existing immediately before the effective date of theReorganization, which is either the effective date of absorption-type merger when it is an absorption-type merger, the consolidation
date of a company as a result of the consolidated-type merger when it is a consolidated-type merger, the effective date of absorptiontype company split when it is an absorption-type company split, the incorporation date of a company as a result of the incorporationtype company split when it is an incorporation-type company split, the effective date of share exchange when it is a share exchange, or
the incorporation date of a wholly-owning parent company as a result of the share transfer when it is a share transfer (hereinafter,“Remaining Subscription rights to shares”). However, it is subject to a condition that the provision that the subscription rights to sharesof the Company Subject to Reorganization shall be delivered pursuant to the provisions of the items below, is specified in theabsorption-type merger contract, consolidated-type merger contract, absorption-type company split contract, incorporation-typecompany split plan, share exchange contract or share transfer plan.
a. Number of subscription rights to shares to be delivered of the Company Subject to Reorganization
Subscription rights to shares whose number is identical to the number of the Remaining Subscription rights to shares held by
Subscription rights to shares Holder
b. Class of shares of the Company Subject to Reorganization to be issued upon exercise of subscription rights tosharesOrdinary shares of the Company Subject to Reorganizationc. Number of shares of the Company Subject to Reorganization to be issued upon exercise of subscription rights tosharesTo be determined in the same manner as Note 1 above, taking into consideration terms and other conditions of theReorganization.
d. Value of property to be contributed when subscription rights to shares are exercised
The value of the property to be contributed when each subscription right to shares to be delivered is exercised shall be the amountobtained by multiplying the paid-in amount after Reorganization as specified below by the number of shares of the Company
Subject to Reorganization to be issued upon exercise of each subscription right to shares, which is decided pursuant to c. above.
The paid-in amount after Reorganization shall be ¥1 per share of the shares of the Company Subject to Reorganization that would
be delivered by exercising the delivered subscription rights to shares.
e. Period during which subscription rights to shares can be exercised
From the effective date of the Reorganization to the expiration date of the period during which such subscription rights to sharescan be exercised as specified in “Exercise period of subscription rights to shares” mentioned above.
f. Matters regarding capital and capital reserves that will be increased in cases where shares will be issued as a resultof the exercise of subscription rights to shares
To be determined in the same manner as “Additional paid-in capital in issue price in cases where shares will be issued as a result of
exercise of subscription rights to shares” mentioned above.
g. Restrictions on transferring of subscription rights to shares
Transferring the subscription rights to shares is subject to approval of the Board of Directors of the Company
Subject to Reorganizationh. Provisions for acquiring subscription rights to shares
To be determined in the same manner as “Provisions for acquiring subscription rights to shares” mentioned above.
i. Other conditions for exercising subscription rights to shares
To be determined in the same manner as “Conditions for exercising subscription rights to shares” mentioned above.
6. The Company conducted a share split at a ratio of 200 to one ordinary share with July 1, 2012 as effective date. As aconsequence, the number of shares to be issued upon exercise of the subscription rights to shares issued before thisshare split has been adjusted from one share to 200 shares and is presented accordingly.

67

•

Stock options based on resolutions taken at meetings of the Board of Directors held between September 21, 2012 and June 14,
2019
September 21,
September 20,
September 19,
July 17,
June 17,
Resolution date
2012
2013
2014
2015
2016
Members of theMembers of theMembers of theMembers of theMembers of theBoard (excluding
Board (excluding Board (excluding Board (excluding Board (excluding
Outside Directors) Outside Directors) Outside Directors) Outside Directors) Outside Directors)
7 persons
7 persons
6 persons
6 persons
5 persons
Positions and number
Executive
Officers
Executive
Officers
Executive
Officers
Executive
Officers
Executive Officersof persons granted(excluding persons (excluding persons (excluding persons (excluding persons (excluding persons
serving as Member serving as Member serving as Member serving as Member serving as Memberof the Board)of the Board)of the Board)of the Board)of the Board)
17 persons
19 persons
19 persons
18 persons
18 persons
Number ofsubscription rights to
98 units
80 units
46 units
75 units
93 units
sharesOrdinary sharesClass of shares to be (the Company’s
issued upon exercise standard class ofSame as left
Same as left
Same as left
Same as leftof subscription rights shares with noto shares
rights limitations)
Number of shares tobe issued upon
19,600 shares
16,000 shares
9,200 shares
15,000 shares
18,600 shares
exercise of(Note 1)
(Note 1)
(Note 1)
(Note 1)
(Note 1)
subscription rights tosharesPaying due upon
exercise of¥1 per share
Same as left
Same as left
Same as left
Same as leftsubscription rights tosharesExercise period of
From October 10,
From October 8,
From October 7,
From August 4,
From July 5, 2016
subscription rights to 2012 to October 9, 2013 to October 7, 2014 to October 6, 2015 to August 3,
to July 4, 2046
shares
2042
2043
2044
2045
Issue price of sharesin cases where shares
will be issued as a
¥320,000 per unit ¥513,400 per unit ¥483,200 per unit ¥711,200 per unit ¥572,600 per unit
result of exercise ofsubscription rights tosharesAdditional paid-in
capital in issue pricein cases where shares
will be issued as aresult of exercise ofsubscription rights toshares(Note 2)Same as left

Same as left

Same as left

Same as left

Conditions forexercising
subscription rights toshares(Note 3)Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

The approval of theBoard of Directors
Assignment ofsubscription rights to is required for theassignment ofsharessubscription rights
to shares.
Provisions foracquiring(Note 4)
subscription rights tosharesMatters regarding
delivery of(Note 5)subscription rights toshares accompanied
by reorganization

68

Resolution dateJune 14,2017
Members of theBoard (excluding
Outside Directors)
5 persons

Positions and number
Executive Officersof persons granted(excluding persons
serving as Memberof the Board)
19 persons
Number ofsubscription rights to
155 units
sharesClass of shares to be Ordinary sharesissued upon exercise (the Company’sof subscription rights standard class ofto shares
shares with norights limitations)
Number of shares tobe issued upon
31,000 shares
exercise of(Note 1)
subscription rights tosharesPaying due upon
exercise of¥1 per sharesubscription rights tosharesExercise period of
From July 4, 2017
subscription rights toto July 3, 2047
sharesIssue price of sharesin cases where shares
will be issued as a¥482,200 per unit
result of exercise ofsubscription rights tosharesAdditional paid-in
capital in issue pricein cases where shares
will be issued as a(Note 2)
result of exercise ofsubscription rights tosharesConditions forexercising(Note 3)
subscription rights tosharesAssignment of
The approval of thesubscription rights to Board of Directors
sharesis required for theassignment ofsubscription rights
to shares.
Provisions foracquiring(Note 4)
subscription rights tosharesMatters regarding
delivery of(Note 5)subscription rights toshares accompanied
by reorganization
Notes: 1.

June 15,2018
Members of theBoard (excluding
Outside Directors)
5 personsJune 14,2019
Members of theBoard (excluding
Outside Directors)
6 personsExecutive Officers(excluding persons
serving as Memberof the Board)
18 persons

Executive Officers(excluding persons
serving as Memberof the Board)
20 persons

362 units[336 units]

681 units[561 units]

Same as left

Same as left

72,400 shares[67,200 shares]

136,200 shares[112,200 shares](Note 1)

(Note 1)Same as left

Same as left

From July 3, 2018
to July 2, 2048

From July 2, 2019
to July 1, 2049

¥300,000 per unit

¥188,000 per unit

Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

Same as left

Number of shares to be issued upon exercise of subscription rights to shares
The class of shares to be issued upon exercise of subscription rights to shares shall be ordinary shares. The number of shares tobe issued upon exercise of each subscription right to shares (hereinafter, “Number of Shares Granted”) shall be 200. However, incases where the Company conducts stock split (including stock allotment without contribution; hereinafter, the same shall apply
to description of stock split) or stock consolidation of ordinary shares of the Company after the date on which the Company
allots subscription rights to shares (hereinafter, “Allotment Date”), the Number of Shares Granted shall be adjusted according to
the following formula.
Number of Shares Granted
after adjustment=

Number of Shares Granted
before adjustment
69



Ratio of stock split or stock
consolidation

Any fraction of less than one share that occurs as a result of the above adjustment shall be rounded down to two decimal places.
In the case of a stock split, the Number of Shares Granted after adjustment shall be applied on and after the date following thebase date (if the base date is not specified, on and after the effective date), while in the case of stock consolidation, it shall beapplied on and after the effective date. However, in cases where stock split is conducted subject to approval of the proposal toreduce surplus and increase capital or reserve fund at the General Meeting of Shareholders of the Company and where the basedate for stock split is set on or before the date of conclusion of that General Meeting of Shareholders, the Number of Shares
Granted after adjustment shall be applied retrospectively to the date following that base date, on and after the date following thedate of conclusion of that General Meeting of Shareholders. In addition, in cases where the adjustment of the Number of Shares
Granted is proper, the Company shall conduct adjustments deemed necessary after the Allotment Date. When adjusting the
Number of Shares Granted, the Company shall notify Subscription rights to shares Holders or make public notice of necessary
information by the date before the date on which the Number of Shares Granted after adjustment is applied. However, in cases
where the notice or public notice by the date before the date of the application is impracticable, the Company shall later do so as
soon as possible.
2. to 5. Same as (Notes) 2-5 for stock options based on resolutions of the Board of Directors taken between December 21, 2007 and
September 16, 2011.

b. Details of rights plan
No items to report.
c. Other status of subscription rights to shares
No items to report.
(3) Exercise of Bond Certificates With Subscription Rights to Shares With Exercise Price Amendment Clause
No items to report.
(4) Trends in Total Number of Shares Issued and Share Capital
Date

July 1, 2012

Fluctuation in the
Balance of shares
number of sharesissuedissued(Thousands of shares) (Thousands of shares)
1,990,000

2,000,000

Fluctuation in sharecapital(Millions of yen)

Balance of sharecapital(Millions of yen)

Fluctuation in capitalreserve(Millions of yen)

Balance of capitalreserve(Millions of yen)–

100,000–

736,400

Notes: 1. The Company conducted a share split at a ratio of 200 to one share with July 1, 2012 as effective date. Consequently, the balance ofshares issued increased by 1,990,000 thousand shares to 2,000,000 thousand shares.
2. At the 39th Ordinary General Meeting of Shareholders held on March 22, 2024, it was resolved to reduce ¥100,000 million from its
capital reserve, and the amount of the reduction will be reclassified as other capital surplus. The effective date is June 28, 2024
(planned).

(5) Shareholder Composition(As of December 31, 2023)
Shareholder composition (100 shares in one share unit)
Category

PublicsectorFinancial
institutions

Financial
instruments
business
operators

Other
corporations

Foreign investors
Individuals
Companies

Individuals

Total

Shares lessthan one unit
(Share)Number ofshareholders(Person)

2

181

71

4,526

665

1,350

828,646

835,441–

Number ofshares held
(Unit)

6,669,282

2,925,193

898,672

412,620

1,955,070

4,485

7,117,629

19,982,951

1,704,900

33.37

14.64

4.50

2.06

9.78

0.02

35.62

100.00Holding rateof shares (%)

Notes: 1. 2,246,920 units of treasury shares are included in “Individuals.”
2. The number of “Other corporations” includes 336 units in the name of Japan Securities Depository Center, Inc.

70–

(6) Status of Major Shareholders(As of December 31, 2023)

Address

Number ofshares held
(Share)Percentage of numberof shares held in the
total number of sharesissued (excluding
treasury shares)(%)

Minister of Finance

1-1, Kasumigaseki 3-chome,
Chiyoda-ku, Tokyo, Japan

666,925,200

37.57

The Master Trust Bank of Japan, Ltd.
(Trust Account)11-3, Hamamatsucho 2-chome,
Minato-ku, Tokyo, Japan

174,583,700

9.83

Custody Bank of Japan, Ltd.
(Trust Account)

8-12, Harumi 1-chome,
Chuo-ku, Tokyo, Japan

61,906,618

3.49

SMBC Nikko Securities Inc.

3-1, Marunouchi 3-chome,
Chiyoda-ku, Tokyo, Japan

32,423,221

1.83

STATE STREET BANK WEST CLIENT TREATY 505234(Standing proxy: Mizuho Bank, Ltd., Settlement
Sales Department)

1776 HERITAGE DRIVE, NORTH QUINCY,
MA 02171, U.S.A.
(Shinagawa Intercity Tower A, 15-1,
Konan 2-chome, Minato-ku, Tokyo, Japan)

25,094,341

1.41

JAPAN SECURITIES FINANCE CO., LTD.

2-10, Nihonbashi-kayabacho 1-chome,
Chuo-ku, Tokyo, Japan

17,169,700

0.97

Barclays Securities Japan Limited BNYM
(Standing proxy: MUFG Bank, Ltd.)

10-1, Roppongi 6-chome, Minato-ku, Tokyo,
Japan(7-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo,
Japan)

16,188,600

0.91

13,722,976

0.77

Name of shareholder

25 BANK STREET, CANARY WHARF,
JP MORGAN CHASE BANK 385781
LONDON, E14 5JP, UNITED KINGDOM(Standing proxy: Mizuho Bank, Ltd., Settlement(Shinagawa Intercity Tower A, 15-1,
Sales Department)
Konan 2-chome, Minato-ku, Tokyo, Japan)
JT Group Employees’ Shareholding Association

1-1, Toranomon 4-chome, Minato-ku, Tokyo,
Japan

11,878,075

0.67Mizuho Securities Co., Ltd.

5-1, Otemachi 1-chome,
Chiyoda-ku, Tokyo, Japan

9,361,248

0.53

Total

–

1,029,253,679

57.98

Note: In addition to the above, the Company held 224,692,028 shares of ordinary shares as treasury shares.

71

(7) Status of Voting Rights
a. Number of shares issued(As of December 31, 2023)

Classification

Number of shares (Share) Number of voting rights

Details

Shares without voting rights

–

–

–

Shares with restricted voting
rights (Treasury shares)
Shares with restricted voting
rights (Other)
Shares with full voting rights(Treasury shares)
Shares with full voting rights(Other)

–

–

–

–

–

–

Ordinary shares
224,692,000
Ordinary shares
1,773,603,100
Ordinary shares
1,704,900–(Note 2)

17,736,031(Note 2)–

(Note 3)

Total number of shares issued

2,000,000,000––

Total number of voting rights–

17,736,031–

Shares less than one unit

Notes: 1. The number of “Shares with full voting rights (Other)” includes 33,600 shares in the name of Japan Securities
Depository Center, Inc. “Number of voting rights” includes 336 units of voting rights related to shares with full voting
rights in its name.
2. The Company’s standard class of shares with no rights limitations. Its share trading unit is 100 shares.
3. Includes 28 shares of treasury shares.

b. Treasury shares(As of December 31, 2023)

Number ofshares held Total number
under the of shares held
name of(Share)others(Share)Percentage of
number of shares
held in the total
number of sharesissued(%)

Name ofshareholder

Address

Number ofshares held
under own
name(Share)JAPAN
TOBACCO INC.

1-1, Toranomon 4-chome,
Minato-ku, Tokyo, Japan

224,692,000–

224,692,000

11.23

Total

–

224,692,000–

224,692,000

11.23

72

2. Acquisition of Treasury Shares[Class of shares]

Acquisition of ordinary shares falling under Article 155, item (vii) of the Companies Act(1) Acquisition by Resolution of the General Meeting of Shareholders
No items to report.
(2) Acquisition by Resolution of the Board of Directors
No items to report.
(3) Items Not Based on Resolutions of the General Meeting of Shareholders or Board of Directors
Category

Number of shares (Share)

Treasury shares acquired during this fiscal year ended
December 31, 2023
Treasury shares acquired during the period fromJanuary 1, 2024 to the filing date of this Annual
Securities Report
Note:

Total value(Millions of yen)

284

1

258

1

The figure for treasury shares acquired during the period from January 1, 2024 to the filing date of this Annual
Securities Report does not include the number of shares from purchases of shares less than one unit from March 1,2024 until the filing date of this Annual Securities Report.

(4) Status of Disposal and Ownership of Acquired Treasury Shares
From January 1, 2024 until thefiling date of this Annual Securities
ReportTotal disposal
Total disposal
Number of
value
value
shares (Share)(Millions of yen)
(Millions of yen)

Fiscal year ended December 31,
2023
Category
Number ofshares (Share)
Acquired treasury shares offered forsubscription
Acquired treasury shares that werecancelled
Acquired treasury shares transferred
for merger, share exchange, sharedelivery and company split
Others(Disposal of treasury shares by
restricted stock)(Disposal of treasury shares byperformance share unit)(Exercise of subscription rights toshares)(Sales resulting from requests forsale of shares less than one unit)
Treasury shares held

–

–

–

–

–

–

–

–

–

–

–

–

157,700

343––

37,01981––

260,000

566

31,800

69

–

–

–

–

224,692,028–

224,660,486–

Notes: 1. The number of disposed shares and total disposal value in the “From January 1, 2024 until the filing date of this Annual
Securities Report” column does not include disposal of treasury shares by restricted stock and performance share unit,transfers by the exercise of subscription rights to shares, or sales of shares less than one unit performed from March 1,2024 until the filing date of this Annual Securities Report.
2. The number of treasury shares held in the “From January 1, 2024 until the filing date of this Annual Securities Report”
column does not include disposal of treasury shares by restricted stock and performance share unit, transfers by theexercise of subscription rights to shares, or purchases and sales of shares less than one unit performed from March 1,2024 until the filing date of this Annual Securities Report.

73

3. Dividend Policy
In terms of “prioritize business investments for sustainable profit growth in the mid- to long-term” and of “strike abalance between profit growth through business investments and shareholder returns” under the resources allocation
policy based on the 4S model and the JT Group Purpose, our shareholder returns policy for the current fiscal year isset as follows:• Aim to enhance shareholder returns by realizing the Company’s mid- to long-term profit growth, while maintaining
a solid financial base(Note 1)• Target a dividend payout ratio of about 75%(Note 3), a competitive level(Note 2) in the capital markets• Consider implementing a share buy-back program, mainly taking into account the Company’s financial outlook of
the respective year and mid-term capital needs.
Notes: 1. The Company will maintain a solid financial base that secures stability in case of changes in business environment such as economic
crises and flexibility enabling expeditious responses to business investment opportunities.
2. Monitor the shareholder return trends of global Fast-Moving Consumer Goods (FMCG) companies which have a stakeholder model
similar to our 4S model and have realized strong business growth.
3. To be in the range of approximately ±5%.

It is also a basic policy of the Company to pay an interim dividend and year-end dividend, with the former determinedby the Board of Directors and the latter by the General Meeting of Shareholders. The Company’s Articles ofIncorporation stipulate that the Company may pay interim dividends to shareholders with the record date of June 30
each year upon a resolution by the Board of Directors.
In light of business performance in the current fiscal year, the year-end dividend for the fiscal year ended December
31, 2023 was ¥100 per share. Therefore, the total annual dividend for the fiscal year ended December 31, 2023,
including the interim dividend of ¥94, is ¥194 per share.
Also, internal reserves will be prepared not only for present and future business investments and to acquire external
resources but also for the purchase of treasury shares and other objectives.
The dividend for the 39th term is as follows.
Resolution date
The Board of Directors on July 31,
2023
Ordinary General Meeting of
Shareholders held on March 22,2024

Total amount of dividends(Millions of yen)

Cash dividends per share(Yen)

166,856

94.00

177,531100.0074

4. Status of Corporate Governance(1) Outline of Corporate Governance
Whereas the following contains statements regarding the fiscal year ended December 31, 2023, the final day ofthat fiscal year, and the fiscal year ended December 31, 2022, the statements herein are current as of the filing date,unless otherwise indicated.
a. Basic concept on the corporate governance
The Company’s belief is that corporate governance is the means for conducting transparent, fair, timely anddecisive decision-making for pursuing the Group’s management principle, the 4S model. Specifically, the 4S
model aims “to fulfill our responsibilities to our valued consumers, shareholders, employees and the wider
society, carefully considering the respective interests of these four key stakeholder groups, and exceeding their
expectations wherever we can.”The Company has set out the “JT Corporate Governance Policy,” and strives to make enhancements based on
its belief that it will enable the Group to achieve mid- to long-term sustainable profit growth and increase
company value, which will contribute to the development of the Group’s stakeholders and eventually the
economic society as a whole.
The Company will continue to strive to make enhancements of the Group’s corporate governance as one of the
key challenges for its management.
For the latest JT Corporate Governance Policy, please refer to the following JT website.
https://www.jt.com/about/corporate_governance/index.html
b. Outline of corporate governance structure and reason for adoption of the structure
As a company with an Audit & Supervisory Board, the Company has strengthened the supervisory function ofmanagement while maintaining its objectivity and neutrality by means of the Audit & Supervisory Board
carrying out appropriate audits of the execution of duties by Members of the Board and Executive Officers froman independent and fair standpoint. Based on the audit system of the Audit & Supervisory Board, while
facilitating the prompt execution of business through the delegation of authority by reducing the size of theBoard of Directors and introducing an Executive Officer system, the Company has established the JT Group
Compliance Committee, which is composed of the President, Executive Vice President(s) and external experts,
and the Advisory Panel on Nomination and Compensation comprised entirely of Members of the Board who do
not serve as Executive Officers, in which more than half of whose members being Independent Outside
Directors, as voluntary structures and created an effective corporate governance system.
The Company continuously seeks to enhance corporate governance and to improve management transparency
and objectivity through, for instance, the appointment of an additional Outside Director and Outside Audit &Supervisory Board Member on March 20, 2019, appointment of an additional Outside Director on March 23,2022 and further appointment of an additional Outside Director on March 22, 2024.
The Company has selected the current structure because it recognizes that, through initiatives like these, thecorporate governance structure functions effectively regarding business execution and supervision.
The Board of Directors meets once a month in principle and on more occasions as necessary, in order to makedecisions with regard to the matters specified by laws and regulations and other important matters, to supervise
implementation of business and to receive reports from the Members of the Board on the status of
implementation of business. In addition, the Chairperson of the Board has been positioned as a non-executive
Director in order to concentrate on supervising management while also serving as the chairman of the Board of
Directors. The Company appoints at least one-third of Independent Outside Directors with qualifications
conducive to sustainable profit growth and enhancement of company value over the mid- to long-term from aviewpoint of strengthening the supervisory function and management transparency. The Board of Directors has
set forth in the Board of Directors Regulations matters to be discussed at the Board of Directors meetings. In
addition, from the viewpoint of realizing swift decision making and high-quality implementation of business,
the Board of Directors has set forth a clear decision-making process based on internal rules on the allocation of
responsibilities and authorities (hereinafter referred to as the “Responsibility and Authority Regulations”)
concerning essential business matters as well as delegates authority as necessary to Executive Officers based on
JT Group management strategies, etc., under the Executive Officer system. In the fiscal year ended December
31, 2023, the Board of Directors convened 14 times, and all Members of the Board attended every meeting.
75

The Company has adopted the concept of skills necessary for the Board of Directors, and has developed anddisclosed a skills matrix that lists the areas in which the knowledge and experience of each Director and Audit& Supervisory Board Member are expected to be particularly effective.
For the latest skills matrix, please refer to the following JT website.
https://www.jt.com/about/officer/index.html
The Advisory Panel on Nomination and Compensation was established as an optional advisory body to theBoard of Directors and integrates the functions of the previous Meeting for Talent Development andCompensation Advisory Panel. Its specific roles include supporting the growth, including succession plans, of
executive candidates; deliberating on selection of nominees for seats on the Board of Directors and Audit &Supervisory Board and dismissal of designated Directors and Directors also serving as Executive Officers; andreporting the results of the deliberation on remuneration of Directors and Executive Officers. Its purpose is torender the Board’s decision-making more objective and transparent and to upgrade the Board’s supervisory
functions by having the Board deliberate on executive appointment and remuneration in accordance with theresults of the deliberation in the Panel. In order to ensure its independence and objectivity, the Panel iscomprised entirely of Members of the Board who do not serve as Executive Officers, in which more than halfof its members are independent Outside Directors. Chaired by an independent Outside Director, the Panel has
seven members, and meets at least once a year. In the fiscal year ended December 31, 2023, the Advisory Panelon Nomination and Compensation convened five times, and all members of the Panel attended every meeting.
Effective from fiscal 2024, the structure of the JT Group Compliance Committee has been changed so that it
oversees and promotes compliance for the entire JT Group and serves as a deliberative body with accountability
to the Board of Directors. The Committee comprises the President, Executive Vice President(s) and external
experts, and is chaired by the President. Meanwhile, the Company appoints a Senior Vice President in charge ofcompliance who oversees the Legal and Compliance Division in an effort to establish and promote a groupwide, cross-sectional system and shed light on issues. In addition, the corporate and business divisions eachhave their own divisional compliance committees, which autonomously deliberate on compliance matters intheir own divisions. The JT Group Compliance Committee receives reports from each of the divisional
compliance committees, monitors and deliberates on the JT Group’s overall initiatives, and reports adequately
to the Board of Directors. In this way, the committee strives to strengthen the connection with the Board of
Directors, and enhances and strengthens the JT Group’s compliance from both the supervision and promotion
aspects. The compliance promotion departments of the Company and its subsidiaries (meaning the Legal andCompliance Division within the Company, and corresponding departments within subsidiaries) inform
Members of the Board and employees of the Company, as well as Directors, etc. and employees of subsidiaries(with Members of the Board, Directors, etc. and employees hereinafter collectively referred to as “directors andemployees”) regarding each department’s compliance code of conduct through each department and eachorganization. Meanwhile, these compliance promotion departments also work to enhance the effectiveness ofthe compliance system by enlightening directors and employees about compliance through training and otherprograms, etc.
In the fiscal year ended December 31, 2023, the JT Group Compliance Committee convened three times under
the previous compliance system, and all members of the Committee attended every meeting.
The Company has adopted the Audit & Supervisory Board system under which Audit & Supervisory Board
Members of the Company (hereinafter “Audit & Supervisory Board Members,” with the terms “Audit &Supervisory Board,” “Audit & Supervisory Board Member’s Office,” and “Manager of the Audit & Supervisory
Board Member’s Office” also referring to those items within the Company) assertively exercise authority as anindependent body with the mandate of shareholders, which includes attending and speaking at the Board of
Directors meetings and other important meetings as well as actively inspecting business sites. In addition, theyalso perform audits appropriately from an objective viewpoint in accordance with the characteristics of theduties of the Outside Audit & Supervisory Board Members and the standing Audit & Supervisory Board
Members. The Audit & Supervisory Board Members work to ensure sound and sustainable growth and maintainand enhance public trust in the Company by examining the performance of duties by Members of the Board andExecutive Officers.
The Audit & Supervisory Board, which meets as necessary, is composed of members with substantial
knowledge of management, law, finance, accounting and other aspects of business. Standing Audit &Supervisory Board Member Hideaki Kashiwakura has served as Controller, Vice President of the M&S
Management Department of Tobacco Business Division, Deputy Chief Financial Officer of the Company andPresident, Chief Executive Officer of JT BusinessCom Inc., having extensive experience and wide-ranging
knowledge in corporate management, business development, finance and accounting, as well as business
operation in Japan and overseas. Standing Audit & Supervisory Board Member Tsutomu Hashimoto served as76

Vice President, Operational Review and Business Assurance, having extensive experience and wide-ranging
knowledge in risk management and information securities through audit operation in Japan and overseas. In thefiscal year ended December 31, 2023, the Audit & Supervisory Board convened 14 times, and all of the Audit &Supervisory Board Members attended every meeting.
The status of the development of the Company’s corporate governance system is represented as the following
schematic depiction.
General Meeting of Shareholders

Election or
dismissal ofmembers

Election or
dismissal ofmembers

Election or dismissal of members
Recommendation, etc.

Audit report

Independent
AuditorBoard of Directors

Advisory Panel on
Nomination andCompensation
7 members(including 5 Outside Directors)

10 members(including 5 Outside Directors)
ReportReport/Proposal
Supervision of
the performance

JT Group Compliance
Committee

Coordination

Audit

4 members(including 1 outside member)
Report/Proposal

Audit & Supervisory
Board
5 members (including 3
Outside Audit & Supervisory
Board Members)

President andChief Executive Officer
ReportReportAudit &
Supervisory
Board
Member’s Office

Operational
Review andBusiness
Assurance
Division

Executive Officers

Internal audit

Departments

Legal andCompliance Division

ReportGroup audit

Subsidiaries
Divisional Compliance
Committee

As of the filing date, the members of the Company’s corporate governance system are as follows:
Name of body
Board of Directors

Audit & Supervisory Board

Advisory Panel on Nomination andCompensation
JT Group Compliance Committee
(*1)
(*2)
(*3)

Members
Chairman: Mutsuo Iwai, Chairman of the Board
Members: Shigeaki Okamoto, Masamichi Terabatake, Kei Nakano, Koji
Shimayoshi, Yukiko Nagashima(*1), Masato Kitera(*1), Tetsuya
Shoji(*1), Hiroko Yamashina(*1), Kenji Asakura(*1)
Chairman: Hideaki Kashiwakura, Standing Audit & Supervisory Board
MemberMembers: Tsutomu Hashimoto, Shigeru Taniuchi(*2), Nobuo Inada(*3),
Emiko Takeishi(*3)
Chairman: Tetsuya Shoji, Outside Director
Members: Mutsuo Iwai, Shigeaki Okamoto, Yukiko Nagashima, Masato
Kitera, Hiroko Yamashina, Kenji Asakura
Chairman: Masamichi Terabatake, Representative Director and President,
Chief Executive Officer
Members: Kei Nakano, Koji Shimayoshi and 1 outside committee member

Outside Director
Standing Outside Audit & Supervisory Board Member
Outside Audit & Supervisory Board Member

c. Implementation status of internal control system, risk management system and systems necessary to ensure theproperness of operations in subsidiaries
The Company has always endeavored to run an internal control system of the Company and the Group throughinitiatives in such areas as compliance, internal audits, and risk management. Moreover, the Company has
created the systems required under the Companies Act and the Regulation for Enforcement of the Companies
Act by implementing measures aimed at ensuring the effectiveness of audits by Audit & Supervisory Board
Members. The Company will work to maintain and enhance the systems in each company while consecutively
reviewing and revising the current system as necessary, and ensure appropriate implementation of business. For
the foreign subsidiaries, the Company builds and operates the necessary system in conformity with thefollowing provisions concerning subsidiaries, in principle, while complying with the laws and regulations in the
country in which the subsidiary is incorporated.
77• Systems to ensure that the performance of duties by directors and employees of the Company and its
subsidiaries conforms to laws, regulations, and the Articles of Incorporation
Under the internal reporting system (whistle-blower system), the Company and each of its subsidiaries has adesk through which directors and employees may consult or report, in case they detect any conduct that may
violate laws and regulations. Compliance promotion departments that receive a report or request for
consultation investigate the details and take necessary action, while working to prevent recurrence of the issue.
In addition, separate from the consultation and reporting desks that are handled by the Legal and Compliance
Division, the Company has established consultation and reporting desks that are independent of business
operations and are handled by Audit & Supervisory Board Members. An Audit & Supervisory Board Member
who receives a consultation or a report investigates its content, and the Company carries out necessary
measures and tries to prevent the recurrence. The Company will bring matters of particular importanceinvolving the Group to the divisional compliance committees and the JT Group Compliance Committee, andwill request deliberation or will report on the issue.
Under the system for excluding anti-social forces, the Company and its subsidiaries are resolved to fightagainst them, not to comply with an unreasonable demand and not to have any relations with them.
Designating the Corporate Governance Division of the Company as the department assuming the
responsibility for supervising efforts to exclude anti-social forces at the Group level, the Company cooperates
with police, lawyers and other relevant organizations and parties to gather and share information in order todeal with such elements in an organized way. The Company also consistently makes enlightening activities toeliminate anti-social forces by making directors and employees of the Company and its subsidiaries informed
about the rules not to have any relations with anti-social groups and organizations and by educating thedirectors and employees through providing relevant training as necessary.
In order to ensure the reliability of financial reporting of the Group, the Company is operating a relevantinternal control system that it has established in accordance with the Financial Instruments and Exchange Act.
By allocating a sufficient level of staff to the task of evaluating financial results and reporting them, thecompany is striving to maintain and improve the reliability of its financial reporting.
• Procedures and arrangements for storage and management of information on the performance of duties by theMembers of the Board of the Company
The Company makes sure to properly store and manage the minutes of General Meetings of Shareholders andmeetings of the Board of Directors in line with laws and regulations. The Company makes sure that the
information on important matters relating to business execution and decision-making including the conclusionof corporate contracts is stored and managed by the relevant departments and divisions as specified by the
Responsibility and Authority Regulations, and establishes rules on managing the processes of decisionmaking, procurement and accounting.
• System for reporting matters concerning the performance of duties by Directors, etc. of subsidiaries to theCompany
The Company makes subsidiaries to regularly report important information to the Company’s departments
and divisions that are in charge of the subsidiaries.
• Rules on management of risk of loss of the Company and its subsidiaries, and procedures/arrangements forother matters
The Company has established internal policies, rules and manuals relating to the Group for the managementof risk of loss relating to monetary and financial affairs, and ensures that relevant reports are made to the
President and Chief Executive Officer and the Board of Directors on a quarterly basis via Chief Financial
Officer. With regard to the risk of loss relating to other affairs, in accordance with authority delegated to eachdepartment and division as per the Responsibility and Authority Regulations, responsible departments anddivisions take on a supervisory role creating all types of committees to conduct proper management.
The Company works to achieve an integrated understanding of all risks that may affect the Group, and to
manage them accordingly. This risk management is coordinated by the person in charge of risk management
promotion, who determines which risks are significant, and reports them to the President and Chief Executive
Officer. Executive Officers also take the lead role in drawing up measures to address significant risks. After78

submitting reports to the person in charge of risk management promotion and to the President and Chief
Executive Officer, the Executive Officers promote and execute these measures, and provide progress reportson them to the same individuals. With regard to risk management process, please refer to “II. Review ofOperations 3. Business and Other Risks.”
In cooperation with the internal audit functions of subsidiaries, the Operational Review and Business
Assurance Division of the Company examines and evaluates the internal control systems, etc. of the Group
companies in light of the level of importance and the risks involved, and from an objective standpoint that is
independent of organizations responsible for business execution. It provides reports and counsel to the
President and Chief Executive Officer and also reports to the Board of Directors.
To prepare for possible emergencies, the Company has produced a manual for crisis management and disaster
response. In the event of an emergency or a disaster, the Company is ready to establish an emergency projectsystem, and make prompt and proper responses under the leadership of senior management and through close
cooperation between the relevant departments and divisions and subsidiaries. Events to which a response has
been made and the details of such events shall be reported to the Board of Directors in a timely andappropriate manner.
• System to ensure that Members of the Board of the Company and Directors, etc. of its subsidiaries canperform their duties efficiently
The Board of Directors of the Company meets once a month in principle and on more occasions as necessary,in order to make decisions with regard to the matters specified by laws and regulations and other importantmatters and to supervise business execution. The Board of Directors of the Company receives reports from
Members of the Board of the Company on the status of business execution at least once every three months.
For important management issues, particularly management policy and basic plans regarding overall business
operations of the Company, in addition to matters to be referred to the Board of Directors of the Company, aclear decision-making process is stipulated in the Responsibility and Authority Regulations to have a systemthat enables to realize swift decision-making and high-quality business execution. The Company has adopted
the Executive Officer System, under which Executive Officers appointed by the Company’s Board of
Directors execute business properly by exercising the authority delegated to them in their respective areas, inaccordance with JT Group management strategies decided by the Board. In order to manage business
operations in ways that contribute to the business efficiency and flexibility of the Company, basic mattersconcerning the Company’s organization, allocation of duties to officers and staff and the roles of individual
divisions are specified by the relevant internal rules.
The Company has been constructing an efficient system for business execution within the Group through theformulation, etc. of rules and policies that apply to the Group.
• Systems necessary to ensure the properness of operations in the Company and the GroupThe Group has set “Fulfilling Moments, Enriching Life” as JT Group Purpose, and there is a group-wide
consensus on this purpose. The Company has specified the functions and rules common for the Group toeffectuate group management that optimizes the operations of the entire Group as a whole. Moreover, theCompany has been putting in place systems for compliance (including the internal reporting system), internal
audits, financial affairs management, etc. in cooperation with its subsidiaries.
• Matters for employees assisting Audit & Supervisory Board Members in their duties in the event such
employees were requested by Audit & Supervisory Board Members
The Company has allocated sufficient staff to the Audit & Supervisory Board Member’s Office (five persons
as of December 31, 2023) as an organization supporting the Audit & Supervisory Board Members in
performing their duties. In addition, the Company makes sure to review and reform the staffing structure asnecessary based on consultations with the Audit & Supervisory Board.

79• Matters relating to the independence of employees belonging to the Audit & Supervisory Board Member’s
Office from the Company’s Members of the Board, and matters relating to the assurance of the effectivenessof instruction by Audit & Supervisory Board Members to those employees
The evaluation of the Manager of the Audit & Supervisory Board Member’s Office is made by the Audit &Supervisory Board and the evaluation of the other employees assigned to the Audit & Supervisory Board
Member’s Office is made by the Manager of the Audit & Supervisory Board Member’s Office based on theadvice of the Audit & Supervisory Board. The transfer and discipline of employees assigned to the Audit &Supervisory Board Member’s Office is to be deliberated in advance with the Audit & Supervisory Board.
The Company makes the employees belonging to the Audit & Supervisory Board Member’s Office follow thedirection and orders of Audit & Supervisory Board Members in assisting the duties of the latter, and not be
assigned to other concurrent positions relating to the business execution of the Company.
• System for reporting by directors and employees of the Company and its subsidiaries or persons reported bydirectors and employees of its subsidiaries to the Audit & Supervisory Board and Audit & Supervisory Board
Members
When directors and employees of the Company and its subsidiaries detect any evidence of malfeasance infinancial documents or serious breaches of laws and regulations or the Company’s Articles of Incorporation,
they are due to report them to the Audit & Supervisory Board, along with other relevant matters that could
affect the Company’s management. In addition, when directors and employees of the Company and its
subsidiaries are asked by Audit & Supervisory Board Members to compile important documents for theirperusal, to accept field audits and to submit reports, they are due to respond to the request in a prompt andappropriate manner.
The Legal and Compliance Division makes reports regularly to Audit & Supervisory Board Members on thestatus of whistleblowing involving the Group, and makes non-regular reports as necessary.
• System to ensure that persons reporting to Audit & Supervisory Board Members are not subject todisadvantageous treatment due to having reported
The Company thoroughly communicates within the Group that persons engaging in consultation orwhistleblowing are not to be subject to any disadvantageous treatment for reason of those actions.
• Matters concerning policies for the prepayment of expenses involving the performance of duties by Audit &Supervisory Board Members, procedures for reimbursement, and the handling of other expenses or debts
involving the performance of those duties
When an Audit & Supervisory Board Member has made claim to the Company for the prepayment ofexpenses, etc. in accordance with Article 388 of the Companies Act, the Company will promptly handle therelevant expenses or debt, with the exception of cases in which the Company deems the claimed expenses ordebt to be unnecessary to the performance of the duties of the Audit & Supervisory Board Member.
The Company makes a budget covering audit-related expenses so as to secure effectiveness of audits by Audit& Supervisory Board Members. The Company also bears the portion of miscellaneous expenses for audits by
Audit & Supervisory Board Members that are in excess of budget, with the exception of cases in which theCompany deems the expenses to be unnecessary to the performance of duties.
• Other systems to ensure effective auditing by Audit & Supervisory Board Members
Audit & Supervisory Board Members are allowed to attend not only meetings of the Board of Directors of theCompany but also other important meetings of the Company. The Operational Review and Business
Assurance Division and the Legal and Compliance Division maintain cooperation with Audit & Supervisory
Board Members by exchanging information.

80

d. Other matters regarding corporate governance• Evaluation of effectiveness of the Board of Directors
With regard to the effectiveness of the Board of Directors, in addition to annual questionnaire-based selfevaluations by Members of the Board and Audit & Supervisory Board Members from the standpoint of suchthemes as business operation systems and supervisory functions of the Board of Directors, and dialogue withshareholders and investors, before compiling the results the Board of Directors Secretariat also conducts
individual interviews if needed with the aim of supplementing the results of the evaluations. The results of theself-evaluations are assessed and analyzed at the Board of Directors, leading to further improvements in its
effectiveness.
In fiscal 2023, the questionnaire was conducted as follows.
Furthermore, we take advice from external institutions when creating the questionnaire and analyzing theresults, in order to ensure objectivity and further improve the evaluation of effectiveness.
－Questionnaire preparation period: From September to November 2023
－Period of evaluation: Year 2023 (January 2023 to December 2023)－Response period: November 17, 2023 - December 1, 2023
－Target respondents: Total of 14 Members of the Board and Audit & Supervisory Board Members－Summary: Rating for each question (on a scale of 5) and filling out the free form
－Consultation by the Board of Directors: February 19, 2024

The major items evaluated were as follows. Questions are designed to confirm improvements to the issues
identified in fiscal 2022 in addition to items that should be continually checked.
1.

Roles, Functions and Composition of the Board of Directors (6 questions)

2.

Business operation of the Board of Directors (7 questions)3.

Cooperation with audit institutions and risk management (3 questions)

4.

Relationship with shareholders and investors (3 questions)5.

Voluntary committee (2 questions)6.

Issues to be discussed and shared (1 question)

In fiscal 2023, we took the following actions to address the issues identified in the effectiveness evaluation forfiscal 2022.
Main issues

Details of actions• Further strengthening the supervisory function of theBoard of Directors• Strengthening the effectiveness and efficiency of theBoard of Directors• Further enhance opportunities to report and share the statusof various management issues and risk management and thestatus of discussions in voluntary committees• Continual improvement of the management of the Board of
Directors, including the enhancement of meeting facilities
and facilitation of proceedings

In the evaluation of effectiveness conducted for fiscal 2023, the items undergoing evaluation obtained goodresults on the whole as continuing from fiscal 2022, allowing the Company to confirm that the effectivenessof the Board of Directors is improving, and the Board of Directors is functioning effectively. The responses toeach question showed minimal deviation, indicating a general consensus in the recognition and understandingof the strengths and weaknesses of the Members of the Board and Audit & Supervisory Board Members.
Additionally, there was especially high praise for the enhanced efforts in management aspects. These include81the setting agenda items at Board of Directors’ meetings and other forums for the exchange of views, as wellas conducting open and dynamic proceedings.
In order to make an enhanced effectiveness, the Company will target continuous improvements from fiscal
2024 onwards, focusing on the following initiatives.
Continuous issues• Continued strengthening of the effectiveness andefficiency of the Board of Directors• Continued further strengthening of the supervisory
function of the Board of Directors

Policy for initiatives going forward• Improvement of the management of the Board of Directors,
including the facilitation of proceedings• Enhancement of opportunities to share and discuss the main
management issues, etc.
• Enhancement of opportunities for communication among
the officers

The Company will continue to implement improvements required to further enhance effectiveness, including
the above-mentioned activities.

• Policy for ensuring the effectiveness of the governance system for the listed subsidiary
The Company believes it is an indispensable prerequisite for the listed subsidiary to maintain independence interms of management and to duly protect its minority shareholders’ interests in order for, not only the listed
subsidiary, but also for the Company to grow in value. Therefore, the Company is striving to build an
appropriate governance system for the subsidiary as a listed subsidiary. The Company has instituted theGroup’s Responsibility and Authority Regulations as internal decision-making rules. The listed subsidiary has
opted to adopt these regulations, thereby gaining autonomy in terms of decision-making authority. Suchautonomy ensures its independence as a listed subsidiary.
Torii Pharmaceutical is a consolidated subsidiary of the Company and is listed on the Tokyo Stock Exchange.
We recognize that appointment of directors at Torii Pharmaceutical places consideration from the perspectiveof whether the appointment will contribute to enhancing corporate value and shareholder interests, upon
having enlisted a proper and transparent process as a listed company, from a position independent of theCompany. In addition, Torii Pharmaceutical is upgrading the effectiveness of its governance system, which
effectively utilizes Independent Outside Directors. To such ends, Torii Pharmaceutical approved a resolution
on transiting to a majority independent Board of Directors at its Annual General Meeting of Shareholders heldon March 26, 2020, and additionally disclosed its intentions to transition to the company with an Audit andSupervisory Committee structure in November 2023. The Company gives due consideration to the interests ofgeneral shareholders when exercising its authority to appoint and dismiss Independent Outside Directors of
Torii Pharmaceutical. Meanwhile, the Company appropriately assesses each proposal by determining whether
the individual in question is deemed capable of adequately providing advice to management from a mediumto long-term perspective, while also seeking to furthermore heighten the transparency and fairness in thatregard by supervising management from a broader perspective on the basis of embracing the corporate
philosophy of Torii Pharmaceutical and understanding its business.

• Succession planning
The Company places priority on fostering successive generations of executives who will manage its future
operations in the Group, expanding its pool of executive candidates and improving quality thereof.
To develop a steady stream of highly skilled, highly qualified leaders capable of excelling in the global arena,
the Company aims to upgrade its executive development program, succession plan and succession planning
process with input from both external consultants and the Independent Outside Directors on the Advisory
Panel on Nomination and Compensation. Senior management, having the President and Chief Executive
Officer at the core, are deeply involved in selecting executive candidates and supporting their growth.
The Company expands its executive talent pool by selecting groups of human resources who have thepotential for being future executive candidates by organizational rank through Group-wide recruitment andrecommendations from management, particularly executive officers. The Company develops selected
personnel mainly through diverse and challenging job assignments based on individualized development plans
formulated with input from outsourced objective assessments and periodic discussions with management.
82

• Key points of the partial exemption of liability and liability limitation agreement
The Company’s Articles of Incorporation stipulate that the Company may enter into an agreement withMembers of the Board (excluding those who are Executive Directors, etc.) and Audit & Supervisory Board
Members to limit the scope of their liabilities in advance to the extent permitted by the Companies Act andthe Company may exempt Members of the Board and Audit & Supervisory Board Members from liabilities tothe extent permitted by the same act. This provision is intended to enable Members of the Board and Audit &Supervisory Board Members to fulfill their expected role and make it easier to appoint the right persons froma broad choice both within and outside the company. As of the date of submission, the Company has suchliability limiting agreements with its Members of the Board (excluding those who are Executive Directors,etc.) and Audit & Supervisory Board Members.
• Liability agreement
The Company has entered into liability agreements with each of its Members of the Board and Audit &Supervisory Board Members as stipulated in Article 430-2, paragraph 1 of the Companies Act, whereby theCompany shall compensate them for expenses incurred under item (i) of the same paragraph, and any losses
incurred under item (ii) of the same paragraph, to the extent permitted by laws and regulations. However, toprovide coverage for losses incurred under item (ii) of the same paragraph, measures have been put into place
to ensure that the proper performance of duties of insureds is not impaired, by making such coveragepremised upon a final judgment or the reaching of a judicial settlement (including cases where the Company
recognizes there is a due process that is equivalent to this) and requiring a resolution by the Board of
Directors of the matter after it has been deliberated by the Advisory Panel on Nomination and Compensationof the Company.
• Liability insurance agreement for executive officers, etc.
The Company has entered into a liability insurance agreement for executive officers, etc. with an insurancecompany as stipulated in Article 430-3, paragraph 1 of the Companies Act, under which all Members of theBoard, Audit & Supervisory Board Members, and Executive Officers are the insured. Under the terms of thisinsurance agreement, litigation expenses and compensation for damages arising from legal action against theinsured by third parties, shareholders or companies shall be supplemented, and a premium for the insurance
agreement is fully borne by the Company. Note that any damages, etc., incurred by the insured in association
with his/her criminal act or violation of laws and regulations while he/she is aware of that are not subject tothe coverage; as such, a measure is taken to ensure/maintain the appropriateness in the execution of duties by
the insured.
• Number of Members of the Board
The Company’s Articles of Incorporation stipulate that the number of Members of the Board must be 15 orless.
• Nomination of Member of the Board Candidates, etc.
With regard to candidates for Members of the Board, the JT Corporate Governance Policy stipulates that the
proposed list of candidates created by the President and Chief Executive Officer shall be deliberated by theAdvisory Panel on Nomination and Compensation, the content and results of which are reported to the Boardof Directors, and that after appropriate opportunities to receive advice from Independent Outside Directors
have been secured, a decision shall be made by resolution of the Board of Directors. The Company’s Articles
of Incorporation stipulate that Members of the Board must be appointed by a majority of the shareholder votes
cast on an occasion where shareholders representing at least one-third of the total voting rights are present.
In the JT Corporate Governance Policy, it is prescribed that Audit & Supervisory Board Member candidates
shall be nominated by resolution of the Board of Directors as persons who are expected to perform their duties
appropriately from a position independent of the Board of Directors. The resolution shall be made after
securing opportunities for receiving appropriate advice from Independent Outside Directors by having theAdvisory Panel on Nomination and Compensation deliberate on a candidate proposal formed by the President
and Chief Executive Officer and report the content and results of its deliberations to the Board of Directors,
83and after receiving prior consent from the Audit & Supervisory Board. The Company’s Articles ofIncorporation stipulate that Audit & Supervisory Board Members must be appointed by a majority of theshareholder votes cast on an occasion where shareholders representing at least one-third of the total voting
rights are present.
With regard to the dismissal of Executive Directors and Members of the Board also serving as Executive
Officers, the JT Corporate Governance Policy stipulates that in cases where such persons do not meet therequired qualifications or have become unable to perform their duties, a decision shall be made by resolutionof the Board of Directors after securing appropriate opportunities for receiving advice from Independent
Outside Directors by having those Members of the Board who are not subject to dismissal request theAdvisory Panel on Nomination and Compensation to deliberate on the proposal for dismissal, and then having
the Panel report the content and results of its deliberations to the Board of Directors. In relation to resolutions
pertaining to the dismissal of Members of the Board, there are no provisions in the Articles of Incorporationthat differ from those of the Companies Act.
Further, when bringing up the agenda item on the appointment of Member of the Board candidates at theshareholders’ meeting, and when the Board of Directors has resolved to dismiss Executive Directors andMembers of the Board also serving as Executive Officers, the Company shall disclose the reasons for theappointment of individual candidates and for the dismissal.
• Matters to be decided by the Board of Directors without referral to General Meeting of Shareholders
Acquisition of treasury shares
In order to enable flexible management that meets changes in business environment, the Company’s Articles
of Incorporation stipulate that the Company may acquire treasury shares through means such as market
transaction upon a resolution by the Board of Directors under Article 165, paragraph 2 of the Companies Act.
Interim dividends
In order to enable profits to be returned to shareholders in a flexible manner, the Company’s Articles ofIncorporation stipulate that the Company may pay interim dividends to shareholders, upon a resolution by the
Board of Directors under Article 454, paragraph 5 of the Companies Act.
• Requirements for special resolutions at General Meeting of Shareholders
In order to facilitate the smooth conduct of General Meeting of Shareholders with an easier quorum
requirement for special resolutions, the Company’s Articles of Incorporation stipulate that a resolution as
specified by Article 309, paragraph 2 of the Companies Act is valid if it is supported by at least two-thirds ofthe votes cast at a General Meeting of Shareholders attended by shareholders representing at least one-third of
the Company’s total voting rights (compared with the usual requirement of “at least half”).
• Measures regarding transactions that involve possible conflict of interest between the Company and specified
shareholders to avoid harming the interests of shareholders (excluding the shareholder who is a party to such atransaction)
The Company requires resolution by the Board of Directors with respect to gaining approval for uncustomarytransactions between the Company and its major shareholders.

84(2) Status of Officers
a. Officers
There are twelve male officers and three female officers (20.0% of the officers are women).
Title

Chairpersonof the Board

Name

Date ofbirth

October 29,
Mutsuo Iwai
1960

Summary of career
April

1983

Joined the Company (Japan Tobacco andSalt Public Corporation)

June

2003

Vice President, Corporate Planning
Division

July

2004

Vice President, Corporate Strategy Division

June

2005

Senior Vice President and Vice President,
Food Business Division, Food Business

June

2006

Member of the Board and Executive Vice
President, President, Food Business

June

2008

Executive Vice President, Chief Strategy
Officer

June

2010

Member of the Board and Senior Vice
President, Chief Strategy Officer andAssistant to CEO in Food Business

June

2011

Member of the Board
Executive Vice President, JT International
S.A.

June

2013

Senior Executive Vice President, Chief
Strategy Officer

January 2016

Executive Vice President, President,
Tobacco Business

March

Representative Director and Executive Vice
President

2016

January 2020

Member of the Board

March

2020

Deputy Chairperson of the Board

June

2020

Outside Director, Benesse Holdings, Inc.
(Current Position)

June

2021

Outside Director, TDK Corporation(Current Position)

March

2022

Chairperson of the Board, the Company(Current Position)

January 2023

Outside Director, &Capital Inc. (Current
Position)(Significant Concurrent Positions outside the Company)
Outside Director, Benesse Holdings, Inc.
Outside Director, TDK Corporation
Outside Director, &Capital Inc.

85

Term ofofficeNumber ofshares held
(Share)1 year
since
March
2024

43,200TitleDeputyChairpersonof the Board

Name

ShigeakiOkamotoDate ofbirth

February
20, 1961

Summary of career
April

1983

Entered Ministry of Finance

July

2006

Director for the Budget Bureau, Planningand Administration Division of Budget
Bureau, Ministry of Finance

July

2009

Head of Secretariat Division, Minister’s
Secretariat, Ministry of Finance

August2012

Deputy Director-General of the Budget
Bureau, Ministry of Finance

July

2015

Deputy Vice Minister, Ministry of Finance

July

2017

Director-General of the Budget Bureau,
Ministry of Finance

July

2018

Administrative Vice Minister, Ministry of
Finance

June

2021

Outside Audit & Supervisory Board
Member, Yomiuri Land Co., Ltd. (Current
Position)

December 2021

Outside Audit & Supervisory Board
Member, The Yomiuri Shimbun Osaka
Head Office (Current Position)
Outside Audit & Supervisory Board
Member, The Yomiuri Shimbun Seibu
Head Office (Current Position)

March

2022

Deputy Chairperson of the Board, theCompany (Current Position)

June

2022

Outside Audit & Supervisory Board
Member, The Yomiuri Shimbun Tokyo
Head Office (Current Position)(Significant Concurrent Positions outside the Company)
Outside Audit & Supervisory Board Member, Yomiuri Land
Co., Ltd.
Outside Audit & Supervisory Board Member, The Yomiuri
Shimbun Osaka Head OfficeOutside Audit & Supervisory Board Member, The Yomiuri
Shimbun Seibu Head OfficeOutside Audit & Supervisory Board Member, The Yomiuri
Shimbun Tokyo Head Office86

Term ofofficeNumber ofshares held
(Share)1 year
since
March
2024

700

TitleName*
Representative
Director andMasamichi
President,
Terabatake
Chief
Executive
Officer

Date ofbirth

November
26, 1965

Summary of career
April

1989

Joined the Company

July

2005

Vice President, Secretary’s Office

July

2008

Vice President, Corporate Strategy Division

June

2011

Senior Vice President, Chief Strategy
Officer and in charge of Food Business

June

2012

Senior Vice President, Chief Strategy
Officer

June

2013

Member of the Board
Executive Vice President, JT International
S.A.

January 2018

President and Chief Executive Officer, theCompany

Term ofofficeNumber ofshares held
(Share)1 year
since
March
2024

249,117

1 year
since
March
2024

49,878

1 year
since
March
2024

14,400

Representative Director and President,
Chief Executive Officer (Current Position)(Significant Concurrent Positions outside the Company)
Chairman of Supervisory Board, JT International Holding B.V.

*
Representative
Director and
Kei Nakano
Executive
Vice President

March 1,
1968

March

2018

April

1991

Joined the Company

April

2011

Vice President, M&S Strategy Department,
Tobacco Business Division

June

2014

President and Chief Executive Officer, TS
Network Co., Ltd.

January 2016

Senior Vice President, Communications, theCompany

October 2019

Senior Vice President, Corporate Strategy

March

Director, Japan Growth Investments
Alliance, Inc. (Current Position)

2020

January 2022

Senior Vice President, Corporate Strategy,
the Company

January 2023

Executive Vice President

March

Representative Director and Executive Vice
President (Current Position)

2023(Significant Concurrent Positions outside the Company)
Director, Japan Growth Investments Alliance, Inc.

*
Representative
Koji
Director andShimayoshi
Executive
Vice President

March 7,
1968

April

1993

Joined the Company

July

2008

Vice President, Tobacco Business Planning
Division, Tobacco Business

July

2012

Vice President, Human Resources Division

July

2014

Vice President, Human Resources Divisionand Human Resources Planning Division

October 2015

Senior Vice President, Chief Human
Resources Officer

January 2017

Senior Vice President, Head of Tobacco
Business Planning Division, Tobacco
Business

October 2017

Senior Vice President, JT International S.A.

January 2018

Executive Vice President, JT International
S.A.

January 2024

Executive Vice President, the Company

March

Representative Director and Executive Vice
President (Current Position)

2024

87

TitleMember of
the Board

Name

YukikoNagashima

Date ofbirth

April 4,1961

Summary of career
April

1985

Joined Recruit Co., Ltd. (Current Recruit
Holdings Co., Ltd.)

April

2006

Corporate Executive Officer, Recruit Co.,Ltd.

January 2008

President and Representative Director,
Recruit Staffing Co., Ltd.

October 2012

Corporate Executive Officer, Recruit
Holdings Co., Ltd.

June

2016

Standing Audit & Supervisory Board
Member, Recruit Holdings Co., Ltd.
(Current Position)

April

2018

Standing Audit & Supervisory Board
Member, Recruit Co., Ltd. (Current
Position)

March

2019

Outside Director, the Company (Current
Position)

Term ofofficeNumber ofshares held
(Share)1 year
since
March
2024

0

1 year
since
March
2024

0

Outside Audit & Supervisory Board
Member, SUMITOMO CORPORATION(Current Position)(Significant Concurrent Positions outside the Company)
Standing Audit & Supervisory Board Member, Recruit
Holdings Co., Ltd.
Standing Audit & Supervisory Board Member, Recruit Co.,Ltd.
Outside Audit & Supervisory Board Member, SUMITOMOCORPORATION

Member of
the Board

MasatoKiteraOctober 10,
1952

June

2021

April

1976

Joined the Ministry of Foreign Affairs

January 2008

Director-General for Sub-Saharan African
Affairs, Middle Eastern and African Affairs
Bureau, and Secretary-General, TICAD IV,
Ministry of Foreign Affairs

July

Director-General, International Cooperation
Bureau, Ministry of Foreign Affairs

2008

January 2010

Deputy Minister, Ministry of Foreign
Affairs

September 2012

Assistant Chief Cabinet Secretary

November 2012

Ambassador of Japan to the People’s
Republic of China

April

2016

Ambassador of Japan to the Republic ofFranceJune

2016

Ambassador of Japan to the Republic ofFrance, Andorra and Monaco

April

2020

Advisor, the Company

June

2020

Outside Director, Marubeni Corporation(Current Position)
Outside Director, NIPPON STEELCORPORATION (Current Position)

Outside Director, the Company (Current
Position)(Significant Concurrent Positions outside the Company)
Outside Director, Marubeni Corporation
Outside Director, NIPPON STEEL CORPORATION
March

2021

88

TitleMember of
the Board

Name

Tetsuya
Shoji

Date ofbirth

February
28, 1954

Summary of career
April

1977

Joined Nippon Telegraph and Telephone
Public Corporation

June

2006

Senior Vice President, General Manager of
the Personnel Department, Nippon
Telegraph and Telephone West Corporation

June

2009

Senior Vice President, Head of General
Affairs, Nippon Telegraph and Telephone
Corporation

June

2012

Senior Executive Vice President,
Representative Member of the Board, NTT
Communications Corporation

June

2015

President & CEO, Representative Memberof the Board, NTT Communications
Corporation

October 2018

Representative Member of the Board, NTT,
Inc.

June

Corporate Advisor, NTT Communications
Corporation (Current Position)

December 2020

Outside Director, circlace Inc. (Current
Position)

March

2021

Outside Director, Sapporo Holdings
Limited (Current Position)

June

2021

Outside Director, Hitachi Zosen
Corporation (Current Position)
Outside Director, Mitsubishi Logistics
Corporation (Current Position)

Outside Director, the Company (Current
Position)(Significant Concurrent Positions outside the Company)
Corporate Advisor, NTT Communications Corporation
Outside Director, circlace Inc.
Outside Director, Sapporo Holdings Limited
Outside Director, Hitachi Zosen Corporation
Outside Director, Mitsubishi Logistics Corporation
April
1986
Joined Orient Leasing Co., Ltd.
(Current ORIX Corporation)
March 2007
Head of Office of Internal Controls, ORIX
Corporation
May
2010
Executive Officer, ORIX Life Insurance
Corporation
Managing Executive Officer, ORIX Life
January 2013
Insurance Corporation
January 2014
Corporate Officer, ORIX Corporation
Group Executive, ORIX Corporation
January 2016
(Current Position)
President, ORIX Credit Corporation
Chairman, ORIX Credit Corporation
January 2021
(Current Position)
March 2023
Outside Audit & Supervisory Board
Member, the Company
March 2024
Outside Director (Current Position)(Significant Concurrent Positions outside the Company)
Group Executive, ORIX Corporation
Chairman, ORIX Credit Corporation
March

Member of
the Board

HirokoYamashina

May 20,1963

2020

Term ofofficeNumber ofshares held
(Share)1 year
since
March
2024

0

1 year
since
March
2024

0

2022

89

TitleName

Summary of career

Term ofofficeNumber ofshares held
(Share)Joined Nagase & Co., Ltd.
Executive Officer and General Manager ofAutomotive Solutions Dept., Nagase & Co.,
Ltd.
June
2013
Director, Executive Officer, Nagase & Co.,
Ltd.
Representative Director, President and
April
2015
CEO, Nagase & Co., Ltd.
Representative Director, Chairman, Nagase
April
2023
& Co., Ltd. (Current Position)
March 2024
Outside Director, the Company (Current
Position)(Significant Concurrent Positions outside the Company)
Representative Director, Chairman, Nagase & Co., Ltd.

1 year
since
March
2024

0

4 years
since
March
2023

12,1284 years
since
March
2023

1,584

Date of
birth
April
April

Member of
the BoardStanding
Audit &
Supervisory
Board
MemberStanding
Audit &
Supervisory
Board
MemberKenji
AsakuraDecember
11, 1955

HideakiFebruary
Kashiwakura 28, 1969

Tsutomu
HashimotoMay 31,
1967

1978
2009

April

1991

Joined the Company

July

2012

Controller

October 2014

Vice President, M&S Management
Department, Tobacco Business Division

January 2017Manager, Hokkaido branch, Tobacco
Business Division

January 2019

Deputy Chief Financial Officer (Assistantto CFO)

January 2021

President, Chief Executive Officer, JT
BusinessCom Inc.

March

2023

Standing Audit & Supervisory Board
Member (Current Position)

April

1991

Joined the Company

March

2019

Vice President, Operational Review andBusiness Assurance Division

March

2023

Standing Audit & Supervisory Board
Member (Current Position)90

TitleStanding
Audit &
Supervisory
Board
MemberName

Shigeru
TaniuchiDate ofbirth

Summary of career
April

1986

Entered Ministry of Finance

July

2008

Director, Allowance Control and Mutual
Assistance Insurance, Budget Bureau,
Ministry of Finance

July

2009

Director, Agriculture, Forestry and
Fisheries Section Budget Bureau, Ministryof Finance

July

2010

Director, Treasury, Financial Bureau,
Ministry of Finance

July

2011

Director, National Property Policy
Planning, Financial Bureau, Ministry of
Finance

July

2012

Director-General, Policy-based Finance,
Financial Bureau, Ministry of Finance

June

2013

Director of Co-ordination Division,
Financial Bureau, Ministry of Finance

July

2014

Deputy Director-General of Minister’s
Secretariat, Social Welfare and War
Victims’ Relief Bureau, Ministry of Health,Labour and Welfare

October 2015

Deputy Director-General of Minister’s
Secretariat, Medical Insurance, Ministry of
Health, Labour and Welfare

July

Deputy Director-General of Minister’s
Secretariat, Elderly Health Care, Ministryof Health, Labour and Welfare

2017

September7, 1962
July

2018

Director, Social Welfare and War Victims’
Relief Bureau, Ministry of Health, Labourand Welfare

August2020

Director-General, Secretariat of
Headquarters for Overcoming Population
Decline and Vitalizing Local Economy inJapan, Cabinet Secretariat Director, Social
Security Reform, Cabinet Secretariat

February 2021

Concurrently serving as Director of
Loneliness and Isolation Office, Cabinet
Secretariat

November 2021

Deputy Director-General, Secretariat of theDigital Garden City Initiative Panel,
Cabinet Secretariat

December 2021

Concurrently serving as Head ofPreparation Work Group for Bill of
Establishing Children and Families’
Agency, Cabinet Secretariat

June

2022

Concurrently serving as Head ofpreparation Work Group for Establishmentof Children and Families’ Agency, Cabinet
Secretariat

March

2023

Standing Outside Audit & Supervisory
Board Member, the Company (Current
Position)

91

Term ofofficeNumber ofshares held
(Share)4 years
since
March
2023

0

TitleName

Date ofbirth

Summary of career
April

Audit &
Supervisory
Board
MemberAugust 14,
Nobuo Inada
1956

1981

Deputy Vice-Minister of Justice, Ministryof Justice

AugustDirector-General, the Criminal Affairs
Bureau, Ministry of Justice

January 2014

Vice-Minister of Justice, Ministry of Justice

September 2016

Superintending Prosecutor, Sendai High
Public Prosecutors’ Office

September 2017

Superintending Prosecutor, Tokyo High
Public Prosecutors Office

July

Prosecutor-General

2018

Number ofshares held
(Share)4 years
since
March
2023

0

3 years
since
March
2024

0

Appointed as Public Prosecutor

October 20082011

Term ofofficeOctober 2020

Registered as Attorney at Law (Current
Position)

June

2021

Outside Director, Member of the Audit andSupervisory Committee, Nomura Securities
Co., Ltd. (Current Position)

March

2023

Outside Audit & Supervisory Board
Member, the Company (Current Position)(Significant Concurrent Positions outside the Company)
Attorney at Law, Inada Law Firm
Outside Director, Member of the Audit and Supervisory
Committee, Nomura Securities Co., Ltd.

Audit &
Supervisory
Board
MemberEmiko
TakeishiFebruary
16, 1960

April

1982

Joined the Ministry of Labour

July

1992

Joined NLI Research Institute

April

2003

Assistant Professor, Institute of Social
Science, The University of Tokyo

April

2004

Research Fellow, NLI Research Institute

April

2006

Assistant Professor, Faculty of Lifelong
Learning and Career Studies, Hosei
University

April

2007

Professor, Faculty of Lifelong Learning andCareer studies, Hosei University (Current
Position)

February 2015

Outside Corporate Auditor, Kewpie
Corporation

June

2015

Outside Audit & Supervisory Board
Member, Tokio Marine & Nichido Fire
Insurance Co., Ltd. (Current Position)

June

2023

Outside Audit & Supervisory Board
Member, KAJIMA CORPORATION(Current Position)

March

2024

Outside Audit & Supervisory Board
Member, the Company (Current Position)(Significant Concurrent Positions outside the Company)
Professor, Faculty of Lifelong Learning and Career studies,
Hosei University
Outside Audit & Supervisory Board Member, Tokio Marine &Nichido Fire Insurance Co., Ltd.
Outside Audit & Supervisory Board Member, KAJIMACORPORATION

Total

371,007

Notes: 1. Members of the Board Yukiko Nagashima, Masato Kitera, Tetsuya Shoji, Hiroko Yamashina and Kenji Asakura are
Outside Directors.
2. Standing Audit & Supervisory Board Member Shigeru Taniuchi, Audit & Supervisory Board Members Nobuo Inada
and Emiko Takeishi are Outside Audit & Supervisory Board Members.
3. Persons with the title marked with * concurrently serve as Executive Officer.

92

4. The Company has introduced the Executive Officer System in June 2001 in order to realize prompt and proper
decision-making and business execution. The following 20 persons were appointed effective March 22, 2024.
Title
Name
Post
President
Masamichi Terabatake
Chief Executive Officer
Executive Vice
Finance, Corporate Communications, Business Development
Kei Nakano
President
and D-LAB
Corporate Governance, Compliance, Corporate Strategy,
Executive Vice
Sustainability, People & Culture, Information Technology,
Koji Shimayoshi
Legal, Operation Review & Business Assurance,
President
Pharmaceutical Business and Food Business
Senior Vice President
Junichi Fukuchi
Chief Executive Officer, Tobacco Business, Japan
Senior Vice President
Daniel Torras
Performance & Integration, Tobacco Business, Japan
Corporate Affairs & Communications, Tobacco Business,
Senior Vice President
Suguru Fujiwara
Japan
Senior Vice President
Nobuhiro Uezawa
Manufacturing, Tobacco Business, Japan
Senior Vice President
Igor Dzaja
Marketing, Tobacco Business, Japan
Senior Vice President
Kazuyuki Inui
Sales, Tobacco Business, Japan
Senior Vice President
Muneaki Fujimoto
President, Pharmaceutical Business
Head of Central Pharmaceutical Research Institute,
Senior Vice President
Makoto Kakutani
Pharmaceutical Business
Senior Vice President
Keisuke Nakagomi
Food Business
Senior Vice President
Osamu Hirose
General Counsel
Senior Vice President
Hiroyuki Fukuda
Corporate Strategy and Business Development
Senior Vice President
Kenji Ogura
Corporate Governance and Compliance
Senior Vice President
Hisato Imokawa
Chief Sustainability Officer
Senior Vice President
Hiromasa Furukawa
Chief Financial Officer and Corporate Communications
Senior Vice President
Yoshiyuki Mishima
People & Culture
Senior Vice President
Hisashi Shimobayashi
Information Technology
Senior Vice President
Yuki Otaki
D-LAB
Note:
President and Chief Executive Officer Masamichi Terabatake also serves as President of Tobacco Business.

b. Status of Outside Directors and Outside Audit & Supervisory Board Members•

Numbers of Outside Directors and Outside Audit & Supervisory Board Members as well as their human,capital, business or other relationships of interest
The Company has five Outside Directors and three Outside Audit & Supervisory Board Members.
Outside Director Ms. Yukiko Nagashima is standing Audit and Supervisory Board Member of Recruit
Holdings Co., Ltd. and Recruit Co., Ltd. Although the Company has business relationships with bothcompanies, the value of the business was less than 0.01% of the consolidated revenue for Recruit Holdings
Co., Ltd. in the fiscal year ended March 2023 and less than 0.01% of the Company’s consolidated revenue
in the fiscal year ended December 31, 2023. Furthermore, Ms. Yukiko Nagashima is Outside Audit &Supervisory Board Member of SUMITOMO CORPORATION. Although the Company has a business
relationship with SUMITOMO CORPORATION, the value of the business was less than 0.001% of theconsolidated revenue for SUMITOMO CORPORATION in the fiscal year ended March 2023 and less than
0.001% of the Company’s consolidated revenue in the fiscal year ended December 31, 2023. The Company
has therefore concluded that there is no risk of a special relationship of interest arising.
Outside Director Mr. Masato Kitera is an Outside Director of Marubeni Corporation. Although theCompany has a business relationship with Marubeni Corporation, the value of the business was less than
0.001% of the consolidated revenue for Marubeni Corporation in the fiscal year ended March 2023 and lessthan 0.001% of the Company’s consolidated revenue in the fiscal year ended December 31, 2023.
Furthermore, Mr. Masato Kitera received remuneration as a part-time advisor of the Company from April
30, 2020, but this agreement has expired due to his election at the Ordinary General Meeting of
Shareholders held on March 24, 2021. This remuneration was paid to him as consideration for his advice
on the management and business of the Company based on the experience and insight he possesses, andsatisfies the independence criteria (not more than ¥10 million) prescribed by the Company. The Company
has therefore concluded that there is no risk of a special relationship of interest arising.
Outside Director Mr. Tetsuya Shoji is Corporate Advisor of NTT Communications Corporation. Although
the Company has a business relationship with NTT Communications Corporation, the value of the business
was less than 0.05% of the consolidated revenue for NTT Communications Corporation in the fiscal year
ended March 2023 and less than 0.05% of the Company’s consolidated revenue in the fiscal year ended
December 31, 2023. Furthermore, Mr. Tetsuya Shoji is an Outside Director of Mitsubishi Logistics
93Corporation. Although the Company has a business relationship with Mitsubishi Logistics Corporation, thevalue of the business was less than 0.001% of the consolidated revenue for Mitsubishi Logistics
Corporation in the fiscal year ended March 2023 and less than 0.001% of the Company’s consolidated
revenue in the fiscal year ended December 31, 2023. The Company has therefore concluded that there is norisk of a special relationship of interest arising.
Outside Director Mr. Kenji Asakura is Representative Director, Chairman of Nagase & Co., Ltd. Although
the Company has a business relationship with Nagase & Co., Ltd., the value of the business was less than
0.001% of the consolidated net sales for Nagase & Co., Ltd. in the fiscal year ended March 2023 and lessthan 0.001% of the Company’s consolidated revenue in the fiscal year ended December 31, 2023. The
Company has therefore concluded that there is no risk of a special relationship of interest arising.
Outside Audit & Supervisory Board Member Mr. Nobuo Inada is an Outside Director of Nomura Securities
Co., Ltd. Nomura Securities Co., Ltd. holds shares of the Company, but this constitutes less than 0.05% of
the total shares. The Company has therefore concluded that there is no risk of a special relationship ofinterest arising.
Outside Audit & Supervisory Board Member Ms. Emiko Takeishi is Outside Audit & Supervisory Board
Member of Tokio Marine & Nichido Fire Insurance Co., Ltd. Although the Company has a business
relationship with Tokio Marine & Nichido Fire Insurance Co., Ltd., the value of the business was less than
0.05% of the ordinary income for Tokio Marine & Nichido Fire Insurance Co., Ltd. in the fiscal year ended
March 2023 and less than 0.05% of the Company’s consolidated revenue in the fiscal year ended December
31, 2023. Furthermore, Ms. Emiko Takeishi is Outside Audit & Supervisory Board Member of KAJIMACORPORATION. Although the Company has a business relationship with KAJIMA CORPORATION, thevalue of the business was less than 0.05% of the consolidated net sales for KAJIMA CORPORATION in
the fiscal year ended March 2023 and less than 0.05% of the Company’s consolidated revenue in the fiscal
year ended December 31, 2023. The Company has therefore concluded that there is no risk of a special
relationship of interest arising.
For the Outside Directors and Outside Audit & Supervisory Board Members other than those stated above,
there are no human, capital, business or other relationships of interest that should be reported.
•

Outside Directors appointed and functions and roles of Outside Directors in corporate governance of thefiling company
The Company has appointed Ms. Yukiko Nagashima, Mr. Masato Kitera, Mr. Tetsuya Shoji, Ms. Hiroko
Yamashina and Mr. Kenji Asakura as Outside Directors. The Company anticipates that Ms. Nagashima willleverage her experience in corporate management and execution of business in a wide range of fields, suchas emerging businesses and temporary staffing and objective point of view based on her experience as Audit& Supervisory Board Member, and also her high degree of knowledge cultivated through the perspectivesof both management and auditing. Furthermore, the Company counts on Mr. Kitera to make use of hisabundant international experience and insights concerning international affairs, gained through his long
diplomatic career including his important positions as a government officer mostly in the Ministry ofForeign Affairs. In addition, the Company assumes that Mr. Shoji will utilize his considerable experiencesin business execution and corporate management, having served as a president and representative director
for a telecommunications company, and wide-ranging insights incorporate planning, human resources,
global operations, and digitization promotion. Ms. Yamashina has considerable knowledge and broad anddeep insights in corporate management and business operation, etc. by having served in important roles
such as Corporate Officer of a general financial service provider and President of a subsidiary of thecompany. The Company counts on Mr. Asakura to make use of his outstanding experience and wideranging knowledge in global corporate management, business operation, and corporate cultural reform, etc.
cultivated through serving in important roles such as Representative Director, President and CEO and
Representative Director, Chairman of a trading company specializing in trading chemical products.
Accordingly, as well as expecting that all their experiences will be reflected in the management of theCompany through their active provision of proposals and advice to the Board of Directors, the Company
believes that they will supervise implementation of business from a fair and independent standpoint.

•

Outside Audit & Supervisory Board Members appointed and functions and roles of Outside Audit &Supervisory Board Members in corporate governance of the filing company
Outside Audit & Supervisory Board Members are appointed in light of their significant experience in theirrespective backgrounds and broad perspective. The Company has appointed Mr. Shigeru Taniuchi, Mr.
94

Nobuo Inada and Ms. Emiko Takeishi as Outside Audit & Supervisory Board Members. Mr. Taniuchi has
extensive experience over many years of serving in a wide range of important positions in ministries andagencies, and through this has acquired extensive experience and deep knowledge of such fields as financeand legal affairs. Mr. Inada has extensive experience and broad and deep knowledge of legal affairs andcompliance, etc. through his many years of serving in a wide range of important positions in the legal circles,
ministries and agencies. Ms. Takeishi has served in important roles such as a university professor
specialized in human resource management and women’s labor theory, etc., been a member of the Labour
Policy Council of the Ministry of Health, Labour and Welfare, and outside auditors of business companies,
and possesses wide-ranging experience and advanced and deep knowledge in personnel systems, labor
policies, and corporate governance. The Company expects that their experiences, perspectives andknowledge will be reflected in their audit activity, and the Company believes that they will maintainobjective and neutral oversight of the management of the Company by conducting audits from a fair andindependent standpoint.
•

Independence of Outside Directors and Outside Audit & Supervisory Board Members
At the Board of Directors on April 26, 2012, the Company established a Criteria for Evaluating theIndependence of Outside Executives. According to the Criteria, Independent Directors/Audit &Supervisory Board Members must not fall under any of the following categories.
1. A person who belongs or belonged to the Company or an affiliate or sister company of the Company
2. A person who belongs to a company or any other form of organization of which the Company is amajor shareholder
3. A person who is a major shareholder of the Company or who belongs to a company or any other formof organization which is a major shareholder of the Company
4. A person who is a major supplier or customer of the Company (if the supplier or customer is acompany or any other form of organization, a person who belongs thereto)
5. A major creditor of the Company including a major loan lender (if the creditor is a company or any
other form of organization, a person who belongs thereto)
6. A certified public accountant who serves as an independent auditor or an audit advisor of the Company,
or a person who belongs to an auditing firm which serves as an independent auditor or an audit advisorof the Company
7. A person who receives a large amount of fees from the Company in exchange for providing
professional services for legal, financial and tax affairs or business consulting services (if the recipientof such fee is a company or any other form of organization, a person who belongs thereto)
8. A person who receives a large amount of donation from the Company (if the recipient of such donation
is a company or any other form of organization, a person who belongs thereto)
9. A person who has fit any of the descriptions in 2 to 8 above in the recent past
10. A close relative of a person who fits any of the following descriptions:(i) A person who fits any of the descriptions in 2 to 8 above (if such descriptions apply to a company or
any other form of organization, a person who performs important duties thereof)(ii) A member of the board, audit & supervisory board member, audit advisor, executive officer or
employee of the Company or an affiliate or sister company of the Company(iii) A person who has fit the descriptions in (i) or (ii) in the recent past.

Notes:•

A company or any other form of organization of which the Company is a major shareholder
A company or any other form of organization, in which the Company holds more than 10% of all sharesissued•A major shareholder of the Company, or a company or any other form of organization which is a major
shareholder of the Company
A person, or a company or any other form of organization, that holds more than 10% of all shares of theCompany issued95

•A major supplier or customer of the Company
A person whose business with the Company accounts for more than 2% of the consolidated revenue of theCompany, or a person whose business with the Company accounts for more than 2% of the consolidated
revenue of the person•

A major creditor of the Company including a major loan lender
A financial institution listed in the “Major Lenders” section of the Company’s Business Report, and afinancial institution listed as a lender or a lead managing underwriter in materials released at the time ofmajor M&A deals in the past, and at other times•

A person who receives a large amount of fees from the Company in exchange for providing professional
services for legal, financial and tax affairs or business consulting services
A person who receives fees of more than ¥10 million in a fiscal year from the Company in exchange forproviding professional services for legal, financial and tax affairs or business consulting services.
For a company or any other form of organization, this shall be 2% or more of total income in a fiscal year.
However, even if the fees shall be less than 2%, in cases where consideration for services in which suchprofessionals are directly involved exceeds ¥10 million, it shall be considered a large amount.

•

A person who receives a large amount of donation from the Company
A person who receives a donation of more than ¥10 million in a fiscal year from the Company. In cases
where the recipient is a company or any other form of organization, a person belonging to an organizationthat receives a donation of ¥10 million in a fiscal year or the equivalent to 2% of the organization’s total
annual income or consolidated revenue, whichever is the greater amount.

•

A close relative
A spouse or a relative within the second degree of kinship•

A person who performs important duties
A person of head of division or executive rank•

Retrospective measure (criteria for judging “in the recent past”)
The retrospective period shall be the past five years

Notwithstanding the above mentioned notes, as a result of investigations into the past and present state of
employment of a candidate, it is judged that the person is in effect independent, that person may become an Outside
Member of the Board or an Outside Audit & Supervisory Board Member after receiving the approval of the Boardof Directors. In such cases, the grounds for the decision shall be disclosed publicly.
In light of the above set of criteria, the Company has designated Ms. Yukiko Nagashima, Mr. Masato Kitera, Mr.
Tetsuya Shoji, Ms. Hiroko Yamashina and Mr. Kenji Asakura, who are Outside Directors, and Mr. Shigeru
Taniuchi, Mr. Nobuo Inada and Ms. Emiko Takeishi, who are Outside Audit & Supervisory Board Members, as
independent auditors and directors as defined by financial instruments exchanges.
To ensure that supervisory tasks and audits are conducted appropriately, information is shared regarding
supervision and audit results and other steps are taken to ensure cooperation among operations involving
supervision or audits performed by Outside Directors or Outside Audit & Supervisory Board Members, andoperations involving internal audits, audits by Audit & Supervisory Board Members and audits by the Independent
Auditor. To ensure appropriate implementation of business, information is exchanged as necessary and other meansof cooperation are implemented among operations involving supervision or audits performed by Outside Directors
or Outside Audit & Supervisory Board Members, and the Company’s Internal Control Division.

96

(3) Implementation status of audits
a. Status of audits by Audit & Supervisory Board Members
i. Organization, members and procedures for audits by Audit & Supervisory Board
For the organization, members and procedures for audits by Audit & Supervisory Board, please refer to “(1)Outline of Corporate Governance, b. Outline of corporate governance structure and reason for adoption of thestructure” and “(2) Status of Officers, b. Status of Outside Directors and Outside Audit & Supervisory Board
Members, Outside Audit & Supervisory Board Members appointed and functions and roles of Outside Audit &Supervisory Board Members in corporate governance of the filing company.”ii. Status of Audit & Supervisory Board Members and Audit & Supervisory Board activities
During the fiscal year ended December 31, 2023, the Audit & Supervisory Board meeting was held a total of 14
times, with attendance at meetings for individual Audit & Supervisory Board Members after they assumed theoffice of Audit & Supervisory Board Member being as follows:
Classification
Standing Audit &Supervisory Board Member
Standing Audit &Supervisory Board Member
Standing Outside Audit &Supervisory Board Member
Outside Audit & Supervisory
Board Member
Outside Audit & Supervisory
Board Member

Attendance at meetings of the Audit &Supervisory Board

Name
Hideaki Kashiwakura

10/10 (100%)

Tsutomu Hashimoto

10/10 (100%)

Shigeru Taniuchi

10/10 (100%)

Nobuo Inada

10/10 (100%)

Hiroko Yamashina

10/10 (100%)

Notes: 1. Ms. Ryoko Nagata, Mr. Hiroshi Yamamoto, Mr. Toru Mimura, Mr. Hiroshi Obayashi and Mr. Koji Yoshikuni, all of whom
retired as of the 38th Ordinary General Meeting of Shareholders held on March 24, 2023, attended all four of the four
meetings of the Audit & Supervisory Board as Audit & Supervisory Board Members during the fiscal year ended
December 31, 2023.
2. Outside Audit & Supervisory Board Member Ms. Hiroko Yamashina resigned as Audit & Supervisory Board Member andassumed the office of Member of the Board at the conclusion of the 39th Ordinary General Meeting of Shareholders heldon March 22, 2024.

The specific contents considered by the Audit & Supervisory Board included the auditing policies, legality ofthe business report and accompanying supplemental schedules, as well as the appropriateness of execution ofduties by directors, the state of the rollout and operation of the internal control system, and the reasonablenessof the methods used by the Independent Auditor, and of the results thus obtained.
Other activities conducted by Audit & Supervisory Board Members were the exchange of opinions with theMembers of the Board, etc. of the Company, attendance at important meetings of the Board of Directors, thereading of documents for important resolutions, etc., surveys of operations and the status of assets at theCompany and its subsidiaries, the exchange of opinions with Directors and Audit & Supervisory Board
Members, etc. of subsidiaries, and checking progress reports and the reported results for audits implemented by
the Independent Auditor.
b. Status of internal audit
The internal audit system is an entity independent of the organizations responsible for business execution thatreports directly to the President and Chief Executive Officer and is overseen by the Operational Review andBusiness Assurance Division (18 employees as of December 31, 2023) of the Company. The internal audit
system uses an objective position to examine and evaluate systems for supervising and managing the overall
operations and the status of business execution from the viewpoints of legality and rationality, in order toprotect the Company’s assets and improve management efficiency. The Operational Review and Business
Assurance Division has the authority to observe all activities, inspect all records and question all personnel ofthe entire Group without restrictions in order to fulfill its responsibilities. Moreover, in coordination with theinternal audit functions of all subsidiaries, the Operational Review and Business Assurance Division also
undertakes the planning and performance of the Group’s internal audit systems and policies, and supplements
the internal audit functions of subsidiaries.
97

The Company’s Vice President of the Operational Review and Business Assurance has an obligation to report
the results of audits to the President and Chief Executive Officer, and reports to the Board of Directors every
year.
c. Implementation status of accounting audits
The Company, in order to ensure the Independent Auditor’s appropriate audit, secures sufficient time for audit
enabling high-quality audit and provide the Independent Auditor with opportunities to contact Members of theBoard and Executive Officers, as well as provide appropriate auditing environment enabling sufficient
cooperation between the Independent Auditor and Audit & Supervisory Board Members, the internal auditing
division and Outside Directors. Further, in the event that an Independent Auditor indicates a deficiency orproblem or discovers misconduct, the Company shall appropriately take measures correspondingly.
While Audit & Supervisory Board Members, internal audit organizations including the Operational Review andBusiness Assurance Division, and the Independent Auditor conduct audits individually, they endeavor toenhance their cooperation in order to ensure appropriate audits, for example by sharing information on the
results of their respective audits. Also, Audit & Supervisory Board Members, internal audit organizations
including the Operational Review and Business Assurance Division, and the Independent Auditor cooperatewith the Company’s Internal Control Division to ensure appropriate implementation of business by exchanging
information when necessary.
i. Name of auditing firm
Deloitte Touche Tohmatsu LLC
ii. Continuous audit period
39 yearsiii. Certified public accountants
Yukitaka Maruchi, Koji Ishikawa, Yoichi Matsushita
iv. Assistants for the audit work
Certified public accountants: 20 persons, People who have passed the Certified Public Accountants
Examination: 5 persons, Others: 42 persons
v. Policy and reasons for selecting the Independent Auditor
The Audit & Supervisory Board has established the “Standards for Evaluating and Selecting Independent
Auditor.” The evaluation and selection of Independent Auditor are conducted in accordance with said standards,
and are based on a comprehensive judgment, considering the various factors such as independence from theCompany, degree of expertise, adequate experience, size and overseas network which enables efficient
implementation of accounting services corresponding to the Company’s broad range of business, wellestablished auditing system, fair and reasonable audit plans and expenses.
In the case that an Independent Auditor is adjudged to fall within any of the items listed in Article 340,
paragraph 1 of the Companies Act, with the agreement of all of the Audit & Supervisory Board Members, theAudit & Supervisory Board shall dismiss the Independent Auditor. Additionally, apart from the above, should
an incident occur casting serious doubt on the ability of the Independent Auditor to continue to perform its
duties, the Audit & Supervisory Board shall decide the content of proposal and submit such proposal to theGeneral Meeting of Shareholders that the Independent Auditor should be dismissed or should not bereappointed.
vi. Evaluation of the Independent Auditor by the Audit & Supervisory Board
The Audit & Supervisory Board of the Company conducts evaluations of the Independent Auditor. Evaluation
items are established in relation to the independence and expertise of the Independent Auditor, as well as theappropriateness and reasonableness of their audit activities. The materials required to evaluate each item are
obtained from the relevant departments within the Company and from the Independent Auditor, and throughreports, in order to assess audit quality.

98

d. Audit fees
i. Audit fees paid to certified public accountants

Classification
The Company
Consolidated
subsidiaries
Total

Fiscal year ended December 31, 2022
Fees for audit
Fees for non-audit
attestation services
services
350
85(Millions of yen)
Fiscal year ended December 31, 2023
Fees for audit
Fees for non-audit
attestation services
services
365
100

118

-

122

-

468

85

487

100

Note: Fees paid to Deloitte Touche Tohmatsu LLC.

Details of non-audit services for the Company are as follows.
Fiscal year ended December 31, 2022
Non-audit services for which fees are paid by the Company to certified public accountants include the advisory
services relating to sustainability management and IT field, and the issuance of the comfort letter in relation to
the bond issuing.
Fiscal year ended December 31, 2023
Non-audit services for which fees are paid by the Company to certified public accountants include the advisory
services relating to the strengthening of the state of overseas security governance, etc., and the issuance of the
comfort letter in relation to the bond issuing.
ii. Audit fees paid to certified public accountants and organizations that belong to the same network (excludingi.)Classification
The Company
Consolidated
subsidiaries
Total

Fiscal year ended December 31, 2022
Fees for audit
Fees for non-audit
attestation services
services492(Millions of yen)
Fiscal year ended December 31, 2023
Fees for audit
Fees for non-audit
attestation services
services
144

916

1,564

1,137

1,574

916

2,056

1,137

1,718

Note: Fees paid to member firms of Deloitte Touche Tohmatsu Limited.

Details of non-audit services for the Company are as follows.
Fiscal year ended December 31, 2022
Non-audit services for which fees are paid by the Company to Deloitte Touche Tohmatsu Limited member
firms include consulting services.
Fiscal year ended December 31, 2023
Non-audit services for which fees are paid by the Company to Deloitte Touche Tohmatsu Limited member
firms include consulting services.
In addition, details of non-audit services for consolidated subsidiaries are as follows.
Fiscal year ended December 31, 2022
Non-audit services for which fees are paid by consolidated subsidiaries of the Company to Deloitte Touche
Tohmatsu Limited member firms include tax consulting.
Fiscal year ended December 31, 2023
Non-audit services for which fees are paid by consolidated subsidiaries of the Company to Deloitte Touche
Tohmatsu Limited member firms include tax consulting.

99

iii. Other important fees for audit attestation services
No items to report.
iv. Policy for determining audit fees
The audit fee is determined through the necessary and sufficient negotiations with auditors based on the audit
plan and audit fee estimates provided by them.
More specifically, the audit fee is determined based on the overall information by confirming that the focusedaudit areas under the audit plan and the scope of group-wide audit and review considering changes in
consolidation status are appropriately reflected in the audit hours, and comparing the actual hours to planning in
the prior audits.
Consent from the Audit & Supervisory Board is acquired before the determination of the audit fee to ensure theindependence of auditors.
v. Reasons for approval of the Independent Auditor’s remuneration by the Audit & Supervisory Board:
When the Company concluded an audit contract with Independent Auditor, the Audit & Supervisory Board
Members obtained necessary materials and received reports from the Members of the Board, relevant internal
departments, and the Independent Auditor, and performed verification to confirm that the amount of
remuneration to be paid to the Independent Auditor, the persons in charge of the audits, and other details of theaudit contract were appropriate.
Based upon this verification, the Audit & Supervisory Board checked and examined matters including thecontent of the Independent Auditor’s accounting plan, the status of the performance of the auditing duties, andthe basis for calculation of the remuneration estimate, and, as a result, determined that approval was fair andreasonable.

100(4) Remuneration for Members of the Board and Audit & Supervisory Board Members
a. Policy concerning the remuneration amount for Members of the Board and Audit & Supervisory Board
Members or the remuneration calculation method thereof
i. Executive remuneration policy and method for determining remuneration amount
The Board of Directors determines the policies on executive remuneration including the methodology on
determination of each Members of the Board’s remuneration. These policies are determined after being
deliberated and reported by the Advisory Panel on Nomination and Compensation comprised entirely of theMembers of the Board who do not serve as Executive Officers, in which more than half of whose members
being independent Outside Directors, in order to ensure independence and objectivity.
Based on these policies, the Company’s basic concept on executive remuneration is as follows:• Set the remuneration at an adequate level to retain personnel with superior capabilities.
• Link the remuneration to company performance so as to motivate executives to achieve theirperformance targets.
• Link the remuneration to company value in the mid- to long-term.
• Ensure transparency by implementing an objective and quantitative framework.
Determination of the amount of remuneration for each Member of the Board is benchmarked based on a surveyof remuneration of directors conducted by third parties, based on the remuneration levels of major domestic
manufacturers that are expanding overseas with the similar size and profits (benchmark companies). To be
more specific, after benchmarking the level of base salary and the percentage of variable remuneration in
annual bonuses and mid- and long-term incentives, we decide the amount of remuneration for Members of theBoard based on the results of the review by the Advisory Panel on Nomination and Compensation, in line withthe methods of calculation as set forth in the internal rules, and within the maximum remuneration approved by
the General Meeting of Shareholders. At this point, judged suitable for overviewing the Company’s
management and consolidated performance to decide the amount of remuneration for Members of the Board byconsidering the evaluation of their execution of duties, the Representative Director and President is delegated tomake such decisions. As to the remuneration for the fiscal year under review, based on the details of the review
by the Advisory Panel on Nomination and Compensation, Representative Director and President Masamichi
Terabatake has decided the amount of remuneration for Members of the Board relating to base salary, executive
bonus, the monetary remuneration claim toward the allotment of restricted stock, and the monetary
remuneration claim toward the allotment of performance share units, by following the methods of calculation as
set forth in the internal rules; and the Board of Directors judges its details in compliance with the determination
policy.
The remuneration of Audit & Supervisory Board Members is also benchmarked in the same way, and isdetermined by deliberation among the Audit & Supervisory Board Members within the maximum remuneration
approved at the General Meeting of Shareholders.
ii. Executive Remuneration Structure
The executive remuneration is made of four components. In addition to the monthly “base salary,” there is an“executive bonus,” which reflects the Company’s business performance in the relevant fiscal year, a “restricted
stock remuneration” and “performance share units,” which are linked to the mid- to long-term company valueof the Company. The Restricted Stock Remuneration Plan and the Performance Share Unit Plan wereintroduced in 2020 in order to strengthen the efforts to enhance the mid- to long-term company value and tofurther promote shared value with shareholders.
The composition of remuneration by member category is as follows:• Remuneration for the Members of the Board who also serve as Executive Officers
For Members of the Board who also serve as Executive Officers (hereinafter referred to as “Eligible Directors”),
remuneration consists of “base salary,” “executive bonus,” “restricted stock remuneration” and “performance
share unit remuneration” as they are required to achieve results by executing their duties on a daily basis.
From fiscal 2023, the Company is increasing the ratio of remuneration composition of the mid- to long-term
incentives that are composed of “restricted stock remuneration” and “performance share units,” seeking tofurther promote the aggressive management from a mid- to long-term perspective.
101

The composition ratio of remuneration is as follows.

Notes:

1.
2.
3.
4.

The composition ratios vary depending on the duties of the Members of the Board. The ranges are indicated in theillustration.
The ratio of restricted stock remuneration and performance share units is about 3 to 1.
Under the Performance Share Unit Plan, 50% is paid as cash towards tax payment.
The above illustration shows the ratio of remuneration composition if the “executive bonus” and “performance
share unit remuneration” are paid at the standard amount. The above ratios could fluctuate depending on the
Company’s performance, share price, remuneration levels of benchmark companies, etc.

• Remuneration for the Members of the Board who do not serve as Executive Officers (excluding Outside
Directors)
For Members of the Board who do not serve as Executive Officers (excluding Outside Directors), remuneration
is not linked to business performance but is composed of “base salary” alone, as they are required to makedecisions on the JT Group management strategies aimed at enhancing corporate value and to fulfill supervisory
functions including monitoring the implementation of mid- to long-term growth strategies, etc.
• Remuneration for the Outside Directors
Remuneration for the Outside Directors is composed of “base salary” alone and is not linked to businessperformance to ensure their independence. At the Board of Directors of the Company held on February 14,
2022, a resolution was adopted that from the Advisory Panel on Nomination and Compensation held on March
23, 2022, the Chairperson shall be elected from among Independent Outside Directors by themselves, and that
the Outside Director who serves as the Chairperson shall receive the remuneration at a level of the amountcorresponding to the duty of the Chairperson, in addition to the remuneration Outside Directors receive.
• Remuneration for the Audit & Supervisory Board Members
Remuneration for the Audit & Supervisory Board Members is composed of “base salary” alone in light of their
key responsibility to conduct audits.
(Composition of remuneration by member category)Base salary

Executive
bonus

Restricted
stock
remunerat
ion

Performance
share units

Executive Officer

Applicable

Applicable

Applicable

ApplicableNot an Executive
Officer

ApplicableNot applicableNot applicableNot applicable

Outside Directors

ApplicableNot applicableNot applicableNot applicable

Audit & Supervisory Board Members

ApplicableNot applicableNot applicableNot applicable

Members of theBoard(excluding
OutsideDirectors)iii. Executive Remuneration Details• Base salary
Executives will be remunerated with monthly base salary as per their responsibilities. Eligible Directors
will be individually evaluated for achievement of their performance targets through execution of their102duties that will lead to the Company’s sustainable profit growth. Performance targets are set throughinterviews with the Company’s President and Chief Executive Officer at the beginning of the fiscal year
and evaluated at the end of the fiscal year. The base salary for the following fiscal year will be set withincertain range reflecting the individual performance evaluations. However, an individual performance
evaluation will not be applicable for the Company’s President and Chief Executive Officer.
• Executive bonus
Executive bonus for Eligible Directors will be paid as monetary remuneration reflecting the performance ofa fiscal year. Core revenue at constant FX, adjusted operating profit (AOP) at constant FX, adjusted
operating profit on a reported basis, profit results, and an RRP-related index(Note) will be the key
performance indicators (KPI) for the calculation of executive bonus, which will be used to measure theperformance of the business itself, which is the foundation of sustainable profit growth, as well as theachievement rate of profit growth, from the viewpoint of providing shared value with the shareholders andsetting indices conducive to sustainable growth over the mid to long term. In calculating the amount ofexecutive bonus, 15% accounts for core revenue at constant FX, 35% for AOP at constant FX, 25% foradjusted operating profit on a reported basis and 25% for profit. The ratio that performance on a reported
basis accounts for on the KPIs used to determine executive bonus has been set to 50%. Performance-linked
payout is based on the KPI achievement in the range of 0% to 190% and either -10%, 0% or +10% isadded/deducted to results depending on evaluations of the RRP-related index. In a case where a Member ofthe Board who is a recipient of executive bonus has carried out certain wrongful behavior, the officer
involved will be required to refund a part of the executive bonus already paid.
Note: Qualitative evaluation indicators pertaining to the implementation of strategies and level of achievement related to RRP(Reduced-Risk Products), which is a focus area.

KPIs related to executive bonus that were used to evaluate Group performance in the fiscal year ended
December 31, 2023, and actual results, were as follows.
Fiscal year ended December 31, 2023
KPIs for Group performance (consolidated)
TargetResult¥2,606.0 billion¥2,712.5 billion

Adjusted operating profit at constant FX¥728.0 billion¥765.7 billion

Adjusted operating profit on a reported basis¥667.0 billion¥728.0 billion

Profit attributable to owners of the parent
company¥440.0 billion¥482.3 billion

Core revenue at constant FX• Restricted Stock Remuneration Plan
The Restricted Stock Remuneration Plan is designed to strengthen the shared value with shareholders andto enhance the corporate value over the mid- to long-term. Monetary remuneration claims are provided to
Eligible Directors as remuneration associated with restricted stock in each fiscal year based on resolutionof the Company’s Board of Directors, and each Eligible Director receives allotment of ordinary shares of
the Company by providing all the monetary remuneration claims by means of contribution in kind (theallotment is made by means of disposal of treasury shares). In disposal of ordinary shares of the Company
due to this Plan, a restricted stock allotment agreement shall be concluded between the Company and each
Eligible Director.
The monetary compensation towards the purchase of the Company’s restricted stock will be decided basedon the closing price of the Company’s share at the Tokyo Stock Exchange as of the business day
immediately preceding the resolution by the Board of Directors. However, if the Company share does nottrade at the Tokyo Stock Exchange on the day prior to the resolution of the Company’s Board of Directors,
the closing price of the immediately preceding trading day will be used. This price of share will be decided
by the Company’s Board of Directors within a scope that is not particularly advantageous to the Eligible
Directors who will receive the restricted stock.
In addition, the allocation of monetary remuneration claims to the Eligible Directors, assumes that suchdirector accepts the compensation as contribution in kind and enters into the restricted stock allotment
agreement.
The specific details of the Plan are as follows. Any other matters regarding the Plan shall be determined by
the Company’s Board of Directors.

103

(1) The total amount of monetary remuneration claims and number of shares
The total amount of monetary remuneration claims for all Eligible Directors together shall not exceed¥600 million per year or the total number of ordinary shares allotted by the Company shall not exceed
300,000 shares per year. If there is a stock split, stock consolidation, or any other event requiring
adjustment to the total number of shares to be allocated after this Restricted Stock Remuneration Plan
has been approved in the 35th Ordinary General Meeting of Shareholders (March 19, 2020), therelevant total number shall be adjusted accordingly within a reasonable range.
(2) Transfer restriction period and details
The restriction period will be 30 years (“Restriction Period”). During this period restrictions will beapplied on the allotted shares (“Allotted Shares”), so that each Eligible Director is prohibited to transfer
the Allotted Shares, pledge them, mortgage them, or use any arrangement to dispose them.
(3) Removal of transfer restrictions
In case any Eligible Director retires due to expiration of the term or resigns due to reasons deemed
reasonable by the Company’s Board of Directors, from a position as Member of the Board or any otherpositions separately specified by the Company’s Board of Directors during the Restriction Period, thetransfer restrictions will be removed on all the Allotted Shares. In case any Eligible Director loses any
position as either Member of the Board, Audit & Supervisory Board Member or Executive Officer due
to expiration of the term or reasons deemed reasonable by the Company’s Board of Directors on thepayment date, the transfer restrictions effective as of the payment date will be removed on all the
restricted stock.
(4) Revocation of Allotted Shares without any compensation
Allotted Shares will be revoked by the Company if an Eligible Director violates any laws andregulations or falls under any other event specified by the Company’s Board of Directors during the
Restriction Period, the Company retains the right to acquire all or part of the Allotted Shares without
any compensation.
(5) Handling in the case of reorganization
During the Restriction Period, if the Company becomes defunct due to merger or organization
restructuring, the transfer restrictions for Allotted Shares will be removed following the resolution of
the Company’s Board of Directors before the effective date of such reorganization.
• Performance Share Unit Plan
The Performance Share Unit Plan is a performance-linked stock compensation system that aims tostrengthen the shared value with shareholders, to enhance the corporate value over the mid- to long-term
and to commit to achieving business results over the mid-term. Members of the Board who also serve as
Executive Officers are eligible to receive monetary remuneration claims and cash towards the acquisitionof ordinary shares after the performance evaluation period (the “Performance Evaluation Period”)(Note),
which is comprised of three fiscal years starting from the fiscal year subject to provision, in accordancewith the rate of achievement of performance and other multi-year performance targets during theperformance evaluation period. The Advisory Panel on Nomination and Compensation deliberates anddecides on the achievement rate of such targets for performance and other items during the Performance
Evaluation Period. The remuneration for the performance share units will be disbursed after the
Performance Evaluation Period expires, in principle, as monetary remuneration claims and cash towards
the acquisition of ordinary shares. Each of the Eligible Directors will receive the allocation of Company’s
ordinary shares by paying all of the monetary remuneration claims in kind (the allotment is made by meansof disposal of treasury shares).
The monetary compensation towards the purchase of the Company’s ordinary shares will be decided basedon the closing price of the Company’s share at the Tokyo Stock Exchange as of the business day
immediately preceding the resolution by the Board of Directors. However, if the Company share does nottrade at the Tokyo Stock Exchange on the day prior to the resolution of the Company’s Board of Directors,
the closing price of the immediately preceding trading day will be used. This price of share will be decided
by the Company’s Board of Directors within a scope that is not particularly advantageous to the Eligible
Directors who will receive the performance share units. In addition, since monetary remuneration claims
and cash to deliver the Company’s ordinary shares are granted according to the above achievement rate ofperformance, the allocation of the monetary remuneration claims and cash to the Eligible Directors, theamount of the claims and cash to deliver the Company’s ordinary shares, and the number of shares
104

delivered are not decided by the expiration of the Performance Evaluation Period.
Note: The initial year for offering was set as 2020, with a Performance Evaluation Period of three fiscal
years, from the fiscal year ended December 31, 2020, to the fiscal year ended December 31, 2022.
For 2021, Performance Evaluation Period is three fiscal years, from the fiscal year ended December
31, 2021, to the fiscal year ending December 31, 2023. For 2022, Performance Evaluation Period isthree fiscal years, from the fiscal year ended December 31, 2022, to the fiscal year ending December
31, 2024. From the fiscal 2023 forward, to the extent approved by the General Meeting of
Shareholders, we will implement the performance-linked stock compensation plan, with respective
years set as the year for offering with a new Performance Evaluation Period of three consecutive
fiscal years starting thereof.
The specific details of the Plan are as follows. Any other matters regarding the Plan shall be determined by
the Company’s Board of Directors.
(1) The total amount of monetary remuneration claims and cash and number of shares
The total amount of monetary remuneration claims and cash for all Eligible Directors together shall not
exceed the amount obtained by multiplying fixed number of base share units(Note 1) not exceeding
200,000 shares per fiscal year by share price at the time of delivery(Note 2), or the total number ofordinary shares allotted by the Company shall not exceed 100,000 shares. If there is a stock split, stock
consolidation, or any other event requiring adjustment to the total number of shares to be allocated has
been approved in the 35th Ordinary General Meeting of Shareholders (March 19, 2020), the relevant
total number shall be adjusted accordingly within a reasonable range.
Notes: 1. Number of base share units (determined by the Board of Directors based on the duties, etc.,of respective Eligible Directors) x ratio of provision (within a range of 0% to 200% based on
the degree of achievement of targets)
2. The share price will be set as the closing price of the Company’s ordinary shares at theTokyo Stock Exchange as of the business day immediately preceding the resolution by the
Board of Directors for the allotment of shares of the Company on the basis of the Plan after
the Performance Evaluation Period expires. However, if the Company share does not trade at
the Tokyo Stock Exchange on the day prior to the resolution of the Company’s Board of
Directors, the closing price of the immediately preceding trading day will be used. This priceof share will be decided by the Company’s Board of Directors within a scope that is notparticularly advantageous to the Eligible Directors.
(2) Share allotment and cash calculation methodology
The Company determines performance indicators and others such as performance-linked figures for thePlan which are necessary to specifically calculate the number of shares to be distributed, reviewed by
the Advisory Panel on Nomination and Compensation of the Company. Profit has been set as the KPI
for the Performance Evaluation Periods that began from fiscal 2020 and fiscal 2021 from theperspective of providing shared value with shareholders. For the Performance Evaluation Period thatbegan from fiscal 2022, the Company has decided to introduce an ESG-related index on top of profit, inorder for the Company and shareholders to seek an agreement on a mutual perspective of evaluating andbeing evaluated, and for the Performance Evaluation Periods that began from fiscal 2023 and fiscal
2024, the Company has decided to set the same KPI. In fiscal 2022, fiscal 2023 and fiscal 2024, theCompany has adopted its progress on initiatives to realize net zero as an ESG-related index, specificallythe target attainment rates to reduce Greenhouse Gas emissions.
In the specific calculation, the number of shares of the Company to be distributed to each Eligible
Director is calculated based on the formula in i) below (however, any fraction of less than one share
shall be rounded down), and the amount of cash to be paid as funds for tax payment to each Eligible
Director is calculated based on the formula in ii) below. In the case of retirement or new appointment oralike during the Performance Evaluation Period, the number of shares of the Company or the amount ofcash to be delivered to the Eligible Director, or his/her heir, may be adjusted reasonably as stipulated by
the Company’s Board of Directors. If the number of the ordinary shares of the Company allotted to
Eligible Directors calculated by the formula i) is greater than the maximum aggregate number of theordinary shares of the Company to be allotted to Eligible Directors, it shall be deducted in a reasonable
manner, such as a proportional distribution, as laid down by the Board of Directors of the Company,
within the range not exceeding the maximum aggregate number.

105

i)
ii)

Number of Company shares to be distributed to each Eligible Director
Number of base share units(Note 1) x ratio of provision(Note 2) x 50%
Amount of monetary benefits to be paid to each Eligible Director(Number of base share units(Note 1) x ratio of provision(Note 2) – number of ordinary shares of theCompany calculated in i) above) x share price at the time of delivery(Note 3)

Notes: 1.
2.

3.

The number is determined by the Company’s Board of Directors in accordance with duties of each Eligible
Director and other factors.
Performance-linked payout is set to be in the range of 0% to 200% based on the KPI (i.e., profit) achievement in
the Performance Evaluation Periods that began from 2020 and 2021.
In the Performance Evaluation Periods that began from 2022, 2023 and 2024, performance-linked payout is set to
be in the range of 0% to 190% based on the KPI (i.e., profit) achievement and either -10%, 0% or +10% isadded/deducted to results depending on evaluations of the ESG-related index.
The share price will be set as the closing price of the Company’s ordinary shares at the Tokyo Stock Exchange asof the business day immediately preceding the resolution by the Board of Directors for the allotment of shares of
the Company on the basis of the Plan after the Performance Evaluation Period expires. However, if the Company
share does not trade at the Tokyo Stock Exchange on the day prior to the resolution of the Company’s Board of
Directors, the closing price of the immediately preceding trading day will be used. This price of share will bedecided by the Company’s Board of Directors within a scope that is not particularly advantageous to the Eligible
Directors.

(3) Pre-requisites for distribution
The Company shall provide the monetary remuneration claims and cash to Eligible Directors, andEligible Directors are required to purchase the Company’s ordinary shares with all the monetary
remuneration claims received as contribution in kind, after the Performance Evaluation Period expires
and the following conditions for distribution of Company’s ordinary shares are met.
i) Remaining in his/her term of office as Member of the Board, Executive Officer or any otherpositions separately specified by the Board of Directors during the fiscal year subject to provisionii) Non-existence of certain illegal actsiii) Other requirements considered necessary, which are stipulated by the Board of Directors(4) Handling in the case of reorganization
During the Performance Evaluation Period, if the Company becomes defunct due to merger ororganization restructuring, the Company’s Board of Directors may, prior to the effective date of the saidorganizational restructuring, decide to pay towards performance share units in accordance with theduration from the commencement date of the Performance Evaluation Period to the date of approval forthe said organizational restructuring. However, in lieu of the aforementioned allocation of theCompany’s ordinary shares, cash will be reasonably calculated by the Company’s Board of Directors as
the amount equivalent to the said ordinary shares, within the limit of the remuneration for the
Performance Share Unit Plan.

106

iv. Overview of the Resolutions on Total Executive Remuneration at the Ordinary General Meeting of
Shareholders
At the 35th Ordinary General Meeting of Shareholders (held on March 19, 2020), approval was obtained for an
upper limit to remuneration, consisting of base salary and executive bonus for the Company’s Members of theBoard (10 persons as of the filing date), of ¥1.1 billion per year for all Members of the Board (including ¥80
million per year for Outside Directors), and at the 37th Ordinary General Meeting of Shareholders (held on
March 23, 2022), following an increase of one in the number of Outside Directors, approval was obtained for an
increase in the upper limit to remuneration of ¥100 million for all Outside Directors. At the 38th Ordinary
General Meeting of Shareholders (held on March 24, 2023), approval was also obtained for the revision of theamount of base salary at a level of not exceeding ¥800 million per year for all Members of the Board (including¥160 million per year for Outside Directors), and for the revision of the upper limit to the percentage to profit(profit attributable to owners of the parent company) of 0.3% for executive bonus.
In addition, at the 35th Ordinary General Meeting of Shareholders (held on March 19, 2020), approval was
obtained for the adoption of the Restricted Stock Remuneration Plan and Performance Share Unit Plan for thoseMembers of the Board who also serve as Executive Officers (3 persons as of the filing date), after abolishing
the previous stock option plan, and for upper limits of remuneration of ¥210 million per year for the Restricted
Stock Remuneration Plan (equivalent to 115,200 shares), and ¥130 million per year (equivalent to 76,800
shares) for the Performance Share Unit Plan, respectively. At the 38th Ordinary General Meeting of
Shareholders (held on March 24, 2023), approval was also obtained for upper limits of remuneration of ¥600
million per year for the Restricted Stock Remuneration Plan (equivalent to 300,000 shares), and the amountobtained by multiplying fixed number of base share units(Note 1) not exceeding 200,000 shares per fiscal year byshare price at the time of delivery(Note 2) (equivalent to 100,000 shares) for the Performance Share Unit Plan.
Notes: 1. Number of base share units (determined by the Board of Directors based on the duties, etc., ofrespective Eligible Directors) x ratio of provision (within a range of 0% to 200% based on the
degree of achievement of targets)
2. The share price will be set as the closing price of the Company’s ordinary shares at the Tokyo Stock
Exchange as of the business day immediately preceding the resolution by the Board of Directors
for the allotment of shares of the Company on the basis of the Plan after the Performance
Evaluation Period expires. However, if the Company share does not trade at the Tokyo Stock
Exchange on the day prior to the resolution of the Company’s Board of Directors, the closing priceof the immediately preceding trading day will be used. This price of share will be decided by theCompany’s Board of Directors within a scope that is not particularly advantageous to the Eligible
Directors.

Remunerations
Base salary

Up to ¥800 million(of which, ¥160 million for Outside Directors)

Executive bonus

Up to 0.3% of profit (profit attributable to owners of the parent
company)

Restricted stock remuneration

Performance share units

Total amount of monetary remuneration
claims to Eligible Directors

Up to ¥600 million

Number of shares distributed to Eligible
Directors

Up to 300,000 shares

Total amount of monetary remuneration
claims to Eligible Directors and cash forthe purpose of paying taxes

Up to the amount obtained by multiplying fixed number ofbase share units (up to 200,000 shares) withshare price at offering

Number of shares distributed to Eligible
Directors

Up to 100,000 shares

At the 34th Ordinary General Meeting of Shareholders (held on March 20, 2019), approval was obtained for an
upper limit to remuneration for the Company’s Audit & Supervisory Board Members (5 persons as of the filing
date) of ¥240 million per year for all Audit & Supervisory Board Members.

107

v. Details of the activities of the Board of Directors and the Advisory Panel on Nomination and Compensationin relation to determining executive remuneration, etc.
Details of activities related to determining executive remuneration were as follows.
Name

Number ofmeetings

Advisory Panel on
Nomination andCompensation

5

Board of Directors

3

Details of activities
Discussion for the nomination of the proposed Members of theBoard and Audit & Supervisory Board Members, and theirskills matrix; confirmation regarding the level of remuneration;
confirmation regarding the pool of executive candidates;
discussion on the enhancement of cooperation with theAdvisory Panel on Nomination and Compensation that helps
strengthen the supervisory function of the Board of Directors;
and review of the key performance indicators (KPIs) for the
executive bonuses and performance share units
Revision of remuneration, etc. for Members of the Board;decisions related to the payment of restricted stock
remuneration and performance share units; appointment of theplanned Member of the Board candidates and Audit &Supervisory Board Member candidates, and other matters

b. Total amount of remuneration and other payments, total amount of remuneration and other payments bytype, and number of Members of the Board and Audit & Supervisory Board Members to be paid, bymember category for the fiscal year ended December 31, 2023

Category

Members of the Board(excluding Outside
Directors)
Audit & Supervisory
Board Members(excluding Outside
Audit & Supervisory
Board Members)
Outside Directors andOutside Audit &Supervisory Board
Members
Total

Total amountof
remunerationand otherpayments(Millions ofyen)

Total amount of remuneration and other payments by type(Millions of yen)
Number to be
paid(Person)Base salary

Executive
bonus

Restricted
stock
remuneration

1,364

473

417

273

202

7

82

82

-

-

-

4

168

168

-

-

-

10

1,614

722

417

273

202

21

Notes: 1.
2.
3.
4.

Performance
share units

For executive bonus, the amounts planned to be paid are shown.
For performance share units, the amount to be recorded as expenses for the fiscal year under review is listed.
Executive bonus and performance share units of the above fall under performance-linked remuneration and others.
Restricted stock remuneration and performance share units of the above fall under non-monetary remuneration andothers.
5. The above list includes two Members of the Board, two Audit & Supervisory Board Members, and three Outside
Directors and Outside Audit & Supervisory Board Members who retired on March 24, 2023.

108

c.

Total amount of consolidated remuneration and other payments for individuals whose consolidated
remuneration and other payments amount to ¥100 million or more for the fiscal year ended December 31,
2023

Name

Category

Company

Masamichi
Terabatake
Kiyohide
Hirowatari

Representative
Director
Representative
Director
Representative
Director

Filingcompany
Filingcompany
Filingcompany

Kei Nakano

Amount of consolidated remuneration and other payments bytype (Millions of yen)
Restricted
Executive
Performance
Base salary
stock
bonus
share units
remuneration

Total(Millions of
yen)

156

235

161

134

687

67

100

60

30

257

46

81

51

31

209

Note: Same as (Notes) 1-4 for the Notes to the above “(ii) Total amount of remuneration and other payments, total amount of
remuneration and other payments by type, and number of Members of the Board and Audit & Supervisory Board Members to
be paid, by member category for the fiscal year ended December 31, 2023.”

109

(5) Share Ownership
a. Basic concept and criteria for investment stock category
The Company categorizes stocks that are held exclusively for the purpose of profiting through fluctuations inshare prices or from the receipt of dividends as “investment stocks held purely for the purpose of financial
investment,” and all others as “investment stocks held for purposes other than financial investment” (strategic
shareholdings).
b. Investment stocks held for purposes other than financial investment
i. Shareholding policy, methods used to verify the reasonableness of shareholdings, and details of verificationby the Board of Directors, etc. in relation to the suitability of holding individual issues
The Company has drawn up a policy regarding strategic holdings of listed stocks as well as criteria for the
exercise of voting rights, as follows, and operates them appropriately.
•

The Company maintains strategic shareholdings only in cases where it has concluded that they willcontribute to mid- to long-term sustainable profit growth and to increases in corporate value.

•

Such shareholdings are subject to detailed investigations, such as whether the purpose of holding eachissue is appropriate, and whether the benefits and risks associated with the shareholding are reasonable
in the light of capital costs, and the suitability of holding is subject to verification by the Board of
Directors every year.

•

In cases where, as a result of this verification, a stock is recognized to be lacking the rationale forholding, the stock is sold as and when appropriate.

•

The Company exercises its voting rights in relation to strategic shareholdings after coming to acomprehensive judgment regarding the purpose of the shareholding and whether the value of the stock
held is impaired.

ii. Number of issues and balance sheet amount(Fiscal year ended December 31, 2023)
Number ofissues(Issue)Unlisted stocks
Stocks other thanunlisted stocks

Balance sheet amount(Millions of yen)

45

1,413

6

12,912(Issues for which the number of shares increased in the fiscal year ended December 31, 2023)
Number ofissues(Issue)Total acquisition costassociated with the increasein the number of shares(Millions of yen)

Reason for increase in the number ofsharesUnlisted stocks

2320

Mainly for establishment and strengtheningof cooperative relationships for the pursuitof seeds in the medium to long term

Stocks other thanunlisted stocks

-

-

-

(Issues for which the number of shares decreased in the fiscal year ended December 31, 2023)
Number ofissues(Issue)Unlisted stocks
Stocks other thanunlisted stocks

Total sales proceeds
associated with the decreasein the number of shares(Millions of yen)

9

89

3

688

110

iii. Number of shares for each specified investment stock and stock deemed to be held, and information related
to balance sheet amount, etc.
Specified investment stocks
Fiscal year ended
December 31,
2023
Number of shares(Share)Balance sheet
Amount(Millions of yen)Issue

852,000

Fiscal year ended
December 31,
2022
Number of shares(Share)Balance sheet
Amount(Millions of yen)

Dealings with the Company are ongoing,
expressed in such ways as cooperation
with the sales and sales promotion
activities of the tobacco business inJapan, and shares are held for the
purpose of maintaining and strengthening
the stable long-term transactional andcooperative relationship. Although it isdifficult to quantify the effects of therelationship, the suitability of theshareholding has been verified by the
Board of Directors.
Dealings with the Company are ongoing,
expressed in such ways as cooperatingwith the tobacco business in Japan in thearea of setting up environments divided
into smoking and non-smoking zones,
and shares are held for the purpose ofmaintaining and strengthening the stablelong-term transactional and cooperative
relationship. Although it is difficult toquantify the effects of the relationship,
the suitability of the shareholding has
been verified by the Board of Directors.
Dealings with the Company are ongoing,
expressed in such ways as cooperatingwith the tobacco business in Japan in thearea of setting up environments divided
into smoking and non-smoking zones,
and in selling tobacco products in dutyfree stores in airports and in urban
locations. Shares are held for the purposeof maintaining and strengthening thestable long-term transactional andcooperative relationship. Although it isdifficult to quantify the effects of therelationship, the suitability of theshareholding has been verified by the
Board of Directors.
Dealings with the Company have beenongoing, expressed in such ways as
cooperating with the tobacco business inJapan in the area of setting up
environments divided into smoking andnon-smoking zones, and shares were held
for the purpose of maintaining andstrengthening the transactional andcooperative relationship, but as a resultof the verification process conducted by
the Board of Directors, all shares havebeen sold.

852,000

Seven & i Holdings
Co., Ltd.
4,767

4,822

1,320,000

1,320,000

DOUTOR-NICHIRES
Holdings Co., Ltd.
2,876

2,269

400,000

400,000

Japan Airport Terminal
Co., Ltd.
2,484

2,612

–

100,000

Central Japan Railway
Company–

Purpose of the shareholding, outline ofbusiness alliance, quantitative
effects of the shareholding, and thereason for increase in number ofshares

1,621

111

Sharesof theCompany
held

None

None

None

Yes

Fiscal year ended
December 31,
2023
Number of shares(Share)Balance sheet
Amount(Millions of yen)

Fiscal year ended
December 31,
2022
Number of shares(Share)Balance sheet
Amount(Millions of yen)

552,500

1,052,500

Issue

682

173,040

173,040NIPPON EXPRESSHOLDINGS, INC.
1,387

1,305

602,000

602,000

Daicel Corporation
822

575

–

27,400Tokyo Automatic
Machinery Works,
Ltd.
–

Note:

Sharesof theCompanyheld

The two companies exchange humanresources and a variety of information
with a view to enhancing corporate
value, and shares are held for the purposeof maintaining and strengthening thestable long-term cooperative relationship.
Although it is difficult to quantify theeffects of the relationship, the suitabilityof the shareholding has been verified by
the Board of Directors.
As a service provider that collaborates
with the tobacco business in Japan in thearea of distribution, dealings with theCompany for the transportation of
product are ongoing, and shares are held
for the purpose of maintaining andstrengthening the stable long-termtransactional and cooperative
relationship. Although it is difficult toquantify the effects of the relationship,
the suitability of the shareholding has
been verified by the Board of Directors.
As a supplier for the tobacco products ofthe tobacco business in Japan andoverseas, dealings with the Company forthe procurement of materials are
ongoing, and shares are held for the
purpose of maintaining and strengthening
the stable long-term transactional andcooperative relationship. Although it isdifficult to quantify the effects of therelationship, the suitability of theshareholding has been verified by the
Board of Directors.
As a supplier of tobacco production
machinery to the tobacco business inJapan, dealings with the Company inrelation to the procurement andmaintenance of machinery and parts havebeen ongoing, and shares were held forthe purpose of maintaining andstrengthening the transactional andcooperative relationship, but as a resultof the verification process conducted by
the Board of Directors, all shares havebeen sold.

Yoshimura Food
Holdings K.K.
576

Purpose of the shareholding, outline ofbusiness alliance, quantitative
effects of the shareholding, and thereason for increase in number ofshares48

The approach used to verify each individual shareholding is as described in “b. Investment stocks held for purposes other thanfinancial investment, i. Shareholding policy, methods used to verify the reasonableness of shareholdings, and details of
verification by the Board of Directors, etc. in relation to the suitability of holding individual issues” above.

Stocks deemed to be held
No items to report for the fiscal years ended December 31, 2022 and 2023.
c. Investment stocks held purely for the purpose of financial investment
No items to report for the fiscal years ended December 31, 2022 and 2023.
112

None

Yes

Yes

Yes

V. Accounting
1. Preparation Policy of the Consolidated and Nonconsolidated Financial Statements(1) The consolidated financial statements of Japan Tobacco Inc. (hereinafter referred to as the “Company”) are prepared inaccordance with International Financial Reporting Standards (hereinafter referred to as “IFRS”) pursuant to the provisions ofArticle 93 of the Ordinance on Terminology, Forms and Preparation Methods of Consolidated Financial Statements(Ordinance of the Ministry of Finance No. 28 of 1976; hereinafter referred to as the Ordinance on CFS).
(2) The nonconsolidated financial statements of the Company are prepared based on the Ordinance on Terminology, Forms, andPreparation Methods of Financial Statements (Ordinance of the Ministry of Finance No. 59 of 1963; hereinafter referred to as
the Ordinance on FS). The Company is categorized as a company allowed to file specified financial statements, and prepares
the nonconsolidated financial statements in accordance with the provisions of Article 127 of the Ordinance on FS.
(3) Figures stated in the consolidated and nonconsolidated financial statements are rounded to the nearest million yen.

2. Audit Certification
In accordance with the provisions of Article 193-2 (1) of the Financial Instruments and Exchange Act, the consolidated financial
statements and the nonconsolidated financial statements for the year ended December 31, 2023 were audited by Deloitte Touche
Tohmatsu LLC.

3. Special Effort to Ensure the Appropriateness of Consolidated Financial Statements, and Development ofa System for Fair Preparation of Consolidated Financial Statements, in accordance with IFRSThe Company is making special effort to ensure the appropriateness of the consolidated financial statements and developing asystem for the appropriate preparation of consolidated financial statements in accordance with IFRS. The content thereof is asfollows:(1) In order to develop a system, which is capable of responding to changes of accounting standards adequately, we strive toaccumulate expert knowledge by assigning employees with sufficient knowledge on IFRS, and participating in organizations,such as the Financial Accounting Standards Foundation and attending their seminars.
(2) In order to prepare appropriate consolidated financial statements in accordance with IFRS, we established the IFRS GroupAccounting Guidelines, and we comply with them. The IFRS Group Accounting Guidelines are revised and updated asneeded after obtaining press releases and standards issued by the International Accounting Standards Board, understanding
the latest standards and examining their impact on our results.

113

1. Consolidated Financial Statements(1) Consolidated Financial Statements
A. Consolidated Statement of Financial Position
As of December 31, 2022 and 2023
(Millions of yen)
2022

2023

AssetsCurrent assets
Cash and cash equivalents (Note 7)

866,885

1,040,206

Trade and other receivables (Note 8)Inventories (Note 9)477,239
691,906

535,302
832,611

Other financial assets (Note 10)
Other current assets (Note 11)

37,677649,181

58,633789,888

Subtotal
Assets held for sale (Note 12)2,722,889
702

3,256,639
2,921

Total current assets

2,723,591

3,259,561

775,957
2,446,063

821,4992,616,440

Intangible assets (Note 14)
Investment property (Note 16)

246,4429,495

206,982
9,338

Retirement benefit assets (Note 22)
Investments accounted for using the equity method

57,792
56,94365,85656,726

Other financial assets (Note 10)
Deferred tax assets (Note 17)

140,366
91,430156,316
89,3793,824,487

4,022,536

6,548,078

7,282,097

Non-current assets
Property, plant and equipment (Notes 13, 15)
Goodwill (Note 14)

Total non-current assets
Total assets- 114 -

(Millions of yen)
2022

2023

Liabilities and equity
Liabilities
Current liabilities
Trade and other payables (Note 18)

540,089592,802

Bonds and borrowings (Note 19)
Income tax payables

137,308
37,470233,333
29,647

Other financial liabilities (Note 19)
Provisions (Note 20)

40,065
26,61044,47018,634

781,093

1,008,390

1,562,635

1,927,276

Other current liabilities (Note 21)
Subtotal
Liabilities directly associated with assets held for sale29-

1,562,664

1,927,276

821,003

908,926

Other financial liabilities (Note 19)
Retirement benefit liabilities (Note 22)

41,735244,116

40,678279,443

Provisions (Note 20)
Other non-current liabilities (Note 21)

26,490195,248

45,527
127,170

Deferred tax liabilities (Note 17)

40,061

40,586

1,368,653

1,442,329

2,931,317

3,369,605

Total current liabilities
Non-current liabilities
Bonds and borrowings (Note 19)

Total non-current liabilities
Total liabilities
EquityShare capital (Note 23)

100,000

100,000

Capital surplus (Note 23)
Treasury shares (Note 23)736,400(490,183)

736,478(489,194)

Other components of equity (Note 23)
Retained earnings

104,3093,089,909

290,550
3,192,323

Equity attributable to owners of the parent company
Non-controlling interests

3,540,435
76,326

3,830,156
82,336

3,616,761

3,912,491

6,548,078

7,282,097

Total equity
Total liabilities and equity- 115 -

B. Consolidated Statement of Income
Years Ended December 31, 2022 and 2023
(Millions of yen)
2022

2023

Revenue (Notes 6, 25)

2,657,832

2,841,077

Cost of sales (Notes 14, 22)(1,090,989)(1,225,974)

Gross profit

1,566,843

1,615,103

20,26230,027

8,009

8,332

(941,538)(981,052)

653,575

672,410

Other operating income (Note 26)
Share of profit in investments accounted for using theequity method
Selling, general and administrative expenses(Notes 12, 13, 14, 16, 22, 27, 32)
Operating profit (Note 6)
Financial income (Notes 28, 33)

31,14744,414

Financial costs (Notes 22, 28, 33)(91,272)(95,222)

Profit before income taxes

593,450

621,601

Income taxes (Note 17)(149,277)(136,292)

Profit for the period

444,174

485,310442,716
1,458

482,288
3,021

Profit for the period

444,174

485,310

Earnings per share
Basic (Yen) (Note 30)

249.45271.69249.36271.63Attributable to
Owners of the parent company
Non-controlling interests

Diluted (Yen) (Note 30)
Reconciliation from “Operating profit” to “Adjusted operating profit”(Millions of yen)
2022
Operating profit
Amortization cost of acquired intangibles arising frombusiness acquisitions
Adjustment items (income)
Adjustment items (costs)
Adjusted operating profit (Note 6)- 116 -

2023
653,575

672,410

71,392

58,836(15,865)(18,651)

18,677

15,407

727,779

728,002

C. Consolidated Statement of Comprehensive Income
Years Ended December 31, 2022 and 2023
(Millions of yen)
2022
Profit for the period

2023
444,174

485,310

Items that will not be reclassified to profit or loss
Net gain (loss) on revaluation of financial assets measured
at fair value through other comprehensive income (Notes

1,741

2,414

29, 33)Remeasurements of defined benefit plans (Notes 22, 29)

49,744(13,538)

51,485(11,123)

493,986

189,299

8,584

4,749

－

(17)

502,570

194,031

Other comprehensive income (loss), net of taxes

554,055

182,908

Comprehensive income (loss) for the period

998,229

668,217996,687
1,542

660,6637,554

998,229

668,217

Other comprehensive income

Total of items that will not be reclassified to profit or loss
Items that may be reclassified subsequently to profit orloss
Exchange differences on translation of foreign operations(Notes 29, 33)
Net gain (loss) on derivatives designated as cash flow
hedges (Notes 29, 33)
Hedge costs
Total of items that may be reclassified subsequently to
profit or loss

Attributable to
Owners of the parent company
Non-controlling interests
Comprehensive income (loss) for the period- 117 -

D. Consolidated Statement of Changes in Equity
Years Ended December 31, 2022 and 2023
(Millions of yen)
Equity attributable to owners of the parent company
Other components of equity

Share
capitalCapital surplus

TreasurysharesSubscription
rights tosharesExchangedifferences ontranslation offoreign
operations

Net gain (loss) on
derivatives
designated as
cash flow hedges

Hedge costs

100,000

736,400(490,899)

1,202(408,175)

(274)

－

Profit for the period
Other comprehensive income (loss)

－
－

－
－

－
－

－
－

－
493,971

－
8,584

－
－

Comprehensive income (loss) for the period

－

－

－

－

493,971

8,584

－

－

－

(1)

－

－

－

－

－
－
－
－

－
－
－
－

717

(200)

－
－
－

－
－
－

－
－
－
－

－
－
－
－

－
－
－
－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

236

－

－

－

716

(200)

－

236

－

100,000

736,400(490,183)

1,001

85,796

8,546－

Profit for the period
Other comprehensive income (loss)

－
－

－
－

－
－

－
－

－
185,014

－
4,749

－
(17)

Comprehensive income (loss) for the period

－

－

－

－

185,014

4,749

(17)

－

－

(1)

－

－

－

－

－
－
－
－

78

990

(444)

－
－
－

－
－
－

－
－
－

－
－
－
－

－
－
－
－

－
－
－
－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

(4,150)

－

－

78

989

(444)

－

(4,150)－100,000

736,478(489,194)557

270,810

9,145

(17)

As of January 1, 2022

Acquisition of treasury shares(Note 23)
Disposal of treasury shares (Note 23)
Share-based payments (Note 32)
Dividends (Note 24)
Changes in the scope of consolidation
Changes in the ownership interest in a
subsidiary without a loss of control
Transfer from other components of equity toretained earnings
Other increase (decrease)
Total transactions with the owners
As of December 31, 2022

Acquisition of treasury shares(Note 23)
Disposal of treasury shares (Note 23)
Share-based payments (Note 32)
Dividends (Note 24)
Changes in the scope of consolidation
Changes in the ownership interest in a
subsidiary without a loss of control
Transfer from other components of equity toretained earnings
Other increase (decrease)
Total transactions with the owners
As of December 31, 2023

- 118 -

(Millions of yen)
Equity attributable to owners of the parent company
Other components of equity

As of January 1, 2022

Net gain (loss) onrevaluation offinancial assets
measured at fairvalue throughothercomprehensive
income7,161

Remeasurementsof defined
benefit plans

Retainedearnings

Total

Non-controllinginterests

Total

Total equity－(400,086)

2,863,843

2,809,258

76,8232,886,081

Profit for the period
Other comprehensive income (loss)

－
1,880

－
49,535－553,970

442,716－

442,716
553,9701,458
85444,174554,055

Comprehensive income (loss) for the period

1,880

49,535553,970

442,716

996,687

1,542

998,229

Acquisition of treasury shares (Note 23)
Disposal of treasury shares (Note 23)
Share-based payments (Note 32)
Dividends (Note 24)
Changes in the scope of consolidation
Changes in the ownership interest in a
subsidiary without a loss of control
Transfer from other components of equity toretained earnings
Other increase (decrease)

－
－
－
－
－

－
－
－
－
－

－
(200)

－
(516)
460
(266,203)

(1)
0
460
(266,203)

－

－

－
－
21
(1,631)
(429)

(1)
0
481
(267,834)
(429)

－

－

－

(1)

(1)

(0)

(1)

(75)

(49,535)(49,610)

49,610

－

－

－

－

－

236

－

236

－

236

(75)

(49,535)(49,575)(216,650)(265,510)(2,039)(267,548)

As of December 31, 2022

8,966

－

104,3093,089,909

3,540,435

76,326

3,616,761

Profit for the period
Other comprehensive income (loss)

－
2,199

－
(13,571)－
178,375

482,288－482,288
178,375

3,021
4,533

485,310
182,908

Comprehensive income (loss) for the period

2,199(13,571)

178,375

482,288660,6637,554

668,217

Acquisition of treasury shares (Note 23)
Disposal of treasury shares (Note 23)
Share-based payments (Note 32)
Dividends (Note 24)
Changes in the scope of consolidation
Changes in the ownership interest in a
subsidiary without a loss of control
Transfer from other components of equity toretained earnings
Other increase (decrease)

－
－
－
－
－

－
－
－
－
－

－
(444)

－
(505)
505
(367,415)

(1)
119
505
(367,415)

－

－

－
－
22
(2,945)
(33)

(1)
119
526
(370,360)
(33)

－

－

－

(0)

(0)

1,413

1,413

(1,111)

13,571

12,460(12,460)

－

－

－

－

－

(4,150)－(4,150)－(4,150)Total transactions with the owners(1,111)

13,571

7,866(379,875)(370,942)(1,544)(372,486)

As of December 31, 2023

10,054－

290,550

3,192,323

3,830,156

82,336

3,912,491

Total transactions with the owners

－
－
－

－
－
－

- 119 -

E. Consolidated Statement of Cash Flows
Years Ended December 31, 2022 and 2023
(Millions of yen)
2022
Cash flows from operating activities
Profit before income taxes
Depreciation and amortization

2023

593,450
199,651621,601
179,652

Impairment losses
Interest and dividend income

27,539(26,535)

13,710(42,816)

Interest expense
Share of profit in investments accounted for using the27,01928,493(8,009)(8,332)(4,891)(16,810)equity method(Gains) losses on sale and disposal of property, plant andequipment, intangible assets and investment property(Gains) losses on sale of investments in subsidiaries

(849)

104

(Increase) decrease in trade and other receivables(Increase) decrease in inventories

26,574(93,910)(30,169)(136,232)

Increase (decrease) in trade and other payables
Increase (decrease) in retirement benefit liabilities(38,251)(4,156)40,998455(Increase) decrease in prepaid tobacco excise taxes
Increase (decrease) in tobacco excise tax payables(6,825)24,989(106,987)
102,787

Increase (decrease) in consumption tax payables
Other(11,461)(28,608)

23,24941,534

675,728

711,238

Interest and dividends received
Interest paid

25,530(23,728)

41,189(26,324)

Income taxes paid

(193,731)(159,088)

Net cash flows from operating activities

483,799

567,014

Cash flows from investing activities
Purchase of securities
Proceeds from sale and redemption of securities(37,414)
18,208(113,010)
84,363Purchase of property, plant and equipment
Proceeds from sale of investment property(81,411)
7,583(94,861)
19,653Purchase of intangible assets
Payments into time deposits(17,997)(350)(26,353)

Proceeds from withdrawal of time deposits
Proceeds from sale of investments in subsidiaries

1,602
2,963

Proceeds from sale of investments in associates
Other

63
4,930

－
－
1,369
2,710

(101,822)(126,129)

Subtotal

Net cash flows from investing activities- 120 -－

(Millions of yen)
2022
Cash flows from financing activities
Dividends paid to owners of the parent company

2023(266,175)(367,331)(1,536)(2,594)27

431(27,610)143,042

1,522

2,890

Repayments of long-term borrowings (Note 31)
Proceeds from issuance of bonds (Notes 19, 31)(42,849)
69,175(14,909)
59,795

Redemption of bonds (Notes 19, 31)
Repayments of lease liabilities (Note 31)(30,000)(21,009)(68,194)(23,613)

(1)

(1)

(1)

(17)

12,281(Note 24)
Dividends paid to non-controlling interests
Capital contribution from non-controlling interests
Increase (decrease) in short-term borrowings andcommercial paper (Note 31)
Proceeds from long-term borrowings (Note 31)

Acquisition of treasury shares
Payments for acquisition of interests in subsidiaries from
non-controlling interests
Proceeds from settlement of derivatives (Note 31)0－0(306,176)(270,500)

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period

75,801
721,731

170,385
866,885

Effect of exchange rate changes on cash and cash
equivalents

69,353

2,935

Cash and cash equivalents at the end of the period(Note 7)

866,885

1,040,206

Other
Net cash flows from financing activities- 121 -

Notes to Consolidated Financial Statements
Years Ended December 31, 2022 and 2023
1. Reporting Entity
Japan Tobacco Inc. (hereinafter referred to as the “Company”) is a joint stock corporation under the Companies Act ofJapan, pursuant to the Japan Tobacco Inc. Act, with its principal places of business located in Japan since its
incorporation. The addresses of the Company’s registered head office and principal business offices are available on the
Company’s website (https://www.jt.com/).
The details of businesses and principal business activities of the Company and its subsidiaries (hereinafter referred to as
the “Group”) are stated in “6. Operating Segments.”
The Group’s consolidated financial statements for the year ended December 31, 2023 were approved on March 22, 2024
by Masamichi Terabatake, President and Chief Executive Officer.
2. Basis of Preparation(1) Compliance with IFRSThe Group’s consolidated financial statements, which satisfy the requirements concerning the “Specified Company
applying Designated International Financial Reporting Standards” prescribed in Article 1-2 of the “Regulations for
Consolidated Financial Statements,” are prepared in accordance with IFRS pursuant to the provision of Article 93 of
the same regulations.
(2) Basis of Measurement
Except for the financial instruments, stated in “3. Material Accounting Policy Information,” and the accounting
adjustments, stated in “37. Hyperinflationary Accounting Adjustments,” the Group’s consolidated financial statements
are prepared on the historical cost basis.
(3) Functional Currency and Presentation Currency
The Group’s consolidated financial statements are presented in Japanese yen, which is the functional currency of theCompany. The units are in millions of yen, and figures less than one million yen are rounded to the nearest million
yen.

- 122 -

3. Material Accounting Policy Information(1) Basis of Consolidation
The consolidated financial statements include financial statements of the Company and its subsidiaries, and interests ininvestments in associates and joint arrangements.
A. Subsidiaries
A subsidiary is an entity that is controlled by the Group and the Group has control over the entity if it is exposed, or
has rights, to variable returns from its involvement with the investee and has the ability to affect those returns
through its power over the investee. The acquisition date of a subsidiary is the date on which the Group obtains
control of the subsidiary, and the subsidiary is included in the consolidation from the date of acquisition until thedate on which the Group loses control.
In cases where the accounting policies applied by a subsidiary are different from those applied by the Group,
adjustments are made to the subsidiary’s financial statements, if necessary.
All intergroup balances, transactions, income and expenses are eliminated on consolidation.
Comprehensive income for subsidiaries is attributed to owners of the parent company and non-controlling interests
even if this results in the non-controlling interests having a deficit balance.
B. Associates
An associate is an entity over which the Group has significant influence. The Group has significant influence overthe entity if it has the power to participate in the financial and operating policy decisions of the investee, but it does
not have control or joint control over the investee. Investments in associates are accounted for using the equity
method from the date on which the Group has the significant influence until the date on which it ceases to have thesignificant influence.
C. Joint Arrangements
A joint arrangement is a contractual arrangement in which two or more parties have joint control. Depending upon
the rights and obligations of the parties to the arrangement, the Group classifies a joint arrangement into a joint
operation whereby the Group has rights to the assets and obligations for the liabilities relating to the arrangement,
and a joint venture whereby the Group has rights to the net assets of the arrangement only. The Group recognizes theassets, liabilities, revenues and expenses relating to its interest in a joint operation while a joint venture is accounted
for using the equity method.

- 123 -

(2) Business Combination
Business combinations are accounted for using the acquisition method. Consideration transferred in a businesscombination is measured as the sum of the acquisition-date fair value of the assets transferred, the liabilities assumed
and the equity instruments issued by the Company in exchange for control over an acquiree. Any excess of theconsideration of acquisition over the fair value of identifiable assets and liabilities is recognized as goodwill in the
consolidated statement of financial position. If the consideration of acquisition is lower than the fair value of theidentifiable assets and liabilities, the difference is immediately recognized as profit in the consolidated statement ofincome. If the amount of initial accounting for a business combination is not determined by the end of the reporting
period in which the combination occurs, the provisional amounts for the items for which the accounting is incomplete
are reported and are adjusted during the measurement period, which is one year from the acquisition date. Acquisitionrelated costs incurred are recognized as expenses. The additional acquisition of non-controlling interests after
obtaining control is accounted for as a capital transaction. Any difference between the amount by which the noncontrolling interests are adjusted and the fair value of the consideration paid or received is recognized directly inretained earnings and no goodwill is recognized with respect to such transaction.
(3) Foreign Currency Translation
Consolidated financial statements of the Group are presented in Japanese yen, which is the functional currency of theCompany. Each company in the Group specifies its own functional currency and measures transactions based on it.
Foreign currency transactions are translated into the functional currency at the rates of exchange prevailing at the datesof transactions or an approximation of the rate. Monetary assets and liabilities denominated in foreign currencies aretranslated into the functional currency at the rates of exchange prevailing at year end. Differences arising from thetranslation and settlement are recognized as profit or loss. However, exchange differences arising from the translationof financial instruments designated as hedging instruments for net investment in foreign operations (foreignsubsidiaries), financial assets measured at fair value through other comprehensive income, and cash flow hedges arerecognized as other comprehensive income.
The assets and liabilities of foreign operations are translated into Japanese yen at the rates of exchange prevailing at
year end, while income and expenses of foreign operations are translated into Japanese yen at the rates of exchange
prevailing at the dates of transactions or an approximation of the rate. The resulting translation differences arerecognized as other comprehensive income. However, the income and expenses of the Company's subsidiaries in thehyperinflationary economy are translated into Japanese yen at the rates of exchange prevailing at the fiscal year end
date in accordance with the hyperinflationary accounting. In cases where foreign operations are disposed of, thecumulative amount of translation differences related to the foreign operations is recognized as profit or loss in the
period of disposition.

- 124 -

(4) Financial Instruments
A. Financial Assets(i) Initial Recognition and Measurement
Financial assets are classified into financial assets measured at fair value through profit or loss, fair value throughother comprehensive income, and amortized cost. The Group determines the classification at initial recognition.
Financial assets are classified as financial assets measured at amortized cost if both of the following conditions are
met. Otherwise, they are classified as financial assets measured at fair value.
• The asset is held within a business model whose objective is to hold assets in order to collect contractual cashflows
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments ofprincipal and interest on the principal amount outstanding
For financial assets measured at fair value, each equity instrument is designated as measured at fair value throughprofit or loss or as measured at fair value through other comprehensive income, except for equity instruments held
for trading purposes that must be measured at fair value through profit or loss. Such designations are appliedconsistently.
All financial assets are measured at fair value plus transaction costs that are attributable to the financial assets,
except for the case of being classified in the category of financial assets measured at fair value through profit or
loss.
(ii) Subsequent Measurement
After initial recognition, financial assets are measured based on the following classifications:(a) Financial Assets Measured at Amortized Cost
Financial assets measured at amortized cost are measured at amortized cost using the effective interest method.
(b) Other Financial Assets
Financial assets other than those measured at amortized cost are measured at fair value.
Changes in the fair value of financial assets measured at fair value are recognized as profit or loss.
However, changes in the fair value of equity instruments designated as measured at fair value through othercomprehensive income are recognized as other comprehensive income and the amount in other comprehensive
income is transferred to retained earnings when equity instruments are derecognized or the decline in its fairvalue compared to its acquisition cost is significant. Dividends on the financial assets are recognized in profit
or loss for the year.
(iii) Derecognition
Financial assets are derecognized when the rights to receive benefits from them expire or are transferred, or whensubstantially all the risks and rewards of the ownership are transferred.

- 125 -

B. Impairment of Financial Assets
With respect to financial assets measured at amortized cost, the Group recognizes an allowance for doubtful
accounts for expected credit losses. The expected credit losses are calculated based on historical loss experience or
future recoverable amounts.
An allowance for doubtful accounts for trade receivables is always recognized in an amount equal to the lifetime
expected credit losses. In principle, with respect to financial assets except for trade receivables, an allowance for
doubtful accounts is measured at an amount equal to the 12-month expected credit losses. However, the allowancefor doubtful accounts is measured at an amount equal to the lifetime expected credit losses if a credit risk on thefinancial asset has increased significantly since initial recognition.
The Group assesses whether a credit risk on a financial asset has increased significantly based on a change of thedefault risk considering past due information, financial difficulties of obligors or downgrades of the internal credit
rating.
The Group assesses a whole or part of the financial asset which is deemed extremely difficult to be collected as adefault and recognizes it as a credit-impaired financial asset. If the Group reasonably determines that a whole or partof the financial asset is uncollectible, the carrying amounts of financial assets are written-off directly.
The expected credit losses on trade receivables which are not assessed as credit-impaired financial assets aremeasured collectively by an asset group consisting of a number of homogeneous counterparties.
An allowance for doubtful accounts for financial assets is recognized in profit or loss. If an event which causes a
reduction in the allowance for doubtful accounts occurs, a reversal of an allowance for doubtful accounts is
recognized in profit or loss.
C. Financial Liabilities(i) Initial Recognition and Measurement
Financial liabilities are classified into financial liabilities measured at fair value through profit or loss andfinancial liabilities measured at amortized cost. The Group determines the classification at initial recognition.
All financial liabilities are measured at fair value at initial recognition. However, financial liabilities measured atamortized cost are measured at cost after deducting transaction costs that are directly attributable to the financial
liabilities.
(ii) Subsequent Measurement
After initial recognition, financial liabilities are measured based on the following classifications:(a) Financial Liabilities Measured at Fair Value through Profit or Loss
Financial liabilities measured at fair value through profit or loss include financial liabilities held for trading
and financial liabilities designated as measured at fair value through profit or loss at initial recognition.
(b) Financial Liabilities Measured at Amortized Cost
After initial recognition, financial liabilities measured at amortized cost are measured at amortized cost using
the effective interest method. Amortization under the effective interest method and gains or losses onderecognition are recognized as profit or loss in the consolidated statement of income.
After initial recognition, financial guarantee contracts are measured at the higher of:• The amount of an allowance for doubtful accounts calculated in accordance with “B. Impairment of Financial
Assets” above, and• The amount initially measured less cumulative revenue recognized in accordance with IFRS 15 “Revenue
from Contracts with Customers.”(iii) Derecognition
Financial liabilities are derecognized when the obligation is discharged, canceled or expired.
D. Offsetting of Financial Instruments
Financial assets and financial liabilities are offset and presented as a net amount in the consolidated statement offinancial position only when there is a legally enforceable right to set off the recognized amounts and the Groupintends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

- 126 -

E. Derivatives and Hedge Accounting
The Group utilizes derivatives, including forward foreign exchange contracts and interest rate swap contracts, tohedge foreign exchange and interest rate risks. These derivatives are initially measured at fair value when thecontract is entered into, and are subsequently remeasured at fair value. Changes in the fair value of derivatives arerecognized as profit or loss in the consolidated statement of income. However, the gains or losses on the hedging
instrument relating to the effective portion of cash flow hedges and hedges of net investment in foreign operations
are recognized as other comprehensive income in the consolidated statement of comprehensive income.
At the inception of the hedge, the Group formally designates and documents the hedging relationship to which hedge
accounting is applied and the objectives and strategies of risk management for undertaking the hedge. The
documentation includes identification of the hedging instruments, the hedged items, the nature of the risks being
hedged and how the hedging relationship’s effectiveness is assessed. These hedges are assessed on an ongoing basis
to determine whether the hedging relationship is effective prospectively, even though it is expected that there is an
economic relationship between the hedged item and the hedging instrument, that the effect of credit risk does not
dominate the value changes that result from that economic relationship, and that the hedge ratio of the hedging
relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and thequantity of the hedging instrument that the Group actually uses to hedge that quantity of the hedged item.
If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio due tochanges in an economic relationship between the hedged item and the hedging instrument but the risk management
objective remains the same, the Group will adjust the hedge ratio so that it meets the qualifying criteria again. The
Group discontinues hedge accounting for the portion that does not meet the requirement when the hedging
relationship ceases to meet the qualifying criteria even after adjusting the hedge ratio. The Group performs highly
effective hedging, and therefore generally expects that no significant ineffective portion should arise.
Hedges that meet the stringent requirements for hedge accounting are classified into the following categories andaccounted for in accordance with IFRS 9 “Financial Instruments.”(i) Fair Value Hedge
The gain or loss on the hedging instrument is recognized as profit or loss in the consolidated statement of income.
However, changes in the fair value of the hedging instrument are recognized as other comprehensive income inthe consolidated statement of comprehensive income if the hedging instrument hedges an equity instrument
designated as at fair value through other comprehensive income. Regarding the hedging gain or loss on the hedged
item, the carrying amount of the hedged item is adjusted and the change is recognized as profit or loss in the
consolidated statement of income. However, changes in the fair value of an equity instrument which the Groupelected to present in other comprehensive income are recognized as other comprehensive income.
(ii) Cash Flow Hedge
The effective portion of gains or losses on hedging instruments is recognized as other comprehensive income inthe consolidated statement of comprehensive income, while the ineffective portion is recognized immediately as
profit or loss in the consolidated statement of income. The time value of the foreign currency options is excluded
from the designation of hedging instrument and recognized as hedge costs under other components of equity
separately.
The amounts of hedging instruments recognized in other comprehensive income are reclassified to profit or loss
when the transactions of the hedged items affect profit or loss. In cases where hedged items result in therecognition of non-financial assets or liabilities, the amounts recognized as other comprehensive income areaccounted for as adjustments to the original carrying amount of non-financial assets or liabilities.
If the hedged future cash flows are no longer expected to occur, any related cumulative gain or loss that has beenrecognized in equity as other comprehensive income is reclassified to profit or loss. If the hedged future cash
flows are still expected to occur, amounts that have been recognized in other comprehensive income are continued
to be recognized in other comprehensive income until the future cash flows occur.
(iii) Hedge of Net Investment in Foreign Operations
Translation differences resulting from the hedge of net investment in foreign operations are accounted forsimilarly to a cash flow hedge. The effective portion of gains or losses on hedging instruments is recognized asother comprehensive income in the consolidated statement of comprehensive income, while the ineffective portionis recognized as profit or loss in the consolidated statement of income. At the time of the disposal of the foreign- 127 -

operations, any related cumulative gain or loss that has been recognized in equity as other comprehensive income
is reclassified to profit or loss.

- 128 -

F. Fair Value of Financial Instruments
Fair value of financial instruments that are traded in active financial markets at year end refers to quoted prices ordealer quotations.
If there is no active market, the fair value of financial instruments is determined using appropriate valuation models.
(5) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, demand deposits, and short-term investments that are readily
convertible to known amounts of cash and subject to insignificant risk of change in value and due within three months
from the date of acquisition.
(6) Inventories
The cost of inventories includes all costs of purchase, costs of conversion and other costs incurred in bringing theinventories to their present location and condition.
Inventories are measured at the lower of cost or net realizable value, and the costs are determined by using theweighted-average method. Net realizable value is determined as the estimated selling price in the ordinary course ofbusiness less the estimated costs of completion and estimated costs necessary to make the sale.
Leaf tobacco which is stored for more than 12 months before being used for production is included in current assets
since it is held within the normal operating cycle.
(7) Property, Plant and Equipment
Property, plant and equipment is measured by using the cost model and is stated at cost less accumulated depreciation
and accumulated impairment losses.
The acquisition cost includes any costs directly attributable to the acquisition of the asset and dismantlement, removal
and restoration costs, as well as borrowing costs eligible for capitalization.
Except for assets that are not subject to depreciation such as land, assets are depreciated using the straight-line method
over their estimated useful lives. The estimated useful lives of major asset items are as follows:• Buildings and structures: 38 to 50 years• Machinery and vehicles: 10 to 18 years
The estimated useful lives and depreciation method are reviewed at each year end and if there are any changes made to
the estimated useful lives and depreciation method, such changes are applied prospectively as changes in estimate.

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(8) Goodwill and Intangible Assets
A. Goodwill
Goodwill is stated at acquisition cost less accumulated impairment losses.
Goodwill is not amortized. It is allocated to cash-generating units that are identified according to types of businesses
and tested for impairment annually or whenever there is any indication of impairment. Impairment losses on
goodwill are recognized in the consolidated statement of income and no subsequent reversal is made.
B. Intangible Assets
Intangible assets are measured by using the cost model and are stated at cost less accumulated amortization andaccumulated impairment losses.
Intangible assets acquired separately are measured at cost at the initial recognition, and the costs of intangible assets
acquired through business combinations are recognized at fair value at the acquisition date. Expenditures oninternally generated intangible assets are recognized as an expense in the period when incurred, except fordevelopment expenses that satisfy the capitalization criteria.
Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives
and are tested for impairment whenever there is any indication of impairment. The estimated useful lives andamortization method of intangible assets with finite useful lives are reviewed at each year end, and the effect of any
changes in estimate would be accounted for on a prospective basis.
The estimated useful lives of major intangible assets with finite useful lives are as follows:• Trademarks: 10 to 20 years• Software: 5 years
Intangible assets with indefinite useful lives and intangible assets that are not ready to use are not amortized, butthey are tested for impairment individually or by cash-generating unit annually or whenever there is any indicationof impairment.
(9) Leases
At the inception of a contract, the Group assesses whether the contract is, or contains, a lease if the contract conveys
the right to control the use of an identified asset for a period of time in exchange for consideration. The Group elects
not to recognize right-of-use assets and lease liabilities for short-term leases within 12 months and leases of low-value
assets.
If a contract is, or contains, a lease, except for short-term leases and leases of low-value assets, the Group recognizes
right-of-use assets and lease liabilities on the consolidated statement of financial position at the commencement date.
The Group recognizes the lease payments associated with short-term leases and leases of low-value assets as an
expense on a straight-line basis over the lease term.
Right-of-use asset is measured by using the cost model and is stated at cost less accumulated depreciation andaccumulated impairment losses.
An acquisition cost of a right-of-use asset includes the amount of the initial measurement of the lease liability, anylease payments made at or before the commencement date, and any initial direct costs. The right-of-use asset isdepreciated using the straight-line method over its estimated useful life or lease term, whichever is shorter. The leaseliability is initially measured at the present value of the lease payment that is not paid at the commencement date. The
lease payments are apportioned between the financial cost and the reduction in the lease liability based on the effective
interest method. The financial costs are recognized in the consolidated statement of income.
(10) Investment Property
Investment property is property held to earn rentals or for capital appreciation or both.
Investment property is measured by using the cost model and is stated at cost less accumulated depreciation andaccumulated impairment losses.

- 130 -

(11) Impairment of Non-financial Assets
The Group assesses each year whether there is any indication that an asset may be impaired. If any such indication
exists, or in cases where the impairment test is required to be performed each year, the recoverable amount of the asset
is estimated. In cases that the recoverable amount cannot be estimated for each asset, it is estimated by the cashgenerating unit to which the asset belongs. The recoverable amount of an asset or a cash-generating unit is determinedat the higher of its fair value less costs of disposal or its value in use. If the carrying amount of the asset or cashgenerating unit exceeds the recoverable amount, impairment losses are recognized and the carrying amount is reduced
to the recoverable amount. In determining the value in use, estimated future cash flows are discounted to the present
value, using pretax discount rates that reflect current market assessments of the time value of money and the risks
specific to the asset. In determining the fair value less costs of disposal, the Group uses an appropriate valuation model
supported by available fair value indicators.
The Group assesses whether there is any indication that an impairment loss recognized in prior years for an asset otherthan goodwill may no longer exist or may have decreased, such as any changes in assumptions used for thedetermination of the recoverable amount. If any such indication exists, the recoverable amount of the asset or cashgenerating unit is estimated. In cases that the recoverable amount exceeds the carrying amount of the asset or cashgenerating unit, impairment losses are reversed up to the lower of the estimated recoverable amount or the carrying
amount (net of depreciation) that would have been determined if no impairment losses had been recognized in prioryears.
(12) Assets Held for Sale
An asset or asset group for which the value is expected to be recovered through a sales transaction rather than throughcontinuing use is classified into an asset or disposal group held for sale when the following conditions are met: it ishighly probable that the asset or asset group will be sold within one year, the asset or asset group is available for
immediate sale in its present condition, and the Group management commits to the sale plan. In such cases, the asset is
not depreciated or amortized and is measured at the lower of its carrying amount or its fair value less costs of disposal.
(13) Post-employment Benefits
The Group sponsors defined benefit plans and defined contribution plans as employee retirement benefit plans.
The Company is obligated to bear pension expenses for a mutual assistance association incurred with respect toservices in or before June 1956 (prior to the enforcement of the Act on the Mutual Aid Association of Public
Corporation Employees). Such obligations are calculated and included in liabilities related to retirement benefits.
For each plan, the Group calculates the present value of defined benefit obligations, related current service cost andpast service cost using the projected unit credit method. For a discount rate, a discount period is determined based on
the period until the expected date of benefit payment in each year, and the discount rate is determined by reference tomarket yields for the period corresponding to the discount period at the end of the year on high quality corporate bonds
or government bonds. Liabilities or assets for defined benefit plans are calculated by the present value of the defined
benefit obligation, deducting the fair value of any plan assets (including adjustments for the asset ceiling for defined
benefit plans and minimum funding requirements, if necessary). Expected interest costs and interest income arerecognized as financial costs.
Remeasurements of defined benefit plans are recognized in full as other comprehensive income in the period when
they are incurred and transferred to retained earnings immediately. Past service costs are recognized as profit or loss inthe period when incurred.
The cost for retirement benefits for defined contribution plans is recognized as an expense at the time of contribution.

- 131 -

(14) Share-based Payments
The Group has a share option plan and a restricted stock remuneration plan as an equity-settled share-based payment
plan. Share options are estimated at fair value at the grant date and are recognized as an expense over the vesting
period in the consolidated statement of income after considering the number of share options that are expected to beeventually vested. The corresponding amount is recognized as an increase in equity in the consolidated statement offinancial position. Restricted stock remuneration is estimated at fair value at the grant date and is recognized as an
expense from the grant date over the vesting period in the consolidated statement of income, and the corresponding
amount is recognized as an increase in equity in the consolidated statement of financial position.
The Group has a performance share unit plan as a share-based payment plan with cash alternatives. Performance share
units are accounted as a cash-settled share-based payment transaction if, and to the extent that, the entity has incurred a
liability to settle in cash or other assets, or as an equity-settled share-based payment transaction if, and to the extent
that, no such liability has been incurred. A portion as an equity-settled share-based payment transaction is estimated atfair value of granted shares of the Company and is recognized as an expense over the vesting period in the
consolidated statement of income, and the corresponding amount is recognized as an increase in equity in the
consolidated statement of financial position. As for a portion as a cash-settled share-based payment transaction, theservices received and liability incurred are estimated at fair value of the liability and are recognized as an expense overthe vesting period in the consolidated statement of income, and the corresponding amount is recognized as an increasein liability in the consolidated statement of financial position.
The fair value of the liability is remeasured at the end of reporting period and at the date of settlement with any
changes in fair value recognized in profit or loss.
(15) Provisions
The Group has present obligations (legal or constructive) resulting from past events and recognizes provisions when it
is probable that the obligations are required to be settled and the amount of the obligations can be estimated reliably.
If the effect of the time value of money is material, the amount of provisions is measured at the present value of theexpenditures expected to be required to settle the obligations. In calculating the present value, the Group uses thepretax discount rate reflecting current market assessments of the time value of money and the risks specific to theliability.
In accordance with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets,” the Group recognizes aprovision for restructuring when it has a detailed formal plan for the restructuring and has raised a valid expectation in
those affected that it will carry out the restructuring by starting to implement that plan or announcing its main scheme
to those affected by it. Restructuring provisions include only the direct expenditures arising from the restructuring,which meet both of the following criteria:• necessarily entailed by the restructuring;• not associated with the ongoing activities of the entity.

- 132 -

(16) Revenue
A. Revenue from Contracts with Customers
Revenue is recognized based on the following five-step approach.
Step 1: Identify the contract with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when the entity satisfies a performance obligation
The Group mainly engages in the sale of tobacco products, prescription drugs, and processed foods. The Groupevaluates that the performance obligation is satisfied when the customer obtains control of the products upondelivery and recognizes revenue upon delivery of the products. Revenue is measured at the consideration promisedin a contract with a customer, less discounts, rebates and taxes, including consumption tax.
The tobacco excise taxes and other transactions in which the Group is involved as an agent are excluded fromrevenue. The amount after deducting the tobacco excise taxes and other transactions is presented as “Revenue” inthe consolidated statement of income.
B. Interest Income
Interest income is recognized using the effective interest rate method.
C. Dividend Income
Dividend income is recognized when the shareholders’ right to receive payment is established.
(17) Government Grants
Government grants are recognized at fair value when there is a reasonable assurance that the Group will comply withthe conditions attached to them and receive the grants.
In the case that the government grants are related to expense items, they are recognized in profit or loss on asystematic basis over the period in which the related costs for which the grants are intended to compensate arerecognized. With regard to government grants for assets, the amount of the grants is deducted from the acquisition costof the assets.
(18) Borrowing Costs
With respect to assets that necessarily take a substantial period of time to get ready for their intended use or sale, theborrowing costs that are directly attributable to the acquisition, construction or production of the assets are capitalized
as part of the acquisition cost of the assets. Other borrowing costs are recognized as an expense in the period when
they are incurred.

- 133 -

(19) Income Taxes
Income taxes in the consolidated statement of income are presented as the total of current income taxes and deferredincome taxes.
Current income taxes are measured at the amount that is expected to be paid to or refunded from the taxation
authorities. For the calculation of the tax amount, the Group uses the tax rates and tax laws that have been enacted or
substantively enacted by the end of the year. The current income taxes are recognized in profit or loss, except for taxes
arising from items that are recognized in other comprehensive income or directly in equity and taxes arising frombusiness combinations.
Deferred income taxes are calculated based on the temporary differences between the tax base for assets and liabilities
and the carrying amount at year end. Deferred tax assets are recognized for deductible temporary differences,carryforward of unused tax credits and unused tax losses to the extent that it is probable that future taxable profit will
be available against which they can be utilized. Deferred tax liabilities are recognized for taxable temporary
differences.
The deferred tax assets or liabilities are not recognized for the following temporary differences:• the initial recognition of goodwill• the initial recognition of assets or liabilities in transactions that are not business combinations and at the time oftransaction, affect neither accounting profit nor taxable profit or tax loss
• deductible temporary differences arising from investments in subsidiaries and associates, and interests in joint
ventures to the extent that it is probable that the timing of the reversal of the temporary difference in the foreseeable
future and it is not probable that future taxable profits will be available against which they can be utilized• taxable temporary differences arising from investments in subsidiaries and associates, and interests in joint ventures
to the extent that the timing of the reversal of the temporary difference is controlled and that it is probable thetemporary difference will not reverse in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset isrealized or the liability is settled, based on tax rates that have been enacted or substantively enacted by year end.
Assets and liabilities are recognized as estimated amounts if uncertain tax position of income taxes arising frominterpretation of tax laws and regulations is probable.
The Company and certain subsidiaries apply for the group tax sharing system.
(20) Treasury Shares
Treasury shares are recognized at cost and deducted from equity. No gain or loss is recognized on the purchase, sale orcancellation of the treasury shares. Any difference between the carrying amount and the consideration paid isrecognized in capital surplus.
(21) Earnings per Share
Basic earnings per share are calculated by dividing profit or loss attributable to ordinary shareholders of the parent
company by the weighted-average number of ordinary shares outstanding during the year, adjusted by the number oftreasury shares. Diluted earnings per share are calculated by adjusting the effects of dilutive potential ordinary shares.
(22) Dividends
Dividend distributions to the shareholders of the Company are recognized as liabilities in the period in which theAnnual Shareholders’ Meeting approves the distribution for year end and the Board of Directors approves the
distribution for interim.

- 134 -

(23) Contingencies
A. Contingent Liabilities
The Group discloses contingent liabilities in the notes to consolidated financial statements if it has possible
obligations at year end, whose existence cannot be confirmed at that date, or if the obligations do not meet therecognition criteria of a provision described in “20. Provisions.”
B. Contingent Assets
The Group discloses contingent assets in the notes to consolidated financial statements if an inflow of future
economic benefits to the Group is probable, but not virtually certain at year end.
(24) Adjusted Financial Measures
The adjusted financial measures are calculated by adding certain adjustment items to the non-adjusted financial data or
by deducting the items from the non-adjusted financial data.
The adjustment items are determined by management’s judgment, taking into consideration the nature and frequencyof the income and costs such that they provide effective comparative information on the Group performance and thatthey reflect the way of managing our business appropriately. Adjusted financial measures are presented in the
consolidated statement of income and “6. Operating Segments.”
The adjusted financial measures are not defined under IFRS and are not comparable with equivalent indicators forother entities.

- 135 -

(Changes in Accounting Policies)
The Group has adopted the following new accounting standards, amended standards and new interpretations from theyear ended December 31, 2023.
IFRS
IAS 1

Presentation of Financial Statements

IAS 12

Income taxes

Description of new standards and amendments
Amendments to require companies to disclose their material accounting
policy information rather than their significant accounting policies
Amendments relating to International Tax Reform-Pillar Two Model
Rules

The adoption of the above standards and interpretations does not have a material impact on the consolidated financial
statements.
The impact of the amendment of IAS 12 is described in “17. Income Taxes.”- 136 -

4. Significant Accounting Estimates and Judgments
Preparation of consolidated financial statements of the Group requires management estimates and assumptions in order tomeasure income, expenses, assets and liabilities, and disclose contingencies as of the year end. These estimates andassumptions are based on the best judgment of management in light of historical experience and various factors deemed tobe reasonable as of the year end. Given their nature, actual results may differ from those estimates and assumptions.
The estimates and assumptions are continuously reviewed by management. The effects of a change in estimates andassumptions are recognized in the period of the change or the period of the change and future periods.
Among the above estimates and assumptions, the following are items that may have a material effect on the amounts
recognized in the consolidated financial statements of the Group:
A. Impairment of Property, Plant and Equipment, Goodwill, Intangible Assets and Investment Properties
With regard to property, plant and equipment, goodwill, intangible assets and investment properties, if there is any
indication that the recoverable amount has declined below the carrying amount, the Group performs an impairment
test.
Such indications include, but are not limited to, significant changes with adverse effect on the results of past or
projected business performance, significant changes in the use of acquired assets or in overall business strategy, andsignificant deteriorations in industry or economic trends. With regard to goodwill, an impairment test is conducted atleast once a year regardless of whether there are any indicators of impairment.
An impairment test is performed by comparing the carrying amount to the recoverable amount of the asset underassessment. If the recoverable amount is below the carrying amount, impairment losses are recognized. The
recoverable amount is calculated based primarily on a discounted cash flow model. Certain assumptions must be madefor the useful lives and future cash flows of the assets, the applicable discount rates as well as long-term growth rates.
These assumptions are based on the best estimates and judgments made by management. However, there is apossibility that these assumptions will be affected by changes in uncertain future economic conditions, which may
have a material impact on the consolidated financial statements in future periods.
The method for calculating the recoverable amount is described in “13. Property, Plant and Equipment,” “14. Goodwill
and Intangible Assets” and “16. Investment Property.” With regard to goodwill, the sensitivity analysis is described in“14. Goodwill and Intangible Assets.”
B. Post-employment Benefits
The Group has various types of retirement benefit plans, including defined benefit plans. In addition, the mutual
pension benefits plan of the Company is one of the public pension systems under the jurisdiction of the government ofJapan and the Company is legally obligated to bear a part of the pension costs of the plan.
The present value of defined benefit obligations on each of these plans and the related service costs are calculated
based on actuarial assumptions. These actuarial assumptions make use of estimates and judgments on a number ofvariables, including discount rates and inflation rate.
The Group obtains advice from external pension actuaries with respect to the appropriateness of their actuarial
assumptions including the aforementioned variables.
The actuarial assumptions are determined based on the best estimates and judgments made by management. However,there is a possibility that these assumptions will be affected by changes in uncertain future economic conditions, or by
the publication or amendment of related laws, which may have a material impact on the consolidated financial
statements in future periods.
These actuarial assumptions and the related sensitivity analysis are described in “22. Employee Benefits.”- 137 -

C. Provisions
The Group recognizes various provisions, including provisions for asset retirement obligations and restructuring, in the
consolidated statement of financial position.
These provisions are recognized based on best estimates of the expenditure required to settle the obligations, taking
into account the pertinent risks and uncertainties which exist at the year end for those obligations.
Expenditures required to settle the obligations are calculated by taking possible results into account comprehensively;
however, they may be affected by the occurrence of unexpected events or changes in conditions which may have amaterial impact on the consolidated financial statements in future periods.
The nature and amount of recognized provisions are described in “20. Provisions.”
D. Income Taxes
The Group operates business activities around the world, and it recognizes current tax liabilities and income taxes as
the estimated amounts to be paid to the tax authorities based on the estimation in accordance with their laws andregulations.
Calculating current tax liabilities and income taxes requires estimates and judgment on various factors, including theinterpretation of tax regulations by taxable entities and the tax authority in the jurisdiction or the experience of past tax
audits.
Therefore, there may be differences between the amount recognized as tax liabilities and income taxes and the amountof actual tax liabilities and income taxes. These differences may have a material impact on the consolidated financial
statements in future periods.
In addition, deferred tax assets are recognized to the extent that it is probable that taxable income will be available
against which deductible temporary differences can be utilized.
In recognizing the deferred tax assets, when judging the possibility of the future taxable income, the Group reasonably
estimates the timing and amount of future taxable income based on the business plan.
The timing when taxable income arises and the amount of such income may be affected by changes in uncertain future
economic conditions. Therefore, this may have a material impact on the consolidated financial statements in future
periods.
The content and amount related to income taxes are described in “17. Income Taxes.”
E. Contingencies
With regard to contingencies, any items that may have a material impact on business in the future are disclosed in lightof all the available evidence as of the year end and by taking into account the probability of these contingencies andtheir impact on financial reporting.
The content of contingencies is described in “38. Contingencies.”
F. Other information
For recent situation in Russia and Ukraine, there is no material impact on the accounting estimates and judgments atpresent.
(Changes in Significant Accounting Estimates)
Previously, the Group used the estimated useful life of 10 to 15 years for tobacco manufacturing machinery. However,in consideration of changes in the business environment, the estimated useful lives of some tobacco manufacturingmachines have been revised to 18 years from the current fiscal year based on the economically usable forecast period
in line with actual conditions and this change will also be applied prospectively.
As a result of this change, operating income for the year ended December 31, 2023 increased by ¥8,333 million
compared with the previous method.

- 138 -

5. New Accounting Standards Not Yet Adopted by the GroupBy the date of approval of the consolidated financial statements, new accounting standards, amended standards and newinterpretations that have been issued, but have not been early adopted by the Group are as follows.
The implications from adoption of these standards and interpretations are assessed by the Group; however, the Group has
evaluated that none of them will have a material impact on our operating results and financial condition.

IFRS

IFRS 16

LeasesMandatory adoption(From the year beginning)

To be adopted
by the Group

Description of new standards and amendments

January 1, 2024

Year ending
December 2024

Clarifying the accounting for subsequent
measurement of the lease liability arising from saleand leaseback transactions

Clarifying classification of liabilities into current
liabilities or non-current liabilities

IAS 1

Presentation of Financial
Statements

January 1, 2024

Year ending
December 2024

IAS 21The Effects of Changes in
Foreign Exchange Rates

January 1, 2025

Year ending
December 2025

Providing requirements for accounting treatment anddisclosure relating to currencies that lackexchangeability

IFRS 7IAS 7

Financial Instruments:
Disclosures
Statement of Cash Flows

January 1, 2024

Year ending
December 2024

Providing requirements for disclosure relating to
supplier finance arrangements

IFRS 10
IAS 28

Sale or Contribution of Assets
between an Investor and its
Associate or Joint Venture

Not yet determined

Not yet determined

Amendments to accounting treatment for sale orcontribution of assets between an investor and its
associate or joint venture- 139 -

Amendments to require companies to disclose
information relating to non-current liabilities withcovenants

6. Operating Segments(1) Outline of Reportable Segments
The reportable segments of the Group are determined based on the operating segments that are components of theGroup for which separate financial information is available and are evaluated regularly by the Board of Directors indeciding how to allocate resources and in assessing performance.
The Group is mainly engaged in the manufacture and sale of tobacco products, prescription drugs and processed foods.
The reportable segments of the Group are composed of three segments: “Tobacco Business,” “PharmaceuticalBusiness,” and “Processed Food Business.”
The “Tobacco Business” consists of the manufacture and sale of tobacco products in domestic areas and overseas. The“Pharmaceutical Business” consists of the research and development, manufacture, and sale of prescription drugs. The“Processed Food Business” consists of the manufacture and sale of frozen and ambient processed foods andseasonings.

- 140 -

(2) Revenues and Performances of Reportable Segments
Revenues and performances of reportable segments are as follows. The Board of Directors assesses segment
performance and determines resource allocation after reviewing revenues and adjusted operating profit. Since financial
income, financial costs and income taxes are managed by the Group head office, these income and expense categories
are excluded from segmental performance. Transactions within segments are primarily based upon prevailing market
prices.
Year ended December 31, 2022
(Millions of yen)
Reportable Segments
TobaccoPharmaceuticals

Processed
Food

Other
(Note 2)

Total

Elimination

Consolidated

Revenue
External revenue
Intersegment revenue

2,417,409
332

82,908

155,53932,655,856
335

1,976
7,518

－
(7,853)2,657,832－

Total revenue

2,417,741

82,908

155,5422,656,191

9,495(7,853)2,657,832

753,996

11,146

3,509

768,651(40,821)(52)

727,779

183,828

5,438

7,221

196,486

3,173

(7)

199,651

23,020－1,229

24,2493,290－

27,539

282

－

－

282

－

－

282

8,193

－

(4)

8,189

(181)

－

8,009

83,839

2,420

8,158

94,4186,626(0)

101,044

Segment profit (loss)
Adjusted operating profit (Note 1)
Other items
Depreciation and amortization (Note 3)
Impairment losses on other thanfinancial assets
Reversal of impairment losses on otherthan financial assets
Share of profit (loss) in investments
accounted for using the equity method
Capital expenditures (Note 4)－¥2,315,242 million of the external revenue from the tobacco business is core revenue.
Breakdown of core revenue from tobacco business and adjusted operating profit by cluster is as follows.
(Millions of yen)
Clusters
Asia

Western Europe

EMA

Total

Core revenue (Note 5)

804,874

538,828

971,5392,315,242

Adjusted operating profit

267,517219,332

267,147

753,996

Asia: All over Asia including Japan
Western Europe: Western Europe region
EMA: Africa, Middle East, Eastern Europe, Turkey, Americas and all duty-free markets
Asia includes Taiwan, Japan, the Philippines, etc.
Western Europe includes Italy, the United Kingdom, Spain, etc.
EMA includes Turkey, Romania, Russia, etc.

- 141 -

Year ended December 31, 2023
(Millions of yen)
Reportable Segments
TobaccoPharmaceuticals

Processed
Food

Other
(Note 2)

Total

Elimination

Consolidated

Revenue
External revenue
Intersegment revenue

2,590,910
393

94,875

153,85431

2,839,638
425

1,439
2,783

－
(3,208)2,841,077－

Total revenue

2,591,303

94,875

153,885

2,840,063

4,222(3,208)2,841,077

749,757

17,4096,848

774,014(46,136)124

728,002165,491

4,620

7,058

177,169

2,490

(7)

179,652

13,613－28

13,64170－

13,710

486

－

－

486

－

－

486

8,294

－

58

8,352

(21)

－

8,332

105,139

7,339

5,820

118,297

7,064－

125,361

Segment profit (loss)
Adjusted operating profit (Note 1)
Other items
Depreciation and amortization (Note 3)
Impairment losses on other thanfinancial assets
Reversal of impairment losses on otherthan financial assets
Share of profit (loss) in investments
accounted for using the equity method
Capital expenditures (Note 4)－¥2,478,625 million of the external revenue from the tobacco business is core revenue.
Breakdown of core revenue from tobacco business and adjusted operating profit by cluster is as follows.
(Millions of yen)
Clusters
AsiaCore revenue (Note 5)
Adjusted operating profit

Western Europe

796,919
245,845

603,254
231,446

EMA
1,078,451
272,466

Asia: All over Asia including Japan
Western Europe: Western Europe region
EMA: Africa, Middle East, Eastern Europe, Turkey, Americas and all duty-free markets
Asia includes Taiwan, Japan, the Philippines, etc.
Western Europe includes Italy, the United Kingdom, Spain, etc.
EMA includes Turkey, Romania, Russia, etc.

- 142 -

Total
2,478,625
749,757

Reconciliation from “Adjusted operating profit” to “Profit before income taxes”
Year ended December 31, 2022
(Millions of yen)
Reportable Segments
TobaccoPharmaceuticals

Processed
Food

Total

Other
(Note 2)Elimination

Consolidated

Adjusted operating profit (Note 1)
Amortization cost of acquired
intangibles arising from businessacquisitions
Adjustment items (income) (Note 6)
Adjustment items (costs) (Note 7)

753,996

11,146

3,509

768,651(40,821)(52)

727,779(71,392)－－(71,392)－－(71,392)

6,366(9,594)－－

2,392(1,730)8,758(11,324)

7,106(7,352)－－

15,865(18,677)

Operating profit (loss)
Financial income
Financial costs

679,375

11,146

4,171

694,693(41,067)(52)

653,575
31,147(91,272)

Profit before income taxes

593,450

Year ended December 31, 2023
(Millions of yen)
Reportable Segments
TobaccoPharmaceuticals

Processed
Food

Total

Other
(Note 2)Elimination

Consolidated

Adjusted operating profit (Note 1)
Amortization cost of acquired
intangibles arising from businessacquisitions
Adjustment items (income) (Note 6)
Adjustment items (costs) (Note 7)

749,757

17,4096,848

774,014(46,136)124

728,002(58,836)－－(58,836)－－(58,836)444(14,265)

－
－

867
(24)

1,311
(14,289)

17,339(1,117)－－

18,651(15,407)

Operating profit (loss)
Financial income
Financial costs

677,101

17,4097,691

702,201(29,914)124

672,41044,414(95,222)

Profit before income taxes

621,601(Note 1) For adjusted operating profit, amortization cost of acquired intangibles arising from business acquisitions, and adjustment
items (income and costs) are excluded from operating profit (loss).
(Note 2) “Other” includes business activities relating to real estate rental and corporate expenditure relating to corporate
communication and operation of the head office.
(Note 3) Depreciation of right-of-use assets included in “Depreciation and amortization” is as follows:(Millions of yen)
2022

2023

TobaccoPharmaceuticals

20,070681

21,530656

Processed Food
Other

602
1,411

518
1,364

Depreciation of right-of-use assets

22,76324,068(Note 4) The increase of right-of-use assets is excluded.
(Note 5) Core revenue from tobacco business does not include revenue related to the distribution business and contract manufacturing.

- 143 -

(Note 6) The breakdown of “Adjustment items (income)” is as follows:(Millions of yen)
2022

2023

Restructuring incomes
Other

2,776
13,08918,207444

Adjustment items (income)

15,86518,651

Restructuring incomes for the years ended December 31, 2022 and 2023 mainly related to gains on sale of real estate. The
breakdown of restructuring incomes is described in “26. Other Operating Income.” Other (income) for the year ended
December 31, 2022 mainly related to gains on sale of real estate, reversal of liabilities recognized at the time of acquisition
and gains on sale of shares of subsidiaries.
(Note 7) The breakdown of “Adjustment items (costs)” is as follows:(Millions of yen)
2022

2023

Restructuring costs

11,302

4,534

Other

7,375

10,873Adjustment items (costs)

18,677

15,407

Restructuring costs for the year ended December 31, 2022 mainly related to loss on disposal of real estate and costs ofmeasures to strengthen the operations in the “Tobacco Business.” Restructuring costs included in “Cost of sales” were ¥203
million and ¥(243) million for the year ended December 31, 2022 and 2023, respectively. Restructuring costs included in“Selling, general and administrative expenses” were ¥11,099 million and ¥4,777 million for the year ended December 31,
2022 and 2023, respectively. The breakdown of restructuring costs is described in “27. Selling, General and Administrative
Expenses.” Other (costs) for the year ended December 31, 2022 mainly related to impairment losses on trademarks in the“Tobacco Business” and loss on sale of shares of a subsidiary. Other (costs) for the year ended December 31, 2023 mainly
related to losses on changes in estimates of asset retirement obligations and impairment loss on trademark in the “Tobacco
Business.”- 144 -

(3) Geographic Information
The regional breakdown of non-current assets as of December 31 is as follows:
Non-current Assets(Millions of yen)
2022

2023

Japan

659,541

636,639

Overseas

2,818,416

3,017,621

Consolidated

3,477,957

3,654,260(Note) Non-current assets, exclusive of financial instruments, deferred tax assets and retirement benefits assets, are segmented by thelocation of the assets.
The regional breakdown of external revenue for each year is as follows:
External Revenue(Millions of yen)
2022

2023

Japan

705,366

685,373

Overseas

1,952,466

2,155,704

Consolidated

2,657,832

2,841,077(Note) Revenue is segmented by the sales destination.
(4) Major customers Information
The “Tobacco Business” of the Group sells products to the Megapolis Group that engages in distribution andwholesale business in Russia and other countries. The external revenues from the Megapolis Group were ¥387,542
million (14.6% of consolidated revenue) for the year ended December 31, 2022 and ¥370,970 million (13.1% ofconsolidated revenue) for the year ended December 31, 2023.

- 145 -

7. Cash and Cash Equivalents
The breakdown of “Cash and cash equivalents” as of December 31 is as follows:(Millions of yen)
2022
Cash and deposits

2023
818,885

Short-term investments
Total

787,890

48,000252,316

866,885

1,040,206

Cash and cash equivalents are classified as financial assets measured at amortized cost.
The Group’s Iranian subsidiaries’ ability to remit funds outside of Iran is restricted mainly due to international sanctions
imposed on Iran. “Cash and cash equivalents” include ¥79,010 million as of December 31, 2022 and ¥115,779 million asof December 31, 2023 held by the Group’s Iranian subsidiaries.
JTI-Macdonald Corp. (hereinafter referred to as “JTI-Mac”), the Company’s Canadian subsidiary, is subject to certain
restrictions on the use of funds other than in the ordinary course of business due to the adoption of the “Companies’
Creditors Arrangement Act.” “Cash and cash equivalents” include ¥99,441 million as of December 31, 2022 and¥143,791 million as of December 31, 2023 held by JTI-Mac.
8. Trade and Other Receivables
The breakdown of “Trade and other receivables” as of December 31 is as follows:(Millions of yen)2022
Notes and accounts receivable
Financial assets measured at amortized
cost
Financial assets measured at fair value
through profit or loss
Other
Allowance for doubtful accounts
Total

2023
470,511525,809468,808

520,502

1,703

5,307

9,261

13,398(2,533)(3,905)477,239

535,302

Trade and other receivables are presented net of allowance for doubtful accounts in the consolidated statement of financial
position.
Although trade and other receivables are classified as financial assets measured at amortized cost in principle, some tradereceivables that achieved the Group's business model through the sale are classified as financial assets measured at fairvalue through profit or loss.

- 146 -

9. Inventories
The breakdown of “Inventories” as of December 31 is as follows:(Millions of yen)
2022

2023

Merchandise and finished goods

145,721

189,681

Leaf tobacco (Note)

439,918

519,932

Other

106,267

122,998

691,906

832,611

Total(Note) Leaf tobacco includes those products that will be used after 12 months from the end of each year, but they are included ininventories since they are held within the normal operating cycle.

- 147 -

10. Other Financial Assets(1) The breakdown of “Other financial assets” as of December 31 is as follows:(Millions of yen)
2022

2023

Derivative assets

24,285

19,187

Equity securities
Debt securities

31,33738,18534,281
70,087

Other
Allowance for doubtful accounts

90,479(6,243)

97,823(6,430)178,043

214,949

37,677140,366

58,633
156,316

178,043

214,949

Total
Current assets
Non-current assets
Total

Other financial assets are presented net of allowance for doubtful accounts in the consolidated statement of financial
position.
Derivative assets are classified as financial assets measured at fair value through profit or loss excluding those towhich hedge accounting is applied, equity securities are classified as financial assets measured at fair value throughother comprehensive income, and debt securities are classified as financial assets measured at amortized cost.
(2) Names of major securities held as financial assets measured at fair value through other comprehensive income andtheir fair values as of December 31 are as follows:(Millions of yen)
2022

2023

Company name
Seven & i Holdings Co., Ltd.
DOUTOR•NICHIRES Holdings Co., Ltd.

4,841
2,295

4,785
2,909

Mitsubishi Shokuhin Co., Ltd.
KATO SANGYO CO., LTD.

1,875
1,976

2,891
2,587

Japan Airport Terminal Co., Ltd.
NIPPON EXPRESS HOLDINGS, INC.

2,612
1,305

2,484
1,387

Daicel Corporation
Kanemi Co., Ltd.

812
583

1,161
647

Yoshimura Food Holdings K.K.
MEDIPAL HOLDINGS CORPORATION

682
386

576
507

Equity securities are held mainly for strengthening relationships with investees. Therefore, they are designated as
financial assets measured at fair value through other comprehensive income.

- 148 -

In order to pursue the efficiency of assets held and to use them effectively, sales of financial assets measured at fairvalue through other comprehensive income have been carried out (derecognition).
The fair value at the time of sale and cumulative gain or loss that is recognized in equity through other comprehensive
income for each year is as follows:(Millions of yen)
2022
Fair value
Cumulative gain or loss recognized in equity
as other comprehensive income (Note)

2023
521

2,911

(75)

(1,111)(Note) The figure represents the amount transferred to retained earnings.
The cumulative gain or loss recognized in equity as other comprehensive income is transferred to retained earnings when an
equity instrument is sold or the decline in its fair value compared to its acquisition cost is significant.

- 149 -

11. Other Current Assets
The breakdown of “Other current assets” as of December 31 is as follows:(Millions of yen)
2022

2023

Prepaid tobacco excise taxes

455,958

571,162

Prepaid expenses
Consumption tax receivables

18,73021,90020,85221,802

Other

152,594

176,072

649,181789,888

Total

12. Assets Held for Sale
The breakdown of “Assets held for sale” as of December 31 is as follows:
Breakdown of Major Assets(Millions of yen)
2022

2023

Assets held for sale
Property, plant and equipment
Investment property

275
389

2,597
324

Other

38

－

702

2,921

Total

“Assets held for sale” are mainly idle properties which are currently actively marketed for sale.
With regard to such assets and assets sold, impairment losses of ¥238 million and ¥15 million are recognized in “Selling,
general and administrative expenses” in the consolidated statement of income for the year ended December 31, 2022 and2023, respectively.

- 150 -

13. Property, Plant and Equipment(1) Schedule of Property, Plant and Equipment
The schedules of the carrying amount, acquisition cost, and accumulated depreciation and accumulated impairment
losses of “Property, plant and equipment” are as follows:(Millions of yen)Land, buildings
and structures

Machinery andvehiclesTools, furnitureand fixtures

Construction inprogress

As of January 1, 2022
Individual acquisition

384,742
24,618291,708
31,95938,334
10,06741,05937,048755,843
103,692

Transfer to investment property
Transfer to assets held for sale

(10,609)(3,554)

－
(139)

－
(99)

－
－

(10,609)(3,792)

Depreciation
Impairment losses(34,095)(2,074)(65,378)(15,669)(13,532)
(355)

－
(474)

(113,005)(18,572)

Reversal of impairment losses
Sale or disposal

1(3,152)281(2,084)

－
(655)

－
(52)

282
(5,943)

Exchange differences ontranslation of foreign operations

28,71932,903

2,867

6,756

71,245

Other

5,832

22,761

1,333(33,110)(3,184)As of December 31, 2022

390,428

296,342

37,96051,226775,957

Individual acquisition
Transfer to investment property

24,228(1,365)36,825

12,49946,361－－－

119,913(1,365)

Transfer to assets held for sale
Depreciation(4,220)(40,959)－(51,527)－(13,818)

Impairment losses
Reversal of impairment losses

(224)
19

(6,962)
467

(637)

－
－
(441)

(1,445)(2,520)

－
(508)

－
(43)

16,242

23,153

1,605

4,370

45,37015,77427,983

4,108(43,424)

4,441

398,479

323,761

41,20958,050821,499

Carrying AmountSale or disposal
Exchange differences ontranslation of foreign operations
Other
As of December 31, 2023

- 151 -

Total

(4,220)(106,304)(8,264)486(4,515)

(Millions of yen)Land, buildings
and structures

Machinery andvehiclesTools, furnitureand fixtures

Construction inprogress

As of January 1, 2022
As of December 31, 2022

716,359
733,029884,552
961,601

157,427
162,161

41,05951,226

1,799,397
1,908,018

As of December 31, 2023

776,746

1,041,282

173,636

58,0502,049,714

Acquisition Cost

Total

(Millions of yen)
Accumulated Depreciation
and Accumulated Impairment
LossesLand, buildings
and structures

Machinery andvehiclesTools, furnitureand fixtures

Construction inprogress

As of January 1, 2022
As of December 31, 2022

331,617342,600

592,844665,259

119,092
124,202－－

1,043,554
1,132,061

As of December 31, 2023

378,266

717,521

132,427－

1,228,214

Total(2) Impairment Losses
The grouping of property, plant and equipment for impairment test is the smallest cash-generating unit thatindependently generates cash inflows.
The Group recognized impairment losses of ¥18,572 million in the year ended December 31, 2022, and ¥8,264 million
in the year ended December 31, 2023 in “Selling, general and administrative expenses” in the consolidated statementof income.
Impairment losses recognized in the year ended December 31, 2022 represent losses incurred to reduce the carrying
amounts to the recoverable amounts for land, buildings, structures, machinery and vehicles, due to the decision to
demolish individual items, etc.
The recoverable amounts of these assets are calculated mainly by the value in use.
Impairment losses recognized in the year ended December 31, 2023 represent losses incurred to reduce the carrying
amounts to the recoverable amounts for land, buildings, structures, machinery and vehicles, due to the decision to
demolish individual items, etc.
The recoverable amounts of these assets are calculated mainly by the value in use.

- 152 -

14. Goodwill and Intangible Assets(1) Schedule of Goodwill and Intangible Assets
The schedules of carrying amount, acquisition cost, and accumulated amortization and accumulated impairment lossesof “Goodwill” and “Intangible assets” are as follows:(Millions of yen)
Carrying Amount

Goodwill

Trademarks

Software

Other

Total

As of January 1, 2022

2,060,965

235,294

27,45044,4092,368,117

Individual acquisition
Amortization (Note)－－－(65,266)

7,248(12,250)

10,395(8,852)

17,644(86,367)

Transfer to assets held for saleImpairment losses－－－(5,016)

(43)
(464)

(3)
(198)

(46)
(5,677)

Reversal of impairment losses
Sale or disposal

－
－

－
(2)

－
(282)

－
(513)

－
(796)

Exchange differences ontranslation of foreign operations

386,443

14,115

1,348

1,224

403,130

Other(1,345)19

1,898(4,071)(3,500)2,446,063

179,145－－(53,969)

24,906
5,989

42,391
20,292

2,692,505
26,281(11,570)－(5,182)－(194)(7,726)(1)(73,266)(1)(5,377)

As of December 31, 2022
Individual acquisition
Amortization (Note)
Transfer to assets held for sale－－Impairment losses
Reversal of impairment losses－－

Sale or disposal
Exchange differences on

－

－
(12)

－
(153)

－
－
(182)

170,377

11,777

1,009

725

183,887

－

(4)

3,029

(3,285)(261)

2,616,440

131,754

23,01552,213

2,823,422

translation of foreign operations
Other
As of December 31, 2023

－
(347)

(Note) The amortization of intangible assets is included in “Cost of sales” and “Selling, general and administrative expenses” in the
consolidated statement of income.
(Millions of yen)
Acquisition Cost

Goodwill

Trademarks

Software

Other

Total

As of January 1, 2022
As of December 31, 2022

2,060,965
2,446,063

1,089,212
1,141,901

157,665
164,192

120,635
120,5413,428,477
3,872,697

As of December 31, 2023

2,616,440

1,192,456

175,811125,174

4,109,881(Millions of yen)

Accumulated Amortization
and Accumulated Impairment
LossesGoodwill

Trademarks

Software

Other

Total

As of January 1, 2022
As of December 31, 2022－－

853,918
962,756

130,216
139,286

76,227
78,1501,060,360
1,180,192

As of December 31, 2023－

1,060,703

152,796

72,9601,286,459- 153 -

(2) Material Goodwill and Intangible Assets
Goodwill and intangible assets recognized in the consolidated statement of financial position are mainly composed ofgoodwill and trademarks in the “Tobacco Business”. The carrying amounts of goodwill from the business as ofDecember 31, 2022 and 2023 were ¥2,420,695 million and ¥2,591,071 million, respectively. The carrying amounts oftrademarks from the business as of December 31, 2022 and 2023 were ¥179,143 million and ¥131,753 million,
respectively.
The majority of goodwill and trademark in the business was recognized as a result of the acquisitions of RJRNabisco’s non-U.S. tobacco operations in 1999, Gallaher in 2007 and Natural American Spirit’s in 2016.
The trademarks are amortized using the straight-line method and the remaining amortization period is mainly from 2
to 3 years.
(3) Impairment Test for Goodwill
For the year ended December 31, 2023, the carrying amount of the majority of goodwill is allocated to the tobacco
cash-generating unit of ¥2,591,071 million (¥2,420,695 million for the year ended December 31, 2022) and theprocessed food cash-generating unit of ¥25,368 million (¥25,368 million for the year ended December 31, 2022).
Details of the result of impairment tests are as follows:
A. Tobacco Cash-generating Unit
The recoverable amount is calculated by the value in use based on the three-year business plan that was prepared byreflecting past experiences and external information and that was approved by management. After the three-yearbusiness plan, the Group sets a growth rate from 4.9% in the fourth year (2022: 5.8%) to 3.7% in the ninth year
(2022: 2.5%), and the same growth rate as the ninth year from the tenth year as a continued growth rate for
inflation.
The pre-tax discount rate is 10.3% (2022: 7.1%). The value in use sufficiently exceeds the carrying amount of the
cash-generating unit. Therefore, even in cases where the discount rate and growth rate used in calculating the value
in use fluctuate within reasonable ranges, the Group assumes that the value in use will not become less than the
carrying amount.
B. Processed Food Cash-generating Unit
The recoverable amount is calculated by the value in use based on the three-year business plan that was prepared byreflecting past experiences and external information and that was approved by management. After the three-yearbusiness plan, the Group sets a growth rate from 1.9% in the fourth year (2022: 2.6%) to 1.1% in the ninth year
(2022: 0.8%), and the same growth rate as the ninth year from the tenth year as a continued growth rate for
inflation.
The pre-tax discount rate is 5.1% (2022: 5.2%). The value in use sufficiently exceeds the carrying amount of the
cash-generating unit. Therefore, even in cases where the discount rate and growth rate used in calculating the value
in use fluctuate within reasonable ranges, the Group assumes that the value in use will not become less than the
carrying amount.

- 154 -

(4) Impairment Losses
Goodwill is allocated to cash-generating units that are identified according to types of businesses. The grouping ofintangible assets for impairment test is the smallest cash-generating unit that independently generates cash inflow.
The Group recognized impairment losses of ¥5,677 million for the year ended December 31, 2022, and ¥5,377 million
for the year ended December 31, 2023 in “Selling, general and administrative expenses” in the consolidated statementof income.
Impairment losses recognized in the year ended December 31, 2022 represent the losses incurred to reduce thecarrying amounts to the recoverable amounts of trademarks, software and other intangible assets since the recoverable
amounts were lower than the carrying amounts.
The recoverable amounts of these assets are calculated mainly by the value in use.
Impairment losses recognized in the year ended December 31, 2023 represent the losses incurred to reduce thecarrying amounts to the recoverable amounts of trademarks and software since the recoverable amounts were lower
than the carrying amounts.
The recoverable amounts of these assets are calculated mainly by the value in use.

- 155 -

15. Lease Transactions
The Group leases buildings, factory sites, vehicles and other assets as a lessee. Some of the lease contracts have renewal
options or escalation clauses. There are no restrictions on additional debt and further leasing imposed by the leasearrangements.

(1) Addition, Depreciation and Carrying Amount of Right-of-use Assets
The breakdown of addition, depreciation and carrying amount of right-of-use assets is as follows:Year ended December 31, 2022
(Millions of yen)Land, buildings
and structures

Machinery andvehiclesTools, furnitureand fixtures

14,674
16,517

5,540
6,195

81
52

Addition
Depreciation

Total

20,296
22,763As of December 31, 2022
(Millions of yen)Land, buildings
and structures

Machinery andvehiclesTools, furnitureand fixtures

51,635

10,825

156

Land, buildings
and structures

Machinery andvehiclesTools, furnitureand fixtures

13,526
17,286

7,243
6,723

65
59

Carrying amountTotal

62,617

Year ended December 31, 2023
(Millions of yen)

Addition
Depreciation

Total

20,83324,068

As of December 31, 2023
(Millions of yen)Land, buildings
and structures

Machinery andvehiclesTools, furnitureand fixtures

50,46312,083172

Carrying amountTotal

62,718(2) Expense Items Related to Lease
The breakdown of expense items related to lease is as follows:(Millions of yen)
2022

Financial cost on lease liabilities
Expense relating to short-term lease orleases of low-value assets
Expense relating to variable lease payments
Total cash outflow for leases
Gains arising from sale and leaseback transactions- 156 -

2023

1,344

1,697

8,431

8,615

2,053

1,502

22,5401,059

25,504－

16. Investment Property(1) Schedule of Investment Property
The schedule of the carrying amount of “Investment property” for each year is as follows:(Millions of yen)
2022

2023

As of January 1
Expenditure after acquisition

4,985
4

Transfer from property, plant and equipment
Transfer to assets held for sale

10,609(2,307)－1,365(1,074)

Transfer to property, plant and equipment
Depreciation

(50)
(279)

(105)
(82)

(3,051)
(234)

(55)
(5)

Exchange differences on translation offoreign operations

286

(200)

Other

(468)

0

As of December 31

9,495

9,338

Acquisition cost as of January 1

9,290

30,811

Accumulated depreciation and accumulated
impairment losses as of January 1

4,306

21,316

Acquisition cost as of December 31

30,811

27,031

Accumulated depreciation and accumulated
impairment losses as of December 31

21,316

17,693

Impairment losses
Sale or disposal

9,495(2) Fair Value
The fair value of investment property is determined based on a valuation conducted by an external real estateappraiser. The valuation is made in accordance with the appraisal standards of the country where the investment
property is located and based on market evidence of transaction prices for similar assets.
The fair value hierarchy of investment property is categorized from Level 1 to Level 3 as follows:
Level 1: Fair value measured at the quoted price in the active market
Level 2: Fair value that is calculated using the observable price other than categorized in Level 1 directly or indirectly
Level 3: Fair value that is calculated based on valuation techniques which include inputs that are not based on
observable market data
The fair value of investment property based on the fair value hierarchy as of December 31 is as follows:
As of December 31, 2022
(Millions of yen)
Level 1

Level 2－

Investment property

Level 326,023

Total
1,076

27,098

As of December 31, 2023
(Millions of yen)
Level 1
Investment property

Level 2－

Level 3
20,887- 157 -

Total
687

21,574

(3) Impairment Losses
The grouping of investment properties for impairment test is based on the smallest cash-generating unit thatindependently generates cash inflows. Impairment tests for idle properties are carried out individually.
The Group recognized impairment losses of ¥3,051 million for the year ended December 31, 2022, and ¥55 million forthe year ended December 31, 2023 in “Selling, general and administrative expenses” in the consolidated statement ofincome.
Impairment losses recognized for the year ended December 31, 2022 represent the difference between the recoverable
amount and the carrying amount for buildings as it was decided to demolish certain idle properties. The recoverable
amounts of these assets are calculated mainly by the value in use, which are estimated at “zero.”
Impairment losses recognized for the year ended December 31, 2023 represent the difference between the recoverable
amount and the carrying amount for buildings as it was decided to demolish certain idle properties. The recoverable
amounts of these assets are calculated mainly by the value in use, which are estimated at “zero.”- 158 -

17. Income Taxes(1) Deferred Tax Assets and Deferred Tax Liabilities
The breakdown and schedule of “Deferred tax assets” and “Deferred tax liabilities” by major causes of theiroccurrence for each year are as follows:Year ended December 31, 2022
(Millions of yen)
Deferred Tax
AssetsFixed assets(Note 2)Retirement benefits
Carryforward of unused tax
lossesOther
Subtotal
Valuation allowance
Total

Recognized in
profit or loss

Recognized inothercomprehensive
income88,654(15,341)－

3,802

77,11578,830(4,181)(14,720)

1,169

61,09857,67819,084－

6,609

83,371

108,565

8,206

(359)

3,243

119,656

333,728

7,767(15,079)

14,822

341,239(78,660)(24,788)305(8,025)(111,167)

255,068(17,021)(14,774)

6,798

230,071

As ofJanuary 1,
2022

Other
(Note 1)

As ofDecember 31,
2022(Millions of yen)
Deferred Tax
Liabilities

As ofJanuary 1,
2022

Recognized in
profit or loss

Recognized inothercomprehensive
incomeOther(Note 1)

As ofDecember 31,
2022

Fixed assets(Note 2)

(71,309)

12,156－(15,207)(74,360)

Retirement benefits
Other(18,425)(114,874)

429
31,704

(990)
4,763

(471)
(6,477)(19,458)(84,884)

Total(204,608)

44,2893,773(22,155)(178,702)- 159 -

Year ended December 31, 2023
(Millions of yen)
Recognized in
profit or loss

Recognized inothercomprehensive
income77,115(4,911)－

5,691

77,89461,098(5,062)

3,734

1,721

61,491

83,37130,397－

1,511

115,279

119,656

3,125

5,175

667

128,624

As ofJanuary 1,
2023

Deferred Tax
AssetsFixed assets(Note 2)Retirement benefits
Carryforward of unused tax
lossesOther

As ofDecember 31,
2023

Other
(Note 1)

Subtotal

341,239

23,550

8,910

9,590

383,288

Valuation allowance(111,167)(30,511)(3,256)(1,021)(145,955)

230,071(6,961)

5,654

8,568

237,333

Total(Millions of yen)
As ofJanuary 1,
2023

Deferred Tax
Liabilities

Recognized in
profit or loss

Recognized inothercomprehensive
income

As ofDecember 31,
2023

Other
(Note 1)

Fixed assets(Note 2)

(74,360)

15,915－(13,335)(71,780)Retirement benefits
Other(19,458)(84,884)(693)(11,986)

34
1,468(2,184)944(22,301)(94,459)

Total(178,702)

3,235

1,502

(14,575)(188,540)(Note 1) “Other” includes exchange differences on translation of foreign operations.
(Note 2) “Fixed assets” include property, plant and equipment, goodwill, intangible assets and investment property.
The deferred tax assets are recognized for the amount considered to be recoverable on deductible temporary
differences, carryforward of unused tax losses and tax credits by taking taxable temporary differences and futuretaxable profits plan into account. The carryforward of unused tax losses, for which the deferred tax assets are notrecognized, was ¥77,633 million (including ¥49,058 million, for which the carryforward expires after five years) as ofDecember 31, 2022, and ¥103,755 million (including ¥53,625 million, for which the carryforward expires after five
years) as of December 31, 2023. Tax credits, for which the deferred tax assets are not recognized, were ¥6,330 million(including ¥5,474 million, for which the carryforward expires after five years) as of December 31, 2022, and ¥9,949
million (including ¥7,537 million, for which the carryforward expires after five years) as of December 31, 2023.
The total amount of temporary differences related to investments in subsidiaries, for which deferred tax liabilities were
not recognized, was ¥187,192 million as of December 31, 2022, and ¥147,461 million as of December 31,2023.
(2) Income Taxes
The breakdown of “Income taxes” for each year is as follows:(Millions of yen)
2022
Current income taxes
Deferred income taxes
Total income taxes

2023
176,545(27,268)

132,566
3,725

149,277

136,292

Deferred income taxes decreased by ¥2,861 million and increased by ¥3,659 million for the years ended December 31,
2022 and 2023, respectively, due to the effect of changes in tax rates in other countries.

- 160 -

(3) Reconciliation of the Effective Tax Rate
The breakdown of major items that caused differences between the effective statutory tax rate and the average actual
tax rate for each year is as follows:
The Company is subject mainly to corporate tax, inhabitant tax and enterprise tax, and the effective statutory tax rate
for each year calculated based on these taxes was 30.43%. Foreign subsidiaries are subject to income taxes at theirlocations.
(%)
2022
Effective statutory tax rate

2023
30.43

30.43

Different tax rates applied to foreignsubsidiaries(11.37)(12.16)

Non-deductible expenses
Non-taxable incomes

2.72(1.12)

1.53(2.99)

Valuation allowance
Tax credits

1.47(1.44)

2.49(1.55)

Retained earnings
Withholding tax in foreign countries

1.35
1.16

0.93
1.45

Tax contingencies
Other

0.52
1.43

1.41
0.40

Average actual tax rate

25.15

21.93

(4) Impact of Application of Pillar Two Model Rules
The Group applies temporary exception regarding the requirements of IAS 12 on deferred tax related to the Pillar Two
Model Rules. The Group does not recognize and disclose any deferred tax assets and liabilities related to the Pillar
Two Model Rules.
Under the Pillar Two Model Rules, JT International Holding B.V., the Group's subsidiary in the Netherlands, which iswhere the application of the Income Inclusion Rule (IIR) will begin, will file returns and pay taxes under IIR and file a
Global Anti-Base Erosion (GloBE) information return as an intermediate parent company for its subsidiaries for the
fiscal year 2024. From the fiscal year 2025 onward, the Company, as the ultimate parent company under Japanese
regulations, will file returns and pay taxes under IIR and file a GloBE information return in Japan for all subsidiaries.
Regarding the Undertaxed Payment Rule (UTPR), there is no application in the countries where the Group's
companies are located in the fiscal year 2024. From fiscal year 2025 onward, since the Company can file returns andpay taxes under IIR for all subsidiaries, it does not expect to file returns and pay taxes under UTPR.
Although additional taxation under the Pillar Two Model Rules has not yet been applied in the current consolidated
fiscal year, even if it were to be applied in the current consolidated fiscal year, it would not have a material impact on
the Group's average effective tax rate.

- 161 -

18. Trade and Other Payables
The breakdown of “Trade and other payables” as of December 31 is as follows:(Millions of yen)
2022

2023

Accounts payable

273,028

299,738

Other payables
Other

89,868177,193

87,723205,341

540,089592,802

Total

Trade and other payables are classified as financial liabilities measured at amortized cost.

- 162 -

19. Bonds and Borrowings (Including Other Financial Liabilities)(1) Breakdown of Financial Liabilities
The breakdown of “Bonds and borrowings” and “Other financial liabilities” as of December 31 is as follows:(Millions of yen)
2022

Due

2023

Derivative liabilities
Short-term borrowings

20,99063,73325,076208,968－－

Current portion of long-term borrowings
Current portion of bonds (Note 2)

13,57560,00024,365Long-term borrowings (Note 1)
Bonds (Note 2)

143,674
677,329－
123,025785,901－－
2025 - 2080

Lease liabilities
Other

60,328481

59,591481

Total

1,040,110

1,227,407

Current liabilities
Non-current liabilities

177,373862,737

277,803
949,604

Total

1,040,110

1,227,407－－－(Note 1) ¥99,525 million and ¥99,751 million of the long-term borrowings are subordinated loans due in 2080 as of December 31,
2022 and 2023, respectively. The Company may, at its option, repay early all or a portion of the principal on any interest
payment date on or after January 31, 2025.

- 163 -

(Note 2) The summary of the issuing conditions of the bonds is as follows:
Company(Millions of yen)(%)

As of December
31, 2022

As of December
31, 2023

Interest
rate

Collateral

25,00025,0000.599

Yes60,000(60,000)

－

0.110

Yes

30,00030,0000.355

Yes

10,00010,0000.758

Yes

April 20, 2023－

10,0000.713

Yes

April 20, 2023－

30,0000.920

Yes

April 20 2023－

20,0001.630

Yes

September 28,
2018
September 28,
2018
November 26,
2019
September 28,
2018
October 7,
2020
October 7,
2020

65,835[USD 500 mil.]
77,486[EUR 550 mil.]
70,259[EUR 500 mil.]
62,946[GBP 400 mil.]
70,408[EUR 500 mil.]
70,308[EUR 500 mil.]

69,498[USD 493 mil.]
85,862[EUR 550 mil.]
73,528[EUR 472 mil.]
71,144[GBP 400 mil.]
78,011[EUR 500 mil.]
77,862[EUR 500 mil.]

3.875

No

1.125

No

1.000

No

2.750

No

2.375

No

2.875

No

Date ofmaturity

Name of bondDate of issuance
July 15,2015
September 10,
2018
September 10,
2018
September 10,
2018

JT International
Financial Services B.V.
JT International
Financial Services B.V.
JT International
Financial Services B.V.
JT International
Financial Services B.V.
JT International
Financial Services B.V.
JT International
Financial Services B.V.

11th domestic
straight bond12th domestic
straight bond13th domestic
straight bond14th domestic
straight bond15th domestic
straight bond16th domestic
straight bond17th domestic
straight bond
Straight bond in
USD (Note 5)
Straight bond in
EUR
Straight bond in
EUR (Note 5)
Straight bond in
GBP
Subordinatedbond in EUR
Subordinatedbond in EUR

JT International
Financial Services B.V.

Straight bond in
USD (Note 5)

September 14,
2021

77,509[USD 625 mil.]

79,211[USD 593 mil.]

2.250

No

September 14,
2031

JT International
Financial Services B.V.

Straight bond in
USD

September 14,
2021

52,640[USD 400 mil.]

56,272[USD 400 mil.]

3.300

No

September 14,
2051

JT International
Financial Services B.V.

Straight bond in
USD

October 24,
2022

64,936[USD 500 mil.]

69,513[USD 500 mil.]

6.875

No

October 24,
2032

737,329(60,000)

785,901(－)

Japan Tobacco Inc.
Japan Tobacco Inc.
Japan Tobacco Inc.
Japan Tobacco Inc.
Japan Tobacco Inc.
Japan Tobacco Inc.
Japan Tobacco Inc.

Total

July 15,2025
September 8,2023
September 8,
2028
September 10,
2038
April 19,
2030
April 20,
2033
April 20,
2043
September 28,
2028
September 28,
2025
November 26,
2029
September 28,
2033
April 7,2081 (Note 3)
October 7,2083 (Note 4)(Note 1) The figure in parentheses ( ) represents the amount of the current portion of the bond.
(Note 2) The figure in parentheses [ ] represents the amount of foreign currency-denominated bond.
(Note 3) The Issuer may redeem the Bond at its own discretion in the 3-month period ending on April 7, 2026 and on each interest
payment date thereafter.
(Note 4) The Issuer may redeem the Bond at its own discretion in the 3-month period ending on January 7, 2029 and on each interest
payment date thereafter.
(Note 5) The Issuer purchased a portion of the bonds during the current fiscal year.
Derivative liabilities are classified as financial liabilities measured at fair value through profit or loss excluding thoseto which hedge accounting is applied, and bonds and borrowings are classified as financial liabilities measured atamortized cost.
There are no financial covenants that have a significant impact on the bonds and borrowings of the Group.
(2) Assets Pledged as Collateral for Liabilities
Pursuant to the provisions of Article 6 of the Japan Tobacco Inc. Act, the Company’s properties are pledged as
general collateral for bonds issued by the Company. Bondholders are entitled to claim satisfaction in preference tounsecured creditors of the Company properties (with the exception of national and local taxes and certain otherstatutory obligations).

- 164 -

20. Provisions
The breakdown and schedule of “Provisions” for each year are as follows:Year ended December 31, 2022
(Millions of yen)
Asset retirement
provisions

Restructuringprovisions

Provisions forsales rebates

6,505

11,157

3,692

26,37147,725

227

1,596

4,073

24,03229,929

43

－

－

－

43

(347)

(4,905)(3,820)(1,747)(10,818)(925)(2,695)－(12,217)(15,837)

23

885

－

1,151

2,059

5,527

6,038

3,946

37,59053,100

118

5,445

3,946

17,101

26,610

5,409

593

－

20,48826,490

5,527

6,038

3,946

37,59053,100

As of January 1, 2022
Provisions
Interest cost associated withpassage of time
Provisions used
Provisions reversed
Exchange differences ontranslation of foreign operations
As of December 31, 2022
Current liabilities
Non-current liabilities
Total

Other
provisions

Total

Year ended December 31, 2023
(Millions of yen)

As of January 1, 2023
Provisions
Interest cost associated withpassage of time
Provisions used
Provisions reversed
Exchange differences ontranslation of foreign operations
As of December 31, 2023
Current liabilities
Non-current liabilities
Total

Asset retirement
provisions

Restructuringprovisions

Provisions forsales rebates

Other
provisions

5,527
5,881

6,038
3,935

3,946
4,427

37,59018,066

53,10032,309

31

－

－

－

31

(314)
(49)

(3,824)(633)(4,105)－(2,313)(10,783)(10,555)(11,466)

61

481

－

200

741

11,136

5,996

4,268

42,76064,161

Total

154

5,621

4,268

8,591

18,634

10,983375－

34,16945,527

11,136

5,996

4,268

42,76064,161

A. Asset Retirement Provisions
In order to settle the obligation of restoring and of removing hazardous substances from plant facilities and premisesthat the Group uses, the probable amount to be paid in the future is recognized based on past performances. These
expenses are expected to be paid after one year or more; however, they may be affected by future business plans.
B. Restructuring Provisions
These provisions are mainly related to business integration and measures for the rationalization of the “Tobacco
Business.” The timing of the payment may be affected by future business plans.
C. Provisions for Sales Rebates
These provisions are for contracts which reward the customers with discounts when the sales volume or sales amount ina given period exceeds a specified volume or amount and correspond to “Refund liabilities” in IFRS 15 “Revenue fromContracts with Customers.” They are expected to be paid within one year.

- 165 -

21. Other Liabilities
The breakdown of “Other current liabilities” and “Other non-current liabilities” as of December 31 is as follows:(Millions of yen)
2022

2023

Tobacco excise tax payables

339,780

454,727

Tobacco special excise tax payables
Tobacco local excise tax payables

8,791
184,621

8,484
178,585

Consumption tax payables
Bonus to employees

137,552
74,826

168,081
83,323

Employees’ unused paid vacations liabilities
Other

19,866
210,904

21,025
221,333

Total

976,341

1,135,560

781,093
195,248

1,008,390
127,170

976,341

1,135,560

Current liabilities
Non-current liabilities
Total- 166 -

22. Employee Benefits(1) Post-employment Benefits
The Group sponsors funded or unfunded defined benefit plans and defined contribution plans as employee retirement
benefit plans. The benefits of defined benefit plans are predetermined based on conditions, such as points employees
have gained in compensation for each year of service, the payment rate, years of service, and average salaries in their
final years of service before retirement.
The Company is obligated to bear pension costs for a mutual assistance association incurred with respect to services inor before June 1956 (prior to enforcement of the Act on the Mutual Aid Association of Public Corporation
Employees). Such obligations are recognized as liabilities at their present value using the actuarial valuation method
and are included in retirement benefit liabilities. Special termination benefits may be provided to employees on theirearly retirements under certain circumstances.
The funded defined benefit plans are administrated by the Group or the fund that is legally separated from the Groupin accordance with statutory requirements. The Group, or the board of the pension fund and the trustee of the plan, arerequired by law to act in the best interests of the plan participants, and are responsible for managing the plan assets inaccordance with the designated investment strategy.
The Group’s main defined benefit plans expose the Group to actuarial risks, such as investment risk, interest rate risk,
inflation risk, and longevity risk.
(i) Investment risk
The present value of the defined benefit obligations is calculated using a discount rate set with reference to a yieldon high quality corporate bonds or government bonds. If the return on the plan assets is below this yield, there is apossibility that the plan is underfunded.
(ii) Interest rate risk
A decrease in a yield on high quality corporate bonds or government bonds will increase the present value of thedefined benefit obligations. However, this will be partially offset by an increase in the fair value of the debt
instruments (plan assets).
(iii) Inflation risk
The level of benefit for certain defined benefit plans of the Group is linked to inflation. Accordingly, a rise ininflation will increase the present value of the defined benefit obligations.
(iv) Longevity risk
Some defined benefit plans of the Group provide a lifetime annuity, and the Group is obligated to provide pension
benefits to the plan participants for the rest of their lives after their retirements. The present value of the defined
benefit obligations is calculated by reference to the best estimate of the mortality of plan participants during or after
employment. An increase in average life expectancy of the plan participants will increase the defined benefit
obligations.

- 167 -

A. Schedule of Defined Benefit Obligations
The schedule of the defined benefit obligations is as follows:(Millions of yen)Japan (Note 3)

Overseas

Total

As of January 1, 2022 (Notes 1, 2)

156,327

589,874

746,201

Current service cost
Past service cost and settlement

8,471
44

11,673(1,684)

20,144(1,640)Interest expense
Contributions by plan participants

1,075
－

9,307
2,798

10,382
2,798

(511)

(5,222)(5,733)(10,129)(165,622)(175,751)

2,006

25,81327,819(14,788)(27,579)(42,367)－

36,30136,301Remeasurement gains and losses:
Actuarial gains and losses arising fromchanges in demographic assumptions
Actuarial gains and losses arising fromchanges in financial assumptions
Actuarial gains and losses arising fromexperience adjustments
Benefits paid
Exchange differences on translation of foreign
operations
Other

248

3

250

142,7437,776

475,661
9,115

618,405
16,891

Past service cost and settlement
Interest expense

533
2,501

2,061
19,434

2,594
21,935Contributions by plan participantsRemeasurement gains and losses:

－

3,125

3,125

Actuarial gains and losses arising fromchanges in demographic assumptions

8(5,519)(5,511)

Actuarial gains and losses arising fromchanges in financial assumptions

82

23,72723,809Actuarial gains and losses arising fromexperience adjustments(2,343)

11,399

9,056(11,700)(30,738)(42,438)－

61,125

61,125

(3)

(15)

(18)

139,597569,376

708,974

As of December 31, 2022 (Notes 1, 2)
Current service cost

Benefits paid
Exchange differences on translation of foreign
operations
Other
As of December 31, 2023 (Notes 1, 2)(Note 1) The Group’s weighted-average duration of the defined benefit obligations is 7.0 years for Japan and 11.8 years for overseas(2022 : 7.1 years for Japan and 12.0 years for overseas).

- 168 -

(Note 2) The Group’s breakdown of the defined benefit obligation by plan participant is as follows:(Millions of yen)
As of December 31, 2022
Japan
Active members
Deferred members

Total

Japan

Overseas

Total

108,150
2,917

229,184
54,171

337,335
57,088105,042
4,216

180,775
48,596285,817
52,812

33,486

246,290279,776

28,530286,021314,551

142,743475,661

618,405

139,597569,376

708,974

Pensioners
Total

Overseas

As of December 31, 2023

(Note 3) The schedule of mutual pension benefits obligations included in the category of Japan is as follows:(Millions of yen)
2022

2023

As of January 1

21,862

17,346

Interest expense
Remeasurement gains and losses

109(1,970)243(855)

Benefits paid

(2,655)(2,344)As of December 31

17,346

14,390B. Schedule of Plan Assets
The schedule of the plan assets is as follows:(Millions of yen)Japan
As of January 1, 2022
Interest income

Overseas50,193349

453,009
6,816

503,203
7,166

(547)

(87,969)(88,516)

738

6,480

7,218

－
(4,785)

2,798(21,781)

2,798(26,566)－

26,13926,139Remeasurement gains and losses:
Return on plan assets (excluding amounts
included in interest income)Contributions by the employer (Notes 1, 2)
Contributions by plan participants
Benefits paid

Total

Exchange differences on translation of foreign
operations

640

－

640

46,588800

385,493
15,934432,081
16,734

(55)

9,942

9,887

751

7,319

8,070

－
(4,116)

3,125(23,917)3,125(28,033)

Exchange differences on translation of foreign
operations－

53,52453,524

Other

(0)

－

(0)

43,968451,419495,387

Other
As of December 31, 2022
Interest income
Remeasurement gains and losses:
Return on plan assets (excluding amounts
included in interest income)Contributions by the employer (Notes 1, 2)
Contributions by plan participants
Benefits paid

As of December 31, 2023

(Note 1) Pursuant to laws and regulations, the Group and the pension fund review the financial condition of the pension plan regularly
and recalculate contributions for allocating future benefit and keeping the balance of the pension financing when the plan isunderfunded.
(Note 2) The Group plans to pay contributions of ¥8,207 million in the year ending December 31, 2024.

- 169 -

C. Reconciliation of Defined Benefit Obligations and Plan Assets
The reconciliation of the defined benefit obligations and plan assets to the net defined benefit liabilities (assets)
recognized in the consolidated statement of financial position as of December 31 is as follows:
As of December 31, 2022
(Millions of yen)Japan

Overseas

Total

Present value of the funded defined benefit
obligations

41,841

334,822376,663

Fair value of the plan assets(46,588)(385,493)(432,081)

SubtotalPresent value of the unfunded defined benefit(4,747)(50,671)(55,417)

100,902140,839

241,742

96,156

90,168186,324

Retirement benefit liabilities
Retirement benefit assets

102,060(5,904)142,056(51,888)244,116(57,792)

Net defined benefit liabilities (assets) recognizedin the consolidated statement of financial position

96,156

90,168186,324

obligations
Net defined benefit liabilities (assets) recognizedin the consolidated statement of financial position

As of December 31, 2023
(Millions of yen)Japan
Present value of the funded defined benefit

Overseas

Total

39,125405,680

444,805(43,968)(451,419)(495,387)(4,843)(45,739)(50,582)

100,473

163,696

264,169

Net defined benefit liabilities (assets) recognizedin the consolidated statement of financial position

95,630117,957

213,587

Retirement benefit liabilities
Retirement benefit assets

101,671(6,041)

177,772(59,814)

279,443(65,856)

95,630117,957

213,587

obligations
Fair value of the plan assets
SubtotalPresent value of the unfunded defined benefit
obligations

Net defined benefit liabilities (assets) recognizedin the consolidated statement of financial position- 170 -

D. Major Breakdown of Plan Assets
The breakdown of plan assets by major category as of December 31 is as follows:(Millions of yen)Japan
As of December 31, 2022
Market price in an
active market
QuotedAs of December 31, 2023
Market price in an
active market

Total

Unquoted

QuotedTotal

Unquoted

8,902
1,575

－
－

8,902
1,575

8,736
2,945

－
－

8,736
2,945

Japan
Overseas

811
764

－
－

811
764

1,487
1,458

－
－

1,487
1,458

Debt instruments
Japan

6,410
5,208

－
－

6,410
5,208

5,575
4,435

－
－

5,575
4,435

Overseas
General account of life

1,202

－

1,202

1,140

－

1,140

insurance companies(Note 1)－

26,631

26,631－

23,85323,853

1,983

1,086

3,069

827

2,032

2,860

18,871

27,717

46,58818,082

25,88543,968Cash and cash equivalents
Equity instruments

Other
Total

(Millions of yen)Overseas
As of December 31, 2022
Market price in an
active market
QuotedCash and cash equivalents
Equity instruments
United Kingdom
North America
Other
Debt instruments
United Kingdom
North America
Other
Real estate
Other (Note 2)
Total

As of December 31, 2023

Total

UnquotedMarket price in an
active market
QuotedTotal

Unquoted

55,95648,367－－55,95648,36764,42860,417－－64,42860,417

2,392
14,729－－2,392
14,7293,167
16,790－－3,167
16,79031,24571,436－
6,131

31,24577,56740,46089,432－
7,159

40,46096,592456
25,658456
25,658817
29,25651,453
26,70559,36031,585

－
－
7,159
32

817
29,25645,322
26,667

－
－
6,131
38

12,060164,838

176,898

14,196

184,170

198,366

214,486

171,007385,493

260,058

191,361

451,419- 171 -

66,51931,617

(Millions of yen)
Total
As of December 31, 2022
Market price in an
active market
QuotedQuoted73,16463,362

77,846
26,667

83,977
26,705－

26,631

14,043
233,357

Debt instruments
Real estate

Total

Total

Unquoted
64,85849,94264,85849,942(Note 1)Other (Note 2)

Market price in an
active market

－
－
6,131
38

Cash and cash equivalents
Equity instruments

General account of life
insurance companies

As of December 31, 2023

Total

Unquoted

95,00731,585

－
－
7,159
32

102,167
31,617

26,631－

23,85323,853

165,923

179,966

15,023

186,202201,225

198,724

432,081

278,140

217,247

495,387

73,16463,362(Note 1) A certain interest rate and principal for the general account of life insurance are guaranteed by life insurance companies.
(Note 2) Insurance agreement concluded in the U.K. pension buy in transactions included in “Other” amounted to ¥156,001 millionand ¥175,160 million as of the ended December 31, 2022 and 2023, respectively.
The investment strategy for the Group’s major plans is as follows:(Japan)The Company’s pension fund is managed in accordance with the internal policy for securing stable profits inthe middle- and long-term in order to ensure the redemption of the plan liability. Concretely, the Company
invests plan assets consistently with the composition ratio by setting a target rate of return and composition
ratio of plan assets by asset category within the risk tolerance that is annually assessed. When reviewing thecomposition ratio, the Company considers introducing an asset investment which has a high correlation with theliability.
When an unexpected situation occurs in the market environment, it is temporarily allowed to make a weighted
adjustment to the risk assets, complying with the Company’s policy.
(Overseas)
The investment strategy for the foreign subsidiaries’ funded pension plans is decided properly by the trustee ofthe plan and the management of overseas subsidiaries according to local legislation. The Company’s objective
for the foreign subsidiaries’ funded pension plans is to manage risks arising from its defined benefit obligation,and meanwhile to achieve a return on assets in excess of the movement in the value of the defined benefit
obligation.

- 172 -

E. Matters Related to Actuarial Assumptions
The major items of actuarial assumptions as of December 31 are as follows:
As of December 31, 2022
(%)
Japan

Overseas

Discount rate

1.8

3.9

Inflation rate－

2.5
(years)Japan

Overseas

Males

Females24.5 (Note 2)

29.7 (Note 2)

Males

Females21.7 (Note 3)

24.0 (Note 3)

23.0 (Note 4)

25.2 (Note 4)

Average life expectancy atretirement (Note 1)
Current pensioners
Future pensioners

As of December 31, 2023
(%)
Japan
Discount rate
Inflation rate

Overseas
1.7

3.3
2.4

－

(years)Japan

Overseas

Males

Females

Males

Females24.5 (Note 2)

29.7 (Note 2)

21.7 (Note 3)
22.9 (Note 4)

24.0 (Note 3)
25.2 (Note 4)

Average life expectancy atretirement (Note 1)
Current pensioners
Future pensioners(Note 1) The average life expectancies underlie the values of the defined benefit obligations on major plans. Assumptions regarding
future mortality rate are based on published statistics and mortality tables.
(Note 2) Life expectancy for a pensioner currently aged 60. Regardless of the plan participant’s current age, the Group performs
actuarial calculations based on the assumption that life expectancy remains the same.
(Note 3) Life expectancy for a pensioner currently aged 65.
(Note 4) Life expectancy at the age of 65 for an active member currently aged 50.

- 173 -

(Note 5) The valuation of defined benefit obligations includes judgment on uncertain future events. The sensitivities of defined benefit
obligations due to changes in major assumptions as of December 31 are as follows. Each of these sensitivities assumes that
other variables remain fixed; however, in fact, they do not always change independently. Negative figures represent a
decrease in pension plan obligations, while positive figures represent an increase.
As of December 31, 2022
(Millions of yen)
Change in assumptions

Japan

Overseas

Discount rate

Increase by 0.5%

(4,390)(27,402)

4,711

Inflation rate

Decrease by 0.5%
Increase by 0.5%－

29,503
19,787Mortality rate

Decrease by 0.5%
Extended 1 year

－
2,315

(18,240)
15,722

Shortened 1 year

(2,222)(15,705)

As of December 31, 2023
(Millions of yen)
Change in assumptions

Japan

Overseas

Discount rate

Increase by 0.5%
Decrease by 0.5%

(4,262)
4,553(32,564)
34,892

Inflation rate

Increase by 0.5%
Decrease by 0.5%

20,822(19,074)

Mortality rate

Extended 1 year
Shortened 1 year

－
－
1,989
(1,901)- 174 -

17,780(17,701)

F. Breakdown of Defined Benefit Cost
The breakdown of defined benefit cost for each year is as follows:Year ended December 31, 2022
(Millions of yen)Japan

Overseas

Current service cost

Total

8,471

11,673

20,144

Past service cost and gains and losses on
settlement

44(1,684)(1,640)Interest expense (income)

726

2,490

3,216

Defined benefit cost through profit or loss

9,241

12,48021,721

Actuarial gains and losses arising from changes indemographic assumptions(511)(5,222)(5,733)

Actuarial gains and losses arising from changes infinancial assumptions(10,129)(165,622)(175,751)

Actuarial gains and losses arising from experience
adjustments

2,006

25,81327,819547

87,96988,516

Defined benefit cost through other comprehensive
income(8,087)(57,063)(65,149)

Total of defined benefit cost

1,154

(44,583)(43,428)Return on plan assets (excluding amounts
included in interest income)Year ended December 31, 2023
(Millions of yen)Japan

Overseas

Current service cost

Total

7,776

9,115

16,891

533

2,061

2,594

Interest expense (income)

1,702

3,500

5,201

Defined benefit cost through profit or loss

10,011

14,676

24,687

Actuarial gains and losses arising from changes indemographic assumptions

8(5,519)(5,511)

Actuarial gains and losses arising from changes infinancial assumptions

82

23,72723,809Actuarial gains and losses arising from experience
adjustments(2,343)

11,3999,056

55(9,942)(9,887)

Defined benefit cost through other comprehensive
income(2,199)19,665

17,466

Total of defined benefit cost

7,812

34,341

42,153

Past service cost and gains and losses on
settlement

Return on plan assets (excluding amounts
included in interest income)(Note 1) The net amount of interest expense and interest income is included in “Financial costs.” Other expenses are included in “Costof sales” and “Selling, general and administrative expenses.”(Note 2) Contributions to the defined contribution plans were ¥11,737 million for the year ended December 31, 2022 and ¥12,486
million for the year ended December 31, 2023 and were not included in the table above.

- 175 -

(2) Other Employee Benefit Expenses
The employee benefit expenses other than post-employment benefits that are included in the consolidated statement ofincome for each year are as follows:(Millions of yen)
2022

2023

Remuneration and salary
Bonus to employees

269,996
104,293294,712
114,114

Legal welfare expenses
Welfare expenses

50,053
46,84554,57951,066

Termination benefits

(149)

837

- 176 -

23. Equity and Other Equity Items(1) Share Capital and Capital Surplus
A. Authorized Shares
The number of authorized shares as of December 31, 2022 and 2023 is 8,000,000 thousand ordinary shares.
B. Fully Paid Issued Shares
The schedule of the number of issued shares and share capital is as follows:(Thousands of shares)
Number of ordinary
issued shares
As of January 1, 2022

2,000,000

Capital surplus

100,000

736,400－－－

100,000

736,400－－

78

2,000,000

100,000

736,478

Increase (decrease)
As of December 31, 2023

Share capital

2,000,000

Increase (decrease)
As of December 31, 2022

(Millions of yen)

(Note) The shares issued by the Company are non-par value ordinary shares that have no restriction on any content of rights.
(2) Treasury Shares
The schedule of the number of treasury shares and its amount as of each year end is as follows:(Thousands of shares)(Millions of yen)
Number of shares

AmountAs of January 1, 2022
Increase (decrease) (Note 2)

225,475(329)

490,899(716)

As of December 31, 2022

225,146

490,183

(454)

(989)

224,692

489,194

Increase (decrease) (Note 2)
As of December 31, 2023

(Note 1) The Company adopts share option plans, restricted stock remuneration plans and performance share unit plans and utilizes
treasury shares for delivery of shares due to their exercises. Contract conditions and amounts are described in “32. Sharebased Payments.”(Note 2) Purchases of shares less than one unit are 1 thousand shares for the year ended December 31, 2022 and 0 thousand shares forthe year ended December 31, 2023. Sale of shares less than one unit are 0 thousand shares for the year ended December 31,
2022. The number of shares delivered upon exercise of share options are 119 thousand shares for the year ended December
31, 2022 and 260 thousand shares for the year ended December 31, 2023. The number of shares disposed for restricted stock
remuneration are 210 thousand shares for the year ended December 31, 2022 and 158 thousand shares for the year ended
December 31, 2023. The number of shares disposed for performance share unit remuneration are 37 thousand shares for theyear ended December 31, 2023.

- 177 -

(3) Other Components of Equity
A. Subscription Rights to Shares
The Company adopts share option plans and issues subscription rights to shares based on the Companies Act.
Contract conditions and amount are described in “32. Share-based Payments.”
B. Exchange Differences on Translation of Foreign Operations
Exchange differences on translation of foreign operations are composed of foreign currency translation difference
that occurs when consolidating financial statements of foreign subsidiaries prepared in foreign currencies, and theeffective portion of net gain (loss) on the hedging instruments designated as hedge of net investment.
C. Net Gain (Loss) on Derivatives Designated as Cash Flow Hedges
The Group uses derivatives for hedging to avoid the risk of fluctuation in future cash flows. This is the effective
portion of changes in the fair value of hedging instruments designated as cash flow hedges.
D. Hedge Costs
Hedge costs are changes in fair value arising from the time value of foreign currency options separated from hedging
instruments.
E. Net Gain (Loss) on Revaluation of Financial Assets Measured at Fair Value through
Other Comprehensive Income
This is the valuation difference in the fair value of financial assets measured at fair value through othercomprehensive income.
F. Remeasurements of Defined Benefit Plans
Remeasurements of defined benefit plans comprise actuarial gains and losses, the return on plan assets excluding
amounts included in interest income, and any change in the effect of the asset ceiling excluding amounts included ininterest income. In addition, actuarial gains and losses are the effects of differences between the actuarial
assumptions at the beginning of the year and what has actually occurred, and the effects of changes in actuarial
assumptions. Remeasurements are recognized as other comprehensive income when they occur and are transferred
immediately from other components of equity to retained earnings.

- 178 -

24. Dividends
Dividends paid for each year are as follows:Year ended December 31, 2022
(Millions of yen)Class of shares(Resolution)
Annual Shareholders’ Meeting(March 23, 2022)
Board of Directors(July 29, 2022)

Total dividends(Yen)
Dividends
per share

Basis date

Effective dateOrdinary shares

133,08975

December 31, 2021

March 24, 2022

Ordinary shares

133,11475

June 30, 2022

September 1, 2022

Basis date

Effective dateYear ended December 31, 2023
(Millions of yen)Class of shares(Resolution)
Annual Shareholders’ Meeting(March 24, 2023)
Board of Directors(July 31, 2023)

Total dividends(Yen)
Dividends
per share

Ordinary shares

200,558

113

December 31, 2022

March 27, 2023

Ordinary shares

166,856

94

June 30, 2023

September 1, 2023

Basis date

Effective date

December 31, 2022

March 27, 2023

Basis date

Effective date

December 31, 2023

March 25, 2024

Dividends for which the effective date falls in the following year are as follows:Year ended December 31, 2022
(Millions of yen)Class of shares(Resolution)
Annual Shareholders’ Meeting(March 24, 2023)

Ordinary shares

Total dividends(Yen)
Dividends
per share

200,558

113(Millions of yen)

(Yen)

Year ended December 31, 2023

Class of shares(Resolution)
Annual Shareholders’ Meeting(March 22, 2024)

Ordinary shares

Total dividends

177,531- 179 -

Dividends
per share100

25. Revenue(1) Disaggregation of Revenue
The disaggregation of “Revenue” for each year is as follows. The amounts are presented after the elimination ofintercompany transactions.
Year ended December 31, 2022
(Millions of yen)
Reportable Segments
Tobacco(Note)
Core revenue
from tobacco business
Other
Total

Pharmaceuticals

Other

Processed
Food

Consolidated

2,315,242---

2,315,242

102,167

82,908

155,539

1,976

342,5902,417,409

82,908

155,539

1,976

2,657,832

Year ended December 31, 2023
(Millions of yen)
Reportable Segments
Tobacco(Note)
Core revenue
from tobacco business
Other
Total

Pharmaceuticals

Processed
Food

Other

Consolidated

2,478,625－－－

2,478,625

112,285

94,875

153,854

1,439

362,452

2,590,910

94,875

153,8541,439

2,841,077(Note) Revenues from RRP in core revenue from the “Tobacco Business” were ¥75,414 million and ¥81,641 million for the year
ended December 31, 2022 and 2023, respectively. RRP represents Reduced-Risk Products with potential to reduce the healthrisks associated with smoking.

- 180 -

A. Tobacco BusinessTobacco business engage in the sale of tobacco products.
The Group evaluates that the performance obligation is satisfied when the customer obtains control of the products
upon delivery and recognizes revenue upon delivery of the products. Revenue is measured at the consideration
promised in the contract with customers, less discounts, rebates and taxes, including consumption tax. In addition,
where the Group makes payments to the customer, except in the case when consideration payable to the customer isa payment for a distinct product or service from the customer, revenue is measured at the amount which isconsideration promised with the customer, less consideration payable to the customer.
Considerations for transactions are received mainly within one year from the satisfaction of the performanceobligations and includes no significant financing components.
The tobacco excise taxes and other transactions in which the Group is involved as an agent are excluded fromrevenue. The inflow of economic benefits after deducting the tobacco excise taxes and other transactions ispresented as “Revenue” in the consolidated statement of income.
B. Pharmaceutical BusinessPharmaceutical business mainly engages in the sale of prescription drugs and licensing.
The Group evaluates that the performance obligation is satisfied when the customer obtains control of the products
upon delivery and recognizes revenue upon delivery of the products. Revenue is measured at the consideration
promised in the contract with customers, less discounts, rebates and taxes, including consumption tax. In addition,
where the Group makes payments to the customer, except in the case when consideration payable to the customer isa payment for a distinct product or service from the customer, revenue is measured at the amount of consideration
promised with the customer, less consideration payable to the customer.
Revenue from licensing is generated by licensing out the rights to develop and market each compound to licensees
in the development stage, and the Group receives upfront income, milestone revenue and sales-based royalties.
Upfront income is recognized at the time the customer obtains control of the license. Milestone revenue isrecognized at the time the milestone agreed between the parties such as the progress of development is achieved.
Sales-based royalties are measured based on the Group’s licensees’ sales, and recognized by taking into
consideration the timing of occurrence.
Considerations for transactions are received mainly within one year from satisfying their performance obligations
and includes no significant financial component.
C. Processed Food Business
Processed Food business engages in the sale of frozen and ambient processed foods and seasonings.
The Group evaluates that the performance obligation is satisfied when the customer obtains control of the products
upon delivery and recognizes revenue upon delivery of the products. Revenue is measured at the consideration
promised in a contract with a customer, less discounts, rebates and taxes, including consumption tax. In addition,
where the Group makes payments to the customer, except in the case when consideration payable to the customer isa payment for a distinct product or service from the customer, revenue is measured at the amount of consideration
promised with the customer, less consideration payable to the customer.
Considerations for transactions are received mainly within one year from satisfying their performance obligations
and includes no significant financial component.
Transactions in which the Group is involved as an agent are excluded from revenue. The inflow of economic
benefits after deducting these transactions is presented as “Revenue” in the consolidated statement of income.
(2) Transaction Price Allocated to the Remaining Performance Obligations
The Group uses the practical expedient and does not disclose information on the remaining performance obligations
because it has no significant transactions with initial expected contractual terms exceeding one year. There are no
significant amounts of considerations from contracts with customers that are not included in transaction prices.

- 181 -

26. Other Operating Income
The breakdown of “Other operating income” for each year is as follows:(Millions of yen)
2022
Gain on sale of property, plant and equipment,
intangible assets and investment property (Note)
Other (Note)
Total

2023
8,905

18,952

11,357

11,076

20,26230,027(Note) The amount of restructuring incomes included in each account is as follows:(Millions of yen)
2022
Gain on sale of property, plant and equipment,

2023
2,737

intangible assets and investment property
Other
Total

- 182 -

17,808

39

398

2,776

18,207

27. Selling, General and Administrative Expenses
The breakdown of “Selling, general and administrative expenses” for each year is as follows:(Millions of yen)
2022

2023

Advertising expenses

28,90539,291

Promotion expenses
Commission (Note 2)

125,220
79,248140,863
79,315

Employee benefit expenses (Note 2)
Research and development expenses (Note 1)

338,673
70,808365,408
75,098Depreciation and amortization (Note 2)
Impairment losses on other than

114,258

104,887

27,53913,710

7,362

4,344

149,526

158,135

941,538

981,052

financial assets (Note 2)
Losses on sale and disposal of property, plant andequipment, intangible assets and investment property(Note 2)Other (Note 2)
Total(Note 1) All research and development expenses are included in “Selling, general and administrative expenses.”(Note 2) The amount of restructuring costs included in each account is as follows:(Millions of yen)
2022

2023

Employee benefit expenses

(465)

640

Impairment losses on other than financial assets

4,808

137

4,914

1,017

1,843

2,984

11,0994,777

Losses on sale and disposal of property, plant andequipment, intangible assets and investment property
Other
Total

- 183 -

28. Financial Income and Financial Costs
The breakdown of “Financial income” and “Financial costs” for each year is as follows:(Millions of yen)
Financial Income

2022

2023

Dividend income
Financial assets measured at fair value
through other comprehensive income

1,519

833

25,016

41,983

Interest income
Financial assets measured at amortized
cost
Deposits and bonds
Other
Total

4,612

1,597

31,14744,414(Millions of yen)

Financial Costs

2022

2023

Interest expenses
Financial liabilities measured at amortized
cost
Bonds and borrowings

25,63026,762

Other
Foreign exchange losses (Note 1)

1,390
35,0791,731
51,885

Employee benefit expenses (Note 2)
Loss on net monetary position

3,216
16,626

5,201
6,485

Other

9,331

3,158

91,272

95,222

Total(Note 1) Valuation gain (loss) of currency derivatives is included in foreign exchange losses.
(Note 2) The employee benefit expenses are the net amount of interest cost and interest income related to employee benefits.

- 184 -

29. Other Comprehensive Income
Amount arising during the year, reclassification adjustments to profit or loss and tax effects for each component of “Other
comprehensive income” for each year are as follows:Year ended December 31, 2022
(Millions of yen)Amount arising

Reclassification
adjustments

Before tax
effects

2,502

－

2,502

(761)

1,741

65,149－65,149(15,405)

49,74467,651－

67,651(16,166)

51,485492,213(112)

492,101

1,885

493,986

8,909

2,172

11,081(2,496)8,584

501,1222,060

503,182(612)

502,570

568,773

2,060

570,833(16,778)

554,055

Tax effects

Net of tax
effects

Items that will not bereclassified to profit or loss
Net gain (loss) on revaluationof financial assets measured
at fair value through othercomprehensive income
Remeasurements of defined
benefit plans
Total of items that will not
be reclassified to profit orloss
Items that may be reclassified
subsequently to profit or loss
Exchange differences ontranslation of foreign
operations
Net gain (loss) on derivatives
designated as cash flow
hedgesTotal of items that may bereclassified subsequently to
profit or loss
Total

- 185 -

Year ended December 31, 2023
(Millions of yen)Amount arising

Reclassification
adjustments

Before tax
effects

Net of tax
effects

3,598

－

3,598

(1,184)

2,414(17,466)－(17,466)

3,929(13,538)(13,868)－(13,868)

2,745(11,123)

183,272456

183,728

5,571

189,299

4,419

1,219

5,638

(888)

4,749

(20)

－

(20)

3

(17)

187,671

1,674

189,345

4,685

194,031

173,803

1,674

175,477

7,430

182,908

Tax effects

Items that will not bereclassified to profit or loss
Net gain (loss) on revaluationof financial assets measured
at fair value through othercomprehensive income
Remeasurements of defined
benefit plans
Total of items that will not
be reclassified to profit orloss
Items that may be reclassified
subsequently to profit or loss
Exchange differences ontranslation of foreign
operations
Net gain (loss) on derivatives
designated as cash flow
hedgesHedge Costs
Total of items that may bereclassified subsequently to
profit or loss
Total

- 186 -

30. Earnings per Share(1) Basis of Calculating Basic Earnings per Share
A. Profit Attributable to Ordinary Shareholders of the Parent Company(Millions of yen)
2022
Profit for the period attributable to owners of the parent
company
Profit not attributable to ordinary shareholders of the parent
company
Profit for the period used for calculation of basic earnings
per share

2023
442,716

482,288－－442,716

482,288

B. Weighted-average Number of Ordinary Shares Outstanding During the Period(Thousands of shares)
2022
Weighted-average number of shares during the period

2023
1,774,749

1,775,142(2) Basis of Calculating Diluted Earnings per Share
A. Profit Attributable to Diluted Ordinary Shareholders(Millions of yen)
2022
Profit for the period used for calculation of basic earnings
per share
Adjustment
Profit for the period used for calculation of diluted earnings
per share

2023
442,716

482,288－－442,716

482,288

B. Weighted-average Number of Diluted Ordinary Shares Outstanding During the Period(Thousands of shares)
2022

2023

Weighted-average number of ordinary shares during theperiod

1,774,749

1,775,142

Increased number of ordinary shares under subscription
rights to shares

633

415

1,775,383

1,775,557

Weighted-average number of diluted ordinary shares during
the period- 187 -

31. Reconciliation of Liabilities Arising from Financing Activities
Reconciliation of liabilities arising from financing activities for each year is as follows:Year ended December 31, 2022
(Millions of yen)
Non-cash changes
As ofJanuary 1,
2022

Short-term borrowings and commercial paper
Long-term borrowings(Note)
Bonds (Note)
Lease liabilities
Derivatives
Total

Cash
flows

Foreignexchange
movement

Fair valuechangesOther

20,707－(41,327)

1,487－

39,175(21,009)12,281

46,043
2,865(589)

979,158(38,490)

70,51370,636(27,610)

196,970
651,016
60,536

As ofDecember 31,
2022－

63,733－

119

157,249－－(11,692)

1,095
17,936

737,329
60,328－－(11,692)

19,1501,018,639

Year ended December 31, 2023
(Millions of yen)
Non-cash changes
As ofJanuary 1,
2023

Short-term borrowings and commercial paper
Long-term borrowings(Note)
Bonds (Note)
Lease liabilities
Total

Cash
flows

Foreignexchange
movement

Fair valuechanges

As ofDecember 31,
2023

Other

63,733143,042

2,193

－

－

208,968

157,249(12,019)

1,909

－

250

147,390

737,329
60,328(8,399)(23,613)56,911
3,897

－
－

60
18,980785,90159,591

1,018,639

99,01164,911－

19,2901,201,850(Note) Current portion is included.

- 188 -

32. Share-based Payments(1) Share Option
The Company adopt share option plans. Share options are granted by the resolutions of the Board of Directors basedon the approvals at the Annual Shareholders’ Meeting.
The outline of the share option plan of the Company is as follows. Due to the introduction of the restricted stock
remuneration plan and the performance share unit plan, share option plans are abolished except for share options
already allotted and new share options will not be issued after 2020.
A. Share Option Contract Conditions of the Company
Positions of persons granted: Directors and Executive Officers
Settlement
Effective period of granted share option: Issuance of shares: 30 years after the date of grantVesting conditions: NoneConditions related to the exercise of share options are as follows:(i) The subscription rights to shares become exercisable when a holder of a subscription right to shares no longer
holds a position as a director, an audit & supervisory board member or an executive officer. In the subscription
rights to shares allocation contract with holders of such rights, it is provided for the rights that become exercisablefrom the date following the date on which they no longer hold their positions.
(ii) In the case where any holders of subscription rights to shares waive such rights, they cannot exercise them.
B. Changes in the Number of Share Options of the Company(Shares)
2022

2023

Directors

Executive
Officers

361,000

369,400－－

Balance
as of December 31
Exercisable balance
as of December 31

Balance
as of January 1
ExercisedTransferred

Directors

Executive
Officers

730,400

361,000

250,400

611,400(119,000)(119,000)－－(149,200)(260,000)
149,200(260,000)－

361,000

250,400

611,400

211,800

139,600

351,400－

31,60031,600－21,20021,200

Total

Total

－

(Note 1) The number of share options is presented as the number of underlying shares.
(Note 2) All share options are granted with an exercise price of ¥1 per share.
(Note 3) “Transferred” included in the “Changes in the Number of Share Options” represents the number of share options for persons
granted whose management position changed during the period.
(Note 4) The weighted-average share prices of share options at the time of exercise during the period were ¥2,202 and ¥2,815 for theyears ended December 31, 2022 and 2023, respectively.
(Note 5) The weighted-average remaining contract years of unexercised share options at the end of each period were 23.8 years and23.2 years for the years ended December 31, 2022 and 2023, respectively.

- 189 -

(2) Restricted Stock Remuneration
The Company has the restricted stock remuneration plan, which delivers the Company's ordinary shares which are
subject to a certain transfer restriction period, to Directors also serving as Executive Officers and Executive Officersof the Company (hereinafter referred to as “Eligible Directors and Executive Officers”). The plan aims to further
strengthen the initiatives to enhance the corporate value over the mid to long-term and to further develop the sharedvalue with shareholders.
The Company enters into the restricted stocks allotment agreement with the Eligible Directors and Executive Officers
and the Company’s ordinary shares shall be delivered if the Eligible Directors and Executive Officers, who continue
to serve for a stipulated period, pay all of the monetary compensation claims provided by the Company by the methodof contribution in kind. The transfer restriction period is 30 years from the grant date. With regard to the allotted
restricted stocks (hereinafter referred to as “Allotted Shares”) the restricted stock allotment agreement states that each
Eligible Directors and Executive Officers is prohibited to transfer Allotted Shares to a third party, pledge them,mortgage them, or use any arrangement to dispose them, and that the Company can acquire Allotted Shares without
any compensation on certain conditions and so on. In case any Eligible Directors and Executive Officers who receive
allotment retire due to expiration of the term or resign due to reasons deemed reasonable by the Company’s Board of
Directors, from a position as Member of the Board or any other positions separately specified by the Company’s
Board of Directors even during the transfer restriction period, the transfer restrictions shall be removed on all Allotted
Shares held by him/her.
Details of Restricted Stock Remuneration
2022
Grant date2023
May 24, 2022

July 12, 2023

Directors：

88,600

Directors：

85,200Executive Officers：

121,600

Executive Officers：

72,500

Number of allotted shares
Fair value at the grant dateCalculation methodology of fair value¥2,187
Calculated based on the closing price¥3,201
Calculated based on the closing priceof the Company's ordinary share at theTokyo Stock Exchange as of theof the Company's ordinary share at theTokyo Stock Exchange as of theprevious business day of the resolutionof the share allotment by the Board ofprevious business day of the resolutionof the share allotment by the Board of

Directors

Directors- 190 -

(3) Performance Share Unit Remuneration
The Company has the performance share unit remuneration plan, which varies the number of allotted sharesdepending on the degree of the achievement of predetermined performance target, for Directors also serving as
Executive Officers and Executive Officers of the Company (hereinafter referred to as “Eligible Directors andExecutive Officers”). The plan aims to further strengthen the initiatives to enhance the corporate value over the mid tolong-term and to further develop the shared value with shareholders as with the restricted stock remuneration.
The Eligible Directors and Executive Officers shall be paid monetary compensation claims and monies for thedelivery of the Company’s ordinary shares in accordance with the rate of achievement, etc. of numerical targets suchas performance during the performance evaluation period as determined through deliberations by the Advisory Panelon Nomination and Compensation of the Company after the performance evaluation period of 3 consecutive fiscal
years on the condition that they continue to serve as Directors, etc. of the Company for a stipulated period. They shallreceive the delivery of the Company’s ordinary shares by paying all of such monetary compensation claims by themethod of contribution in kind. The number of allotted shares and the amount of cash to be paid are calculated bymultiplying basic number of share units determined in accordance with duties of each Eligible Directors andExecutive Officers by the payment ratio calculated based on the rate of achievement, etc. of numerical targets such as
performance during the performance evaluation period in the range of 0% - 200%.
The fair value in the plan is estimated based on the market price of the Company’s share, which is not revised inconsideration of the estimated dividend. The weighted average fair value at the reporting date for the year ended
December 31, 2022 is ¥2,661 and for the year ended December 31, 2023 is ¥3,645.
Details of Performance Share Unit Remuneration
2022

2023
－

Grant dateJuly 12, 2023

Directors：－

Directors：

19,208

Executive Officers：－

Executive Officers：

17,811

Number of allotted shares－

Fair value at the grant date

¥3,201
Calculated based on the closing priceof the Company's ordinary share at the－

Calculation methodology of fair value

Tokyo Stock Exchange as of theprevious business day of the resolutionof the share allotment by the Board of
Directors(4) Share-based Payment Expenses
The costs included in “Selling, general and administrative expenses” in the consolidated statement of income are as
follows.
(Millions of yen)2022
Restricted stock remuneration (equity-settled)
Performance share unit remuneration (cashsettled)

2023
460

505

385

355

(5) Liabilities Arising from Share-based Payment
The liabilities arising from Share-based Payment in the consolidated statement of financial position as of December 31
are as follows.
(Millions of yen)
2022
Carrying amounts of liability

2023
932

- 191 -

802

33. Financial Instruments(1) Capital Management
Based on the “4S model” and JT Group Purpose, our resource allocation policy is prioritizing business investments forsustainable profit growth in the mid to long term as well as striking a balance between profit growth through business
investments and shareholder returns. On the other hand, the Group maintains a solid financial base that securesstability in case of changes in business environment such as economic crises and flexibility enabling expeditious
responses to business investment opportunities.
The Group manages net interest-bearing debt, where cash and cash equivalents are deducted from interest-bearing
debt, and capital (the part attributable to the owners of the parent company). The amounts as of December 31 are as
follows:(Millions of yen)
2022

2023

Interest-bearing debt (Note)
Cash and cash equivalents

958,311(866,885)

1,142,259(1,040,206)

Net interest-bearing debt

91,425102,053

3,540,435

3,830,156

Capital (equity attributable to owners of theparent company)(Note) Lease liabilities are excluded.

The specific rules for shares of the Company under the Japan Tobacco Inc. Act are as follows:
The Japanese government shall hold more than one-third of all of the shares issued by the Company (excluding thetype of shares, for which it is stipulated that voting rights may not be exercised on any matters that can be resolved by
the Annual Shareholders’ Meeting) (Article 2 (1)).
In cases where the Company intends to solicit persons to subscribe for shares to be issued or subscription rights toshares or where the Company intends to deliver shares (excluding treasury shares), subscription rights to shares(excluding its own subscription rights to shares) or bonds with subscription rights to shares (excluding its own bonds
with subscription rights to shares) when exchanging with shares, the Company shall obtain the approval of the
Minister of Finance (Article 2 (2)).
Disposal of shares owned by the Japanese government shall be within the limits on the number of shares decided by
the Diet in the relevant annual budget (Article 3).
The Group monitors financial indicators in order to maintain a well-balanced capital structure that ensures anappropriate return on equity and a stable and flexible financial condition for future investment. We monitor credit
ratings for financial stability and flexibility, and ROE (return on equity) for profitability, while focusing on changes inthe domestic and overseas environments.
(2) Financial Risk Management
The Group is exposed to financial risks (credit risk, liquidity risk, foreign exchange risk, interest rate risk, and market
price fluctuation risk) in the process of its management activities and it manages risks based on a specific policy inorder to avoid or reduce said risks. The results of risk management are regularly reported by the Department having
jurisdiction over financial operations to the president and the Board of Directors of the Company.
The Group policy limits derivatives to transactions for the purpose of mitigating risks from transactions based on
actual demand. Therefore, the Group does not transact derivatives for speculation purposes or trading purposes.

- 192 -

(3) Credit Risk
Receivables, such as notes and accounts receivable, acquired from the operating activities of the Group are exposed tocustomer credit risk.
The Group holds mainly debt securities for surplus investment and equity securities of customers and suppliers tostrengthen relationships with them; those securities are exposed to the issuer’s credit risk.
In addition, through derivative transactions that the Group conducts in order to hedge foreign exchange fluctuation
risks and interest rate fluctuation risks, the Group is exposed to the credit risk of the financial institutions which arecounterparties to these transactions.
In principle, the Group sets credit lines or transaction conditions with respect to trade receivables for counterparties
based on the Credit Management Guidelines in order to control the credit risk relating to counterparties. In addition,
the receivable balances of counterparties with high credit risk are monitored. The Department having jurisdiction overfinancial operations of the Company regularly monitors the status of the occurrence and collection of bad debts andreports them to the president and the Board of Directors of the Company.
With regard to the investment of cash surpluses and derivatives, the Group invests in debt securities and otherfinancial instruments with a certain credit rating and transacts with financial institutions with a high credit rating inprinciple in order to prevent credit risks from occurring and based on the Group Financial Operation Basic Policy. In
addition, the Department having jurisdiction over financial operations of the Company regularly monitors theperformance of these transactions and reports the results to the president and the Board of Directors of the Company.
The maximum exposure pertaining to credit risks for financial assets is the carrying amount after considering
impairment in the consolidated financial statements.
There is no excessive concentration of the credit risks to certain counterparties.

- 193 -

The Group reviews collectability of trade receivables depending on the credit conditions of counterparties andrecognizes allowance for doubtful accounts. The schedule of the allowance for doubtful accounts is as follows.
(Millions of yen)
Other financial assets

Trade receivables

Measured at an
amount equal to
the 12-month
expected
credit losses

Measured at an amount equal to thefull lifetime expectedcredit losses
Non-creditimpaired
financial assets

Credit-impaired
financial assets

Total

As of January 1, 2022
Addition

1,306
1,887

－
－

91
9

6,283
13

7,680
1,909

Decrease (intended use)
Decrease (reversal)

(286)
(382)

－
－

－
(9)

(346)
(29)

(632)
(420)

8

－

－

231

239

As of December 31, 2022
Addition

2,533
2,471

－
－

90
1

6,153
28

8,776
2,500

Decrease (intended use)
Decrease (reversal)(246)(1,009)

－
－

－
(1)

(20)
(36)

(266)
(1,046)

156

－

－

215

371

3,905

－

91

6,339

10,335

Other

Other
As of December 31, 2023

(Note) There is no significant change in the carrying amounts of financial assets which affects the change in the allowance for
doubtful accounts.

- 194 -

(4) Liquidity Risk
The Group raises funds by borrowings, commercial paper and bonds; however, these liabilities are exposed to theliquidity risk that we would not be able to repay liabilities on the due date due to the deterioration of the financing
environment.
In accordance with the Group Financial Operation Basic Policy, the Group establishes a finance plan based on theannual business plan and the Department having jurisdiction over financial operations of the Company regularly
monitors and collects information on the balance of liquidity-in-hand and interest-bearing debt and reports it to thepresident and the Board of Directors of the Company. In order to manage liquidity risk, the Group keeps necessary
credit facilities by having commitment lines with several financial institutions, and conducts securitization ofreceivables.
The financial liability balance (including derivative financial instruments) by maturity as of December 31 is asfollows:
As of December 31, 2022
(Millions of yen)
Carrying
amountNon-derivative financial
liabilities
Trade and other payables
Short-term borrowings

540,089
63,733Current portion of
long-term borrowings
Long-term borrowings
Current portion of bonds
Bonds
Lease liabilities
Subtotal
Derivative financial liabilities
Foreign exchange forward contract

Due within
one year

Due after
two years
throughthree years

Due after
three years
throughfour years

Due after
four years
throughfive years

Due after
five years

－
－

－
－

－
－

13,575

－

－

－

－

－

－
60,00023,94858

60

20,063100,043－
20,321－－
14,646－
102,813
7,630

－
－
4,286

－
－
3,164

－
584,924
20,9591,580,314

697,718

38,594

110,501

4,347

23,227705,926

20,99020,99019,812

973

204

－

－

－

20,99020,99019,812

973

204

－

－

－

1,579,719

1,601,304

717,531

39,568110,705

4,347

23,227705,926

540,089
63,733

540,089
63,733

13,575

13,575

143,674
60,000677,329
60,328144,173
60,000687,737
71,007

1,558,728

Subtotal
Total

Contractual
cash flow

Due after
one yearthrough
two years

－
－

－
－

As of December 31, 2023
(Millions of yen)
Carrying
amountNon-derivative financial
liabilities
Trade and other payables
Short-term borrowings
Current portion of
long-term borrowings
Long-term borrowings
Current portion of bonds
Bonds

Due after
three years
throughfour years

Due after
four years
throughfive years

Due after
five years

592,802
208,968

592,802
208,968

592,802
208,968

－
－

－
－

－
－

－
－

－
－

24,36524,36524,365

－

－

－

－

－

123,025

123,274

2,817

158

20,160140

100,000－
785,901－
795,539－
111,096

－
－
5,193

－
99,958－584,485

59,591

71,705

13,356

－
－
7,869

4,115

19,3691,794,652

1,816,653

847,937

127,269

8,027

25,353

104,212703,855

25,07625,07623,031

2,044

－

－

－

－

25,07625,07623,031

2,044

－

－

－

－

1,819,728

1,841,729

870,968

129,313

8,027

25,353

104,212703,855

Foreign exchange forward contract
Subtotal
Total

Due within
one year

Due after
two years
throughthree years－－－
21,802

Lease liabilities
Subtotal
Derivative financial liabilities

Contractual
cash flow

Due after
one yearthrough
two years

The total of commitment lines and withdrawal as of December 31 are as follows:(Millions of yen)
2022

2023

Total committed line of credit
Withdrawing

529,964－

567,655
135,000

Unused balance

529,964

432,655- 195 -

(5) Foreign Exchange Risk
The Group operates businesses globally and, therefore, is exposed to the following risks due to foreign exchange
fluctuation:(i) The risk where the profit or loss and cash flow in each functional currency of the Group is influenced by foreignexchange fluctuation as a result of external transactions and intergroup transactions, including the payment andreceipt of dividends, in currencies that are different from each functional currency of the Group.
(ii) The risk that the equity of the Group is influenced by foreign exchange fluctuation when equity denominated ineach functional currency of the Group is translated into Japanese yen and consolidated.
(iii) The risk that the profit or loss of the Group is influenced by foreign exchange fluctuation when profit or loss
denominated in each functional currency of the Group is translated into Japanese yen and consolidated.
The Group hedges against risk (i) using derivatives or foreign currency-denominated interest-bearing debts forexample, when future cash flow is projected or when receivables and payables are fixed, and some of them aredesignated as cash flow hedges. The Group hedges against risk (ii) using foreign currency-denominated interestbearing debts for example, and part of these are designated as net investment hedges. The Group does not hedge
against risk (iii) in principle.
In order to mitigate risks mentioned above resulting from the foreign exchange fluctuation, in accordance with theGroup Financial Operation Basic Policy and under the supervision of the Treasury Committee of the Company, theGroup establishes and implements a foreign currency hedge policy taking into consideration the impact on theGroup’s performance and the current conditions of the foreign exchange market in a comprehensive manner. The
Department having jurisdiction over financial operations of the Company regularly reports the performances to thepresident and the Board of Directors of the Company.
Foreign Exchange Sensitivity Analysis
In cases where each currency other than the functional currency that denominates the financial instruments held by theGroup as of each year end increases by 10% in value against the functional currency, the impact on profit before
income taxes in the consolidated statement of income is as follows:
The impact from the translation of functional currency-denominated financial instruments, and assets, liabilities,
income and expenses of foreign operations into Japanese yen is not included. Also, it is based on the assumption thatcurrencies other than the currencies used for the calculation do not fluctuate.
(Millions of yen)
2022
Profit before income taxes

2023(8,715)- 196 -

(4,836)

(6) Interest Rate Risk
Interest rate risk within the Group arises from interest-bearing debts after deducting cash equivalents. Borrowings andbonds with floating rates are exposed to interest rate fluctuation risk.
In order to reduce the interest rate fluctuation risk related to borrowings and bonds, in accordance with the Group
Financial Operation Basic Policy and under the supervision of the Treasury Committee of the Company, the Groupestablishes and implements an interest rate hedging policy taking into consideration the impact on the Group’s
performance and the current condition of the interest rates in a comprehensive manner. The Department having
jurisdiction over financial operations of the Company reports the performances to the president and the Board of
Directors of the Company.
Although the Group implements interest rate hedges with high effectiveness, as stated in “3. Material Accounting
Policy Information,” with respect to the interest rate hedges against the reference yield of the bonds issued previous
fiscal year, hedge ineffectiveness occurred as a result of a change in the originally assumed maturity of the bonds after
taking the market conditions into consideration at the actual issuance.

Interest Rate Sensitivity Analysis
In cases where the interest rate of financial instruments held by the Group as of each year end increases by 100bp, theimpact on profit before income taxes in the consolidated statement of income is as follows:
The analysis is subject to financial instruments affected by interest rate fluctuation and based on the assumption that
other factors, including the impacts of foreign exchange fluctuation, are constant.
(Millions of yen)
2022
Profit before income taxes

2023
4,875

- 197 -

3,092

(7) Hedging Transactions
The Group’s policy for hedging transactions is stated in “3. Material Accounting Policy Information.”
A. Cash Flow Hedges
The details of hedging instruments designated as cash flow hedges are as follows:
As of December 31, 2022
Contract
amountCarrying amount (Note)(Millions of yen)Over one year

AssetsForeign exchange risk
Foreign exchange forward
contract
JPY / USD
EUR / USD
GBP / USD
USD / CHF
USD / PLN
EUR / PLN

USD
USD
USD
CHF
PLN
PLN

132 mil.
837 mil.
379 mil.
528 mil.
1,798 mil.
682 mil.

CHF

－
－
－
97 mil.

Liabilities

356
1,335
1,463
2,630
2,736

－
－

Average rate,
etc.

672
2,948
594
117
179
675

－

¥
€
£
$
$
€

125.96
0.95
0.81
1.07
0.21
0.20

As of December 31, 2023
Contract
amountCarrying amount (Note)(Millions of yen)Over one year

AssetsForeign exchange risk
Foreign exchange forward
contract
JPY / USD
EUR / USD
GBP / USD
USD / CHF
USD / PLN
EUR / PLN

USD
USD
USD
CHF
PLN
PLN

113 mil.
929 mil.
354 mil.
337 mil.
1,593 mil.
597 mil.

CHF

－
－
－
28 mil.
－－Average rate,etc.

Liabilities

175
1,070
100
3,756
3,330
15

518
1,508
1,008
－
76
1,132

¥
€
£
$
$
€

134.55
0.91
0.80
1.13
0.24
0.22

(Note) Carrying amounts of derivatives are presented as “Other financial assets” or “Other financial liabilities” in the consolidated
statement of financial position, and the portion with over one year maturity is classified as “Non-current assets” or “Noncurrent liabilities.”- 198 -

The schedule of net gains (losses) on hedging instruments designated as cash flow hedges is as follows:(Millions of yen)
Effective portion of changes
in the fair value of cash flow hedges
Foreign exchange risk
(Note 1)

Interest rate risk

Total

(274)

－

(274)

1,528
2,301

7,381
(129)

8,909
2,172

Tax effects
Basis adjustments (Note 2)

(560)
236

(1,936)－(2,496)236

As of December 31, 2022

3,231

5,316

8,546

Other comprehensive income
Amount arising (Note 1)

4,058

361

4,419

1,987
(1,087)

(769)
198

1,219
(888)

Basis adjustments (Note 2)(4,150)－(4,150)

As of December 31, 2023

4,039

5,106

9,145

As of January 1, 2022
Other comprehensive income
Amount arising (Note 1)
Reclassification adjustments (Note 1)

Reclassification adjustments (Note 1)
Tax effects(Note 1) Regarding foreign exchange risk, the change in value of the hedged item used as the basis for recognizing hedge
ineffectiveness approximates the change in fair value of the hedging instrument, and the amount, which is reclassified when thehedged item affects profit or loss, is recognized in “Revenue,” “Selling, general and administrative expenses,” “Financial
income” or “Financial costs” in the consolidated statement of income. The amount of hedge ineffectiveness is immaterial.
(Note 2) Because of the increase in quantitative significance, the figures are presented separately from the current fiscal year.
The effect of hedging instruments on consolidated statements of profit or loss and comprehensive income is as follows:Year ended December 31, 2022
(Millions of yen)Interest rate risk

Gains or losses
on hedges
recognized inothercomprehensive
income7,381

Hedge
ineffectivenessrecognized in
profit or loss

Line item in the
consolidated
statement ofincome that
includes hedge
ineffectivenessrecognized in
profit or loss

Amountreclassified fromcash flow hedge
reserve to profit
or loss

Line item in the
consolidated
statement ofincome that
includes profit orloss due toreclassification
adjustment

4,553

Financial income(129)

Financial costs

Year ended December 31, 2023
(Millions of yen)Interest rate risk

Gains or losses
on hedges
recognized inothercomprehensive
income361

Hedge
ineffectivenessrecognized in
profit or loss

Line item in the
consolidated
statement ofincome that
includes hedge
ineffectivenessrecognized in
profit or loss

Amountreclassified fromcash flow hedge
reserve to profit
or loss

Line item in the
consolidated
statement ofincome that
includes profit orloss due toreclassification
adjustment

－

－

(769)

Financial costs- 199 -

The changes in fair value of the hedging instrument and in value of the hedged item used as the basis for recognizing hedge
ineffectiveness are as follows:Year ended December 31, 2022

Interest rate risk

The change in fair value ofthe hedging instrument
11,934(Millions of yen)
The change in value ofthe hedged item
(7,381)

Year ended December 31, 2023
The change in fair value ofthe hedging instrument－

Interest rate risk

- 200 -

(Millions of yen)
The change in value ofthe hedged item－B. Hedge of Net Investment in Foreign Operations
The details of hedging instruments designated as hedge of net investment are mainly as follows:
As of December 31, 2022
Contract amount

Carrying amount (Note)(Millions of yen)Over one year

AssetsBonds in EUR
Bonds in GBP
Foreign exchange forward
contract
EUR / USD

EUR
GBP

1,327 mil.
400 mil.

USD

306 mil.

EUR
GBP

Average rate,etc.

Liabilities

1,327 mil.
400 mil.

－－

186,40862,624

$
$

1.16
1.32

－

－

824

€

0.95

As of December 31, 2023
Contract amount

Carrying amount (Note)(Millions of yen)Over one year

AssetsBonds in EUR
Bonds in GBP
Foreign exchange forward
contract
JPY / USD
USD / RON

Average rate,etc.

Liabilities

EUR
GBP

1,331 mil.
400 mil.

EUR
GBP

1,331 mil.
400 mil.

－－

206,71170,686

$
$

1.16
1.32

USD
RON

2,220 mil.
675 mil.

USD

570 mil.

4,554
110

12,521¥$132.780.22－－(Note) Carrying amounts of bonds are presented as “Bonds and borrowings” in the consolidated statement of financial position, andthe portion with over one year maturity is classified as “Non-current liabilities.” Carrying amounts of derivatives are presented
as “Other financial assets” or “Other financial liabilities” in the consolidated statement of financial position, and the portion
with over one year maturity is classified as “Non-current assets” or “Non-current liabilities.”
The schedule of net gains (losses) on hedging instrument designated as hedge of net investment in foreign
operations is as follows:(Millions of yen)
2022

2023

As of January 1

7,481

6,809

Other comprehensive income
Amount arising (Note 1)(2,557)(28,822)

Tax effects
As of December 31 (Note 2)

1,885

5,571

6,809

(16,442)(Note 1) The change in value of the hedged item used as the basis for recognizing hedge ineffectiveness approximates the change infair value of the hedging instrument.
(Note 2) Net loss arising from the hedging instruments for which hedge accounting is discontinued were ¥7,396 million and ¥18,498
million as of December 31, 2022 and 2023, respectively, which are included in the exchange differences on translation offoreign operations.

- 201 -

(8) Market Price Fluctuation Risk
With respect to securities, the Group regularly assesses the fair value and financial conditions of the issuers, and eachrelevant department reviews the portfolio held by taking into account the relationship with counterparty entities asnecessary.
(9) Fair Value of Financial Instruments
The fair value hierarchy of financial instruments is categorized from Level 1 to Level 3 as follows:
Level 1: Fair value measured at the quoted price in the active market
Level 2: Fair value that is calculated using the observable price other than categorized in Level 1 directly or indirectly
Level 3: Fair value that is calculated based on valuation techniques which include inputs that are not based on
observable market data
A. Financial Instruments Measured at Amortized Cost
The carrying amount and fair value hierarchy of financial instruments measured at amortized cost as of December
31 are as follows:
As of December 31, 2022
(Millions of yen)
Fair value
Carrying
amountLong-term borrowings (Note)
Bonds (Note)

157,249
737,329

Level 1－
645,061

Level 2

Level 3

Total－－

156,294－

156,294
645,061

As of December 31, 2023
(Millions of yen)
Fair value
Carrying
amountLong-term borrowings (Note)

147,390

Bonds

785,901

Level 1－
732,331

Level 2

Level 3

Total

147,627－

147,627－－

732,331(Note) Current portion is included.
With regard to short-term financial assets and short-term financial liabilities measured at amortized cost, their fairvalue approximates the carrying amount.
The fair value of long-term borrowings is calculated based on the present value which is obtained by discounting
the total of the principal and interest by the interest rate assumed in a case where the same loan is newly made.

- 202 -

B. Financial Instruments Measured at Fair Value
The fair value hierarchy of financial instruments measured at fair value as of December 31 is as follows:
As of December 31, 2022
(Millions of yen)
Level 1
Derivative assets
Equity securities
Notes and accounts
receivable (Note 1)
Other
Total
Derivative liabilities
Total

Level 2

Level 3 (Note 2)

Total

－
21,551

24,285－
9,786

24,285

－

－

1,703

－

1,703

579

5,018

12,522

18,11922,13031,00622,30875,444－20,990－20,990－20,990－20,99031,337

As of December 31, 2023
(Millions of yen)
Level 1
Derivative assets
Equity securities
Notes and accounts
receivable (Note 1)
Other
Total
Derivative liabilities
Total

Level 2

Level 3 (Note 2)－
22,69619,187－

Total
19,187－－
11,585

5,307

－

5,307

34,281

686

4,799

14,976

20,461

23,382

29,293

26,56079,236－25,076－25,076－25,076－25,076(Note 1) Because of the increase in quantitative significance, the figures are presented separately from the current fiscal year. Thischange in method of presentation, resulted in a reclassification from Level 2 “Other” in the previous fiscal year.
(Note 2) The schedule of financial instruments that are classified in Level 3 is as follows:(Millions of yen)2022
As of January 1
Total gain (loss)
Profit or loss (Note 1)
Other comprehensive income (Note 2)
Purchases
Sales
Other
As of December 31

2023
15,52922,308

146

(405)

887
4,945

(575)
4,807

(50)
851

(320)
745

22,30826,560(Note 1) Gains and losses included in profit or loss for the years ended December 31, 2022 and 2023 are related to financial assets
measured at fair value through profit or loss as of the year end. These gains and losses are included in “Financial income” and“Financial costs.”(Note 2) Gains and losses included in other comprehensive income for the years ended December 31, 2022 and 2023 are related tofinancial assets measured at fair value through other comprehensive income as of the year end. These gains and losses areincluded in “Net gain (loss) on revaluation of financial assets measured at fair value through other comprehensive income.”- 203 -

34. Related Parties
Based on the Japan Tobacco Inc. Act, the Japanese government shall hold more than one-third of all of the shares issued
by the Company (excluding the type of shares, for which it is stipulated that voting rights may not be exercised on any
matters that can be resolved by Annual Shareholders’ Meeting). As of December 31, 2023, the Japanese government held
33.35% of all outstanding shares of the Company.
(1) Related-party Transactions
Related-party transactions are conducted under the same conditions as regular business transactions.
The Group’s revenue from CJSC TK Megapolis, the local Russian distribution affiliate, was ¥347,288 million and¥321,006 million for the years ended December 31, 2022 and 2023, respectively. The Group held trade receivables of¥61,442 million and ¥65,002 million from CJSC TK Megapolis as of December 31, 2022 and 2023, respectively.
(2) Remuneration for Directors and Audit and Supervisory Board Members
Remuneration for directors and audit and supervisory board members for each year is as follows:(Millions of yen)
2022

2023

Remuneration and bonuses
Share-based payments

1,232
374

1,132
475

Total

1,606

1,607

35. Subsidiaries, Associates and Others(The composition of the Group)
The composition of the Group by reportable segment as of December 31 is as follows:
2022

Reportable Segments

2023
Number of entities
accounted for using
the equity method(Note)

Number ofsubsidiaries

Number of entities
accounted for using
the equity method(Note)

Number ofsubsidiaries

Tobacco

177

10

174

14

Pharmaceuticals
Processed Food

2
23

－
2

2
22

－
2

Other
Total

21

2

23

2

223

14

221

18

(Note) No associates or joint ventures are considered to be material to the Group.
There is no significant change in the composition of the Group for the year ended December 31, 2023.
Regarding the restrictions on the ability to use the assets of the Group, please refer to “7. Cash and Cash Equivalents.”- 204 -

36. Commitments(1) Commitments for the Acquisition of Assets
Commitments for the acquisition of assets as of December 31 are as follows:(Millions of yen)
2022

2023

Acquisition of property, plant and equipment

36,93361,017

Acquisition of intangible assets

3,530

5,214

40,463

66,230Total(2) Procurement of Domestic Leaf Tobacco

With regard to the procurement of domestic leaf tobacco by the Company, based on the Tobacco Business Act, theCompany enters into purchase contracts with domestic leaf tobacco growers every year, and the contracts determine
the area under cultivation by type of tobacco and the prices by type and quality of tobacco leaf. Under the contracts,
the Company is obligated to purchase all domestic leaf tobacco produced pursuant to such contracts, except for any
domestic leaf tobacco not suited for the manufacture of tobacco products.

- 205 -

37. Hyperinflationary Accounting Adjustments
As required by IAS 29, the Group’s consolidated financial statements include the financial statements of the subsidiaries
in the hyperinflationary economy, restated in terms of the measuring unit current at the end of the reporting period.
For the restatement of the financial statements of the subsidiaries in Sudan, Iran, Turkey and Ethiopia, the Group applies
the conversion coefficients derived from the Consumer Price Index of Sudan published by the Central Bank of Sudan,
from the Consumer Price Index of Iran published by the Statistical Center of Iran, from the Consumer Price Index ofTurkey published by the Turkish Statistical Institute and from the Consumer Price Index of Ethiopia published by theCentral Statistical Agency of Ethiopia. Major Consumer Price Indexes are described.
Consumer Price Index and corresponding conversion coefficients of Sudan are presented below.
As the Consumer Price Index has not been announced since March 2023, the Group applies the Consumer Price Index andconversion coefficients as of December 31, 2023 reasonably calculated based on the Consumer Price Index for February
2023 as the most recent data available, along with the consideration of the economic situation of Sudan.
End of reporting period
Consumer Price Index
Conversion coefficient
31 December 2011

182

60,740(omission)
31 December 2019

2,339

4,724

31 December 2020
31 December 2021

8,639
36,131

1,279
306

31 December 2022
31 December 2023

67,674
110,511163
100

Consumer Price Index and corresponding conversion coefficients of Iran are presented below.
End of reporting period

Consumer Price Index

Conversion coefficient

31 December 2015

93

845

(omission)
31 December 2019

194

407

31 December 2020
31 December 2021

281
379

281
208

31 December 2022
31 December 2023

563
789

140
100

Consumer Price Index and corresponding conversion coefficients of Turkey are presented below.
End of reporting period

Consumer Price Index

Conversion coefficient

31 December 2010
(omission)

182

1,022

31 December 201931 December 2020

441
505

422
368

31 December 2021
31 December 2022

687
1,128

271
165

31 December 2023

1,859

100

Consumer Price Index and corresponding conversion coefficients of Ethiopia are presented below.
End of reporting period
Consumer Price Index
Conversion coefficient
31 December 2017
(omission)

117

362

31 December 201931 December 2020

154
182

274
232

31 December 2021
31 December 2022

246
329

172
128

31 December 2023

422

100

- 206 -

The Company's subsidiaries in the hyperinflationary economy have restated their non-monetary items held at historicalcost, such as property, plant and equipment, by applying the conversion coefficients at the acquisition date. Monetary
items and non-monetary items held at current cost are not restated as they are considered to be expressed in terms of themeasuring unit current at the end of the reporting period.
For the purpose of consolidation, the financial statements of the Company's subsidiaries in the hyperinflationary economy
are translated using the spot exchange rates at the end of the reporting period.

- 207 -

38. Contingencies
Contingent Liabilities
The Company and some of its subsidiaries are defendants in legal proceedings. Provisions are not accounted for in matterswhere it is not practicable to reasonably estimate the final outcomes.
The Company and some of its subsidiaries, who are defendants in such legal proceedings, believe that our defenses
asserted in these proceedings are based on substantial evidence and implement the system for the response to action withthe assistance of external lawyers.
(1) Smoking/Vaping and Health Related Litigation
Some of the Company’s subsidiaries are defendants in lawsuits filed by plaintiffs seeking damages for harm allegedly
caused by smoking or vaping, the marketing of tobacco or E-Vapor products, or exposure to tobacco smoke. As of
December 31, 2023, there were a total of 21 smoking/vaping and health related cases pending in which some of theCompany’s subsidiaries were named as a defendant or for which the Company may have certain indemnity obligations
pursuant to the agreement such as for the Company’s acquisition of RJR Nabisco Inc.’s overseas (non-U.S.) tobacco
operations.
The major ongoing smoking/vaping and health related cases are as follows:
On March 8, 2019, JTI-Macdonald Corp. (hereinafter referred to as “JTI-Mac”), the Company’s Canadian subsidiary,
filed for protection from its creditors under the Companies’ Creditors Arrangement Act (CCAA). The Ontario
Superior Court has granted the CCAA application and extended protection in favor of JTI-Mac (hereinafter referred toas “CCAA Proceedings”). All of the below Canadian matters against JTI-Mac have been stayed by the CCAA
Proceedings, under which JTI-Mac carries on business in the ordinary course.
A. Individual Claim
There is one individual case brought against the Company’s indemnitee in South Africa.
South Africa Individual Claim (Joselowitz):
The individual claim was brought against the Company’s indemnitee in South Africa in October 2000. Plaintiff
seeks compensatory and punitive damages, alleging that the Company’s indemnitee marketed products which it
knew to be dangerous to health, manipulated nicotine content to foster addiction, failed to comply with South
African labeling requirements and participated in a clandestine worldwide operation to encourage children tosmoke. This case has been dormant since February 2001.
In addition, there is one individual case (which is currently dormant) brought against the Company’s subsidiary in
Ireland and one ongoing individual case (which has been stayed by the court order) brought against the Company’s
subsidiaries in the United States.
B. Class Actions
There are eight ongoing class actions in Canada against the Company’s subsidiary and/or indemnitees.
Canada Quebec Class Action (Cecilia Letourneau):This class action was brought in September 1998 against three Canadian tobacco manufacturers including JTI-Mac.
Plaintiffs were seeking a total of approximately ¥492.3 billion (approximately CAD 4.6 billion) in compensatory
damages, an amount for which all the defendants are jointly and severally liable, and a total amount ofapproximately ¥492.3 billion (approximately CAD 4.6 billion) in punitive damages, to be divided among all thedefendants based on their respective market shares.
The Quebec Superior Court published the first instance judgment in favor of the plaintiffs in June 2015. In June
2015, JTI-Mac and other tobacco manufacturers appealed the judgment to the Quebec Court of Appeal, and theappeal on the merits was heard and concluded in November 2016.

- 208 -

In March 2019, the Quebec Court of Appeal dismissed the appeal of defendants by substantively upholding the first
instance judgment and ordering a punitive damage award against the appellants of approximately ¥17.3 billion(approximately CAD 161 million), in which the share of the total damage award against JTI-Mac is approximately¥1.6 billion (approximately CAD 15 million). The time limit for seeking leave to appeal the decision to theSupreme Court of Canada is suspended during the CCAA Proceedings. Enforcement of the judgement is stayed by
the CCAA Proceedings.
Canada Quebec Class Action (Conseil Québécois sur le tabac et la santé):This class action was brought in November 1998 against three Canadian tobacco manufacturers including JTI-Mac.
Plaintiffs were seeking a total of approximately ¥1,333.8 billion (approximately CAD 12.4 billion) in compensatory
damages, an amount for which all the defendants are jointly and severally liable, and a total amount ofapproximately ¥87 billion (approximately CAD 0.8 billion) in punitive damages, to be divided among all thedefendants based on their respective market shares.
The Quebec Superior Court published the first instance judgment in favor of the plaintiffs in June 2015. In June
2015, JTI-Mac and other tobacco manufacturers appealed the judgment to the Quebec Court of Appeal, and theappeal on the merits was heard and concluded in November 2016.
In March 2019, the Quebec Court of Appeal dismissed the appeal of the defendants by substantively upholding thefirst instance judgment and ordering a compensatory damage award jointly and severally against the defendants ofapproximately ¥1,450.8 billion (approximately CAD 13.5 billion), in which the share of the total damage award
against JTI-Mac is approximately ¥188.6 billion (approximately CAD 1.8 billion), and a punitive damage award ofapproximately ¥4 million (approximately CAD 0.04 million) per defendants. The time limit for seeking leave toappeal the decision to the Supreme Court of Canada is suspended during the CCAA Proceedings. Enforcement of
the judgement is stayed by the CCAA Proceedings.
The Quebec Court of Appeal rendered one judgment for both class actions against the defendants and ordered themto make an initial deposit of approximately ¥124.5 billion (approximately CAD 1.2 billion), in which the share of
JTI-Mac is approximately ¥15.6 billion (approximately CAD 145 million). The obligation to pay the initial deposit
is stayed by the CCAA Proceedings.
Canada Saskatchewan Class Action (Adams):
This class action was brought against tobacco industry members including JTI-Mac and the Company’s
indemnitees in June 2009. Plaintiffs are seeking unspecified compensatory and punitive damages on behalf of classmembers who allege to be or have been addicted to nicotine contained in cigarettes manufactured by the
defendants. The preliminary motions are pending. The case was dormant and is currently stayed by the CCAA
Proceedings.
Canada Manitoba Class Action (Kunta):
This class action was brought against tobacco industry members including JTI-Mac and the Company’s
indemnitees in June 2009. Plaintiffs are seeking unspecified compensatory and punitive damages on behalf of classmembers who allege to be or have been addicted to nicotine contained in cigarettes manufactured by the
defendants. The statement of claim was served on the Company’s indemnitees but not on JTI-Mac. The case wasdormant and is currently stayed by the CCAA Proceedings.
Canada Nova Scotia Class Action (Semple):
This class action was brought against tobacco industry members including JTI-Mac and the Company’s
indemnitees in June 2009. Plaintiffs are seeking unspecified compensatory and punitive damages on behalf of classmembers who allege to be or have been addicted to nicotine contained in cigarettes manufactured by the
defendants. The statement of claim was served on the Company’s indemnitees but not on JTI-Mac. The case wasdormant and is currently stayed by the CCAA Proceedings.
Canada British Columbia Class Action (Bourassa):
This class action was brought against tobacco industry members including JTI-Mac and the Company’s
indemnitees in June 2010. Plaintiffs are seeking unspecified compensatory and punitive damages for classmembers. The preliminary motions are pending. The case was dormant and is currently stayed by the CCAA

- 209 -

Proceedings.
Canada British Columbia Class Action (McDermid):
This class action was brought against tobacco industry members including JTI-Mac and the Company’s
indemnitees in June 2010. Plaintiffs are seeking unspecified compensatory and punitive damages for classmembers. The preliminary motions are pending. The case was dormant and is currently stayed by the CCAA
Proceedings.
Canada Ontario Class Action (Jacklin):This class action was brought against tobacco industry members including JTI-Mac and the Company’s
indemnitees in June 2012. Plaintiffs are seeking unspecified compensatory and punitive damages for classmembers. The preliminary motions are pending. The case was dormant and is currently stayed by the CCAA
Proceedings.
C. Health-Care Cost Recovery Litigation
There are 10 ongoing health-care cost recovery cases in Canada pending against the Company’s subsidiary andindemnitees brought by all the Canadian provinces (except three Canadian territories). These provinces filed
lawsuits under their own provincial legislation which was enacted exclusively for the purpose of authorizing theprovincial government to file a direct action against tobacco manufacturers to recoup the health-care costs thegovernment has allegedly incurred and will incur, resulting from “tobacco related wrongs.”
Canada British Columbia Health-Care Cost Recovery Litigation:
This health-care cost recovery litigation was filed by the Province of British Columbia in January 2001 against
tobacco industry members including JTI-Mac and the Company’s indemnitees based on its provincial legislation,
the “Tobacco Damages and Health-Care Costs Recovery Act.” The claim amount is unspecified. In 2001, several
defendants challenged the legislation’s constitutionality, which was ultimately rejected by the Supreme Court of
Canada in September 2005. The action remains pending in the first instance. The case is stayed by the CCAA
Proceedings.
Canada New Brunswick Health-Care Cost Recovery Litigation:
This health-care cost recovery litigation was filed by the Province of New Brunswick in March 2008 against
tobacco industry members including JTI-Mac and the Company’s indemnitees based on legislation similar to that
introduced in the Province of British Columbia. The claim amount is unspecified. The case is stayed by the CCAA
Proceedings.
Canada Ontario Health-Care Cost Recovery Litigation:
This health-care cost recovery litigation was filed by the Province of Ontario in September 2009 against tobacco
industry members including JTI-Mac and the Company’s indemnitees based on legislation similar to that
introduced in the Province of British Columbia. The statement of claim contains allegations of joint and several
liabilities among all the defendants but does not specify any individual amount or percentages within the total
claimed amount of ¥35,389.2 billion (CAD 330 billion). The case is stayed by the CCAA Proceedings.
Canada Newfoundland and Labrador Health-Care Cost Recovery Litigation:
This health-care cost recovery litigation was filed by the Province of Newfoundland and Labrador in February 2011
against tobacco industry members including JTI-Mac and the Company’s indemnitees based on legislation similar
to that introduced in the Province of British Columbia. The claim amount is unspecified. The case is stayed by the
CCAA Proceedings.
Canada Manitoba Health-Care Cost Recovery Litigation:
This health-care cost recovery litigation was filed by the Province of Manitoba in May 2012 against tobacco
industry members including JTI-Mac and the Company’s indemnitees based on legislation similar to that
introduced in the Province of British Columbia. The claim amount is unspecified. The case is stayed by the CCAA
Proceedings.

- 210 -

Canada Quebec Health-Care Cost Recovery Litigation:
This health-care cost recovery litigation was filed by the Province of Quebec in June 2012 against tobacco industry
members including JTI-Mac and the Company’s indemnitees based on legislation similar to that introduced in theProvince of British Columbia. The statement of claim contains allegations of joint and several liabilities among all
the defendants but does not specify any individual amount or percentages within the total amount of the claim
approximately ¥6,504.9 billion (approximately CAD 60.7 billion). The case is stayed by the CCAA Proceedings.
Canada Alberta Health-Care Cost Recovery Litigation:
This health-care cost recovery litigation was filed by the Province of Alberta in June 2012 against tobacco industry
members including JTI-Mac and the Company’s indemnitees based on legislation similar to that introduced in theProvince of British Columbia. The statement of claim contains allegations of joint and several liabilities among all
the defendants but does not specify any individual amount or percentages within the total claimed amount of atleast ¥1,072.4 billion (CAD 10.0 billion). The case is stayed by the CCAA Proceedings.
Canada Saskatchewan Health-Care Cost Recovery Litigation:
This health-care cost recovery litigation was filed by the Province of Saskatchewan in June 2012 against tobacco
industry members including JTI-Mac and the Company’s indemnitees based on legislation similar to that
introduced in the Province of British Columbia. The claim amount is unspecified. The case is stayed by the CCAA
Proceedings.
Canada Prince Edward Island Health-Care Cost Recovery Litigation:
This health-care cost recovery litigation was filed by the Province of Prince Edward Island in September 2012
against tobacco industry members including JTI-Mac and the Company’s indemnitees based on legislation similar
to that introduced in the Province of British Columbia. The claim amount is unspecified. The case is stayed by the
CCAA Proceedings.
Canada Nova Scotia Health-Care Cost Recovery Litigation:
This health-care cost recovery litigation was filed by the Province of Nova Scotia in January 2015 against tobacco
industry members including JTI-Mac and the Company’s indemnitees based on legislation similar to that
introduced in the Province of British Columbia. The claim amount is unspecified. The case is stayed by the CCAA
Proceedings.
(2) Other Legal Proceedings
The Company and some of its subsidiaries are also engaged in other legal proceedings such as commercial and tax
disputes.
(Note) The amount of damages sought denominated in foreign currencies is translated into Japanese yen at the rates asof December 31, 2023.

- 211 -

39. Subsequent Events
No items to report.

- 212 -

(2) Others
A. Quarterly Information for the Year ended December 31, 2023
(Millions of yen)

Revenue
Profit before income taxes for theperiod (year)

Q1
January 1, 2023 toMarch 31, 2023

Q2
January 1, 2023 toJune 30, 2023

Q3
January 1, 2023 to
September 30, 2023

2023
January 1, 2023 to
December 31, 2023

665,278

1,392,812

2,157,018

2,841,077

183,146

373,430

586,209621,601

144,684

287,009442,010482,288

81.52

161.70249.01271.69

Q3
July 1, 2023 to
September 30, 2023

Q4
October 1, 2023 to
December 31, 2023

87.31

22.69

Profit attributable to owners of theparent company for the period(year)
Basic earnings per share for theperiod (year) (yen)Q1
January 1, 2023 toMarch 31, 2023
Basic earnings per share for thequarter(losses) (yen)Q2
April 1, 2023 toJune 30, 2023

81.52

80.18

B. Significant Lawsuits
The significant lawsuits of the Group are as stated in “38. Contingencies” in the notes to consolidated financial statements.

- 213 -

2. Nonconsolidated Financial Statements(1) Nonconsolidated Financial Statements
A. Nonconsolidated Balance Sheet
As of December 31, 2022 and 2023
(Millions of yen)
2022

2023

AssetsCurrent assets
Cash and deposits

193,376

Accounts receivable-trade
Securities*2

31,73918,000177,685*2

33,949Merchandise and finished goods
Semi-finished goods

25,42484,534－38,00880,783Work in process
Raw materials and supplies

1,815
32,017988
38,491

Advance payments-trade
Prepaid expenses

2,440
5,040

400
6,165

Short-term loans receivable from subsidiaries and affiliates
Other

*2

Allowance for doubtful accounts

38,64926,255*2

33,831
15,967(29)(31)

459,260

426,237

Noncurrent assets
Property, plant and equipment
Buildings

69,893

67,108Structures
Machinery and equipment

2,066
34,722

1,891
27,462

VehiclesTools, furniture and fixtures

536
9,996

305
9,652

Land
Construction in progress

47,298533

46,171
5,994

Total property, plant and equipment

165,044

158,583

194

163

Right of trademark
Software49,196
11,65232,783
8,331

Goodwill
Other

107,313
7,337

71,542
13,668

Total intangible assets

175,692

126,487

Investments and other assets
Investment securities

22,35821,753

1,495,647

1,502,043

6,069

5,558

7,335

10,593

16,987
15,03024,694
18,110Total current assets

Intangible assets
Patent right

Shares of subsidiaries and affiliates
Long-term loans receivable from subsidiaries andaffiliates
Long-term prepaid expenses
Deferred tax assets
Other
Allowance for doubtful accounts

(154)

(108)

Total investments and other assets

1,563,271

1,582,644

1,904,007

1,867,714

2,363,267

2,293,951

Total noncurrent assets
Total assets- 214 -

(Millions of yen)
2022
Liabilities
Current liabilities
Accounts payable-trade
Short-term borrowings

2023

*2

10,445Current portion of bonds
Current portion of long-term borrowings*1－
60,000

Lease obligations
Accounts payable-other

*2
*2

－
230
72,620*2

7,279
158,000－
20,000*2*2

138
42,765National tobacco excise taxes payable
National tobacco special excise taxes payable

72,925
8,791

70,378
8,484

Local tobacco excise taxes payable
Income taxes payable

82,013
1,863

79,077
5,624

Accrued consumption taxes
Cash management system deposits received

28,711
318,41227,323300,833*3

Provision for bonuses
Other provisions

*3

5,675

5,498
1,331

Other

－
20,56528,933

Total current liabilities

682,250

755,663

Noncurrent liabilities
Bonds payable
Long-term borrowings*1

65,000140,000*1

125,000
120,000

Lease obligations
Provision for retirement benefits*2

152
101,421*2

45
101,387

Other

*2

5,800

*2

Total noncurrent liabilities
Total liabilities- 215 -

12,278

312,374

358,711994,623

1,114,374

(Millions of yen)
2022

2023

Net assets
Shareholders’ equity
Capital stock
Capital surplus

100,000

100,000

Legal capital surplus
Other capital surplus

736,400－

736,400
78

Total capital surplus

736,400

736,478

Retained earnings
Legal retained earnings

18,776

18,776

Other retained earnings
Reserve for investment loss on developing new
business
Reserve for reduction entry

331

326

34,78032,922

Special account for reduction entry
Retained earnings brought forward

574
956,333

914
775,229

1,010,794

828,167

Total retained earnings
Treasury shares(490,183)(489,194)

Total shareholders’ equity

1,357,011

1,175,451

Valuation difference on available-for-sale securities
Deferred gains or losses on hedges

6,903
3,728

6,545
(2,975)

Total valuation and translation adjustments

10,631

3,569

Valuation and translation adjustments

Subscription rights to shares
Total net assets
Total liabilities and net assets- 216 -

1,001

557

1,368,643

1,179,577

2,363,267

2,293,951

B. Nonconsolidated Statement of Income
Years Ended December 31, 2022 and 2023
(Millions of yen)2022
Net sales
Cost of sales*5*5542,181
173,609*5*5

368,572

Gross profit
Selling, general and administrative expenses

2023

*1,*5

303,998

345,399*1,*5

64,574

Operating income

537,261
191,861
325,269
20,131Non-operating income
Interest income
Dividends income

*5
*5

78
204,825*5*5

135
162,991

Other

*5

8,205

*5

11,937

Total non-operating income

213,108

175,064

Non-operating expenses
Interest expenses
Interest on bonds
Foreign exchange losses
Other

*5

*5

Total non-operating expenses
Ordinary income

1,686
456
－
1,806

*5

*5

1,633
846
5,960
1,090

3,948

9,529

273,734

185,665

Extraordinary income
Gain on sales of noncurrent assets
Gain on sale of businesses

*2
*7

6,459
39,005*2

17,001

Other

5,504

－
1,698

Total extraordinary income

50,96818,699Extraordinary losses
Loss on sales of noncurrent assets
Loss on retirement of noncurrent assets

*3
*4,*5

478
3,857

Impairment loss
Business restructuring costs

*5,*6

4,381
1,642

*3
*4,*5

214
2,715
4,506

Other

4,290

－
1,854

Total extraordinary losses

14,647

9,289

Income before income taxes

310,055

195,075

Income taxes-current

17,701

14,905

Income taxes-deferred

8,893(4,618)

Total income taxes

26,594

10,287

Net income

283,461

184,788- 217 -

C. Nonconsolidated Statement of Changes in Net Assets
Years Ended December 31, 2022 and 2023
(Millions of yen)
Shareholders’ equity
Capital surplus

Retained earnings
Other retained earnings

Capitalstock

As of January 1, 2022

100,000

Legal
capitalsurplusTotal
capitalsurplus736,400

736,400

Reserve forinvestment
loss ondeveloping
new businessReserve for
reduction
entry

Specialaccount for
reduction
entry

Retainedearnings
brought
forward

18,776356

37,715425

935,204

992,476

1,117

1,117

936,321993,593

Cumulative effects of changes inaccounting policies
Restated balance

100,000

736,400

736,400

Total retained
earnings

Legalretainedearnings

18,776356

37,715425

Changes of items during the period
Provision of reserve for investment
loss on developing new business

331

(331)

－

Reversal of reserve for investment
loss on developing new business

(356)

356

－

690

(690)

－

(3,624)

3,624－

Provision of reserve for reduction
entry
Reversal of reserve for reduction entry
Provision of special account for
reduction entry

574

(574)

－

Reversal of special account for
reduction entry

(425)

425

－

Dividends from surplus(266,203)(266,203)

Net income

283,461

283,461

(57)

(57)

Purchase of treasury shares
Disposal of treasury shares
Net changes of items other thanshareholders’ equity
Total changes of items during the period
As of December 31, 2022

－

－

－

－

(25)

(2,934)149

20,012

17,201

100,000

736,400

736,400

18,776331

34,780574

956,333

1,010,794(Millions of yen)
Shareholders’ equity

Treasuryshares

As of January 1, 2022

(490,899)

Cumulative effects of changes inaccounting policies
Restated balance

Valuation and translation adjustments

Subscription
Valuation
Total
Total
Deferred gains
difference on
valuation and rights to sharesshareholders’or losses onavailable-fortranslation
equityhedgessale securities
adjustments
1,337,977

5,833

(316)

5,517

1,202

1,117
(490,899)

1,339,094

Total net
assets1,344,696
1,117

5,833

(316)

5,517

1,202

1,345,813

Changes of items during the period
Provision of reserve for investment
loss on developing new business

－

－

－

Reversal of reserve for investment
loss on developing new business

－

－

－

Provision of reserve for reduction
entry

－

－

－

Reversal of reserve for reduction entry

－

－

－

Provision of special account for
reduction entry

－

－

－

Reversal of special account for
reduction entry

－

－

－

(266,203)－(266,203)

Dividends from surplus

283,461－

283,461

Purchase of treasury shares

(1)

(1)

－

(1)

Disposal of treasury shares

717

660

－

660

Net income

Net changes of items other thanshareholders’ equity
Total changes of items during the period

716

17,917

1,070

4,045

5,114

(200)

4,914

1,070

4,045

5,114

(200)

22,831- 218 -

As of December 31, 2022

(490,183)

1,357,011

6,903

3,728

10,631

1,001

1,368,643(Millions of yen)
Shareholders’ equity
Capital surplus

Retained earnings
Other retained earnings

Capitalstock

As of January 1, 2023

Legalcapitalsurplus100,000

Other
capitalsurplus736,400－

Total
capitalsurplus736,400

Reserve forinvestment
loss ondeveloping
new businessReserve for
reduction
entry

Specialaccount for
reduction
entry

Retainedearnings
brought
forward

18,776331

34,780574

956,333

1,010,794－－

956,333

1,010,794

Cumulative effects of changes inaccounting policies
Restated balance

100,000

736,400－

736,400

Total retained
earnings

Legalretainedearnings

18,776331

34,780574

Changes of items during the period
Provision of reserve for investment
loss on developing new business

326

(326)

－

Reversal of reserve for investment
loss on developing new business

(331)

331

－

628

(628)

－

(2,487)

2,487

－

914

(914)

－

(574)

574

－

Dividends from surplus(367,415)(367,415)

Net income

184,788

184,788－－

Provision of reserve for reduction
entry
Reversal of reserve for reduction entry
Provision of special account for
reduction entry
Reversal of special account for
reduction entry

Purchase of treasury shares
Disposal of treasury shares

78

78

Net changes of items other thanshareholders’ equity
Total changes of items during the period
As of December 31, 2023

－

－

78

78

－

(5)

(1,858)341(181,104)(182,627)

100,000

736,400

78

736,478

18,776326

32,922

914

775,229

828,167(Millions of yen)
Shareholders’ equity

Treasuryshares

As of January 1, 2023

(490,183)

Cumulative effects of changes inaccounting policies
Restated balance

Valuation and translation adjustments

Subscription
Valuation
Total
Total
Deferred gains
difference on
valuation and rights to sharesshareholders’or losses onavailable-fortranslation
equityhedgessale securities
adjustments
1,357,011

6,903

3,728

10,631

1,001－(490,183)

1,357,011

Total net
assets1,368,643
－

6,903

3,728

10,631

1,001

1,368,643

Changes of items during the period
Provision of reserve for investment
loss on developing new business

－

－

－

Reversal of reserve for investment
loss on developing new business

－

－

－

Provision of reserve for reduction
entry

－

－

－

Reversal of reserve for reduction entry

－

－

－

Provision of special account for
reduction entry

－

－

－

Reversal of special account for
reduction entry

－

－

－

Dividends from surplus(367,415)－(367,415)

Net income

184,788－

184,788

Purchase of treasury shares

(1)

(1)

－

(1)

Disposal of treasury shares

990

1,068

－

1,068

Net changes of items other thanshareholders’ equity
Total changes of items during the period

989(181,560)(358)(6,704)(7,062)(444)(7,506)(358)(6,704)(7,062)(444)(189,066)- 219 -

As of December 31, 2023

(489,194)

1,175,451

6,545(2,975)- 220 -

3,569

557

1,179,577

Notes to Nonconsolidated Financial Statements
Years Ended December 31, 2022 and 2023
(Significant Accounting Policies)
1. Basis and Method of Valuation for Securities(1) Shares of Subsidiaries and Affiliates:
Stated at cost determined by the moving-average method.
(2) Available-for-sale Securities:
A. Securities with a market price:
Stated at fair value based on market prices as of the closing date of the accounting period. (Valuation difference isstated as a component of net assets and the cost of securities sold is calculated by applying the moving-averagemethod.)B. Securities without a market price:
Stated at cost determined by the moving-average method.
2. Basis and Method of Valuation for Derivatives
Stated based on the fair value method.
3. Basis and Method of Valuation for Inventories
Stated at cost as determined by the average cost method.
(Balance sheet amounts are measured at the lower of cost or net selling value.)
4. Depreciation Methods for Depreciable Assets(1) Property, Plant and Equipment (Excluding Lease Assets)
The declining-balance method is applied. However, the straight-line method is applied for buildings (excluding
accompanying facilities) acquired on or after April 1, 1998 and for accompanying facilities and structures acquired on
or after April 1, 2016.
The main useful lives are as follows:
Buildings (excluding accompanying facilities):
Machinery and equipment:

38 to 50 years
10 to 18 years(2) Intangible Assets (Excluding Lease Assets)
The straight-line method is applied.
The main useful lives are as follows:
Patent right:
Right of trademark:

8 years
10 years

Software:
Goodwill:

5 years
10 years(3) Lease Assets
For finance leases that do not transfer ownership of the leased property to the lessee, depreciation expense is mainlycomputed by the straight-line method over the lease period as the useful life assuming no residual value.
5. Policy on Translation of Assets and Liabilities Denominated in Foreign Currency into Japanese Yen
Receivables and payables denominated in foreign currencies are translated into Japanese yen at the rates prevailing as of
the closing date of the accounting period with translation differences treated as gains or losses.

- 221 -

6. Policy on Accounting of Provisions(1) Allowance for Doubtful Accounts
Provided for possible losses from bad debts at an amount based on the historical default rate for ordinary receivables
and the individual recoverability of specific doubtful receivables from customers experiencing financial difficulties.
(2) Provision for Bonuses
Provided based on the estimated payable amount to provide for the payment of bonuses to employees and directors.
(3) Provision for Retirement Benefits
Provided in preparation for the payment of retirement benefits to employees based on the estimated retirement benefit
obligations and fair value of plan assets as of the end of this fiscal year. In calculating retirement benefit obligations,the benefit formula basis is used as the method of attributing expected benefit to periods up to the end of this fiscal
year.
Past service cost is amortized using the straight-line method over the average remaining years of service of theemployees (10 years).
Actuarial gains and losses are amortized from the year following the year in which the gains or losses are recognizedusing the straight-line method over the average remaining years of service of the employees (10 years).
Also included in the provision for retirement benefits is the portion of public pension expenses for mutual assistanceassociation during certain periods in or before June 1956 (prior to the enforcement of the Act on the Mutual Aid
Association of Public Corporation Employees).
7. Policy on accounting of revenue and expense
Revenue from contracts with customers
Revenue is recognized based on the following five-step approach.
Step 1: Identify the contract with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when the entity satisfies a performance obligation
The Company mainly engages in the sale of tobacco products and prescription drugs. The Company evaluates that theperformance obligation is satisfied when the customer obtains control of the products upon delivery and recognizes
revenue upon delivery of the products. Revenue is measured at the consideration promised in a contract with acustomer, less discounts, rebates and taxes, including consumption tax.
The tobacco excise taxes are excluded from revenue. The amount after deducting the tobacco excise taxes and othertransactions is presented as "Net sales" in the nonconsolidated statement of income.
8. Method of Hedge Accounting
Deferral hedge accounting is applied.
For interest rate and currency swaps, if they satisfy the requirements for treatment that incorporates swaps into
underlying accounting items (accounting by applying foreign exchange rate stipulated in the contracts; exceptional
treatment), they are accounted for by incorporating swaps into underlying accounting items.

- 222 -

9. Other Significant Accounting Policies(1) Accounting Treatment relating to Retirement Benefits
With regard to unrecognized actuarial gains and losses and unrecognized past service cost relating to retirement
benefits, different accounting treatments have been applied compared to those in the consolidated financial statements.
(2) Adoption of Group Tax Sharing System
The Company adopted the group tax sharing system.

- 223 -

(Changes in accounting policies)(Application of the Implementation Guidance on Accounting Standard for Fair Value Measurement)
The Implementation Guidance on Accounting Standard for Fair Value Measurement (ASBJ Guidance No. 31, June 17,2021; hereinafter, “Implementation Guidance on Fair Value Measurement Accounting Standard”) has been applied from the
beginning of the current fiscal year. In accordance with the transitional treatment set forth in Paragraph 27-2 of the
Implementation Guidance on Fair Value Measurement Accounting Standard, this accounting standard has beenprospectively applied from the beginning of the current fiscal year.
There was no impact on the financial statements.
(Changes in presentation method)
Foreign exchange gains and losses had previously been included in “Other” under non-operating income or non-operating
expenses in nonconsolidated statement of income. However, in the current fiscal year, it is presented separately as “Foreignexchange losses” under non-operating expenses as the amount became material. In the previous fiscal year, the foreignexchange gains included in “Other” under non-operating income was ¥ 469 million.

- 224 -

(Significant accounting estimates)
The following are the estimates and assumptions that have material impacts on the amounts recognized in thenonconsolidated financial statements.
In relation to the recent situation in Russia and Ukraine, there is no material impact on the accounting estimates andjudgments at present.
Evaluation of shares of subsidiaries and affiliates(1) Amounts recorded in the nonconsolidated financial statements for the current fiscal year
Shares of subsidiaries and affiliates¥1,502,043 million (Previous fiscal year: ¥1,495,647 million)(2) Information that helps understanding of the content of accounting estimates
Of the shares of subsidiaries and affiliates recorded in the balance sheet at the end of the current fiscal year, the sharesof JT International Holding B.V., a subsidiary, amounted to ¥ 1,356,191 million. JT International Group Holding B.V. ,a former subsidiary, was extinguished due to an absorption-type merger with JT International Holding B.V., on August23, 2023. Whether or not to recognize impairment of the shares of that company is determined by comparing thecarrying amount of those shares to the actual value calculated based on net assets of that company.
In addition, the Company determines whether the actual value of those shares has declined significantly by referring to
the result of the impairment test of goodwill allocated to the tobacco cash-generating unit in the consolidated financial
statements in accordance with IFRS. (For details of the impairment test, please refer to “14. Goodwill and Intangible
Assets (3) Impairment Test for Goodwill” in “Consolidated Financial Statements”.) The assumptions used in the
impairment test are based on management’s best estimates and judgment. However, they may be affected by the resultsof changes in uncertain future economic conditions, and if a review is necessary, it may have a significant impact on theamounts recognized in the nonconsolidated financial statements in future periods.
(Change in accounting estimates)(Change in the estimated useful lives of tobacco production machinery)
The Company had previously used a period of 10 years for the estimated useful lives of tobacco production machinery.
However, in consideration of changes in the business environment, the Company has, from the current fiscal year,
revised the estimated useful lives for some tobacco production machinery to 18 years based on estimated economicallyuseful lives that are more consistent with actual conditions and applied this change prospectively. As a result, operating
profit for the current fiscal year increased by ¥1,173 million compared to the figure calculated using the previous method.
(Accounting Standards Not Yet Adopted)
・“Accounting Standards for Current Income Taxes” (ASBJ Statement No.27 October 28, 2022)(1) Overview
Partial Amendments to Accounting Standard for Tax Effect Accounting (ASBJ Statement No.28, February 16, 2018)(hereinafter, "ASBJ Statement No.28"), etc. were published and the transfer of authority for practical guidelines on tax
effect accounting in the Japanese Institute of Certified Public Accountants to the ASBJ was completed. In the processof the relevant deliberations, it was decided that the following issue would be examined again after the publication of
ASBJ Statement No.28, etc. The issue was examined and released at this time.
・Classification of tax expenses(2) Scheduled Date of Adoption
This accounting standard will be applied from the beginning of the fiscal year ending December 31, 2025.
(3) Effects of Adoption
The impact of the adoption on the nonconsolidated financial statements is currently under evaluation.

- 225 -

(Notes to Nonconsolidated Balance Sheet)*1. Pursuant to Article 6 of the Japan Tobacco Inc. Act, the Company’s assets are pledged as general collateral for corporate
bonds issued by the Company. Bondholders have the right to receive payment of their own claims for assets of theCompany in preference to other general creditors (with the exception of national taxes, local taxes and other obligationsof a public nature).
*2. Inter-company receivables and payables excluding those separately presented as of December 31 are as follows:(Millions of yen)
2022

2023

Short-term receivables

13,356

14,723

Short-term payables
Long-term payables

33,36327

10,94427*3. “Cash management system deposits received” represents the fund entrusted in the cash management system of domestic
group companies.
4. Contingent obligations
Guarantees provided for bank loans, bonds and others of subsidiaries and affiliates as of December 31 are as follows:
Bank loans and others
2022

2023

(Millions of yen)

(Millions of yen)

JT International
Company Netherlands
B.V.
JT International spol. s
r.o.

JT International
61,759(EUR

437 million)

36,323(CZK

6,188 million)

Company Netherlands
B.V.

69,726(EUR

445 million)

JT International Hellas
A.E.B.E.

30,682(EUR

196 million)

Gallaher Ltd.

28,518(USD

201 million)

othersJT International Hellas
A.E.B.E.
JT International S.A.

27,730(EUR

196 million)

23,671(USD

94 million)(CHF

57 million)

othersJT International spol. sr.o.

19,699(CZK

othersJT International Group
Holding B.V.

15,884(EUR

90 million)

3,105 million)
othersJT International
Germany GmbH

16,100(EUR

103 million)

14,359(CHF

44 million)(USD

26 million)(EUR

20 million)
othersothersJT International
Germany GmbH12,773(EUR

90 million)

JT International Korea
Inc.

10,464(KRW

99,452 million)

JT International S.A.

PT. Karyadibya
Mahardhika

11,247(IDR 1,220,960 million)

JT Canada LLC Inc.

10,535(CAD

98 million)

10,200(EUR

65 million)

JT International Zagreb
Other (56 companies)

116,592

d.o.o.
Other (42 companies)

Total

305,195

Total- 226 -

91,566
302,631

Bonds2022

2023(Millions of yen)
JT International
Financial
Services B.V.

622,737

Total

622,737(Millions of yen)(EUR

2,050 million)

JT International

(USD
(GBP

2,025 million)
400 million)

Financial
Services B.V.

670,539

Total

670,539(EUR

2,022 million)

(USD
(GBP

1,986 million)
400 million)(Note) Guarantee obligations denominated in foreign currencies were translated into yen amounts using the exchange rate as of theclosing date of the accounting period.

- 227 -

(Notes to Nonconsolidated Statement of Income)*1. The main components of “Selling, general and administrative expenses” for each year are as follows:(Millions of yen)
2022

2023

Promotion expenses
Compensations, salaries and allowances

30,422
26,552

26,19425,688Provision for bonus
Employee benefit expenses

3,976
6,379

3,802
6,206

Commission
Depreciation and amortization

46,557
61,68764,59560,574

Research and development expenses

53,52860,963

42%
58%

36%
64%

Selling expenses ratio
General and administrative expenses ratio*2. The main component of “Gains on sales of noncurrent assets” for each year is as follows:(Millions of yen)
2022
Land

2023
6,254

16,932*3. The main components of “Losses on sales of noncurrent assets” for each year are as follows:(Millions of yen)
2022

2023

Buildings
Structures

288
51

1
17

Tools, furniture and fixtures

28

64*4. The main components of “Losses on disposal of noncurrent assets” for each year are as follows:(Millions of yen)
2022
Buildings
Machinery and equipment

2023
2,545
438

1,054
596

*5. Amounts of transactions with subsidiaries and affiliates for each year are as follows:(Millions of yen)
2022

2023

Net sales
Purchase of goods

40,16445,90851,022
67,184

Selling, general and administrative expenses
Dividends income

65,286
204,586

82,632
162,733

Amount of non-operating transactions

51,963

15,521*6. Business restructuring costs for the previous fiscal year are related to costs of measures to strengthen the operations intobacco business, mainly related to redundancy pay associated with early retirement and impairment losses on non-current
assets associated with Kyushu Factory closure.
*7. Gain on sale of businesses for the previous fiscal year is related to sale of China business.

- 228 -

(Securities)
Investments in Subsidiaries and Affiliates as of December 31 are as follows:
2022(Millions of yen)Type
Investments in subsidiaries
Total

Balance sheet amount

Fair value

Difference

41,58044,872

3,292

41,58044,872

3,292

2023(Millions of yen)Type
Investments in subsidiaries
Total

Balance sheet amount

Fair value

Difference

41,58054,743

13,162

41,58054,743

13,162(Note) Balance sheet amount of investments in subsidiaries and affiliates with no market prices as of December 31 is as follows:(Millions of yen)
Type

2022

Investments in subsidiaries
Investments in affiliates

2023
1,453,953

1,460,350

113

113

The above are not included in “Investments in subsidiaries and affiliates” because they do not have market prices.

- 229 -(Tax Effect Accounting)
1. Breakdown of deferred tax assets and deferred tax liabilities by major cause
As of December 31, 2022 and 2023
(Millions of yen)
2022
Deferred tax assets
Provision for retirement benefits
Obligations pertaining to mutual
assistance pension benefits
Investments in subsidiaries
Accounts payable to employees who haveagreed to early retirement
Other

2023

23,526

24,502

6,561

5,376

6,919

6,755

4,098

1,796

36,86346,002

Subtotal

77,96684,432Less valuation allowance(18,596)(18,534)

Total

59,37065,898Reserve for reduction entry
Deferred gains or losses on hedges(15,213)(11,656)(14,400)(11,157)

Valuation difference on available-for-salesecurities(3,019)(2,863)

Other(12,494)(12,785)

Total(42,383)(41,204)

Net deferred tax assets/liabilities

16,987

24,694

Deferred tax liabilities

2. Reconciliation between the effective statutory tax rate and the actual effective tax rate after applying tax effectaccounting, if there is a significant difference
As of December 31, 2022 and 2023(%)
2022
Effective statutory tax rate

2023
30.43

30.43

0.38

0.60

Permanent difference arising from nontaxable items including dividends income(19.11)(24.16)

Tax credit of items including research anddevelopment expenses(0.86)(2.33)

Changes in valuation allowance(1.89)(0.03)

Other(0.37)

0.77

8.58

5.27

(Adjustments)
Permanent difference arising from nondeductible items including entertainment
expenses

Actual effective tax rate after applying tax
effect accounting

3. Accounting for corporate tax and local corporate tax or tax effect accounting related to these taxes
Following the adoption of the group tax sharing system, the Company applied the "Practical Solution on the Accounting andDisclosure Under the Group Tax Sharing System" (ASBJ PITF No. 42, August 12, 2021) for the accounting treatment anddisclosure of corporate tax and local corporate taxes or tax effect accounting related to these taxes.

- 230 -

(Business combination)
No items to report.

- 231 -

(Significant Subsequent Events)(The reduction of the amount for legal capital surplus)
The Company resolved at the Board of Directors held on February 13, 2024 to submit a proposal for a reduction in theamount of legal capital surplus to the 39th Ordinary General Meeting of Shareholders held on March 22, 2024, and the
proposal was approved at the meeting.
1. Purpose of the reduction in the amount of legal capital surplus
To ensure that future capital policies will be executed in a prompt and flexible manner, the Company will reduce a
portion of legal capital surplus and reclassify the reduced amount as other capital surplus in accordance with theprovision stipulated in Paragraph 1, Article 448 of the Companies Act.
2. Outline of the reduction in the amount of legal capital surplus(1) Amount to be reduced in legal capital surplus
Legal capital surplus will be reduced by ¥ 100,000 million, from ¥ 736,400 million to ¥ 636,400 million.
(2) Method of reducing amount of legal capital surplus
The amount of legal capital surplus to be reduced will be reclassified as other capital surplus.
3. Schedule for the reduction in the amount of legal capital surplus(1) Resolution at the Board of Directors: February 13, 2024
(2) Resolution at the Ordinary General Meeting of Shareholders: March 22, 2024
(3) Creditor objection statement notice: April 8, 2024 (planned)(4) Creditor objection statement final deadline: May 8, 2024 (planned)(5) Effective date: June 28, 2024 (planned)
4. Future Outlook
This matter is a transfer between accounts within the Company’s net assets and will affect neither the amount of theCompany’s net assets nor its operating performance.

- 232 -

D. Supplementary Statements
Detailed Schedule of Property, Plant and Equipment and Others(Millions of yen)Type of assets

Property, plant andequipment

As ofJanuary 1,
2023

Increase in theyear ended
December 31,
2023

Decrease in theyear ended
December 31,
2023

258
(201)
24
(2)
4,442
(3,928)Depreciation
during theyear ended
December 31,
2023

As of
December 31,
2023

Accumulated
depreciation or
accumulated
amortization asof December 31,
2023

10,91967,108

183,726

229

1,891

10,174

5,740

27,462

172,434

Buildings

69,8938,392

Structures

2,066

79

Machinery andequipment

34,722

2,922

536

86

27

289

305

1,877

4,406

9,652

64,045

VehiclesTools, furniture andfixtures

9,996

4,617

554
(245)

Land

47,298

2

1,129

－

46,171

－

533

5,759

298

－

5,994

－

165,044

21,855

6,732(4,375)

21,584

158,583

432,256

194

－

－

31

163

－

Right of trademark

49,196－

16

16,39732,783－

Software

11,652

2,245

180
(131)

5,385

8,331

－

Goodwill

107,313－－35,771

71,542

－

7,337

6,903

505

68

13,668

－

9,148

701
(131)

57,652

126,487－

Construction inprogress
Total property, plantand equipment
Patent right

Intangible assets
Other
Total intangible assets

175,692(Note 1) The figures in parentheses in the “Decrease in the year ended December 31, 2023” column represent decreases due toimpairment loss included in the figures above.
(Note 2) Other includes software in progress.
Detailed Schedule of Reserve Allowances(Millions of yen)
Category

Allowance for doubtful accounts
Provision for bonuses
Other provisions

As ofJanuary 1, 2023

Increase in theyear ended
December 31, 2023

Decrease in theyear ended
December 31, 2023

As ofDecember 31, 2023

183

2

46

139

5,675

5,498

5,675

5,498

－

1,331

－

1,331

- 233 -

(2) Major Assets and Liabilities
Note is omitted due to the fact that the relevant parts are prepared in the consolidated financial statements.
(3) Others
No items to report.

- 234 -

VI. Outline of Filing Company’s Business Concerning SharesBusiness year

From January 1 to December 31

Ordinary General Meeting of
Shareholders

To be held in March

Record date

December 31

Record dates for dividends fromsurplusJune 30, December 31

Share unit

100 shares

Purchase/sale of shares less than one
unit:
Office for handling business(Special accounts)
4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo, Japan
Mitsubishi UFJ Trust and Banking Corporation Stock Transfer Agency

Shareholder registry administrator(Special accounts)
4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo, Japan
Mitsubishi UFJ Trust and Banking Corporation

Forwarding office―Handling charge for purchase/saleNo charge

Method of public notice

Public notices will be disclosed by electronic public notice. However, if the Company isunable to make electronic public notice due to an accident or any other compelling
reason, it will make an alternative public notice in “The Nikkei” newspaper.
Public notices will be posted on the Company’s website:
https://www.jt.com/

Special benefits for shareholders

None

Note: The Company abolished the Shareholder Benefit Program after the distribution of shareholder benefits products for 2023.

- 235 -

VII. Reference Information on Filing Company
1. Information on Filing Company’s Parent Company
The Company does not have a parent company as described by the provisions of Article 24-7, paragraph 1 of the Financial Instruments
and Exchange Act.

2.

Other Reference Information

From the beginning of this fiscal year until the filing date of this Annual Securities Report, the Company has filed the following
documents.
(1)

Annual Securities Report and Appendices, and Written Confirmation
Filed to Director-General of Kanto Local Finance Bureau on March 24, 2023
Business year: 38th term (from January 1, 2022 to December 31, 2022)(2)

Internal Control Report
Filed to Director-General of Kanto Local Finance Bureau on March 24, 2023
Business year: 38th term (from January 1, 2022 to December 31, 2022)(3)

Quarterly Securities Reports and Written Confirmations
Filed to Director-General of Kanto Local Finance Bureau on May 2, 2023
First quarter of the 39th term (from January 1, 2023 to March 31, 2023)
Filed to Director-General of Kanto Local Finance Bureau on July 31, 2023
Second quarter of the 39th term (from April 1, 2023 to June 30, 2023)
Filed to Director-General of Kanto Local Finance Bureau on October 31, 2023
Third quarter of the 39th term (from July 1, 2023 to September 30, 2023)(4)

Extraordinary Reports
Filed to Director-General of Kanto Local Finance Bureau on January 5, 2023
Extraordinary Report based on Article 24-5, paragraph 4 of the Financial Instruments and Exchange Act and Article 19,
paragraph 2, item (ix) of the Cabinet Office Order on Disclosure of Corporate Affairs.
Filed to Director-General of Kanto Local Finance Bureau on March 27, 2023
Extraordinary Report based on Article 24-5, paragraph 4 of the Financial Instruments and Exchange Act and Article 19,
paragraph 2, item (ix)-2 of the Cabinet Office Order on Disclosure of Corporate Affairs.
Filed to Director-General of Kanto Local Finance Bureau on March 30, 2023
Extraordinary Report based on Article 19, paragraph 2, item (xii) (Event Which May Have Serious Effects on the Financial
Position, Operating Results and Cash Flow Status) of the Cabinet Office Ordinance on Disclosure of Corporate Information
Filed to Director-General of Kanto Local Finance Bureau on August 23, 2023
Extraordinary Report based on Article 24-5, paragraph 4 of the Financial Instruments and Exchange Act and Article 19,
paragraph 2, item (iii) of the Cabinet Office Order on Disclosure of Corporate Affairs.
Filed to Director-General of Kanto Local Finance Bureau on August 29, 2023
Extraordinary Report based on Article 19, paragraph 2, item (xii) (Event Which May Have Serious Effects on the Financial
Position, Operating Results and Cash Flow Status) of the Cabinet Office Ordinance on Disclosure of Corporate Information
Filed to Director-General of Kanto Local Finance Bureau on December 20, 2023
Extraordinary Report based on Article 19, paragraph 2, item (xii) (Event Which May Have Serious Effects on the Financial
Position, Operating Results and Cash Flow Status) of the Cabinet Office Ordinance on Disclosure of Corporate Information- 236 -

Filed to Director-General of Kanto Local Finance Bureau on January 5, 2024
Extraordinary Report based on Article 24-5, paragraph 4 of the Financial Instruments and Exchange Act and Article 19,
paragraph 2, item (ix) of the Cabinet Office Order on Disclosure of Corporate Affairs.
(5)

Amendment to Shelf Registration Statements
Filed to Director-General of Kanto Local Finance Bureau on January 5, 2023
Amendment to Shelf Registration Statements pertaining to Shelf Registration Statement (bonds) filed on August 5, 2022.
Filed to Director-General of Kanto Local Finance Bureau on March 27, 2023
Amendment to Shelf Registration Statements pertaining to Shelf Registration Statement (bonds) filed on August 5, 2022.
Filed to Director-General of Kanto Local Finance Bureau on March 30, 2023
Amendment to Shelf Registration Statements pertaining to Shelf Registration Statement (bonds) filed on August 5, 2022.
Filed to Director-General of Kanto Local Finance Bureau on August 23, 2023
Amendment to Shelf Registration Statements pertaining to Shelf Registration Statement (bonds) filed on August 5, 2022.
Filed to Director-General of Kanto Local Finance Bureau on August 29, 2023
Amendment to Shelf Registration Statements pertaining to Shelf Registration Statement (bonds) filed on August 5, 2022.
Filed to Director-General of Kanto Local Finance Bureau on December 20, 2023
Amendment to Shelf Registration Statements pertaining to Shelf Registration Statement (bonds) filed on August 5, 2022.
Filed to Director-General of Kanto Local Finance Bureau on January 5, 2024
Amendment to Shelf Registration Statements pertaining to Shelf Registration Statement (bonds) filed on August 5, 2022.

(6)

Shelf Registration Supplement and Appendices
Filed to Director-General of Kanto Local Finance Bureau on April 14, 2023
Shelf Registration Supplement pertaining to Shelf Registration Statement (bonds) filed on August 5, 2022.

(7)

Securities Registration Statement and Appendices
Filed to Director-General of Kanto Local Finance Bureau on June 19, 2023
Filed to Director-General of Kanto Local Finance Bureau on March 22, 2024

- 237 -

(TRANSLATION)

INDEPENDENT AUDITOR'S REPORTMarch 22, 2024

To the Board of Directors ofJapan Tobacco Inc.:

Deloitte Touche Tohmatsu LLC
Tokyo office

Designated Engagement Partner,
Certified Public Accountant:

Yukitaka Maruchi

Designated Engagement Partner,
Certified Public Accountant:

Koji Ishikawa

Designated Engagement Partner,
Certified Public Accountant:

Yoichi Matsushita<Audit of Consolidated Financial Statements>
OpinionPursuant to the first paragraph of Article 193-2 of the Financial Instruments and Exchange Act, we haveaudited the consolidated financial statements of Japan Tobacco Inc. and its consolidated subsidiaries (the"Group") included in the Accounting Section, namely, the consolidated statement of financial position as ofDecember 31, 2023, and the consolidated statement of income, consolidated statement of comprehensive
income, consolidated statement of changes in equity and consolidated statement of cash flows for the fiscal
year from January 1, 2023 to December 31, 2023, and notes to the consolidated financial statements,
including material accounting policy information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the consolidated financial position of the Group as of December 31, 2023, and its consolidated financial
performance and its consolidated cash flows for the year then ended in accordance with International
Financial Reporting Standards pursuant to the provisions of Article 93 of the Ordinance on Terminology,
Forms and Preparation Methods of Consolidated Financial Statements.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our
responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of
the Consolidated Financial Statements section of our report. We are independent of the Group inaccordance with the provisions of the Code of Professional Ethics in Japan, and we have fulfilled our otherethical responsibilities as auditors. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements of the current period. These matters were addressed in thecontext of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.

Contingencies of Smoking and Health Litigation in Canada
Key Audit Matter Description

How the Key Audit Matter Was
Addressed in the Audit

As described in Note 38 to the consolidated financial
We performed the following audit procedures tostatements "Contingencies," JTI-Macdonald Corp., Japan address this key audit matter:
Tobacco Inc. (the "Company")'s Canadian subsidiary
and/or indemnitees are defendants in eight class actions • We inquired of management and the Legaland 10 health-care cost recovery litigation in Canada
and Compliance Division of the Company to(collectively, the "Canadian cases"). In two class actions
obtain updates on the statuses of thein Quebec (Cecilia Letourneau and Conseil Quebecois
Canadian cases as of the end of this fiscal
sur le tabac et la sante), the Quebec Court of Appeal
year, and assessed the appropriateness ofrendered a judgment ordering JTI-Macdonald Corp. tomanagement's judgment on whether thepay compensation of approximately CAD 1.8 billion
recognition requirements for provisions(approximately ¥190.3 billion).
regarding the Canadian cases were met.
The judgment of the Quebec Court of Appeal exceeded• We instructed the component auditor to
JTI-Macdonald Corp.'s capacity to pay, andperform the following audit procedures and
JTI-Macdonald Corp. filed for protection from its creditors
assessed the appropriateness of component
under the Companies' Creditors Arrangement Act
management's judgment on the recognition("CCAA"), which was approved by the Ontario Superiorof provisions based on discussions with the
Court, and is continuing as of the end of this fiscal year.
component auditor:
Legal proceedings including the execution of thejudgment against JTI-Macdonald Corp. have been
✓ Evaluating internal controls over thestayed by the CCAA proceedings.
internal examination and approval
process to ensure that the judgments on
The amount of compensation ordered by the Quebec
recognizing provisions are appropriately
Court of Appeal and the amount of compensatory andmade;punitive damages sought by plaintiffs in the other
Canadian cases are considered significant for the✓ Inquiring of component management andconsolidated financial statements, and the Canadianinspecting the underlying documents thatcases also include some cases for which the amount ofcomponent management prepared todamages sought by plaintiffs has not been specified.
assess the appropriateness of thecomponent management's judgments on
Management is required to determine whether thethe recognition requirements forrecognition of provisions is necessary in accordance with
provisions defined in International
the following recognition requirements for provisions
Accounting Standard 37 "Provisions,defined in International Accounting Standard 37
Contingent Liabilities and Contingent"Provisions, Contingent Liabilities and Contingent
Assets"; andAssets":✓ Sending letters to component legal• The company has a present obligation (legal orcounsel to confirm the appropriateness ofconstructive) as a result of a past event;the component management's judgment
on whether JTI-Macdonald Corp. has a• The outflow of resources embodying economic
present obligation (legal or constructive)
benefits is probable (i.e., more likely than not) to settle
as a result of a past event and whether
the obligation; andthe outflow of resources embodying
economic benefits is probable to settle• A reliable estimate can be made of the amount of thethe obligation among the recognition
obligation.
requirements for provisions.
Since the determination of whether the recognition ofprovisions is necessary involves subjective judgments
made by management and uncertainty that is difficult toprove, we have determined this matter regarding theCanadian cases to be a key audit matter.

• We obtained a third-party opinion from anexternal legal firm to gain assurance that
there are no logical contradictions or
significant divergences in reasoning to theposition adopted by the component's legal
counsel.

Evaluation of Goodwill Allocated to Tobacco Cash-Generating Unit
Key Audit Matter Description
As described in Note 14 to the consolidated financial
statements "Goodwill and Intangible Assets," the Group
allocates goodwill generated by business combinations
to the tobacco cash-generating unit and the processedfood cash-generating unit.
The Group has a goodwill balance of ¥2,591,071 million
allocated to the tobacco cash-generating unit at the endof this fiscal year, which is mainly as results of theacquisitions of RJR Nabisco's non-U.S. tobacco
operations in 1999, Gallaher Group Plc in 2007 andNatural American Spirit's non-U.S. tobacco operations in
2016.
In accordance with International Accounting Standard 36"Impairment of Assets," goodwill is required to be tested
for impairment annually or whenever there is anindication that the asset may be impaired.
The recoverable amount of the tobacco cash-generating
unit is calculated by the value in use based on thethree-year business plan that was prepared by reflecting
past experiences and external information, and approvedby management (hereinafter, "the three-year businessplan"). After the three-year business plan, the Group setsa growth rate from 4.9% in the fourth year to 3.7% in the
ninth year, and the same growth rate as the ninth year
from the tenth year as a continued growth rate for
inflation. As a result of the impairment test, the value in
use sufficiently exceeds the carrying amount of thetobacco cash-generating unit, and management believes
that the value in use will not fall below the carrying
amount even if the growth rate used in calculating thevalue in use fluctuates within a reasonable range.
The balance of goodwill allocated to the tobacco
cash-generating unit is material to the consolidated
financial statements, and the three-year business planused in the impairment test, and the underlying
assumptions for the growth rates used to develop theplan for the fourth year and onwards are greatly affectedby management's subjective judgments. In addition, in
the tobacco business, the Group is placed in anenvironment with the tightening regulations on tobacco
products, increased taxes levied on tobacco and fierce
competition with rival companies. These external factors
affect to the three-year business plan and the growth
rates used in developing the plan for the fourth year andonwards.
Since the three-year business plan and the growth rates
used in developing the plan for the fourth year andonwards involve uncertainties and require management's
judgment, we have determined the evaluation of the
goodwill allocated to the tobacco cash-generating unit to
be a key audit matter.

How the Key Audit Matter Was
Addressed in the Audit
In response to this key audit matter, we
performed the following procedures for the
impairment test of goodwill allocated to thetobacco cash-generating unit:• In order to assess the reasonableness of thethree-year business plan and the underlying
assumptions for the growth rates developedby component management, we performed
the following audit procedures:✓ Instructing the component auditor toevaluate internal controls over theexamination and approval process toensure the three-year business plan isappropriately prepared;✓ Considering the achievement of the past
three-year business plan retrospectively
by comparing the past three-yearbusiness plan with actual results for thecorresponding period, as well as
assessing the feasibility of the current
three-year business plan considering themarket conditions and performance of the
major markets in which the tobacco
cash-generating unit operates as of theend of this fiscal year; and✓ Inquiring of management on the
background and rationality of data usedby management to determine the growth
rates after the current three-yearbusiness plan, as well as testing the
growth rates based on available external
information, with the assistance of thevaluation specialists in our network firm.
• We discussed with management regarding
the results of the impairment test of goodwill
allocated to the tobacco cash-generating unit
and assessed the appropriateness ofmanagement's conclusion on the impairment
test.

Other Information
Management is responsible for the other information. Audit & Supervisory Board members and the Audit &Supervisory Board are responsible for overseeing the Directors' execution of duties relating to the designand operating effectiveness of the controls over the other information. The other information comprises theinformation included in the Annual Securities Report, but does not include the consolidated financial
statements, the nonconsolidated financial statements and our auditor's reports thereon.
Our opinion on the consolidated financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the otherinformation and, in doing so, consider whether the other information is materially inconsistent with theconsolidated financial statements or our knowledge obtained in the audit or otherwise appears to bematerially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this otherinformation, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Audit & Supervisory Board Members and the Audit &Supervisory Board for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control as
management determines is necessary to enable the preparation of consolidated financial statements thatare free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group's
ability to continue as a going concern, disclosing, as applicable, matters related to going concern inaccordance with International Financial Reporting Standards.
Audit & Supervisory Board members and the Audit & Supervisory Board are responsible for overseeing the
Directors' execution of duties relating to the design and operating effectiveness of the controls over theGroup's financial reporting process.
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's reportthat includes our opinion. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions ofusers taken on the basis of these consolidated financial statements.
As part of an audit in accordance with auditing standards generally accepted in Japan, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:• Identify and assess the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error, design and perform audit procedures responsive to those risks. The procedures
selected depend on the auditor's judgment. In addition, we obtain audit evidence that is sufficient andappropriate to provide a basis for our opinion.
• Obtain, when performing risk assessment procedures, an understanding of internal control relevant tothe audit in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Group's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basis of accounting and,based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the Group's ability to continue as a going concern. If weconclude that a material uncertainty exists, we are required to draw attention in our auditor's report to therelated disclosures in the consolidated financial statements or, if such disclosures are inadequate, tomodify our opinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor's report. However, future events or conditions may cause the Group to cease to continue as agoing concern.
• Evaluate whether the overall presentation and disclosures of the consolidated financial statements are inaccordance with International Financial Reporting Standards, as well as the overall presentation,
structure and content of the consolidated financial statements, including the disclosures, and whether the
consolidated financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or businessactivities within the Group to express an opinion on the consolidated financial statements. We areresponsible for the direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.
We communicate with Audit & Supervisory Board members and the Audit & Supervisory Board regarding,among other matters, the planned scope and timing of the audit and significant audit findings, including any
significant deficiencies in internal control that we identify during our audit.
We also provide Audit & Supervisory Board members and the Audit & Supervisory Board with a statementthat we have complied with relevant ethical requirements regarding independence, and communicate withthem all relationships and other matters that may reasonably be thought to bear on our independence, andwhere applicable, actions taken to eliminate threats or safeguards applied.
From the matters communicated with Audit & Supervisory Board members and the Audit & Supervisory
Board, we determine those matters that were of most significance in the audit of the consolidated financial
statements of the current period and are therefore the key audit matters. We describe these matters in our
auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremelyrare circumstances, we determine that a matter should not be communicated in our report because theadverse consequences of doing so would reasonably be expected to outweigh the public interest benefitsof such communication.
<Audit of Internal Control>
OpinionPursuant to the second paragraph of Article 193-2 of the Financial Instruments and Exchange Act, we haveaudited management's report on internal control over financial reporting of Japan Tobacco Inc. as ofDecember 31, 2023.
In our opinion, management's report on internal control over financial reporting referred to above, which
represents that the internal control over financial reporting of Japan Tobacco Inc. as of December 31, 2023,
is effectively maintained, presents fairly, in all material respects, the results of the assessment of internal
control over financial reporting in accordance with assessment standards for internal control over financial
reporting generally accepted in Japan.
Basis for Opinion
We conducted our internal control audit in accordance with auditing standards for internal control overfinancial reporting generally accepted in Japan. Our responsibilities under those standards are further
described in the Auditor's Responsibilities for the Internal Control Audit section of our report. We are
independent of the Group in accordance with the provisions of the Code of Professional Ethics in Japan,
and we have fulfilled our other ethical responsibilities as auditors. We believe that the audit evidence wehave obtained is sufficient and appropriate to provide a basis for our opinion.

Responsibilities of Management and Audit & Supervisory Board Members and the Audit &Supervisory Board for Report on Internal Control
Management is responsible for designing and operating effective internal control over financial reportingand for the preparation and fair presentation of its report on internal control in accordance with assessment
standards for internal control over financial reporting generally accepted in Japan. Audit & Supervisory
Board members and the Audit & Supervisory Board are responsible for overseeing and verifying the designand operating effectiveness of internal control over financial reporting. There is a possibility thatmisstatements may not be completely prevented or detected by internal control over financial reporting.
Auditor's Responsibilities for the Internal Control Audit
Our objectives are to obtain reasonable assurance about whether management's report on internal control
over financial reporting is free from material misstatement and to issue an auditor's report that includes ouropinion.
As part of an audit in accordance with auditing standards for internal control over financial reporting
generally accepted in Japan, we exercise professional judgment and maintain professional skepticism
throughout the audit. We also:• Perform audit procedures to obtain audit evidence regarding the results of the assessment of internal
control over financial reporting in management's report on internal control. The procedures selected
depend on the auditor's judgment, including the significance of effects on reliability of financial reporting.
• Examine representations on the scope, procedures and results of the assessment of internal control overfinancial reporting made by management, as well as evaluating the overall presentation of management's
report on internal control.
• Obtain sufficient appropriate audit evidence regarding the results of the assessment of internal control
over financial reporting. We are responsible for the direction, supervision and performance of the internal
control audit. We remain solely responsible for our audit opinion.
We communicate with Audit & Supervisory Board members and the Audit & Supervisory Board regarding,among other matters, the planned scope and timing of the internal control audit, result of the internal
control audit, including any identified material weakness which should be disclosed and the result ofremediation.
We also provide Audit & Supervisory Board members and the Audit & Supervisory Board with a statementthat we have complied with relevant ethical requirements regarding independence, and communicate withthem all relationships and other matters that may reasonably be thought to bear on our independence, andwhere applicable, actions taken to eliminate threats or safeguards applied.
<Fee-Related Information>
Fees for audit and other services for the year ended December 31, 2023, which were charged by us andour network firms to Japan Tobacco Inc. and its subsidiaries are disclosed in (3) Implementation status ofaudits of 4. Status of Corporate Governance, which is included in IV. Filing Company of the Annual
Securities Report.
Interest Required to Be Disclosed by the Certified Public Accountants Act of Japan
Our firm and its designated engagement partners do not have any interest in the Group which is required tobe disclosed pursuant to the provisions of the Certified Public Accountants Act of Japan.

Notes to the Readers of Independent Auditor's Report
This is an English translation of the independent auditor's report as required by the Financial Instruments
and Exchange Act of Japan for the conveniences of the reader.

(TRANSLATION)

INDEPENDENT AUDITOR'S REPORTMarch 22, 2024

To the Board of Directors ofJapan Tobacco Inc.:

Deloitte Touche Tohmatsu LLC
Tokyo office

Designated Engagement Partner,
Certified Public Accountant:

Yukitaka Maruchi

Designated Engagement Partner,
Certified Public Accountant:

Koji Ishikawa

Designated Engagement Partner,
Certified Public Accountant:

Yoichi Matsushita<Audit of Nonconsolidated Financial Statements>
OpinionPursuant to the first paragraph of Article 193-2 of the Financial Instruments and Exchange Act, we haveaudited the nonconsolidated financial statements of Japan Tobacco Inc. (the "Company") included in the
Financial Section, namely, the nonconsolidated balance sheet as of December 31, 2023, and thenonconsolidated statement of income and nonconsolidated statement of changes in net assets for the 39th
fiscal year from January 1, 2023 to December 31, 2023, and notes to the nonconsolidated financial
statements, including a summary of significant accounting policies, and the supplementary statements.
In our opinion, the accompanying nonconsolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2023, and its financial performance forthe year then ended in accordance with accounting principles generally accepted in Japan.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our
responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of
the Nonconsolidated Financial Statements section of our report. We are independent of the Company inaccordance with the provisions of the Code of Professional Ethics in Japan, and we have fulfilled our otherethical responsibilities as auditors. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our opinion.
Key Audit Matter
A key audit matter is a matter that, in our professional judgment, was of most significance in our audit of thenonconsolidated financial statements of the current period. The matter was addressed in the context of ouraudit of the nonconsolidated financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on the matter.

Evaluation of Shares of Subsidiaries
Key Audit Matter Description
As described in "Significant accounting estimates" in notes to thenonconsolidated financial statements, on the Company's balance
sheet as of the end of this fiscal year, Shares of subsidiaries andaffiliates was ¥1,502,043 million (approximately 65.5% of Total
assets), which includes the shares of JT International Holding
B.V., one of the subsidiaries, of ¥1,356,191 million.
The tobacco business manufactures and sells tobacco products
in various countries mainly through JT International S.A. The
Company invests in JT International Holding B.V., which
consolidates the financial results of the tobacco business,
including JT International S.A.
The Company considers whether to recognize impairment ofshares of JT International Holding B.V. by comparing thecarrying amount of JT International Holding B.V. shares with the
net assets value calculated using the net assets on the balance
sheet of JT International Holding B.V. In addition, the Company
determines whether the net assets value of JT International
Holding B.V. shares has declined significantly referring to theresults of the impairment test of goodwill allocated to the tobacco
cash-generating unit.
The Company's consolidated financial statements are preparedin accordance with International Financial Reporting Standards,
and the Company conducts an impairment test on goodwill
allocated to the tobacco cash-generating unit annually based on
International Accounting Standard 36 "Impairment of Assets."
The recoverable amount of the tobacco cash-generating unit iscalculated by the value in use based on the three-year businessplan that was prepared by reflecting past experiences andexternal information, and approved by management (hereinafter,"the three-year business plan"). After the three-year businessplan, the Company sets a growth rate from 4.9% in the fourthyear to 3.7% in the ninth year, and the same growth rate as theninth year from the tenth year as a continued growth rate for
inflation. As a result of the consideration, the Company
concluded that it was not necessary to recognize an impairment
on JT International Holding B.V. shares.

How the Key Audit Matter Was
Addressed in the Audit
In response to this key audit matter, we
obtained and inspected the results ofCompany's evaluation of JT
International Holding B.V. shares.
In addition, we performed the following
procedures in relation to theimpairment test of goodwill allocated tothe tobacco cash-generating unit:• In order to assess thereasonableness of the three-yearbusiness plan and the underlying
assumptions for the growth rates
developed by component
management, we performed thefollowing audit procedures:✓ Instructing the component auditor
to evaluate internal controls overthe examination and approval
process to ensure the three-yearbusiness plan is appropriately
prepared;✓ Considering the achievement of
the past three-year business plan
retrospectively by comparing thepast three-year business planwith actual results for thecorresponding period, as well as
assessing the feasibility of thecurrent three-year business planconsidering the market conditions
and performance of the major
markets in which the tobacco
cash-generating unit operates asof the end of this fiscal year; and✓ Inquiring of management on the
background and rationality of data
used by management todetermine the growth rates after
the current three-year businessplan, as well as testing the growth
rates based on available external
information, with the assistance ofthe valuation specialists in our
network firm.

The three-year business plan used in the evaluation of JT
International Holding B.V. shares, and the underlying
assumptions for growth rates used to develop the plan for the
fourth year and onwards are greatly affected by management's
subjective judgments. In addition, in the tobacco business, theGroup is placed in an environment with the tightening regulations
on tobacco products, increased taxes levied on tobacco and afierce competition with rival companies. These external factors
affect to the three-year business plan and the growth rates usedin developing the plan for the fourth year and onwards.
• We discussed with management
regarding the results of theSince the three-year business plan and the growth rates used in
impairment test of goodwill allocateddeveloping the plan for the fourth year and onwards involveto the tobacco cash-generating unit
uncertainties and require management's judgment, we haveand assessed the appropriateness ofdetermined the evaluation of JT International Holding B.V.
management's conclusion on theshares to be a key audit matter.
impairment test.

Other Information
Management is responsible for the other information. Audit & Supervisory Board members and the Audit &Supervisory Board are responsible for overseeing the Directors' execution of duties relating to the designand operating effectiveness of the controls over the other information. The other information comprises theinformation included in the Annual Securities Report, but does not include the consolidated financial
statements, the nonconsolidated financial statements and our auditor’s reports thereon.
Our opinion on the nonconsolidated financial statements does not cover the other information and we do
not express any form of assurance conclusion thereon.
In connection with our audit of the nonconsolidated financial statements, our responsibility is to read theother information and, in doing so, consider whether the other information is materially inconsistent with thenonconsolidated financial statements or our knowledge obtained in the audit or otherwise appears to bematerially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this otherinformation, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Audit & Supervisory Board Members and the Audit &Supervisory Board for the Nonconsolidated Financial Statements
Management is responsible for the preparation and fair presentation of the nonconsolidated financial
statements in accordance with accounting principles generally accepted in Japan, and for such internal
control as management determines is necessary to enable the preparation of nonconsolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the nonconsolidated financial statements, management is responsible for assessing theCompany's ability to continue as a going concern, disclosing, as applicable, matters related to going
concern in accordance with accounting principles generally accepted in Japan.
Audit & Supervisory Board members and the Audit & Supervisory Board are responsible for overseeing the
Directors' execution of duties relating to the design and operating effectiveness of the controls over theCompany's financial reporting process.
Auditor's Responsibilities for the Audit of the Nonconsolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the nonconsolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor'sreport that includes our opinion. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions ofusers taken on the basis of these nonconsolidated financial statements.
As part of an audit in accordance with auditing standards generally accepted in Japan, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:• Identify and assess the risks of material misstatement of the nonconsolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks. The
procedures selected depend on the auditor's judgment. In addition, we obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion.
• Obtain, when performing risk assessment procedures, an understanding of internal control relevant tothe audit in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basis of accounting and,based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the Company's ability to continue as a going concern. If weconclude that a material uncertainty exists, we are required to draw attention in our auditor's report to therelated disclosures in the nonconsolidated financial statements or, if such disclosures are inadequate, tomodify our opinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor's report. However, future events or conditions may cause the Company to cease to continue as agoing concern.
• Evaluate whether the overall presentation and disclosures of the nonconsolidated financial statements
are in accordance with accounting principles generally accepted in Japan, as well as the overall
presentation, structure and content of the nonconsolidated financial statements, including thedisclosures, and whether the nonconsolidated financial statements represent the underlying transactions
and events in a manner that achieves fair presentation.
We communicate with Audit & Supervisory Board members and the Audit & Supervisory Board regarding,among other matters, the planned scope and timing of the audit and significant audit findings, including any
significant deficiencies in internal control that we identify during our audit.
We also provide Audit & Supervisory Board members and the Audit & Supervisory Board with a statementthat we have complied with relevant ethical requirements regarding independence, and communicate withthem all relationships and other matters that may reasonably be thought to bear on our independence, andwhere applicable, actions taken to eliminate threats or safeguards applied.
From the matters communicated with Audit & Supervisory Board members and the Audit & Supervisory
Board, we determine those matters that were of most significance in the audit of the nonconsolidated
financial statements of the current period and are therefore the key audit matters. We describe thesematters in our auditor's report unless law or regulation precludes public disclosure about the matter orwhen, in extremely rare circumstances, we determine that a matter should not be communicated in ourreport because the adverse consequences of doing so would reasonably be expected to outweigh the
public interest benefits of such communication.
<Fee-Related Information>
Fee-related information is disclosed in independent auditor's report on the consolidated financial
statements as of and for the year ended December 31, 2023.
Interest Required to Be Disclosed by the Certified Public Accountants Act of Japan
Our firm and its designated engagement partners do not have any interest in the Company which is
required to be disclosed pursuant to the provisions of the Certified Public Accountants Act of Japan.

Notes to the Readers of Independent Auditor's Report
This is an English translation of the independent auditor's report as required by the Financial Instruments
and Exchange Act of Japan for the conveniences of the reader.