Integrated Report 2022
Japan Tobacco Inc.

JT Group Purpose

Fulfilling Moments,
Enriching LifeJapan Tobacco Inc. Integrated Report 2022

001

002

Japan Tobacco Inc. Integrated Report 2022

Japan Tobacco Inc. Integrated Report 2022

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CONTENTS

006

At a glance008

Our value chains012

Key performance indicators

				

046 BUSINESS and STRATEGIES
048• Financial performance review• Non-financial performance review

Business Plan 2023

050 Message from the CFO“Even in a highly uncertain business environment, we are working to maintain016 IDENTITY

		 a firm financial foundation and accelerate investment to secure profit
		 growth over the medium and long terms and raise shareholder returns.”018

Our management principle

056

Tobacco business

020

JT Group history and the values we cherish

070

Pharmaceutical business

074

Processed food business

078

The Group’s sustainability initiatives

		
		
		
		
		

• Improving our environmental impact• Investing in people• Investing in people: Health and safety• Improving our social impact• Respect for human rights

022 Message from the CEO		“The moments that give consumers and people in society fulfillment		 change with the times. Staying close to their diversifying needs, the JT
		 Group strive to realize ’fulfilling moments’ through our evolving
		 business operations, without limiting ourselves to what we are now.”

028 Message from the Executive Vice President

088 GOVERNANCE

“ The significance of designating `Fulfilling Moments, Enriching Life' as		 the JT Group Purpose is in continuously communicating to the world

090 Executive roundtable		 the reason for our existence through our work to realize it.”“We are working to further enhance governance to

Our value creation process

		and win the trust of our many stakeholders.”

036 MATERIALITY and SUSTAINABILITY
038

The JT Group Materiality and sustainability

“ We will strive further by creating and providing values unique to the JT Group.
		 We wish to continue our journey to achieve sustainable growth, together

Aiming to facilitate our readers to better understand the contents, a HTMLversion of this report will be available on our website from the end of June
2023 onwards.

004

Japan Tobacco Inc. Integrated Report 2022

Non-financial information

		with our stakeholders, local communities and the society that we are a part of.”In this report, we integrate financial information, such as our management
policy, business strategy and performance trends, with sustainability
information such as non-financial information that gives an insight into
our growth over the medium and long terms. The purpose of this report isto inform the wide range of our stakeholders, including shareholders andinvestors, about the JT Group’s current and future value creation story.

JT website Sustainability• Top management message• Our sustainability strategy• Respecting human rights• Improving our social impact

Corporate governance

104

Management structure

110Internal controls

Cover story

114 FINANCIAL INFORMATION/OTHERS

044 CSO interview

Our Integrated Report

096

116

Risk factors

120

Regulation and key laws

123

Litigation

124

Long-term consolidated financial data

126

Glossary of terms

128Awards and recognitions

130

Shareholder information and contact information

JT website Investor Relations• Environment• Governance andcompliance• Investing in people• Management information• IR calendar• Results and reports• For debt investors• For shareholders
Integrated Report 2022
Japan Tobacco Inc.

Financial information

034

		ensure that we remain a corporation that can fulfill

The first few pages of the report describe the image of the
JT Group Purpose, which has been described to clarify the
JT Group’s direction for its sustainable existence. We, theJT Group, will not stay in our current form, but will move
forward towards the realization of “Fulfilling Moments,
Enriching Life” in order to further contribute to the enrichment of society.
We would like to express our gratitude towards our stakeholders for the many comments we receive each year
on our Integrated Report. We have incorporated thesecomments as an important element during the planning
process and the production of this report.

Forward-looking statements contained in this document are necessarily
dependent upon assumptions, estimates and data that may be incorrect or
imprecise and involve known and unknown risks and uncertainties. Actual
results, performance or achievements, or those of the industries in which
we operate, may differ materially from any future results, performance or
achievements expressed or implied by these forward-looking statements.
Please see “FORWARD-LOOKING STATEMENTS” on P. 131 for further details.

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MATERIALITY andSUSTAINABILITY

BUSINESS andSTRATEGIESFINANCIAL INFORMATION /OTHERS

GOVERNANCE

At a glance

The JT Group is a leading global tobacco company and our products are sold in over 130 markets. In addition to the tobacco business, we operate pharmaceutical and processed food businesses.
Revenue (2022)
Processed foodbusiness 5.9%

Others 0.1%

Number of employees (As of December 31, 2022)
Processed foodbusiness 8.2%

2,657.8

52,640Tobaccobusiness 91.0%

The Group’s tobacco business has the third largest sales
volume in the world* and includes 3 of the top 10 global
selling combustible brands in its product portfolio.

consumers’ trust. As of the end of 2022, the Group operates
5 factories in Japan (3 manufacturing tobacco and 2 tobacco-related factories), and 33 factories in 27 other countries(including tobacco-related factories).

The Group has a global manufacturing footprint and aims
to manufacture quality tobacco products that secure* Excluding China National Tobacco Corporation

Key market shares in tobacco business (As of December 31, 2022)

employees(JPY BN)

Pharmaceuticalbusiness 3.1%

Others 1.6%

Global business foundation

Pharmaceuticalbusiness 2.5%

ROMANIA

27.4%

Tobaccobusiness 87.7%

29.5%
RUSSIA*

ITALY

36.6%

U.K.

Tobacco business

45.1%

The tobacco business, headquartered in Geneva, Switzerland since 2022, manufacturesand offers tobacco products all over the world.

JAPAN*SPAIN
TAIWAN

28.5%

Its key markets include Italy, Japan, Romania, Russia, Spain, Taiwan, the Philippines, theU.K, and Turkey, with leading brands in combustibles, such as Winston, Camel, MEVIUS
and LD, as well as in RRP (Reduced-Risk Products),* such as Ploom and Logic.

TURKEYTHE PHILIPPINES

27.8%

37.1%

42.4%

48.9%

* RRP (Reduced-Risk Products): Products with the potential to reduce the risks associated with smoking* Market size data for Japan and Russia reflects total tobacco figures of combustibles and RRP

Pharmaceutical business
The pharmaceutical business focuses on the R&D, manufacturing, and sale of prescription drugs, concentrating on three specific therapeutic areas: Cardiovascular, Renal andMetabolism (CVRM); immunology; and neuroscience.
Its products include CORECTIM® Ointment 0.25% and CORECTIM® Ointment 0.5%,
Riona® Tablets 250mg and ENAROY® Tablets 2 mg • 4 mg, among others.

Factories (As of December 31, 2022)
factories(Japan: 5, other countries: 33)

Processed food businessfactories(Japan: 15, other countries: 8)		Processed food business
The processed food business is present in the frozen and ambient food business, mainly
for frozen noodles, frozen okonomiyaki (Japanese savory pancakes), and packaged cooked
rice, and the seasonings business, focusing on seasonings including yeast extracts.
Major products include Reito-Sanuki-Udon (frozen noodles), Gottsu-umai okonomiyaki(Japanese savory pancakes), and HIMAX (yeast extract seasoning) in particular.

006

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Tobacco business		

23

Note: There are no factories in the pharmaceutical businessTobacco factories
Europe: 11
Middle East/Africa: 8
Asia: 9North America: 1
Central and South America: 1nOther tobacco-related factories
Europe: 2
Middle East/Africa: 2
Asia: 3
North America: 1nProcessed food factories
Asia: 22
North America: 1nJapan Tobacco Inc. Integrated Report 2022

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MATERIALITY andSUSTAINABILITY

BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERSOur value chains
The JT Group strives to provide products and services that exceed our consumers’ expectations, with each of its businesses demonstrating its strengths and adding value at each stage of the value chain.
Three strengths driving
our global growthSolidfinancial base

Superior
brand equity

R&D

Procurement

Manufacturing

MarketingDistribution/Sales

Diverseworkforcen8 R&D centers covering scientific research,n

Processed food businessPharmaceutical businessTobacco businesstechnology & product developmentnConsumer-driven R&D focusing on whatmatters most to consumers*

n

n

n

with third-party playersn38 factories across our footprint, out of

integrated operations and third parties

which six produce RRP (Reduced-Risk

Reliability of leaf supply regardless of

Products)

weather or market fluctuations1

1,962 IP filings, 90+ innovation partnerships

Leaf supply diversified across verticallynFull compliance with regulations; assurance of leaf integrity and origin

n

n

n

Development of innovative drugsnnSales in 130+ markets

Camel, MEVIUS & LDnTailored RTC*2 on market-by-market

Consumers*1 at center of our offerings:

State-of-the-art equipment and manu-

We provide freedom of choice andfacturing processes

superior quality

Industry-leading quality standards for allnour productsnStrong brand equity, notably Winston,Ability to stably manufacture high-

basis
n

Motivated salesforce with strong ties
with trade

Full compliance with local regulation in
all countries where we operatenConduct responsible detailing activitiesnTop-market-share*3 products/brands

quality pharmaceuticalsnnProprietary yeast, processing and freezingnStable, cost-competitive sourcing ofnManagement systems that ensuretechnologies

high-quality ingredients (extensive

stable, efficient manufacturing of

Ability to develop high-value-added

supplier network and inspection pro-high-quality food products based on

products that meet consumer needs andgram)food safety management

preferencesnnSales force capable of proposing prod-(Sanuki Udon, Gottsu-umai)

ucts that meet consumer needs with anMarket insight based on communication

extensive product lineup

with consumers (identification of consumers’ increasingly diverse needs/
preferences, e.g. by using fan sites)*1 Adult consumers. Minimum legal age for smoking varies in accordance with the legislation in each country*2 Route to consumer*3 Fuji Keizai Co., Ltd., Foodstuff Marketing Handbook 2023: Vol. 2, 3, 2021 results

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MATERIALITY andSUSTAINABILITYIDENTITY

BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERSOur value chains
Each of the JT Group’s business is also working to further exploit its strength in the value chain, in order to increase the value it can provide to our consumers.

R&D

Pharmaceutical businessTobacco businessn

Initiatives tomaintain/
upgradestrengthsnnnPriorities andactions toachieve them
Initiatives tomaintain/
upgradestrengths
Priorities andactions toachieve them

n

n

n

n

n

n

Processed food businessn oving from “site-based” teams to “outcome-based”
M
global teams
Enhancing cascading in R&D of consumers-related*data and analytics
Protecting innovation with sound Intellectual Property (IP) strategy

 s RRP (Reduced-Risk Products) industry innovationA
cycles get shorter, the JT Group is implementing
initiatives to accelerate the development of new
RRP platforms

n

n

n

 ontinuously balancing risk mitigation and sourcing
Cflexibility
Advanced planning and inventory management for
uninterrupted manufacturingIncreasing emphasis on social and environmental
sustainability of supply

 s the JT Group exposure to RRP grows, we areAadapting our device-procurement strategy to be
more resilient in case of disruptions

 dd more research themes and expedite progressADevelop proprietary drug discovery technology

Initiatives tomaintain/
upgradestrengths

 evelop high-value-added products that meetDconsumer needs and preferences–Develop new products that take into accountenvironmental impact and sustainability

n

n

n

n

n

n

n

n

n

n

n

Priorities andactions toachieve themnImproving R&D efficiency through concentration of resources in targeted disease domains
Promoting efficient and expeditious clinical development through coordination among domestic and foreign
R&D sites
Proactively pursuing opportunities to out- and in-license compounds

 evelop new products tailored to consumer needsDbased on market/competition research and analysis
Develop new technologies and production methods through external collaborations

Manufacturing

Procurementn erifying ingredients’ safety based on quality specifiV
cation certifications submitted by suppliers
Monitoring main ingredients’ pesticide residue
content and periodically inspecting ingredientproduction plants in accord with applicable laws/
regulations and our own standards
Inspecting source farms’ soil and water quality,
verifying crop conditions, checking pesticide
management practices, and inspecting livestockand fish farms

S trengthen supply chain to enable sourcing of safe,
high-quality ingredients–Building a sustainable supply chain by fosteringtransparent relationships with suppliers and taking
human rights and environment into account whensourcing ingredients

n

n

n

 onstantly reviewing and optimizing our manufacC
turing footprint
Ongoing capital expenditures to increase our RRP
production capacity
K aizen approach for all our manufacturing
processes

T o support the Paris Agreement on global climatechange, we are accelerating the pace of ourenvironmental impact reduction initiatives

F ormulated guidelines to verify conformity
between drugs’ approved specifications and actual
manufacturing processes
Continuing annual inspections of contract manufacturing plants based on guidelines
 ontinuously monitor in compliance with laws/C
regulations
 andatory certification of compliance with ISO
M
22000 or FSSC 22000 international food safety
standard across all JT-affiliated plants and contract
manufacturing plants globally
Verifying end products’ compliance with pesticide
content and other safety standards throughmonitoring inspections
Reducing contamination risk by establishing andcomplying with food defense guidelines

Marketing

n

n

n

n

n

n

n

n

n

n

 ontinued investment in GFB's (Global Flagship
C
Brands) brand equity and in establishing the Ploom
brandNurturing consumer-centric mindset across theentire organization
Additional internal initiatives as self-regulation and
JT Group Code of Conduct
 iven growing importance, expanding ourGcapabilities in areas of digital, advanced analytics
and B2C

Distribution/Sales

n

n

n

*Route to consumernn anufacture safe, high-quality food products
M–Building optimal production systems that ensure
efficiency and product quality
Install energy-efficient equipment to reduce
environmental impacts–Pursuing transition to clean energynL ooking to enhance our e-commerce capabilities
in markets where it is legal for nicotine andtobacco productsF ormulated internal standards based on Guildelines for Sales Information Provision Activities for Ethical Drugs
issued by Ministry of Health, Labour and Welfare
Thoroughly complying with said standards through training of Torii Pharmaceutical’s medical sales reps

Continue above initiative
 onducting consumer-centric market analysis toCdevelop product proposals that add new value
Building more brand equity through product line
expansion and effective sales promotion
Stepping up marketing/sales activities thatprioritize highly profitable products

n

n

n

n

Regularly assessing entries in new markets/channels considering present and future profitability
Optimizing RTC* based on evolving environment
Strengthening relationships with key distributors
and tobacconists

 ropose products and promote sales strategies inP
response to increasingly diverse consumer needs
and trends–Proposing products personalized to consumers’
individual preferences and lifestylesnnE xpanding in-store product selection and gaining
preferential display locations through aggressive
sales approach targeted primarily at supermarkets
and convenience stores
Strengthening communication with consumers
through online disclosure of product information andlabeling of products with production location, main
ingredients’ place of origin, and contact information
for consumer inquiries/feedbackImproving safety visibility through traceability ofinspection/audit results across the entire value
chain from raw material sourcing through production, processing, distribution and sales

Strengthen sales capabilities and disclose information to reassure consumers–Disclosing more information, e.g. on website andproduct packaging
Stable suppply to consumers–Building an optimal logistics network that maximallyutilizes in-house logistics (in response to Japanese
government’s logistics reform initiative)*Adult consumers. Minimum legal age for smoking varies in accordance with the legislation in each country

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BUSINESS andSTRATEGIESFINANCIAL INFORMATION /OTHERS

GOVERNANCE

Key performance indicators
Financial performance review

Revenue

Profit2,657.8(JPY BN)

2,216.0

2,324.8
2,175.6(JPY BN)JPY
BN
14.3% YoY increase

2,657.8

2,092.6

Free cash flow
(JPY BN)

442.7
385.7

6000
503.9

348.2
310.3

338.5

4500

Since 2021 our consolidated revenue has been growing, mainly due
to positive foreign exchange effects in addition to market-share

482.0

404.2

382.9

3000

growth and positive pricing effects. In 2022 revenue grew by 14.3%
year on year to 2,657.8 billion yen. Until 2020, revenue decreased

1500

105.6

for two consecutive years, mainly as a result of negative foreignexchange effects, growth in the Japanese RRP (Reduced-Risk Products) market, and a continuing downward trend in the Japanese

2018

2019

2020

2021

2022

0
2018

2019

2020

2021

2022

domestic market as a whole.

442.7

2018

2019

2020

2022

2021

382.9

JPY
BN
30.8% YoY increase

JPY
BN
JPY99.1BN YoY decrease

Profit grew 30.8% year on year to 442.7 billion yen, driven largely

In terms of free cash flow, the cash-generating capacity of ourby operating profit growth far greater than the increase in financial

businesses is stable. Free cash flow for 2022, however, decreased

costs.

by 99.1 billion yen year on year to 382.9 billion yen despite AOP
growth, due to a deterioration in working capital as well as increasing corporate taxes and one time costs for measures to enhance
tobacco-business systems operations in Japan.

Adjusted operating profit

30(JPY BN)

27.4+62.1 727.8+55.3 665.7

26.9

25

610.4

595.5
515.9

23.7

487.0

Dividend per share

（%）

23.3

00.0

20

9.0% YoY increase inconstant currency

JPY727.8BN (reported basis)

19.2% YoY increase

(JPY)

200
150

188
150

154

154

We paid total dividends of 188 yen per share for 2022. In 2021 we
140changed our policy on shareholder returns, and to increase those
returns by realizing medium and long term profit growth for the100

Group while maintaining a strong financial base*1, we benchmarked our payout ratio at 75%*2, a competitive level in the capital

Adjusted operating profit on a reported basis grew by 19.2% year
on year to 727.8 billion yen, mainly due to growth in the tobacco

188

JPY

markets*3.

50

and pharmaceutical businesses and positive exchange effects. AOP
15

in constant currency grew by 9.0% year on year to 665.7 billion yen.

0
20182018 2019 2020 2021 Business 2022 at
momentum constantcurrency
調整後営業利益率

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FX

2022

10

2019

2020

2021

2022

*1 The Group will maintain a strong financial base that secures stability in caseof changes in business environment such as economic crises and flexibility
enabling expeditious responses to business investment opportunities*2 To be in the range of approximately ±5%*3 We monitor the shareholder return trends of Fast-Moving Consumer Goods
companies which have a stakeholder model similar to our 4S model andhave realized strong business growth

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GOVERNANCE

Key performance indicators

Non-financial performance review

2022 sustainability highlights
Summarized here are some of our sustainability achievements and the progress we have made. It is of paramountimportance that we continue to monitor and report on our
strategy, initiatives, goals, and progress. By assessing the

The JT Group’s materiality has been
updated in this report. The new JT
Group Materiality reflects key issues

JT Group environmental performance data
impact not only on our Group but on our value chain as awhole, we seek to create shared value for our planet and forthe communities in which we operate.

The JT Group is committed to achieve
Net-Zero Greenhouse Gas (GHG)
emissions by 2050. We are taking proactivethat are currently important to our stakehold-initiatives to reduce our GHG emissions for theers, our society and the JT Group. In updating

entire value chain. We aim to be Carbon

our materiality, the changes in the business

Neutral by 2030 through initiatives including

environment and social conditions surround-increasing the proportion of renewable elec-

ing our Group were taken into account, while

tricity that we use. GHG reduction targets forpaying attention to our relationship with soci-2030 from our operations have been validated

ety and by listening even more closely to theby the Science Based Targets initiative (SBTi) as

opinions of our stakeholders.

being in line with the 1.5°C global warming

4Read more on P. 38.

scenario.

As a global organization, we recognize that we have a keyrole to play in reducing our environmental impact – not only
in our own business operations, but across our value chain.

We will continue to measure performance across a range
of environmental topics and set ourselves targets along theway.

Greenhouse Gas emissions Scope 1 and 2

Greenhouse Gas emissions Scope 3 Category 1(CO2e thousand tons)(CO2e thousand tons)

1,000

8,000

6,960
6,298
750

6,000

367

500

2019


one of the key programs for our to-gender equality in the workplace.

bacco business’s leaf supply chain manage-

representation in leadership is set to reach

Chain Due Diligence process. Our target is to25% by 2030. We find it desirable that this

implement ALP in all sourcing countries byshould be more than 40% over time. In 2022,

2025. In 2022, ALP was fully implemented inwomen’s representation in leadership reached

Bangladesh and Ethiopia, and this contributed

16.9%, as we continue with our efforts to meetsignificantly toward meeting our ALP target.

the Group-wide target.

4Read more on P. 69. Read more about the progress of ALP in 2022 on

4Read more on P. 83.

JT.com.

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339

351

277

4,000

2020

Scope 1



2021

340

2022

0

2019

Waste generated(Thousand m3)(Thousand tons)

12,000

10,297 10,485 10,206 10,019

9,705

9,289

131
120

6,000

80

3,000

40

0

2021

2022

160

10,567 10,576
9,000

2020

Scope 2

Water withdrawal

Our Group-wide target for women’s

ment and an integral part of the Leaf Supply

296

5,958

2,000

368

0

We are committed to promoting

318

250

4Read more on P. 78.

Agricultural Labor Practices (ALP) is

7,793

2015 2016 2017 2018 2019 2020 2021 2022

0

132

131

133

131

126

123

116

2015 2016 2017 2018 2019 2020 2021 2022

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MATERIALITY andSUSTAINABILITY

BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERSIDENTITY
We established the JT Group Purpose todescribe the group's direction in which we
aim to ensure the sustainability of society
and our businesses. In this section our CEO
and Executive Vice President discuss the
Purpose in detail, touching on the ideas behind it, the future of society that the Grouphopes to help create, and the specific ways
in which we can contribute.
We will also share our thoughts about value
creation for the future in the context of our
Purpose as our value creation process.

016

018

Our management principle020

JT Group history and the values we cherish

022

Message from the CEO

028

Message from the Executive Vice President

034

Our value creation process

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MATERIALITY andSUSTAINABILITY

BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERS

Our management principle

To pursue the 4S model
Under the 4S model, we strive to fulfill our responsibilities toour valued consumers, shareholders, employees and thewider society, carefully considering the respective interestsof these four key stakeholder groups and exceeding their
expectations wherever we can.
By pursuing the 4S model, we aim to achieve sustainableprofit growth over the medium and long terms. We firmly
believe that pursuing the 4S model is the best approach tocontinuously grow our corporate value and serve our four
stakeholder constituencies’ common interests.

018

Shareholders

Consumers

Employees

SocietyConsumers

Shareholders

We provide exceptional products and services that deliver
value beyond fulfillment of diverse needs and preferences.
To keep doing so, we will upgrade our innovation capabilities by leveraging our Group’s diversity.

We aim to enhance shareholder returns by delivering
medium- and long-term profit growth, placing priority on
striking a balance between profit growth through business
investments and shareholder returns.

Employees

Society

We aim to be an appealing, highly esteemed company forwhich our employees are proud to work. While evaluating
employees fairly and transparently and supporting theirpersonal growth, we aim to foster a corporate culture that
respects and embraces diverse values.

In order to fulfill our responsibility as a member of society
and contribute to the sustainable development of society
through our business, we will work with a wide range ofstakeholders and strive to resolve various issues together.

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MATERIALITY andSUSTAINABILITY

BUSINESS andSTRATEGIESFINANCIAL INFORMATION /OTHERS

GOVERNANCE

JT Group history and the values we cherish
Since 1968, when JT was a government corporation, we have been through various important changes. In 2023, we defined the area where we will continue to contributewith confidence as "fulfilling moments" and designated “Fulfilling Moments, Enriching Life” as the Purpose for the Group.

n JT Group identity (values we cherish)  n ActionnT
 he founding ofProfitJapan Tobacco Inc.

We set our core mission as “tobecome a marketing company
that creates moments ofpleasure.”nT he New “43”The tobacco businessis unique in its purposeof affording, in the brief
moment of a puff, a broad
range of multifaceted
effects on the delicate
human senses andpsychology, to help
alleviate the stress of daily
life and offer rich delight.

nJ
 T establishes

our processedfood andpharmaceuticalbusinesses

Vision ‘96

JPYnW e announce JT-11

new JT branding
statementnJ
 T ManagementnnEstablishment of
the JT Group Purpose“Fulfilling
Moments,
Enriching Life”n A new name for Mild

Seven: MEVIUS

nO
 ur management

principle; to pursue
the 4S model

1985

1994

nJ
 T joins the Tokyo

Stock Exchange

1996

1998

1999

nJ
 T acquires amajority stake inTorii PharmaceuticalCo., Ltd.
n JT acquires the non-

U.S. tobacco businessof RJR Nabisco Inc.

442.7BNLong-term vision: A growing
global company providing
diverse value unique to the JT
Group.
The JT Group Mission
The JT Group Way

Offering our stakeholders
the unique added value of
irreplaceable delight, surpriseand joy through our entire
operation. In following
through on this promise wework to be irreplaceable tosociety at large.

We add a new concept:“delight,” encompassing
moments of discovery,
surprise and joy in a wide
range of encounters.

Long-TermBusiness Plan

1968

n We announce a

2002

2007

nJ
 T acquires Gallaher

Group Plc (U.K.)

2008

2013

nJ
 T acquires majority

stake in KatokichiCo., Ltd. (currently
TableMark Co.,
Ltd.) and Fuji Foods
Corporation

2016

2021

2022

2023

nJ
 T introduces Ploom X

(HTS)

nJ
 T acquires the

non-U.S. tobacco
business of Natural
American SpiritnJ T introduces Ploom

TECH (Infused)

020

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MATERIALITY andSUSTAINABILITY

BUSINESS andSTRATEGIESGOVERNANCE

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Message from the CEO

Ideas behind the JT Group Purpose“ he moments that give consumers and peopleTin society fulfillment change with the time.
Staying close to their diversifying needs, the JT
Group strive to realize ’fulfilling moments’
through our evolving business operations, without limiting ourselves to what we are now.

”

How we determined our Purpose
To show us the way forward in a social and businessenvironment defined by discontinuous change, we opened
discussion of a JT Group Purpose that will help assure thesustainability of our businesses and the society in which we
operate.
To define that Purpose we focused on what the JT Groupwants to become, as well as what the society of the future
expects us to be, and what kinds of contributions we canmake to society in embodying those ideals. “Staying close
to people in fulfilling moments through our products andservices, and creating such moments together,” we thought,
would describe the area where the JT Group can do most to
create value.

Our objectives in determining our Purpose“Fulfilling moments” represents a core value that the JT
Group has traditionally offered through its products andservices. Establishing the JT Group Purpose, therefore,
does not mean introducing an entirely new set of values.
To maintain the trust that society gives us as a facilitatorof “fulfilling moments” and continue making our share ofsocial contributions, I think the JT Group must be constantly
evolving, flexibly changing the ways in which we help create“fulfilling moments” to best suit the changing values ofpeople and society.

Masamichi Terabatake

JT Group Purpose

Representative Director and President,
Chief Executive Officer

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By clarifying our focus on “fulfilling moments” and the
direction for our evolution, which will require us to flexibly
adjust our means to those ends as necessary, I believe that
our Group Purpose, along with the rock-solid philosophy
expressed in the 4S model, will enable our corporate Group,business divisions and employees to consider for themselves what to offer to whom from the broader viewpoint of“value,” and take action.
We have also decided to replace the JT Group Mission and
Vision, which expressed our reasons for the Group’s existence and the ideals we aspire to embody, with the new JT
Group Purpose, which inherits their essence and takes them
to a higher evolutionary level.
In our existing business divisions, we put our top priority
on the strategies we’ve shown you so far, and with that as
our premise, we are evolving our initiatives and efforts toachieve our goals. One specific example is the new Business
Purposes for each division (see pages 57, 70, and 74) asshown below, based on the JT Group Purpose. This is meant
to link the Group Purpose to the evolution of the operationsof each business. By actualizing its Business Purpose, eachdivision will help realize the JT Group Purpose for the organization as a whole. To accelerate the operations of eachdivision with clear awareness of its Business Purpose, we arealso creating a code of conduct for each division.

JT Group Purpose“Fulfilling Moments,
Enriching Life”

Tobacco Business Purpose

Pharmaceutical Business Purpose

Processed Food Business Purpose“Creating fulfilling moments.
Creating a better future.”“Respecting science, technology
and people, we will contribute topatients’ lives”“Bringing joy to meals andfun to the table”

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Message from the CEO

Initiatives for growth (D-LAB)
Independent of the established business divisions, we set
up D-LAB, a corporate R&D organization to actualize the
JT Group Purpose through research centered on “fulfilling
moments,” and effort to explore prospects and create seeds
for future business. The areas connecting with “fulfilling
moments” are broad. Some appeal to the five senses, likearomas and food, and others are related to wellness, suchas breathing and sleep. They offer us ample, diverse fields tooperate in.

JT Group Purpose“Fulfilling Moments,
Enriching Life”

D-LAB works with a long term view to help “fulfilling
moments” grow in our society while helping the JT Groupgrow profits as well. Its operations can be roughly divided
into three aspects: multifaceted research on the value wecall “fulfilling moments,” exploration of business prospects,
and creation of seeds for future business. Following trial anderror, several dozen projects are always ongoing.

The business environment surrounding the JT Group remains highly unpredictable due to major changes in society
and consumer behavior following the pandemic, and otherfactors including worldwide inflation, economic slowdown,
the Russia-Ukraine war, and major exchange fluctuations.

Multifaceted research on the value we call“fulfilling moments”

The environment for each business division is increasingly
challenging. In the tobacco business, shrinking industry
volume, continuing downtrading, cost increases due to
inflation, tighter regulations, and expansion of the RRP(Reduced-Risk Products) market, mainly for HTS (heated
tobacco sticks), are the main trends. Our pharmaceuticalbusiness is under pressure to follow government reductionsof official drug prices, and affected by progress with industry
reorganization due to increasing M&A and corporate alliances. The processed food business is also influenced by higher
costs for raw materials due to fluctuations in internationalcommodity prices and exchange rates, as well as increasing
labor and distribution costs due to labor shortages.

nExploration of business prospects

In addition to the changing environment that our management and operations face, the needs and expectationsnCreation of seeds for future business

D-LAB works with a long view to help
“fulfilling moments” grow in our society while
helping the JT Group grow profits.

nCorporate R&D group
D-LAB

Understanding our business environment

To help make our planet and society more sustainablethrough our efforts to realize the JT Group Purpose, wehave conducted a review of our materiality to which weshould give priority. The external conditions and business environment have changed since we last identified
our materiality. Through our engagement with internal
as well as external stakeholders, we have performed afresh assessment of our material issues. With the new JT
Group Materiality in mind, we will update our sustainability initiatives and goals for the Group and for eachbusiness division.

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While I’m on this topic, I’d like to express my sincere condolences to the people and families who have been affectedby the earthquake that hit Turkey in February 2023. Throughhumanitarian organizations, the JT Group is taking part inemergency support, participating in rescue operations andproviding relief supplies. We will stay close to local needs inproviding support, and we plan to offer additional aid. We
are also deeply concerned about developments in the war
in Ukraine, where many people are facing tragedy and devastation, and we sincerely hope that peace will return soon.
Our top priority remains the safety of our employees andtheir families, and the JT Group will spare no effort in providing as much support as we can to the people suffering.

Business Plan 2023
The Group as a whole

Updating material issuesof society and our shareholders are changing as well,influenced by the advancement of digital technology andgreater public awareness of ESG, SDGs and sustainability. I
have a fresh realization that we have to maintain constanteffort to be perceptive about the potential effects of environmental change we see today and take appropriate steps
to address them.

Through 2022 we had to operate in a difficult businessenvironment. That said, thanks to the contribution of ourtobacco business, the JT Group saw adjusted operating
profit at constant currency and profit rise substantially over
the year, and over our initial targets as well. As a result, weachieved new record highs for all metrics from revenue toprofit on the income statement.
As announced in February 2023, Business Plan 2023, ourthree-year business plan, marks the continuation of our
fundamental pursuit of sustainable medium- and long-term
profit growth.
To achieve this goal, the core tobacco business will further
strengthen its organizational capabilities globally. In addition, we are working to increase return on investment inour combustibles operation, accelerate investment in RRP,

especially HTS, and pursue higher efficiency throughout ourbusinesses.
We designate 2023 as a year for reinforcing our foundations
for future profit growth, actively investing in our businesses,
particularly towards HTS. We are projecting adjusted
operating profit at constant currency for 2023 on a par withthat for 2022, due mainly to worldwide inflation pushingup supply chain costs. As we increase investments between
2023 and 2025, we project low single digit profit growth.
Over the medium and long terms, we will continue generating sustainable profit growth, specifically in the mid tohigh single digit on annual average for adjusted operating
profit at constant currency, by increasing our share of the
RRP market as well as the profitability of the entire productcategory. We also expect to steadily grow both profit andshareholder returns in line with our shareholder return
policy.

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Message from the CEO

With the prolongation and increasingly complex situationof the Russia-Ukraine war, the JT Group has been operatingin strict compliance with all sanctions and regulations
imposed, nationally and internationally. As we announced
in March 2022, we are continuing our operations whilesuspending new investment and marketing efforts.
As we respond to changes in the situation, we will remaincommitted to decision-making based on the 4S model.

Tobacco businessIn the tobacco business, under the new unified businessstructure that began in January 2022, we are making steadyprogress by designing and executing globally unified
strategies and effectively applying our global resources. Our
new tobacco business structure began with the goal to raise
the JT Group to a new level in its evolution as a truly global
firm in both name and substance. I believe this will help theGroup grow for years to come.
We are working to enhance the quality and speed of ourdecision-making by strengthening our effective and efficient business structure, while offering increasing value toconsumers* through optimal resource allocation based onpriorities set with a global view.
Specifically we think that pricing, which we have been
doing strategically, will remain our top-line growth driver for
combustibles. We are also establishing priorities for investment targets with the strategic roles of each market in mind.
We plan to invest more than 300 billion yen in RRP, mainly
HTS, during the current business plan. Over the medium andlong terms, we project to more than double our revenue
from the 2022 level by 2025, hold a mid-teens share of the
HTS category in the key HTS markets, and turn a profit fromthe RRP business by 2028. To make this happen, we will accelerate our global operation for Ploom X, adding momentum from the debut in the U.K. in October 2022 and in Italyin April 2023, to introduce the product in 28 countries by
the end of 2024. Along with accelerating the introduction of
Ploom X, we plan to actively invest in marketing for HTS.
We project growing demand for RRP, which we define asproducts with the potential to reduce the risks associatedwith smoking. Smoking is considered a health risk due
mainly to substances in the smoke generated from burning
tobacco leaves. This new style of tobacco products that
do not involve burning, we believe, has the potential toreduce those associated risks. As they produce no smokeand less odor, we think they also reduce inconvenience tonon-smokers.
However, all in all, we believe that tobacco-consumer needs
are diverse and require a broad range of choices, ensuringthat every consumer can find a product offering a highlevel of satisfaction. To that end the JT Group continues toexpand product categories to meet global changes andimprove the product value of all tobacco products.
To reinforce the foundations of our business, we conducted
the JTI “transformation” and measures to enhance ourcompetitiveness in Japan. These efforts bore expected fruit,valued at over 40 billion yen during the three-year period
starting in 2020. We will never cease our work to increase
supply chain efficiency.

Pharmaceutical business/Processed foodbusiness
The pharmaceutical and processed food businesses also
face challenging business environments, but their role ofsupplementing profit growth for the JT Group remains
unchanged. In the pharmaceutical business, we plan tobroaden research themes and revamp our drug discovery
processes to build up our capabilities for developing new
drugs. In partnership with Torii Pharmaceutical, we will
optimize the value of our products and enhance licensing
operations to reinforce the business foundations. In theprocessed food business, we will carry out price revisions,mainly on frozen and ambient foods, to defray the current
surge in costs for materials. We are making the shift toa high-earning business structure by allocating moreresources to groups of high-value-added products as partof our work to achieve more sustainable profit growth. With
the future of food in mind, we are accelerating initiatives tosecure long-term growth and promote value creation forour consumers.

Resource allocation policy

maintaining a target payout ratio of about 75%*.

Based on the 4S model and the JT Group Purpose, there
is no change in our resource allocation policy to put toppriority on investment in business that leads to sustainableprofit growth, especially the tobacco business.

Our dividend for 2022 was 188 yen per share, an all-timehigh. We plan to pay 188 yen per share for 2023 as well.
* To be in the range of approximately ±5%

We will also work to increase returns to shareholders
through medium- and long-term profit growth, while

To our stakeholders
As I’ve said previously, we have established the JT Group
Purpose to clarify the best direction for the JT Group. The
Group will never cease to evolve to maintain the trust of society in creating the value of “fulfilling moments,” which willchange in diverse ways with the times and each individual,
and will continue to make important contributions.
In an environment growing more unpredictable andcomplex than ever, the JT Group will maintain across-theboard effort under the 4S model to offer products andservices that transcend consumer expectations and support
sustainable business growth. With firm commitment, I am
personally striving to promote the continuous evolutionof the JT Group to ensure that it remains necessary to ourconsumers, shareholders, employees and society.

* The word “consumers” in the context of the tobacco business means adult consumers. Minimum legal age for smoking varies in accordance with legislation in eachcountry. In Japan, smoking is not permitted for those under 20 years of age

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Message from the Executive Vice President“ he significance of designating ‘Fulfilling Moments,
T
Enriching Life’ as the JT Group Purpose is in continuously
communicating to the world the reason for our existence
through our work to realize it.

”

Ideas behind the JT Group Purpose
Today’s complex interaction of macro and micro factors
amid unrelenting change in our society and economy isso far beyond imagining that it might seem presumptuous
to assume that one can read ahead. Change is happening
across the board, with exponential advancement of scienceand technology, new kinds of pandemics, the rising scale ofnatural disasters, terrorism, international conflict, superpower moves to defend national security, rising protectionism,
inflation worldwide and marked fluctuations in exchange
rates. We know this will probably have both direct andindirect influence on our lives and senses of value, as well as
the businesses and status of the JT Group.
The Group has been building profits with the tobacco
business as its core, assisted by the pharmaceutical andprocessed food businesses. Repeated trial and error andthe courage to rise to any challenge with a forward-looking
view have made this possible, which is also proof that our
stakeholders appreciate the resulting value we offer. Will
this remain practical in this age of continuous, dramaticchange? If we were to continue doing things as we always

have, with familiar markets, consumers and competitors,
maintaining traditions of industry practice, “common sense,”
rules and customs, I fear it would be hard even just to copewith the scale of the global changes we face.
For the Group to be sustainable in this highly unpredictable
and complex society, we have to show anew the direction inwhich we should be moving. In other words, circumstances
dictated that we define the ideal society we envision, clarify
those parts of life that society can entrust to the Group withthe greatest confidence in our value, and show how we cancontribute. The new JT Group Purpose is the result of ourself-examination along these lines. As our CEO Masamichi
Terabatake says in his message, we decided we can offer our
greatest value by “staying close to people in fulfilling moments through our products and services, and creating such
moments together.” To realize our Purpose, we continue toembrace evolutionary challenges by deepening our commitment to go beyond established ideas in our operations
and initiatives.

Kiyohide Hirowatari
Representative Director and Executive
Vice President

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Message from the Executive Vice President

Creating the JT Group Purpose
The short-term goals of the Group and the ideals we’re
working to achieve over the long haul may seem contiguous, but they’re difficult to directly connect in a given timeframe. Bridging this gap was the highest hurdle we faced
in designating the Group Purpose, because we had toconnect two perspectives—one of forecasting to improve
the Group’s value to our stakeholders and society throughinitiatives based on an awareness of the current social andbusiness environment, and the other of backcasting from
our imagined futures. The issues we identified in backcasting and the initiatives to resolve them are not exactly thesame as those the Group has to address in achieving its
nearer-term goals. While we are committed to contributing
to the sustainable development of society through ourbusiness operations as we build corporate value, we mustalso produce positive nearer-term results, specifically in theachievement of the performance projections we disclose forthe public and capital markets and the goals we set out inour medium-term business plans, necessary to securing thefunds for realizing our ideals.
In this context the task of designating our Purpose may
put pressure on each business division to choose whether
to prioritize initiatives to achieve short-term goals, or toaccelerate initiatives to embody our ideals over the longterm. To avoid this we put a lot of time into discussion, withparticular emphasis on two points—confirming that “JT’sideal future form is an extension of what we have achievedin our past and present initiatives,” and stressing that “current
initiatives are not the only ways to become what JT hopes
to be” given the diversifying range of values among people
at large.
Despite the hurdles ahead, our discussions have brought
positive results, not least our Business Purposes. As I mentioned, in designating and publicizing the JT Group Purpose
there has been concern about employees perceiving a gap

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Significance of designating the JT Group Purpose
between long-term ideals and short-term challenges. On
the individual level, that boils down to what each of us can
do to realize the JT Group Purpose. Our Business Purposes
are a way of answering this question, outlining a path foreach employee and each business division in understanding
specifically what kinds of actions to undertake.

Creating the JT Group Purpose process
Building a project team

The future society we envision:
Identifying the values we cherish

Putting it into words (drafting the Purpose)

Stakeholder interviews(management, employees, specialists, consumers)

Town hall meetings (dialogue with employees)

RevisionManagement/Board of Directors meeting
resolutions

Designating the JT Group Purpose

In formulating the Group Purpose we put special thought into two factors: the future we envision for society and the values
the Group cherishes.

The future we envision

Cherished values of the JT GroupFirst, working from leading trends we considered what
could happen going forward, particularly in terms of changes in daily life and our sense of value. With the continuing
advancement of science and technology we can presume
a high probability of trending toward greater convenienceand rationality, in other words a more optimal society. But
as living creatures, humans don’t make decisions based
entirely on any measure of optimization. That understanding
brought us to a hypothesis: the pursuit of an optimal state
can place new limits on life, causing stress, and in reaction
people may begin to see greater value in the meaning andsignificance of inconvenience and irrationality, raising thepossibility of backlash. This kind of emotional reaction, to adifferent degree for each person, will diversify endlessly andremain in play because of what it means to each person.

Offering that value has been integral to JT Group operations
for decades. The long-term business plan the Company
instituted in 1968, as Japan Tobacco and Salt Public
Corporation, includes the phrase, “We enrich people’s lives
by offering fulfilling and delightful moments.” Since then, we
have undergone privatization, diversification and internationalization, and we now operate tobacco, pharmaceuticaland processed food businesses. All through these years, wehave asked ourselves what constitutes fulfilling moments.
The ability to enjoy such moments will grow even more
important to society going forward.

We believe that what may seem irrational or wasteful canlead to an awareness of fulfilling moments. By staying withthose moments, we believe, experiences of emotionalfulfillment build up, influence one another and enrich thelives of the people in society as a whole, the world and thefuture. We also think that the value the Group offers in that
context helps create a society and future of enrichment for
all, regardless of individual challenges, so that more people
can feel, “I had another good day today.”

The kinds of moments people feel are fulfilling will vary withchanging times and the social background of each individual, as diverse as the number of people in the world and continually changing. The fulfilling moments that people willneed in the future may be well served by the products andservices the Group is currently offering, or by completely different products. For the Group to continue leading this fieldwith the trust and full confidence of society, we will haveto continue evolving. We see this as a commitment that wemust meet in order to fulfill the Purpose of “Enriching Life.”
We realize that achieving the Purpose will take a long time,and not all we do in that regard will be clearly visible. To
that end we must respond to change, and any preset course
may require adjustment. What’s important in an uncertain
environment, I believe, is the will of the Group to become
its ideal self and help create the ideal society we envision.
That will help us find meaning in our daily tasks and greater
value in the results. Through continuing initiatives to realize
our Purpose, “Fulfilling Moments, Enriching Life,” we will
steadfastly communicate to the world the reason for ourGroup’s existence. This is the significance of designating the
JT Group Purpose.

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Message from the Executive Vice President

Realizing the JT Group Purpose
To manifest the Group Purpose we have reorganized ourvalue creation processes with the basic understanding thatpeople’s lives and corporate activities are sustainable only
where the natural environment and society are sustainable.
Those conditions help us stay close to the moments inwhich each person feels fulfilled, and for that purpose weoffer a variety of products and services, taking advantageof the capital the Group has been building up for years aswell as its natural and social capital. In doing this we commit
to collaborating with our stakeholders and encouraging
everyone to collaborate with one another, so the fulfilling
moments of individuals can interact, coalesce, and help
build a society in which everyone feels fulfilled. The diagram

shown below, titled “Ideas for value creation,” is a visual
representation of the stories I’ve been telling.
For the Group to be a trusted actor in creating the kindof life-enriched society we envision, every member of
the Group must consider the values behind our Purpose,
discover the meaning of their responsibilities from thatstandpoint, step up effort to evolve, and win the trust of our
stakeholders. Everything the Group does begins with our
fellow employees, so it’s essential that the understanding of
the Purpose reaches us all. I and our management team arecurrently putting extra effort into building that understanding. Specifically, in addition to internal communications to

inform employees, we on the management team regularly
hold town hall meetings and visit offices and plants to sharedirectly, in our own words, our ideas, hopes and feelings
about the Purpose. It’s important to understand “fulfilling
moments,” but that concept is personal and can manifest in
many ways depending on time and place. In conversations
with employees we make it a rule to emphasize that there
is no fixed path for achieving the Purpose, and how wethink, act, and evolve are important. Our approach has been
generally accepted positively by employees who’ve participated in those meetings. We are encouraged in hearing
them say that the Purpose “agrees with the values I cherish,”or “now I have a road map.” At the same time we’re awareof comments like, “Applying the Purpose to specific tasks or
actions is hard.” So we’ll continue to put effort into detailed
communications using specific examples and case studies.
Our journey to manifesting the JT Group Purpose has only
just begun, and discussion continues internally on specificideas for achieving that with its deeper meaning in mind.
In that effort we hope to make the Purpose as clear asa high-definition image. To realize the ideal society weenvision and help create, the entire Group is embracing thechallenge of constant evolution.

Dialogue session with employees

Ideas for value creation

A society in which people’s lives are enriched

Greater trust in and hopefor the JT Group

Collaboration

Offering more fulfilling moments createdthrough collaboration, interaction and coalescence,
and accumulation with stakeholders.

Stakeholders

JT Group
CapitalFinancial
Non-financial

Shareholders

Offering value

Initiatives torealize the JT
Group Purpose

Consumers
Employees

Society

Accumulating capital

Masamichi Terabatake
Representative Director and President,
Chief Executive Officer

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Kiyohide Hirowatari
Representative Director and Executive Vice
President

Kei Nakano
Representative Director and Executive Vice
President

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Value creation process
The JT Group believes that people’s lives and corporate activities can only be sustainable if the natural environment and society are sustainable.
Based on this belief, we will leverage our various capitals and deliver value beyond the expectations of our stakeholders, to realize the JT Group Purpose, “Fulfilling Moments, Enriching Life.”
Through collaborations with our stakeholders, we will contribute to the creation of a society in which everyone feels fulfilled, enhance the value we create by using the capitals we gain, andcontinue to contribute to the area of “Fulfilling Moments.”

A society in which people’s lives are enriched

Collaboration

Greater trust in and hope for the JT Group

Activities to actualize the JT Group Purpose

Our core capitals
Financial capital

Our management principle

Sustainable profit growth and stable
cash flows are backed by a combinationof organic growth and M&A.

Shareholders

Intellectual capital

Strong R&D capabilities
We possess a diverse portfolio of competitive
brands and robust brand equity rooted in ourability to deliver high-quality, innovative products.

Consumers
Employees

Human capital
Our corporate culture respects diverse values
and generates synergy from a diverse workforce.

t
en
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an

ale

034

Medium- and long-term
profit growth andimprovementof shareholder
Shareholders
returns throughbusiness investments

ing

Diverseworkforce

ufa

n/S

Superior
brand equityc tur

D i s t ri b u ti oNatural capital

Offering fulfilling moments,
through products andConsumers
services exceeding
consumers’ expectations

Solidfinancial base

Manufacturing capital

The natural environment is vital to
our sustainable growth.

Pharmaceutical business“Respecting science, technology
and people, we will contribute topatients’ lives”

Pro
cu
re
D
m
R& Three strengths driving
our global growthSocial and relationship capital

Our optimal manufacturingsystem and active capital investment ensure
superior quality and productivity.
Our system provides markets with products
in an efficient and timely manner.

The value we create

Society

Our value chain and three strengths

We have global business operations
and a wide collaborative network
spanning our value chain.

Tobacco business“Creating fulfilling moments.
Creating a better future.”

Offering more fulfilling moments, through collaboratingwith stakeholders, encouraging the fulfilling moments ofindividuals to interact and coalesce, and building asociety in which everyone feels fulfilled

Processed food businessM ar ke ti n g

JT Group Materiality
Living withthe planet

Value creationthat exceeds
consumer
expectations

Responsible
supply chain
management

Contribution tosustainable
nature and society

Investing inpeople andprovidingmotivation“Bringing Joy to Meals andFun to the Table”

Respecting individual values
and providing
Employees opportunities for growthsuited to the individualGood
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MATERIALITY and SUSTAINABILITY
This section introduces the JT Group's new and updated materiality. The sustainability initiatives of theGroup, initiatives by each business and the activities of
the Sustainability Advisory Forum are also explained inthis section. In the CSO interview, you will find a moredetailed account of our new JT Group Materiality andthe outlook for 2023 and beyond.

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CSO interview
Photo taken at the canteen of the JT HQ office in Tokyo

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FINANCIAL INFORMATION /OTHERSThe JT Group Materiality and sustainability​

Updating the Group materiality​

Phase 3

Our materiality is based on the concept of double materiality, taking into account the significance to and impact on
our stakeholders and the society, and the significance andimpact to the JT Group for sustainable growth. The wholeprocess was conducted in accordance with the advice of an
external consultant.​

Through interviews with internal as well as externalnn lotting the matrix: As with our original matrix, we firstP
set out the materiality matrix of our tobacco business,
which was subsequently expanded to include the entire
Group.​
 isualizing individual materiality topics by plotting prioriVties of significance to and impact on our stakeholders on
the vertical axis and, priorities to our Group’s long-termbusiness on the horizontal axis.​

4Read more about the materiality analysis on JT.com.

Updating the JT Group Materiality – the process​​

Highly significant

Since we selected our original materiality topics, external
circumstances and the business environment in which we​
operate have changed. In 2021, we began updating theGroup’s materiality framework by identifying and analyzing
our materiality topics.​

Plotting the matrix and prioritizing​

Significant

stakeholders, we have selected and prioritized our materiality topics and updated the materiality matrix accordingly.
We then identified issue groups for the Group materiality
consideration to set out the JT Group Materiality. ​Priority and significance to the JT Group’s stakeholders

We started our materiality assessment in 2013, and in 2015
for the first time through interviews with our external andinternal stakeholders, we completed our original materiality
assessment to cover the entire JT Group.​Significant

The JT Group Materiality was updated through the following four phases.​Highly significant

Priority and significance to the JT Group’s business success

Phase 1

Identifying materiality topics​nIdentifying topics that may have impact on the sustainable growth or sustainability challenges of our Group,
bearing in mind the changes in our external operating
environment and the business challenges.​nIdentifying topics by researching and analyzing a wide
range of information including but not limited to sustainability disclosure standards or frameworks such as
SDGs, SASB or GRI, risk factors found through our enterprise risk management process, or materiality coverageof our competitor firms, among others.​

Phase 4

Identifying the issue groups​nS electing priority topics or issues for the JT Group as
well as for our stakeholders for sustainable growth of theGroup and our society. ​Then arranging the topics into five groups with similar
issues or expected effects, namely, preserving our environment, product and services, people, supply chain
management and governance.

Phase 2

Stakeholder interviews and desktop searches​
n

n

n

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Integrating internal and external stakeholder opinions
by conducting interviews and surveys, using the topics
identified in the phase 1 process.​ rioritizing the topics for our external and internal stakeP
holders through desktop analysis of information issued
by external rating agencies, global mega-trends or media reports, ensuring there are no gaps and that all relevant topics have been included.​ onducting interviews with a wide range of stakeholdersC
to maintain quality of the materiality assessment, bear-

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ing in mind that the priority of materiality topics mayvary depending on the individual stakeholder.

Track record of stakeholder interviews, surveysnPrimarily senior vice presidents of corporate and businessnSuppliers, customers, NGOs, other external parties: 27 cases

functions of the Group: 119 SVPs or others in similar positionsnnInvestors, banks: 38 cases

Employees and others: Approximately 450 cases

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FINANCIAL INFORMATION /OTHERSThe JT Group Materiality and sustainability​ s nature, society and people’s lives are intertwined, sustaining our ways of living, and the activities of entities, will depend on the sustainability of the environment and society in which weA
exist. The JT Group’s management principle is the 4S model. In pursuing this principle and by realizing the JT Group Purpose, we are contributing to the sustainability of our environment andour society, through our commitment to working on the five groups of material issues identified.
Having discussed these material issues with the Board of Directors, we have set them out as the JT Group Materiality as shown below. ​Based on the JT Group Materiality, the Group sustainability targets and the targets for each business segment will be reviewed accordingly.​
The JT Group Materiality will be examined regularly at Sustainability Advisory Forum and will be updated as necessary.​

The JT Group Materiality​JT Group Purpose​

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.​

Fulfilling Moments,
Enriching Life​

Value Creation that
Exceeds Consumer
Expectations

Living with the Planet

Our management principle​
The 4S model​

Preserve a harmonious
relationship between ourenvironment, people, and corporate organizations throughinitiatives to improve our
impact on our environment​

Create diverse products andservices beyond consumer
expectations​

Investing in People andProvide Motivation

Responsible Supply Chain
Management

Invest in people to support
their development with attention to diversity, and enhance
human capital by fostering a
corporate culture that maximizes individuality and abilityof each person​

Create a sustainable supply
chain capable of withstanding
sudden changes in the business environment, by tacklingsocial issues such as respecting human rights or preservation of our environment​

Good Governance
Enhance our governance byimproving our stakeholder
satisfaction and continue tobe a trustworthy corporate
entity​Shareholders

Undertake initiatives to tackle
climate change and conserve
our environment​n 

Promote resource recycling
and develop sustainableproducts with high environmental value​n Consumers

Employees

Develop innovative products
and services and offer variety
of situations to experience
our products​

n 

g

g

g

Society
Developand offer RRP (Reduced-Risk
Products)​
Developinnovative original drugs​

Developfood products in response
to diverse consumer values and interests​
among others​

Establish a fair and safe working environment, provide
each employee with theopportunity for growth andpromote diversity, equity andinclusion ​n 

Establish a structure thatencourages our employees toparticipate in and create with
our societyn 

Engage with the suppliers
through human rights/environmental due diligence​n 

Deliver initiatives that
contribute to resolving social
issues together with our
suppliers​n Construct and implement aframework for transparent,
fair, prompt, and decisivedecision-making​n 

Engage proactively withdiverse stakeholders​n 

Research, explore and create
seeds for future businesscentered on the concept of“enriching life”​

n 

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GOVERNANCE

The JT Group Materiality and sustainability

Setting out the JT Group Materiality: Stakeholder comments​
Through the process of updating our materiality matrix
and identifying the JT Group Materiality, we engaged with

Sustainability Advisory Foruma variety of stakeholders in order to gather their views andopinions. Here are some in their own words:“We provide advice and proposals to a wide range of companies facing sustainability issues. Materiality is the starting point ofprioritizing your sustainability issues and a vital process which could influence on mid- to long-term sustainability initiatives of afirm. Our role was to provide feedback to the JT Group post its materiality selection. By looking at the process that the Group hastaken in selecting its materiality, we learned that not only was the firm concerned with its own business issues, but it also took
into consideration issues that our society is currently facing, checking them one by one. The stakeholder interview was thoroughly conducted with high awareness for the challenges to the JT Group in identifying its materiality.”
External stakeholder

Since 2020, we have held regular Sustainability Advisory
Forums to discuss the Group’s sustainability issues. With ourChief Sustainability Officer acting as Chairman, the forum is
attended by heads of the JT Group’s businesses and corporate functions. In 2022, two forums were held. We discussed
and shared information about sustainability issues such as
updating the Group’s materiality, checking the progress ofand revisiting our Group Environment Plan 2030 including
our work on climate change, progress on enterprise risk
management, integrated reporting, and assistance for
Ukraine, among others. Discussions at the forum are appropriately reported to the CEO and Board of Directors.

“Agricultural Labor Practices (ALP) is one of key programs for our leaf supply chain management and integral part of our Leaf
Supply Chain Due Diligence process. The ALP program started in 2012, by launching ALP guidance, with minimum expectation vs.
Child Labor Elimination, Improving Rights of Workers and Health and Safety conditions on a farm level. JTI extended the implementation of the ALP program from own operations to third party suppliers in 2015. The program has evolved through continuous learning and engagement with all the stakeholders (growers, International Labour Organization, OECD, own operations,n Progress of our sustainability initiatives in 2022​

third-party suppliers etc.). ALP today is a part of the broader Leaf Supply Chain Due Diligence process. We continue to deliver
against JT Group ALP target ‘we will implement ALP in all sourcing countries by 2025’. A significant progress made is full ALP implementation in newly acquired businesses in Bangladesh and Ethiopia. Supply chain management was a very high material issue
in our original materiality assessment. JTI’s latest materiality assessment emphasized the need to further strengthen the efforts
against mapped challenges in our leaf supply chain.“

Progress of the JT Group Environment Plan 2030 or KPI progress by each business segment are reported to the Board of
Directors every year. ​Focus areas, aspirational goals, targets and progress of each business for 2022 are shown below.​

Targets and progress by business segment

Leaf supply chain due diligence director, tobacco business, JT International

Tobacco“In the processed food business, we strive to pursue the JT Group Purpose of ‘Fulfilling Moments, Enriching Life’ through foodexperiences. To support the Group Purpose, we have set our Business Purpose “Bringing joy to meals and fun to the table.” This
Business Purpose will be the cornerstone in working through the challenges faced by our society in relation to food. We want

Pharmaceutical
Processed food

4JT.com

Focus areas, aspirational goals, targets and progress, related SDGs

4JT.com
4JT.comto make this journey together with all our stakeholders, be it our colleagues or our consumers, while pursuing to provide valuethat only our firm can deliver. The five topics of materiality identified will act as an important guide as we strive to accelerate ourinitiatives.“
Team leader, Sustainability, food business planning division, processed food business, JT Inc.

“In updating our materiality, I gave a great deal of thought to the relationship between the environment, society, people's lives,and corporate activities. For the pursuit of sustainability, I strongly felt the need to work jointly, not only within the JT Group but
also with all the stakeholders. Setting the materiality is the beginning of our journey. We will continue to engage with various
stakeholders and accelerate our efforts together. Moreover, we will monitor the progress of the initiatives in place, and by capturing changes in the social and business environment, I hope that ‘our’ materiality can be updated jointly and flexibly with our
stakeholders in the coming future.”

Hisashi Hamada, Materiality project leader, sustainability management division, JT Inc.

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 e will strive further by creatingWand providing values unique to the
JT Group. We wish to continue ourjourney to achieve sustainablegrowth, together with our stakeholders, local communities and thesociety that we are a part of.

”QTell us about sustainability highlights for 2022.

2022 continued to be a year of high uncertainty due tochanges brought to our society and consumer behavior
from COVID-19, unstable international political relations
due to the Russia-Ukraine war, and global inflation. As the
war triggered rising energy prices, concerns were initiallyvoiced that initiatives for climate change or investment in
ESG might slow down. However, 2022 was a year in which
we continued to see the importance and momentum ofsustainable growth through coexistence between society
and corporate organizations. Additionally, more than everbefore, corporate organizations are required not only toshow a conventional business plan, but to present to stakeholders and to society a comprehensive plan that integrates
financial and non-financial aspects with sustainability
perspectives.
At the Group level, we set out our new Group Purpose“Fulfilling Moments, Enriching Life” and communicatedthis alongside the 2022 full-year announcement. The new
purpose embeds our wish to continue to grow together
with society with awareness for enriching life. Furthermore,
2022 was the first year in which we integrated the operating
structure of our tobacco businesses into a single business.
This integration progressed steadily throughout the year.
As for the JT Group’s sustainability initiatives, we worked on
updating our materiality and we have disclosed the newGroup materiality in this report. To further drive our sustainability efforts, we updated the JT Group Environment Plan

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Hisato Imokawa
Senior Vice President, Chief Sustainability Officer

2030 at the beginning of 2022. Our Greenhouse Gas (GHG)
reduction targets have evolved into a more ambitious plan,
as we aim to reduce GHG emissions throughout the value
chain by 2050 to Net-Zero.
The Group’s sustainable growth depends on co-existingwith the society. We have extended various forms of aid tosupport local communities around the world. We provided
support for the recent earthquake in Turkey. As for theRussia-Ukraine war, we will continue to give priority to thesafety of our employees and their families, while providing
as much support as possible to the people facing difficulties
in Ukraine.

Q

Please tell us about your new materiality in comparison to the original materiality.

When we first performed the materiality assessment in2015, the awareness for ‘sustainability’ was very different. As
this was our first attempt, there were trials and errors. So,
perhaps the voices from our business side were not givena sufficiently full hearing. This time, we were conscious ofconnecting business strategy and sustainability, and we
paid attention to incorporating business-driven issues. We
also gave thorough consideration to the uniqueness of ourGroup. We have recently announced the JT Group Purpose
and we are at a turning point in terms of how we do business. With these factors borne in mind, our materiality was
thoroughly and comprehensively checked and updated.

surrounding our Group. We have therefore updated ourmateriality by always paying attention to our relationshipwith the society which we are part of, and by listening evenmore closely to the opinions of our stakeholders. It's notthat all topics were replaced but rather, some topics havedeveloped into several specific issues, while others have
evolved into more advanced topics. Or, as we worked on
the topics and rolled out our initiatives, the positions on thematrix have changed, as the initiatives yielded results. These
were rearranged as materiality topics.

QCould you tell us about the JT Group Materialitythat you have identified from the new materiality
matrix?

All topics are important, so we have repeatedly considered
what sort of priority should be given and what should be
the most important issues for the JT Group. The importanceof one specific topic can be identified by making a relative
comparison with others. But it is also true that one topic
on its own cannot cover the underlying importance of alarger issue. The environment, society, and the life of eachindividual are all intricately connected within the same
ecosystem. Rather than simply identifying topic by topic,
we decided to specify five big groups of issues which areclosely connected. It may be a small thing, but this way ofidentifying materiality also represents the uniqueness of ourGroup. We checked and rechecked the issues one by one toestablish whether they are unique to the JT Group. We also
examined whether our initiatives for the issues would be
unique to our Group. Bearing these in mind, we have shown
our commitment for all the topics materiality identified.
Furthermore, there is a common theme that is relevant to
all the five topics of materiality. In my opinion, this is “people
come first”, be it human rights, the environment or the wider
society. People, the environment and the wider society are
all interconnected and we should respect them all. Our materiality is based on this premise. Please view our materiality
with these thoughts in mind.

QPlease tell us about the outlook for 2023 andthe sustainability challenges ahead.

The key process of incorporating the new materiality into
our strategy, formulating specific initiatives, and setting
goals and targets will follow. At the Group level, we will continue to monitor and promote the JT Group Environment
Plan 2030. We will also continue to engage with our stakeholders, further develop human rights due diligence, andcontribute to our local communities with a view to gaining
insight into matters relating to social capital. Furthermore,in terms of sustainability initiatives for each business of theGroup, we will support our business functions in promoting
initiatives, setting goals, monitoring, and reporting on
progress.
The wave of regulation for sustainability disclosure whichstarted in Europe is evolving into a global movement.
Regulations governing the disclosure of sustainability
information are being considered in Europe, the UnitedStates, and Japan, and preparations are under way for theirenforcement. For example, in Japan, the focus of disclosure
regulations is on "climate change" for environmental issues
and "human capital" for social issues—both topics areamong the five topics of materiality that we have identified
this time. We believe that diversity of people is a source ofour competitiveness, and we will strive to foster a corporate
culture that embeds and respects diversity. As for improving
our impact on the environment, we will not only work on
existing initiatives concerned with climate change, withpreserving natural resources, or with providing sustainableproducts; we will also keep an eye on upcoming topics suchas biodiversity.
We are entering an era in which it is necessary for everyone
to accumulate knowledge and track records in sustainability,
be it those who develop frameworks, those who evaluate, or
those who are evaluated. We will strive further by creating
and providing values unique to the JT Group, and continue
our journey to achieve sustainable growth. We want to do
this together with our stakeholders and local communities
and the society that we are a part of.

Since we first set out our materiality, we have seen majorchanges in the business environment and social conditions

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BUSINESS and STRATEGIES
Here we explain the strategies and results that theGroup and each of its business segments have made,from both financial and non-financial angles. CFO message looks back on the financial results for 2022 anddiscusses the financial and capital policies that support
our Business Plan 2023, as well as the thoughts behindthe dialogue between the Group and the capital markets.

048 Business Plan 2023
050 Message from the CFO
056	Tobacco business070	Pharmaceutical business074	Processed food business
078 The Group’s sustainability initiatives• Improving our environmental impact• Investing in people• Investing in people: Health and safety• Improving our social impact• Respect for human rights
Photo taken at one of our contracted farms in Brazil
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Business Plan 2023

Every year the JT Group publishes a three-year rolling business plan, reflecting the changing operating
environment, including economic trends, geopolitical risks and the competitive landscape.
Business Plan 2023 covers the three years from 2023 to 2025.
We will achieve sustainable profit growth by investing in our businesses, maximally leveraging ourresources on a Group-wide scale and transforming ourselves even in a drastically changing operating
environment.

Roles and targets of each businessTobacco business

Strategy of tobacco
business

Pharmaceutical business

The outlook of our business environment remains unpredictable due to geopolitical risk and related inflation, economic
stagnation and other negative factors in the world economy,
surges in costs, tax hikes worldwide under governmental
policies to secure funds, tightening regulations and increasing bureaucratic complexity.

• We project continuing drug price reductions in both domestic and overseas markets due to the worldwide trend
toward price optimization.

RRP (Reduced-Risk Products)• We are projecting market-scale expansion in this category,especially the market for HTS (heated tobacco sticks).
• D evice procurement in accordance with our 2023 plan
will be possible despite tight supplies of semiconductors
worldwide.
• Intensifying competition and tighter regulations in leading
markets worldwide.
Combustibles• Projected to remain the largest category despite the downward trend in industry volumes, due mainly to HTS demand
growth, illicit transactions pressure on consumers disposable income and continuing downtrading.
• The profit pool remains likely to expand through pricing
opportunities.

• Higher return on investment in combustibles• Enhanced investment in RRP• Pursuit of higher operational efficiency• Evolving global business capabilities
4Please see Tobacco business (P. 56) for details.

Operating environment outlook 2023-2025
Tobacco businessOur tobacco operations, the core driver of Group profit growth, are working towards sustainable profit growth through the medium and long terms.

Pharmaceutical business/
Processed food business• The Group projects a gradual decrease in royalty income
related to anti-HIV drugs.

 ur pharmaceutical and processed food operations are focused on complementing GroupO
profit growth.
• Pharmaceutical business: Focus on R&D investment for next-generation strategic products, and maximizing the value of each product• Processed food business: Realize high-margin top-line growth in an environment with growing operational costs
4Please see Pharmaceutical business (P. 70) and Processed food business (P. 74) for details.

Processed food business•M arkets are expected to expand, due to diversified needs,
including easier cooking that takes less time, along withchanges in lifestyles.
• These factors on the context of international commodity
prices and exchange rates on costs for materials, as well as
the effects of surging personnel and distribution costs due
to labor shortages.

Resource allocation policy
Resource allocation policy
based on the 4S modeland JT Group Purpose• Work to enhance shareholder returns by realizing medium- and long-term goals for profit
growth while maintaining a strong financial base*2• Target a dividend payout ratio of about 75%,*3 a competitive level*4 in capital markets• Consider implementing a share buy-back program, mainly taking into account theGroup’s financial outlook of the respective year and medium-term capital needs

4Please see Message from the CFO (P. 50) for details.

Group profit target• Prioritize investments*1 for sustainable profit growth in the medium and long terms• Prioritize balance between profit growth through investment and shareholder returns

Shareholder return
policy*1 Grow adjusted operating profit at constant currency by placing top priority on growth-oriented
investment in the tobacco business, while realizing high-quality top-line growth through continuing
provision of new value and satisfaction to consumers and society*2 The Group will maintain a strong financial base that secures stability in case of changes in businessenvironment such as economic crises and flexibility enabling expeditious responses to business
investment opportunities*3 To be in the range of approximately ±5%*4 We monitor the shareholder return trends of Fast-Moving Consumer Goods companies which have a
stakeholder model similar to our 4S model and have realized strong business growth
4Please see Message from the CFO (P. 50) for details.

Mid- to long-term target

Mid to high single digit annual average adjusted operating profit growth rate at constant currency.

Prospects during the businessWe project low single digit average annual growth, although RRP investment will accelerate.
plan period

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Message from the CFO“

E ven in a highly uncertain business environment, we are working to maintain a firm
financial foundation and accelerate investment to secure profit growth over the medium and long terms and increase shareholder returns.

”

Nobuya Kato
Senior Vice President, Chief Financial Officer

As Senior Vice President in charge of finance and corporate communications, I construct financial
and capital strategies to fulfill the JT Group Purpose and help build corporate value through dialogue
with all stakeholders, including the capital markets.

Overall assessment of 2022 financial results
From revenue to profit, our all-financial results for 2022
exceeded our initial targets, rising to record highs.
We achieved profit growth in 2022 despite a difficult
business environment marked by significant inflation andsurging prices for resources worldwide. Our adjusted operating profit at constant currency, which is our profit index forthe entire Group, grew by 9% year on year. In particular we
attribute this to the tobacco business, which showed strong
volume momentum and positive pricing effects through theyear.
Our medium- and long-term KPI goal is mid to high single
digit growth in adjusted operating profit at constantcurrency. Over the past three years, we have been delivering
steady year on year growth in adjusted operating profit,
even as we continue to lag behind our competitors in termsof RRP (Reduced-Risk Products) market share amid overall
industry volume growth.

Revenue on a reported basis grew by 14.3% year on year, to2,657.8 billion yen, thanks to growing momentum in the tobacco business, the positive exchange effects of the weaker
yen, and revenue growth for both the pharmaceutical andprocessed food businesses. Our adjusted operating profit
was also up year on year, by 19.2% to 727.8 billion yen, due
to revenue growth and positive exchange effects.
Operating profit increased significantly, by 31.0% year on
year to 653.6 billion yen, because adjusted operating profit
grew and the cost of initiatives to reinforce the foundationsof the tobacco business operation and for reducing leaf-tobacco farmland were non-recurring, accounted only in 2021.
As a result, operating profit growth outpaced rising financial
costs, making our profit for the term 442.7 billion yen, up
30.8% year on year.
Despite this major increase, free cash flow dropped by 99.1
billion yen from the 2021 figure due to increases in working
capital, higher corporate income tax and payments related
to initiatives to reinforce our tobacco operations in Japan.

Operating environment outlook 2023-2025
We predict that current trends will continue in our tobacco
business, in both RRP and combustibles, over the course of
our current business plan. The RRP segment is developing
into the core pillar of business growth for the future,with demand continuing to increase, especially for HTS.
Combustibles will likely continue to experience downtrading and contraction in demand, but we believe they cancontinue to reliably deliver profit by seizing appropriate
pricing opportunities and building market share.
At the same time, we have to keep an eye on the influenceof growing geopolitical risk on the world economy, rising

inflation worldwide, leading to surging interest rates andoverall costs, and tax hikes worldwide under governmental
policies to secure funds, tighten regulations and increase
bureaucratic complexity.
Despite these risks, while we aim for top-line growth using
pricing and share growth, we are working to grow profits
through initiatives to raise efficiency, such as in production
and R&D in the combustibles segment, projecting costsavings of about 20 billion yen in 2023 and 2024 combined.
Please see Business Plan 2023 (P. 48) for details.

Financial policy
The JT Group draws up and executes its financial plans inline with our two core values of resilience and flexibility.
Resilience means the ability to maintain business despite
significant or unexpected risk, such as economic crisis.
Flexibility means promptly responding to attractive investment opportunities.

Currently we are further reinforcing our financial base byworking to secure ample liquidity and fix liabilities for thelong term, seeing it as more important than ever to bebetter prepared for future risk as our business environment
grows less predictable and financial markets more volatile.

Cash flow management
In our cash flow management, we put highest priority on
stable cash generation from top-line business growth. We
are also undertaking initiatives to reduce foreign exchange
impact and optimize operating capital.
In the tobacco business, particularly in emerging markets,
we are working to optimize our businesses for local levels of
economic growth and build the value of our businesses inlocal currency over the medium and long terms. We pursue
cash creation via top-line growth, made possible both by, on
the one hand, pricing that takes into consideration tax hikes
and inflation, and on the other, share gains building on thestrength of our brand portfolio, enhanced with a long-term
strategic investment view. Pricing is a profit-growth driverfor our tobacco business, but it’s done with consideration forvarious factors and from all angles, including brand equity,competition, consumer* behavior and acceptance, and theeconomic environment. In some markets, temporarily or
for short periods, our retail prices may fall behind inflation
growth, but we have been generally successful in raising
prices to meet inflation rates over the medium and longterms.
Currently exchange risk is rising, due mainly to changes in
the financial policies of leading nations to cope with inflation worldwide. To reduce foreign exchange impact in thecurrent environment, we use natural hedging, by which wemean matching incoming and outgoing currencies, as wellas hedging using exchange forwards and other derivatives,
except for certain currencies. In principle, foreign-currency
credits and debts are fully hedged. We also hedge 25-90% of
future cash flow, and in some cases apply hedge accounting*Adult consumers. Minimum legal age for smoking varies in accordance with the legislation in each country. In Japan, smoking is not permitted for those under 20 yearsof age050

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to reduce foreign exchange risk, taking into account possible impact on the profit-and-loss statement.
To optimize operating capital, we continuously improve
our cash-conversion cycle, reviewing terms for receivables
and payables and applying methods such as liquidation ofreceivables and supplier finance, while optimizing inventory
levels.
As a result of these initiatives, we have been reliably generating free cash flow of about 400 billion yen per year overthe past 10 years, excluding the temporary impact of M&A
and so forth.

Profitability of capital and market evaluation

FCF (BN JPY)
6000

455.4
4000
2000

316.0

503.9 482.0
404.2

386.7

382.9

212.6
72.6

105.6

0
-2000
-4000

-316.2
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
(LfL)

Investment distribution
There has been no change in our two key policies for
management resource allocation: give top priority to investment and balance profit growth resulting from investment
with shareholder returns. Based on the 4S model, ourmanagement principle, and the JT Group Purpose, we will
put top priority on investments leading to sustainable profit
growth, especially in the tobacco business. We continue
to designate the pharmaceutical and the processed foodbusinesses as complementary to our core business, assisting
profit growth for the entire Group.
Our benchmark payout ratio has been 75% since February
2021. This is based on the resource allocation policy as
described above. Monitoring trends in shareholder returns
among global FMCG firms, we have confirmed this asa competitive level in terms of capital markets in Japanand abroad. During the term of the current business plan,we will invest about 300 billion yen, particularly in HTS, a
category where further investments will be needed in the
future. As for shareholder returns, we work to increase themby continuing to grow adjusted operating profit at constantcurrency, which is our foundation for profit growth over the
medium and long terms, while maintaining a target payout
ratio based on the policy I outlined earlier.
In discussing whether to buy back our own shares and inwhat quantities, in addition to financial prospects for thecurrent fiscal year we carefully consider the medium- andlong-term prospects of our environment; our FCF, balance
sheet and the like; and levels of profit and progress withinvestments and initiatives.

In drawing up a business plan, we calculate and examine
our capital costs and report them to the Board of Directors.
We check and confirm that our return on equity is well
above capital costs. We set up a hurdle rate, taking into
consideration risks associated with each country in which
we operate, as well as inflation and other external risks, anduse that as our baseline for profitability. By maintaining thatdiscipline, we make sure our ROE is always above capitalcosts. The JT Group uses adjusted operating profit at constant currency as a key performance indicator,* which excludes the effects of exchange rate fluctuations that can besubstantial due to temporary factors, as well as depreciation
costs related to M&A activities for the previous year. We work
to grow profit, including for the current term, by achieving
mid to high single digit growth in the KPI over the medium
and long terms. We also believe it leads to improved ROE.
A comparison of our total shareholder returns, including
dividends, with the TOPIX (total return) shows that ours were
below the TOPIX over the long term due to the trend followed by our share prices, but they outperformed the TOPIX
during the period between pre-pandemic late 2019 andthe end of 2022, thanks to profit growth during the period
and a higher dividend for 2022. Continuous profit growthis important to the medium- and long-term stability of ourequity value. We also believe that increasing quantitative
corporate value through profit growth, while fostering an
understanding of the JT Group through enhanced information disclosure from a qualitative perspective, will lead tohigher TSR.
* Supplemental note: Why we use adjusted operating profit at constant currency
as the primary index for performance management•W e use adjusted operating profit to show our business results for the current
year in a way that’s easy to understand, excluding the effects of depreciation
costs related to any acquisitions in the previous year.
• S tarting with our Business Plan 2014, to manage business investments andreturns more appropriately, we changed our key performance indicator fromadjusted EBITDA to adjusted operating profit, which does not require adding
back depreciation or amortization costs, which fluctuate with investment scale
for the year.
•W e use figures at constant currency, believing we can show the true strength ofour businesses much more clearly by disregarding exchange rates, which canfluctuate substantially over short periods due to geopolitical risks and otherfactors not directly related to our businesses.

IR activities
The JT Group appropriately discloses timely information,
both financial, as with business results, and non-financial,
such as management strategy, ESG factors and the statusof each business segment, and engages in active dialogue
with shareholders and institutional investors to ensure clear
understanding. Our IR teams in Tokyo and Geneva, where JT
and JTI are respectively headquartered, meet with securities
analysts and institutional investors to discuss recently
announced financial results and other disclosed information,
as well as conduct individual meetings on ESG matters. Our
plan for investor-focused events is in process.

These IR events are still held mostly online, as in 2022, when
we held some 370 individual conferences. IR representatives
participate in conferences hosted by securities houses andmeet with domestic and overseas institutional investors.
On some of these occasions, the CEO, the executive vicepresident in charge of finance and myself are present.
In meetings specifically focused on ESG we sometimes seek
investor opinion, including assessments of our Integrated
Reports. We will actively continue this kind of dialogue,
making the most of the opportunities we have created.
The investor opinions we obtain through these IR efforts

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BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERS

Message from the CFO

are reported to our Board of Directors twice a year alongwith information related to market trends, including shareprice, and are shared with all executive officers and related
divisions as a quarterly report.
We consider investor opinions when we improve and review

our ongoing initiatives and continue working to reflect theirviews and expectations appropriately in our strategies andoperations, so they will better understand our results andinitiatives.

Dialogues with investors in 2022

Number of meetings
Meeting participantsMeeting formats

About 370
• A wide variety of stock and debt investors, both active and passive, in Japan and abroad• Analysts, fund managers, ESG managers, and responsible personnel for voting rights• Mainly virtual, online• One-on-one meetings and participation in conferences hosted by securities houses
CEO, executive vice president in charge of finance, CFO, senior vice president in charge of

JT personnel responsible communications, senior vice president in charge of sustainability management, among

Better communication with debt investors
The JT Group is also working to enhance communications
with bond investors. In compliance with the Japan Tobacco
Inc. Act, on which our company was founded, the Japanese
government is obliged to hold at least one-third of corporate equity at all times. Following this rule, the government
must also accept one-third of any new shares issued forfunds procurement. So debt finance is our primary methodof funds procurement from the standpoint of fund maneuverability. Corporate bonds are a particularly importantmeans for procuring funds to help achieve sustainablegrowth. To reliably procure funds even in an unstable financial environment, we are endeavoring to broaden our scopeof communications with domestic and overseas bond investors. To create more opportunities for dialogue with themand facilitate better understanding of the JT Group, we
regularly hold non-deal roadshows in addition to those heldat the time of bond issuances. These roadshows have been
held in Europe, the Middle East and Asia since 2018, and weplan to introduce them in other regions to reach more bondinvestors and increase opportunities for communication.
In addition to these initiatives to enhance dialogue withbond investors, we are strengthening engagement withorganizations that make ESG assessments widely referenced
in the capital markets as we work to improve our ESG scores.
We believe that we can further strengthen our relationships
with bond investors by helping them better understand andappreciate our ESG initiatives.

others• Financial performance

Increasing corporate value in line with the JT Group Purpose• Medium- and long-term strategies

Main discussion themes• Capital policies• Environment, Social, Governance (ESG)• Integrated report

Internal sharing ofinvestor opinions
Examples referencing
investor opinions

054• Report to the Board of Directors twice a year
• Quarterly report to directors, executive officers and related divisions on the status of IR
efforts and investor opinions• Enhancement of disclosures• Start of ESG-related talks• Review of KPIs related to remuneration

Japan Tobacco Inc. Integrated Report 2022

With a year now past since the new corporate structure began and the domestic and international tobacco businesses
unified, we created the JT Group Purpose to show theevolutionary direction we want the entire Group to take forlong-term, sustainable operations. In addition to discussing
specific strategies to realize the JT Group Purpose, we will be
freshly examining our current financial and capital strategies
to determine whether there is anything we should change
in our methods. An important challenge for our future will
be designing strategies with the JT Group Purpose in mind
and including non-financial factors like climate change andhuman capital. The JT Group Purpose is our new expressionof who we are to investors. I think we have a responsibility tobuild up our practices of careful communications so investors and stakeholders can better understand the Purpose,
reinforcing trust.

Rising to these difficult, high-level challenges, we are working to build a structure and formulate measures to resolve
them. Since 2022 the Group Treasury has been operating ona single report line, unifying the financial divisions of JT and
JTI and eliminating duplicate work. The JT Group humanresources management philosophy offers every JT Group
employee opportunities for personal growth, and the Group
Treasury is focusing effort on employee career development
in all regions. For better communications, we are improving
the content of our Integrated Report and holding Tobacco
Investor Conferences as opportunities to inform investors
about our tobacco business strategy for the medium andlong terms.
With my personal commitment to enhancing these initiatives, we are confident that we will continue to measure up
to the expectations of all investors and stakeholders.

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BUSINESS andSTRATEGIESMATERIALITY andSUSTAINABILITYFINANCIAL INFORMATION /OTHERS

GOVERNANCE

Tobacco business”President & CEO
JT International S.A.

Combustibles
Cigarettes, FCT (fine cut tobacco), pipe, cigars and cigarillos
are part of the combustibles category. While cigarettes
contain pre-rolled tobacco, fine cut tobacco products allow
adult consumers to roll or make their own cigarettes. The
global combustibles industry volume totaled around 5.1
trillion stick equivalent units in 2022, representing a valueof approximately 103 trillion Japanese yen. The largest
markets are China—which accounts for over 45% of global
volume—followed by Indonesia, the U.S., Russia, Turkey,
Japan and Vietnam. While the global combustibles industry
volume is declining, the industry value continues to increase
driven by a positive price/mix variance.

RRP
Heated tobacco, E-Vapor and oral products are part of the RRP
category. As they deliver nicotine without combustion, they
have the potential to reduce risks associated with smoking.
HTP (heated tobacco products) include HTS (heated tobacco sticks), which generate an aerosol containing nicotine
by heating a tobacco stick, and Infused (infused tobacco
capsules), a hybrid system which creates a tobacco-enrichedvapor using indirect heating.
E-Vapor products heat a nicotine-containing liquid insteadof tobacco leaves and come in different formats: open tanks,

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Our Purpose—Creating fulfilling moments. Creating abetter future—defines why we exist as a business and how
we contribute to the broader JT Group Purpose. It is also astatement to wider society of our intent and the North Star
guiding our tobacco business strategy.

We believe that the RRP adoption trend will continue,as these products have potentially less risk for the adultconsumer.

closed pods and disposables. Oral products are usuallyin the form of small pouches to be inserted in the mouth
between the lip and the gum. If they contain tobacco they
are referred as snus, if they don’t as nicotine pouches.
The global RRP industry had an estimated value ofapproximately 9 trillion Japanese yen in 2022. The largest
markets are Japan for HTP, the U.S. for E-Vapor products andScandinavia for oral products. Unlike combustibles, the mostsuccessful Reduced-Risk Product varies from one market toanother depending on consumer preferences. The overall
RRP category, though smaller than combustibles, has been
growing steadily over the last years, and we expect thisgrowth to continue, notably in HTS.

To create fulfilling moments and a better future, we havearticulated a clear strategy for the tobacco business, prioritizing management resources towards HTS, the main RRP
growth driver, and combustibles, the largest, most profitable
category across the tobacco industry.
The combination of the JT Group’s tobacco businesses intoa single business segment is supporting this prioritizationof resources, globalizing the Group’s knowledge and expertise, driving increased agility, and accelerating strategic
decision-making.

We expect the global combustibles industry value to continue growing in the foreseeable future, while the global RRP
industry is expected to grow both in terms of volume and value. Among RRP segments, we expect HTS to be the biggest
growth driver, followed by E-Vapor and nicotine pouches. The
growth rate will ultimately depend on innovation, consumer
acceptance, regulation and taxation of RRP products.

RRP: Prioritize investments in HTS

We expect HTS will offer the strongest growth profile among
existing product segments in RRP. In this context, the Groupis prioritizing investments towards HTS and accelerating
efforts to increase share of this segment.
To more than double our RRP core revenue by 2025,* wewill invest over 300 billion Japanese yen between 2023
and 2025 including commercial expenses, R&D and capital
expenditures. Another investment area will address R&D
efforts towards NGP (next-generation products), as we
think the RRP category will continue to expand beyond thecurrent product lineups.
* Compared to 2022

Creating fulfilling moments.
Creating a better future.

PurposeCreating fulfilling moments

Our view of the futureOver the last years, the main international tobacco players
expanded their portfolio in both combustibles and RRP tooffer more choice to consumers. The JT Group’s tobacco
business is ranked third in the world (excluding China) byvolume and has a product offering across all combustibles
and RRP segments.

This strategy, moreover, confirms the tobacco business as
the core business of the JT Group and strengthens its role as
the main source of profit growth for the medium and longterms.

The RRP category has yet to mature with each product segment being in different stages of development as consumer
acceptance varies from one market to another.

Our strategy

Tobacco industry overview
The industry can be divided in two product categories:
combustible products and RRP (Reduced-Risk Products).

Our Purpose						Creating a better future

Combustibles

Business

Eddy Pirard

Tobacco strategy

RRP

Maximize top-line and ROInnn

Sustainability“

 e started 2023 with a strong businessW
momentum and the introduction of our
new Purpose. Creating fulfilling moments.
Creating a better future. This will be ourNorth Star while continuing to deliver
sustainable profit growth.

Notes: 1. The word consumers used in the context of the tobacco business means adult consumers. Minimum legal age for smoking varies in accordance with thelegislation in each country
2. This section is intended only to explain the business operations of the JT Group, not to promote sales of tobacco or nicotine containing products or encouragesmoking or using nicotine containing products

Sustained share gains
Capitalize on pricing opportunities
Disciplined approach to investments

Prioritize investments in HTSnnn

Ploom X geographic expansion
Enhanced capabilities
Exploratory initiatives beyond HTS

Sustainability prioritiesnnnReduce health impact through RRP
Product stewardship, circularity and waste
Farming practices and livelihoodsnnClimate change
Human capital management

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FINANCIAL INFORMATION /OTHERS

Tobacco businessIn 2021, the JT Group launched its latest heated tobacco
device—Ploom X—in Japan, followed by the U.K. in 2022
and Italy, Lithuania and Portugal so far in 2023. Since thelaunch, Ploom’s share of the HTS segment has more thandoubled in Japan, renewing our confidence in our ability
to offer superior-quality products in this growing segment.
The Group is planning to roll out Ploom X and its dedicatedconsumables in 28 markets by 2024, with the ambition toreach a mid-teens share of the HTS segment in key markets
by 2028*1.

operating models for efficiencies and better effectiveness.

This effort will be complemented by focused investments
in other product segments, as one single solution doesn’ttranslate into sustainable success in RRP. These additional
segments, notably Infused, E-Vapor and Oral, will be considered exploratory opportunities. The JT Group aims to gaina better understanding of the dynamics in each of thesesegments and collect relevant consumer insights aheadof future growth. Considering the entire RRP category, ourambition is to reach breakeven by 2028*2.

We also consider corporate initiatives like the simplificationof internal structures, the migration of legacy IT systems to
global solutions and the empowerment of Global Business
Service centers to better support markets. The aim is tocontinuously improve margins, while maintaining quality,
and to enhance cash flow generation by optimizing working
capital and capital expenditures.

*1 Share of segment in key HTS markets, including Japan and Italy*2 Breakeven at brand contribution level representing gross profit less commercial expenditure and before allocation of overheads

Combustibles: Maximize top-line and ROI
We recognize the combustibles industry volume will continue to decline. However, combustibles users will remain thelargest cohort of consumers within the industry for at least
another decade.
The JT Group intends to continue satisfying the needs ofthese consumers, by exceeding their expectations. To doso, resources will be allocated in priority towards our GFB(Global Flagship Brands), with the intent of maximizing
returns and supporting the investments in RRP. Initiatives
to support this strategy include GFB equity building andstrategic market roles.
Consistently investing in the strengthening of the equity of
Winston, Camel, MEVIUS and LD is key to sustaining the JT
Group’s market share gains in the combustibles category
and leveraging pricing opportunities. In addition, we assigned each market to a strategic role (Earnings / Earnings &Share / Share) to enhance focus and guide decision-making.

Strengthening competitivenessAs part of the Group’s continuous improvement efforts, weconstantly review our global supply chain and our market

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Within the global supply chain, we explore opportunities torationalize our manufacturing footprint and our leaf-sourcing channels, as well as logistical routes, closer collaboration
with suppliers, and SKUs portfolio simplification.
In market-operating models, we optimize notably routeto-market and route-to-consumers in order to ensure we
can respond quickly and with agility to changing adultconsumer expectations.

SWOT analysis of the tobacco business

Strengths (Internal / Positive)




S

SWOT
ANALYSIS

Consumer at the center of all that we doPowerful and inspiring brands
Diverse and motivated workforce
Accelerating RRP investments

Weaknesses (Internal / Negative)

W





Limited RRP presence
New capabilities still in the making

Opportunities (External / Positive)

O





T



Tobacco pricing model still intact enabling us to maximize
value creation from combustibles
Grow exposure in HTS segment
RRP category far from mature

Threats (External / Negative)

Tightening regulatory environment
Changing consumer preferences

Sustainability priorities
In 2022, we conducted a materiality review and engaged
with over 150 key stakeholders and 450 employees to define
our sustainability priorities. These are key enablers of our
new JT Group Purpose, driving a better future for our people
and society.
Within the tobacco business, we identified sustainability
priorities to focus on in the coming years:• Reduce health impact through RRP•R educe our products’ impact on the environment throughproduct stewardship• Improve farming practices and livelihoods• Tackle climate change by reducing Greenhouse Gas (GHG)
emissions•D evelop our employees through human capitalmanagement

Building business foundations
We believe that human resource development is the key
driver of sustainable profit growth in the tobacco business.
With business operations in more than 130 markets, ourglobal employee workforce is very diverse, including over
100 nationalities.

Performance over the last five years
The tobacco business outperformed the industry volume
over the last five years through continued market sharegains driven by our GFB and acquisitions in tobacco markets
that matter.
This performance, together with solid pricing and costdiscipline, enabled the combined tobacco business to consistently grow core revenue and adjusted operating profit atconstant currency.
GFB volume constantly grew over the last five years, reaching more than 360 billion sticks and almost 70% of our total
volume in 2022.

The results of Winston, Camel, MEVIUS and LD were fueledby their strong brand equity, built by decades of sustained
investments, and execution excellence.
Our portfolio architecture helped adult consumers innavigating the offering across different price points andsegments, including cigarettes and FCT—where we are the#1 player.
Despite the ever-changing environment, our pricing power
remained intact over the period, demonstrating once more
the resilience of the combustibles pricing model.

GFB (Global Flagship Brands)

The quality of human resources is the key to business activity and performance, so the JT Group will strengthen humanresource development and enhance its ability to attract,develop, and retain employees on a global basis.

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GOVERNANCE

Tobacco business

2022 performance

Total shipment volume (BnU)*

Total industry volume (BnU)*

1

-0.5%

3200

Overview

2

*1

530
2400

79

85

450

73

+4.8%

0

0

2018

2019

2020

2022

2021

2018


Core revenue (JPY BN)*

436

2019

International

-1.00

2020


Japanese domestic+25.6%

-3.0%

1800

-11.0%

600

582

569

516
2,315

1200

209

-3.6%

187

400

168

754
639

2,002

0

1,253

1,251

600

2018


2019

International

Var at const FX

1,251

2020


+5.6%

200

Japanese domestic

+1.9%

+7.9%

0

2022

2021


Consolidated+18.0%
800+13.3%

-0.6%



2

+15.6%
2400

2022

2021

Adjusted operating profit (JPY BN)*2

Consolidated

+4.8%

385

2018


341

2019

International

Var at const FX

341

2020


+3.2%

Japanese domestic

+7.3%

2022

2021


Consolidated+22.8%+8.2%*1 Based on internal estimates excluding China*2 The year on year variances from 2018 to 2020 of core revenue and adjusted operating profit are calculated based on the sum of the Japanese domestic andinternational tobacco businesses. From 2022, we consolidated the tobacco business, and 2021 figures are adjusted as well

Sustainability journey

060

2019

2021

Tobacco businesssustainability targets
issuedTobacco business updates
its Sustainability Materiality
and related priorities

2018

2020

2022

Gap assessment against
TCFD recommendations

3rd party verificationof tobacco businesssustainability targets

GHG emissions reduction
targets validated by SBTi

Japan Tobacco Inc. Integrated Report 2022

0.8

83% of our volume wascovered by Agricultural
Labor Practices program+0.6pp

0.4

1.75

446

428
150

1.2

7.25

300

800

+1.3pp

+8.2%

527

4.50
1600

Share
of top 30 markets
1.6

2022 variance vs. PY
10.00

+0.7%

600

Share of market-0.5%
Total volume+0.2pp0.0Core revenue

AOP

In 2022, the tobacco business fully delivered on its role as the
profit growth engine for the JT Group, overcoming numerous
challenges including the Russia-Ukraine war and the semiconductor supply shortage limiting our HTS expansion plans.
Our share gains bolstered our business with total volume
declining by only 0.5%. This performance was fueled bya limited combustibles volume decline of 0.7%, outperforming the estimated industry decline, combined withdouble-digit RRP volume growth. GFB volume grew by 1.9%,
mainly driven by Winston and Camel, which grew by double
digits in 30+ markets.

Total*2

In combustibles, we grew share 0.6 percentage points acrossour top 30 markets. In cigarettes, we grew our share in the
mid-price segment, where Winston continued to register
gains, and in the value price segment, where Camel kept its
growing momentum. In FCT, we strengthened our leading
position, notably with Winston, Camel, and Sterling in the
U.K. GFB were a key contributor to share gains, growing 1.3
percentage points and registering a new record-high share.

Price/Mix

Coupled with solid pricing, this performance drove ourstrong top-line growth, resulting in a robust adjusted operating profit increase.

135

We began the year with the One Tobacco integration,
unifying our tobacco businesses and building a stronger
and more united organization. The drive and energy of ouremployees around the world was a fantastic success driver.
The One Tobacco integration consolidated our expertise andknowledge globally, established greater collaboration andfaster decision-making and further enhanced our businessfundamentals.

45

2022 results

2030 targets

Water use reduction

23%

15%*5

Packaging recyclability

82%

100%

GFB*3

Our consumer focus, strong execution and excellent
engagement with the retailers and distributors delivered
another year of market share gains in the combustibles
category globally, and in HTS in Japan.

Importantly, RRP was our fastest growing category in termsof volume, albeit from a small base, as we made significant
inroads into the HTS segment in Japan.

In 2022, we also made progress towards our 2030 sustainability targets:

Combustibles*3

Price/Mixvariance (JPY BN)*4
180
+140
+112

90

0

2018-2021 average2022

In 2022 we generated 140 billion Japanese yen in favorable
price/mix variance to core revenues despite the challenging
environment.
This is above our 2018-2021 average and compensated forthe unexpected cost increases due to the macroeconomic
and geopolitical environments.
In terms of pricing, key markets of Japan, the Philippines,
Romania, Russia, Spain, Taiwan, Turkey and the U.K. registered a strong contribution. In terms of mix, the unwindingof COVID-19 trends, notably in the U.K., and ongoing downtrading, partially offset the pricing contribution.

*1 Core revenue and adjusted operating profit (AOP) at constant currency*2 Based on cigarettes + FCT + HTP*3 Based on cigarettes + FCT*4 Contribution to core revenue growth at constant currency. 2018-2021 price/mix assumed equal to the sum of international and domestic price/mix for illustrative
purposes*5 Against 2015 baseline year

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FINANCIAL INFORMATION /OTHERS

Tobacco business

RRP

Key markets

RussiaIn 2022, we moved from five to three clusters: Asia, withJapan, Taiwan and the Philippines as key markets; Western
Europe, with Italy, Spain and the U.K. as key markets; and EMA,
with key markets Romania, Russia and Turkey.

On March 10, 2022 we suspended new investments in Russia,
including the planned launch of Ploom X.

Combustibles SoM

2022 vs. PY

Asia
Japan

-0.9ppTaiwan+0.8ppThe Philippines+0.4pp

In 2022, total tobacco industry volume declined 3.7% following
excise tax-led price increases. Our total volume decreased by
2.6%, and by 1.9% when excluding inventory movements.
GFB volume declined by 0.6%, as the continued Camel performance almost fully offset the volume decline. Total market
share was almost flat at 36.6%, with share gains by Camel.
Core revenue at constant currency increased, driven by arobust price/mix contribution, more than offsetting a negative
volume variance.

As announced in 2021, we prioritize the allocation of
resources to HTS, with the other segments viewed as exploratory opportunities.

Priority

Exploratory

Brand

The majority of our key markets grew combustibles sharein 2022, while initiatives were taken in Japan, the U.K. andRomania to limit share losses.

The RRP category is composed of different segments including HTS (heated tobacco sticks), Infused (infused tobacco
capsules), E-Vapor and oral.

R&D

HTS

Infused

E-Vapor

Oral

NGP*

* Ongoing R&D of Next-Generations Products (NGP)

EMA*
Romania-0.3ppRussia+0.1ppTurkey+0.1ppWestern Europe
Italy+0.8pp

Spain+0.7pp

U.K.

-0.6pp

Japan
In 2022, total tobacco industry volume was down year on
year by 1.5%. In combustibles, volume decreased by 7.2%
due to growth of the RRP category, October 2021 excise
tax-led price increases and secular decline.
RRP grew to account for 34% of the total tobacco industry in
2022, driven by changing consumer behavior, new heated
tobacco product launches and marketing initiatives.
Our volume underperformed the industry due to consumers
shifting towards RRP and downtrading in cigarettes.
In cigarettes, we strengthened our portfolio in the value
segment with Camel Craft. In only six months since thelaunch, Camel became the #1 brand in the value segment
and exited 2022 as the #2 combustibles brand. We also
strengthened the #1 position of MEVIUS with the E-Series
expansion in the mid-price segment.

United Kingdom
In 2022, combustibles industry volume contraction was significant due to the unwinding of COVID-19 trends. However,when looking at the average decline over the last three
years, this was broadly in line with historical trends.
While our volume underperformed the industry, we maintained undisputed market leadership through a balanced
approach in managing share and profitability.
In combustibles, we strengthened our offerings in the value
segment to address incremental consumer demand bylaunching two new products: Mayfair Silver in cigarettes andBenson & Hedges Blue in FCT.
In RRP, we launched Ploom X in London at the end of
October 2022 and early consumer feedback is positive.
In 2023, we forecast total tobacco industry volume to decline by high single digits due to the continued recovery of
non-U.K.-duty-paid volume. Going forward, we are confident
to grow earnings through pricing while maintaining ourmarket share leadership.

2022 RRP performance
RRP volume increased 10.3% year on year to 7.9 billion stickequivalent units, as Ploom X provided a step change in our
HTS performance.
Ploom X is our first truly global product and our mostimportant launch in several years. In Japan, our first Ploom
S device was launched in 2019, followed by the second
generation in 2020 and a completely new device—Ploom
X—launched in August 2021. The JT Group has endeavoredon an accelerated journey with major upgrades along theway, both in relation to devices and to consumables.
The innovations of Ploom X, including our proprietary
HEATFLOW system, significantly improved the consumer
experience and translated into significant share gains in
the HTS segment in Japan, growing from 3.2% before therollout, to reach 8.2% in December 2022.

More importantly, retention rates have increased since thelaunch, highlighting the competitiveness of our offering.
This was enhanced by the introduction of new flavored
SKUs, promotions in response to aggressive offers prevailingin the market, best-in-class customer care, as well as the
improvement of Ploom Club.
Ploom Club is part of our e-commerce platform, offering apersonalized experience based on each adult consumer’s
preferences. A point-based system allows consumers to
unlock promotions and participate in initiatives accessible
only to club members. A subscription model is also available
and gaining traction.
We also launched Ploom X in London and created a joint
venture with Altria to commercialize Ploom in the U.S., theworld’s largest RRP market in terms of value. As part of theagreement, we also signed a non-binding memorandum of
understanding to explore commercial opportunities with
Altria for a wide range of RRP globally.

* Eastern Europe, Middle East, Africa & Americas

In RRP, the innovations of Ploom X translated into significant
share gains in the HTS segment, growing from 3.2% before
the rollout to reach 8.2% in December 2022.
In 2023, we forecast total tobacco industry volume to decline by approximately 2%, with the RRP category expected
to expand moderately.

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FINANCIAL INFORMATION /OTHERS

Tobacco business

RRP outlook

to significantly scale up our competitiveness in HTS.

Reducing health impact through RRP

RRP sourcing

In the second half of 2023 we will accelerate the Ploom X
expansion plan bringing the number of markets where it ison sale to 14 by year-end.

These investments, that will exceed 300 billion Japanese yenover the 2023-25 planning period, also include exploratory
initiatives in Infused, E-Vapor, oral and NGP to identify scalable and sustainable business opportunities.

While it is still too early to understand the long-term
health effects of RRP, factors, including the elimination of
combustion and the lower level of toxicants found in thevapor, suggest there is potential for them to reduce the risks
associated with smoking.

We have established a dedicated supply chain for our RRP,
building strong supplier partnerships that support businessexpansion and meet the demands of our increasingly
sophisticated portfolio.

This builds on the successful rollout of Ploom X this April
in Italy, the biggest HTS market in Europe, and in Lithuania,
followed by Portugal in May.
Our expansion plan focus will be on established HTS
markets, where we can benefit from existing high levels of
category awareness among adult consumers. This focusedinvestment strategy will allow us to optimize our investments compared to markets where larger resources would
be required to inform and convert adult consumers to HTS.
In 2024, we intend to maintain the expansion pace withlaunches in 14 additional markets. Also, in 2025 we are planning to submit a Premarket Tobacco Product Application(PMTA) and Modified Risk Tobacco Product (MRTP) application in the U.S. through our joint venture with Altria.
This accelerated expansion plan is in line with our global tobacco strategy, which prioritizes HTS among RRP segments,
with the ambition to reach a mid-teens share of the HTS
segment in the key HTS markets in 2028*1.
Ploom X geographic expansion is just one pillar of our RRP
investment strategy. Equal focus is placed on enhancing ourinternal capabilities with strategic investments, product innovation, R&D, science, and consumer acquisition and retention,

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Japan Tobacco Inc. Integrated Report 2022

In these segments, the aim is to gain better consumer
understanding, experiment with distinctive consumer
propositions and explore potential geo-expansion. For
example, in the second quarter we are launching our improved pod-system in the U.K. and Ireland, under the Logic
brand. In Oral, in May we launched Nordic Spirit as a testin the Philippines and we are planning to launch our new
nicotine pouch formula in the U.K. this year. In addition, we
will roll-out the next-generation of our infused products in
Q3 in Japan.
For NGP in particular, a central team will be in charge ofincubating new consumer-centric ideas, with the optionality
to promote them to exploratory if their business potential isproven.
All in all, we are confident in our ability to turn the RRP
category into the JT Group’s future profit growth engine,
supported by our ambition to reach breakeven in 2028*2.

That’s why we’re committed to ensuring that all our RRP
fulfill this potential. We pride ourselves on an open approachthat embraces scrutiny from consumers, regulators and thescientific community, and we regularly present our findings
at scientific conferences and in peer-reviewed journals.
Our approach is supported by the most up-to-date understanding of the subject and grounded in evidence-based
observations.
As part of our joint venture with Altria, we will combine ourscientific and regulatory expertise to jointly prepare a PMTA
and MRTP for the Ploom version to be launched in the U.S.
The parties currently expect to submit the PMTA and MRTP
by the end of 2025.
4Read more about the science behind RRP at www.jt-science.com.

In addition to our in-house production capabilities, wesource from different global manufacturers. These include
the world’s largest Electronics Manufacturing Service (EMS)
companies, which are renowned for their high quality andtechnology.
We are committed to carrying out social and environmental
due diligence in our RRP materials. We are a supporter
member of the Responsible Business Alliance (RBA) and fully
embrace its vision and mission.
RBA is the world's largest industry coalition dedicated tocorporate social responsibility in global supply chains. RBA
members commit and are held accountable to a common
Code of Conduct and utilize a range of RBA training andassessment tools to support continuous improvement in
the social, environmental and ethical responsibility of their
supply chains.
4Read more about our responsible procurement on JT.com.

*1 S hare of segment in key HTS markets, including Japan and Italy*2 B reakeven at brand contribution level representing gross profit less commercial
expenditure and before allocation of overheads

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Tobacco business

Reduce our products’ impact on the environment

RRP return/collection scheme

We are committed to continuous improvement in our
approach to product and packaging sustainability.

RRP present new and specific challenges from an environmental perspective, such as electronic waste. Batteries andmetal parts from used devices are recyclable.

Targets: We committed to reducing the environmental impact of our products and packaging through design solutions, facilitating responsible collection and disposal, andconsumer awareness and education. We will reduce our
packaging (including plastic) and ensure that the remaining material is 85% reusable or recyclable by 2025, rising
to 100% by 2030. In total, recycled content will account for
20% of our tobacco business packaging by 2025.

To encourage consumers to safely recycle or dispose our
products, we inform them on how to dispose their old
products in a responsible and sustainable manner. In all
our Ploom markets, consumers have access to responsible
disposal of electronic devices and can drop their old device
in Ploom stores and pop-up stores.
In Japan, we launched a program in 2019 to collect used
Ploom devices, capsules and cartridges via convenient
collection boxes at around 300 shops in Tokyo. In 2020,
this program was extended to include additional tobacco
players and it was launched throughout Japan in 2021. Since
then, around 1,200 collection points have been establishedin all 47 prefectures.

Total sustainability investments in materials and packaging
in 2022 amounted to more than 4 millions U.S. dollars.
In 2022 we also introduced a new sustainability governancemodel with a focus on product stewardship, circularity andwaste, which covers both products and packaging. It aims to
manage the safety and environmental and social impact ofour products and their packaging at all stages of the product life cycle, avoiding waste through product circularity or
reducing it by operating an effective waste management
system.
4Read more about improvements of our packaging and about our approachto circularity, post-consumer waste management and anti-littering on JT.com.

Continuing efforts on materials optimization and improving
design of packaging structures in 2022, we achieved 82%
packaging recyclability and 18% of recycled content in total
packaging materials.

RRP materials and packaging

Sustainability priorities
We strongly believe that sustainability is everybody’s
business, and that we will all play our part in leading thebusiness towards a better future.

At the same time, we will continue to ensure that we upholdthe highest standards of human rights and environmental
due diligence throughout our value chain. We are working
with our grower communities and suppliers to address
Greenhouse Gas (GHG) emissions and make sure that people, from employees to farmers, can thrive.

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Conventional and Reduced-Risk Products

HigherOur highest priorities are linked to our product impact andstrengthen our commitment to widely provide consumers
RRP offerings. This year, we also put an additional focus on
product stewardship, circularity and waste—guiding ourdevelopment teams to make environmentally sustainable
design decisions.

Importance to the JTI’s stakeholders

Through this review, we engaged with over 150 key stakeholder groups—financial institutions, civil society organizations, suppliers, consumers. More than 450 employees also
took part in sharing their views and expectations.

These will be achieved by increasing the recycled content
and recyclability of our packaging and reducing the amountof plastic we use.

Consumer health
Climate change
Product stewardship,
circularity and waste
Sustainable farming practices
and farmer livelihoods
Human capitalmanagement

Lower

In 2022, the tobacco business conducted a thorough materiality review that identified the long-term sustainability
priorities.

We are working to reduce the environmental impact of our
products and their packaging. We are striving to use moreenvironmentally friendly materials and addressing the issueof litter with waste prevention measures such as improving
the design, composition and recyclability of our products
and packaging.

Lower

HigherImportance to the JTI’s business success

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Tobacco business

1. Reducing the amount of material
We leveraged synergies with our combustible products andapproved in 2022 a thinner polypropylene overwrap for
Ploom refills that will be rolled out in our markets as of 2023.
2. Improving packaging recyclability
We are assessing alternatives to replace the aluminum inner
liners of Ploom refills with paper inner liners while maintaining the same level of barrier protection required to maintainproduct quality.

We continue looking into adding recycled content in our
packaging while securing the quality standards of our
products.
We have developed an internal design guidebook for RRP
devices with circular principles to help our development
teams make environmentally sustainable design decisions.

We continuously investigate innovative solutions to end
the use of plastic overwraps in our devices’ boxes and toincrease the recyclability of our packaging.

The main component of Ploom heated tobacco stick filters
is cellulose acetate. We are committed to looking for better
alternatives and are actively investigating innovative filter
solutions that will meet consumers’ expectations, regulatory
demands and operational constraints while reducing theenvironmental impact.

3. Integrating recycled content
Since 2022, all Ploom refill shipping cases produced in
Poland are made with 100% recycled content.

In parallel, we have conducted Ploom product and packaging life cycle assessments to help us better measure Ploom’s
environmental impacts and identify improvement areas.

Agricultural Labor Practices

Our approach to sourcing

Our Agricultural Labor Practices program (ALP) allows us
and leaf merchants to identify potential labor challenges
on tobacco farms and implement improvements. It also
contributes to the social aspects of grower communities
and supports sustainable agriculture overall.

We source tobacco through two supply models either
directly contracted growers or tobacco leaf merchants, eachsupplying approximately 50% of the total volume.

Targets: We committed to implementing ourAgricultural Labor Practices (ALP) program in all sourcing countries by 2025.

Key progress in 2022
In 2022, we strengthened implementation of our SCDD
process. All our contracted growers have now implemented
our Agricultural Labor Practices. We conducted Supply
Chain Impact Assessments (SCIA) in Brazil and Tanzania withour contracted growers, and in collaboration with othermanufacturers and tobacco leaf merchants in Indonesia.

Improving farming practices and farmer livelihoods
Our leaf sustainability framework, driven by our leaf Supply
Chain Due Diligence (SCDD) process, takes into accountsocial, environmental and economic impacts.

4Read more about our SCDD on JT.com.

Sustainable Tobacco Program (STP)
JTI is one of the seven global manufacturers participating in
the Sustainable Tobacco Program. Two manufacturers joined
the program in 2022. Six focused pilot assessments were
executed in 2022 in six countries. Most of the action plans havebeen submitted by the leaf merchants and progress will bemonitored.

Addressing child labor
In 2022, we developed a new holistic child labor elimination
framework in which ARISE (Achieving Reduction of Child
Labor in Support of Education) plays a key role to preventand remediate child labor risks. We expanded ARISE in 2022
by setting up a new program in Ethiopia. Since 2011 theprogram has withdrawn or prevented 65,317 at-risk children
from child labor and enrolled them in education.

Tackling climate change through Greenhouse Gas emissions
reduction
We are a global company and climate change represents
a real threat to the future of our business, as well as tocommunities all around the world. We are working hard
to reduce our contribution to climate change and help toaddress this global issue.
Our initiatives include improving energy efficiency, increasing the use of renewable energy and prioritizing alternative
fuels and vehicles.

In support of this, by 2030, we will reduce emissions fromour own operations by 47% and emissions associated withleaf and non-tobacco materials by 28%, against a 2019 baseyear. Based on 2022 results, we reduced GHG emissions fromour own operations by 16% and from leaf and non-tobacco
materials by 12%.

Across our value chain, we work with our tobacco growers
to reduce emissions associated with tobacco growing andcuring, we engage with our suppliers to reduce emissions,and we monitor external factors and innovations intechnology.
Targets: We committed to being Carbon Neutral for ourown operations by 2030. We also aim to achieve NetZero Greenhouse Gas (GHG) emissions for our entire
value chain by 2050.

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Read more about the JT Group’s environmental initiatives on P. 78 and ourprograms and initiatives specifically related to our tobacco business on JT.com.

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GOVERNANCE

Pharmaceutical businessBusiness environment
Worldwide pharmaceutical market*

SWOT analysis of the pharmaceutical business(USD BN)Strengths

Muneaki Fujimoto

S

Senior Vice President,
President of Pharmaceutical Business



SWOT

Quoting our business’s Purpose, “Respecting science, technology and people, we will contribute topatients’ lives” as we pursue research and development. We are proud to have received manufacturing and marketing approval in Japan for CORECTIM® Ointment 0.5% and 0.25% for indications of
atopic dermatitis, and ENAROY® Tablets 2 mg and 4 mg for the treatment of anemia associated withchronic kidney disease. We will continue making steady progress with R&D to help ensure sustainableprofit growth.

A N A L Y S I SWRespecting science, technology and people,
we will contribute to patients’ lives

Intensive allocation of resources to three focus areas: Cardiovascular, Renal
and Metabolism (CVRM); immunology; and neuroscience
Investment in latest technologies and development of platform of JT’s
unique proprietary drug discovery technologies

OMaximal leveraging of intra-Group synergies through functional
specialization between JT (R&D) and consolidated subsidiary Torii
Pharmaceutical (domestic sales)







1,218.1

400

Expediting the drug discovery process

Growth in pharmaceutical demand worldwide driven by societal aging indeveloped countries as well as economic growth in developing countries
Greater difficulty in- and out-licensing

Threats


1,276.6 1,309.2

800

Opportunities

T

1,439.5

1,200 1,179.3

Weaknesses/Challenges



Purpose

1,600

R&D specialization in small-molecule drug discovery

0

2017

2018

2019

2021

2020

* Copyright © 2023 IQVIA.
Calculated based on IQVIA World Review(Data Period, Year 2017-2021)
Reprinted with permission

Possibility of continual drug price reductions in domestic and overseas
markets amid a global trend toward rationalization of drug costs
Increasing difficulty of new drug development and intensification of
its competition
Increasing use of generics and growing global market share for Rx-to-OTC
switched drugs**Drugs previously available only by prescription that have been converted to OTC status

Pharmaceutical business basic strategy
We focus our pharmaceutical business on contribution to stable profits for the entire Group. Its basic strategies are:n Relentless pursuit of better drug discovery;n Focus on R&D investment for next-generation strategic products and out-licensing them with optimal timing; andn Maximizing the value of each product.
The pharmaceutical business focuses its R&D on these areas:
Cardiovascular, Renal and Metabolism (CVRM);
immunology; and neuroscience.

Cardiovascular,
Renal and
Metabolism

Immunology

Performance over the last five years
Revenue grew by 3.1% year on year, driven by top-line
growth at consolidated subsidiary Torii Pharmaceutical andpartially offset by a decrease in overseas royalty income.
Torii Pharmaceutical reported major growth in sales ofdrugs for skin diseases and allergies, leading its top-line
growth.
Adjusted operating profit grew by 0.5% year on year as aresult of increased R&D costs offsetting revenue increases.

Revenue and adjusted operating profit (JPY BN)
1,200

114.0
88.5

900

79.0

300

0

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Japan Tobacco Inc. Integrated Report 2022

82.9

600

28.4
15.9

Neuroscience

80.4

17.2

2018

2019

■ Revenue■ Adjusted operating profit

2020

11.1
2021

11.1
2022

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Pharmaceutical business

Sustainability initiatives through business activities
Case study: Developing original drugs to help people recover from disease
Our pharmaceutical business’s sustainability strategy designates “products and services” as one of the focus areas. We
aim to create innovative, original drugs to support patientsin the shortest time possible. We continue to make further
strides in new drug R&D through ongoing investment inthree specific therapeutic areas: Cardiovascular, Renal andMetabolism (CVRM); immunology; and neuroscience. In
2022, we invested 29.8 billion yen in R&D. Our clinical development as of February 14, 2023, can be found here.
As a result of our initiatives, in Japan we launched ENAROY®
Tablets 2 mg and 4 mg (generic name: enarodustat) for anindication of anemia associated with chronic kidney disease,
and CORECTIM® Ointment 0.5% (generic name: delgocitinib)
for an indication of atopic dermatitis in 2020, as well as

Our sustainability strategy and focus areas

CORECTIM® Ointment 0.25% for pediatric patients withatopic dermatitis in 2021.

For the pharmaceutical business, we selected three focus areas and set five

From the beginning, we had developed CORECTIM® ointment for pediatric patients in mind since atopic dermatitis
is common among not only adults but also children. In
2022 we completed all clinical trials in Japan with atopic
dermatitis patients under two years of age, and revised
supplemental documentation in January 2023 supporting
extended application of the drug to infants. To enrich thelives of people of all ages suffering from health issues andtheir families, we will continue to seek and develop original
drugs that can be used safely and with peace of mind.

ery year. For details see “KPI progress.”

specific targets for them in 2019, and have been reporting on progress ev-

KPI progress

Products and services
Aspirational goals
We will create innovative, original drugs to support patientsin the shortest time possible. As this business has a direct
impact on human health and life, we not only strictly comply with all laws, regulations, and industry standards, but arealso guided by a strong sense of ethics and responsibility.
This is particularly the case in areas such as clinical trials
and promoting drugs, as well as animal experiments andmanaging chemical substances.

Investing in people
Aspirational goals
We will strive to nurture talent development which enables
us to create first-in-class (FIC) drugs. We strictly adhere to
specific processes to ensure that our pharmaceutical business activities are always carried out in a responsible andappropriate way. We provide e-learning to help employees

understand the importance of drug safety and quality assurance. All of the employees in our pharmaceutical businesscomplete a mandatory e-learning course every year. We also
have an internal educational activity to foster employees’
ethical awareness and sense of responsibility towards saving
patients.

Product safety and responsibility
Aspirational goals
We will strictly comply with all relevant laws, regulations,and industry standards in order to deliver safe drugs topatients. We have developed our own guidelines on how to
conduct annual inspections to ensure that our production
methods fully comply with government recommendations.
We started annual inspections in accordance with theseguidelines in 2017. Since 2018, we have been operating
inspections at all of our contracted factories. We willcontinue to operate these guidelines. We also have our own
standard on the ethical promotion of prescription drugs,

based on the guidelines on sales information provision
activities by the Ministry of Health, Labour and Welfare.
Medical Representatives of our subsidiary company Torii
Pharmaceutical Co., Ltd. provide and gather information
on pharmaceutical drugs to/from medical professionals
appropriately, and regularly participate in training programs
to ensure adherence to these guidelines. Through internal
communication, we provide relevant and detailed information to our Medical Representatives to keep them up to datewith the latest guidelines.
4Read more on JT.com.

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GOVERNANCE

Processed food businessBusiness environment
SWOT analysis of the processed food business
Strengths
S

Hiromasa Furukawa
Senior Vice President,
Food Business

SWOT
ANALYSIS

Under our Purpose, “Bringing Joy to Meals and Fun to the Table,” our processed food business works
to develop and furnish products of high added value, closely monitoring ever-diversifying consumer
values and interests. Even amid the soaring business costs seen in recent years, we aim to contribute to the JT Group’s profit growth by continuing to optimize production operations, the frozen andambient food business and the seasonings business, and by achieving high-quality top-line growththrough such means as increasing sales of our more profitable products.

T

Top-market-share* products and brands (Sanuki Udon, Gottsu-umai Okonomiyaki)*Fuji Keizai Co., Ltd.
Foodstuff Marketing Handbook 2023: Vol. 2, 32021 results for the frozen udon noodle and frozen okonomiyaki (Japanese savory pancake) categories

W
O

Proprietary yeast, processing and freezing technologies

High-quality, efficient production systems based on food safety management

Weaknesses/Challenges


Lopsided sales mix by category and expansion of sales to overseas markets



Rebuilding logistics network to ensure supply stability

OpportunitiesRobust Japanese frozen food market with favorable growth prospects
by virtue of growing demand for convenience and preservability
Growth in demand for high-value-added foods and global expansion of“free-from” food market based on individuals’ dietary orientations(e.g., health-consciousness) and beliefs
Technological advancements like DX and IoT that can improve supply
chain efficiency and mitigate labor shortages

Threats

PurposeBringing Joy to Meals and Fun to the Table

Processed food business basic strategy
The processed food business’s role is to augment the JT Group’s profit growth. Its basic strategy is to:n 
Further expand sales of core products incorporating proprietary technologies, and upgrade its ability to develop highvalue-added products in response to changes in consumer preferences;n 
Implement price adjustments in response to the impact of inflation in raw materials, ingredients and logistics costs, andcontinue efforts to improve productivity and reduce costs; andn Accelerate initiatives for business growth with a long-term viewpoint.
The processed food business has two operational components. Core products for the frozen and ambient food business include
frozen udon noodles, packaged cooked rice and okonomiyaki (Japanese savory pancakes), and those for our seasonings businessinclude yeast extract and oyster sauce.

Contraction in domestic demand due to societal aging and population
shrinkage; labor shortages due to working-age population shrinkage
Industry inflation driven by global food shortages; distribution cost
inflation due to labor shortages in logistics industry

Performance over the last five years
Revenue was mostly flat, but the core processed food category continues to trend toward long-term growth. Adjusted
operating profit has been holding up fairly well, bolsteredlargely by product-mix improvements and an optimal
production system promoting lower costs, except in 2020,
when the pandemic affected the business. However, it will
be important to closely monitor the impact of labor andlogistics cost inflation stemming from labor shortages and ofinternational market and exchange rate movements on costs
for raw material and ingredients.

effects, and one-time income from an insurance claim
recorded in 2021.
Revenue and adjusted operating profit (JPY BN)

161.4

158.6

149.3

147.2

155.5

We reported a year on year increase of 5.6% in revenue for2022, due mainly to price revisions to counter cost increases
in the frozen and ambient food and seasonings businesses.
Despite revenue growth owing to price revisions, adjusted
operating profit fell by 11.3% year on year with inflationin raw materials and other costs, negative exchange rate

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4.1

5.4

2018

2019

■ Revenue■ Adjusted operating profit

(0.8)
2020

4.0

3.5

2021

2022

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GOVERNANCE

Processed food business

Sustainability initiatives through business activities
Case study 1: Offering free-from food “BEYOND FREE” reduced-ingredient
foods selected for flavor

Our sustainability strategy and focus areas
In the processed food business, we selected three focus areas and set eight

In the processed food business, we are working to develop
and provide high-value-added products so that everyone
can freely enjoy what they want to eat, while staying close
to the diversifying values and interests of our consumers.
As part of this effort, TableMark Co., Ltd. provides authentic
and delicious free-from food in the “BEYOND FREE” category,where specific raw materials and ingredients are excluded.

specific targets for these focus areas in 2019 and have been reporting on

Currently, it offers “BEYOND FREE” products through the
Shoku-tasu online store in three groups: foods free of specific allergens, foods free of animal ingredients, and low-carbohydrate/low-sodium foods. By offering these products weare working to support everyone with the freedom to enjoy
what they want to eat.

To deliver safe, high-quality processed food for consumers,
processed food business have established four priorities toensure that food safety is deeply embedded within our operations. We embrace our responsibility to positively addresssocial challenges with our consumers through continuing
effort to enrich every heart through food, the sustenance oflife.

KPI progress

progress every year. For details see “KPI progress.”

Four perspectives on food safety management

Case study 2: Biomass plastic as a raw material for packaging
The processed food business manufactures and sells products made from processed rice, such as packaged cookedrice and frozen rice. These manufacturing processes result in“crushed rice,” which can no longer be used for production.
In a first for the industry, we are now using the domesticallydeveloped carbon-neutral biomass plastic RiceResin®*,which contains 10% crushed rice generated by our Group,
as raw material for packaging some of our cooked-riceproducts. In addition to using RiceResin®, we have reduced
the amount of petroleum-based plastic in our packaging byaround 4.2% compared to conventional products. We havedone this by making the exterior film even thinner.
* RiceResin® is a registered trademark of Biomass Resin Minamiuonuma Co., Ltd.
Old rice that is not edible and crushed rice generated during rice milling areupcycled into plastic using new technology

We are also shifting to environment-friendly containers andpacking materials, including the use of biomass-based inks
for product packaging and originally developed compact
trays with less plastic ingredients for packaged rice, expanding our effort to reduce environmental impact.

Food safety standards

Enhancing food quality

We make sure that all of our factories* are certified to theglobal food safety standard FSSC 22000. FSSC 22000 isrecognized by the Global Food Safety Initiative (GFSI), thefood industry’s global body for promoting food safety management. All the factories contracted to manufacture our
products are required to meet food safety standards such as
ISO 22000 or FSSC 22000, as an assurance that an adequate
food safety management system is in place.

Food quality control is an essential element of our daily
operations. Along with quality improvement efforts on
factory floors, we ensure that all of our employees receive
training through customized e-learning materials. We also
listen carefully to consumer suggestions for improving
product quality, and quickly share them with our factories
and operations.

*One of our factories, which started operating in 2020, is on track to acquire
this certification

Food defense practices
Food defense is about protecting our manufacturing
processes and products from intentional contamination.
We apply robust food defense guidelines across the supply
chain, both in our own factories and our contracted factories. We also carry out annual audits to check how well theseguidelines are being implemented.

Further food communication
We are always willing to provide details about our foodproducts. We respond to consumers’ requests for information and disclose the precise factory where food products
were made, or the country of origin of the main ingredients.
We understand the importance of listening to consumers,
and have introduced a new online tool to share consumer
feedback with all of our employees. We will continue toembed and reinforce this consumer-centric approachthroughout our operations.
4Read more on JT.com.

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FINANCIAL INFORMATION /OTHERSThe Group’s sustainability initiatives
Improving our environmental impact

Our approach
Climate change and other environmental issues are of increasing societal concern. Our operations impact theenvironment through resource usage, emissions, and waste generation, as do most industries. The environment
also directly impacts our business. As a global organization, we recognize that we have a key role to play in reducing
our impacts in own operations and across our value chain. Our sustainable business practices allow us to conserve
resources, reduce waste, manage costs, and meet the growing consumer demand for eco-friendly products.
4 Read more about our approach in the JT Group Environment Policy.

Road map to Net-Zero
Addressing climate change is nothing new for the JT Groupand we’ve achieved a lot over the last decade. Now, we have
set up science-based targets and a Net-Zero commitment

to accelerate our efforts. We will achieve Carbon Neutrality
within the JT Group’s own operations by 2030, and Net-Zerothroughout the entire value chain by 2050.

How the JT Group plans to achieve Net-Zero
Short term (by 2025) /Medium term (by 2030)

Long term (by 2050)

Achieve Carbon Neutrality for JT Group operations

Achieve Net-Zero GHG emissions across the entire value chain

By reviewing and enhancing existing initiatives

By implementing initiatives to further reduce GHG emissions

Objectives

Key initiatives

The JT Group Environment Plan 2030
Our JT Group Environment Plan 2030 sets objectives andtargets to address our key environmental risks and opportunities across three focus areas: energy and Greenhouse Gas(GHG) emissions, natural resources, and waste. The targets
for GHG emissions reduction by 2030 are in line with science-based thinking and in 2022 the JT Group attained validation of its targets from the Science Based Targets initiative

Energy reduction and efficiency measures
Switching from fossil to renewable fuels
Installation of off-grid power systems, e.g. solar Procurement of green electricity

Scope 1 and 2(SBTi). The JT Group Environment Plan 2030 includes
qualitative and quantitative targets. We regularly disclose
our progress toward targets and our environment-related
activities on JT.com.













Scope 3

Continue and enhance energy reduction and efficiency measures
Expand the installation of off-grid power systems, e.g. solar
Increase the proportion of fuels that come from renewable sources Identify further options for the procurement of green energy

Establish collaborative relationships with business partners
and implement measures to reduce Scope 3 emissions,with focus on Category 1 (purchased goods and services)

Evolve and further roll out measures to reduce all categories of
Scope 3 emissions in collaboration with business partners

Scope 3

4Read more about our targets and progress in the JT Group Environment
Plan 2030.

9,420(1,000 tons CO2e)Achieve

Carbon Neutrality
by 2030

Achieving Net-Zero in our entire value chain by 2050
We have now set new targets to help decarbonize our business operations. We are making steady progress toward achieving
our 2050 goal – see our road map on P. 79.
TargetEnergyEmissions

Progress

We will increase the proportion of renewable electricity
that we use to 50% by 2030 and 100% by 2050.
We commit to reducing absolute Scope 1 and 2 GHG
emissions by 47% in line with a 1.5°C reduction pathway
by 2030 from a 2019 base year.
We commit to reducing absolute Scope 3 GHG emissions
associated with purchased goods and services by 28% by2030 from a 2019 base year.

The proportion of renewable electricity that we used in
2022 has increased by 24% from the 2019 base year.
Our 2022 Scope 1 and 2 emissions have reduced by
16% from the 2019 base year.

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Reduce absolute Scope 3 GHG emissions associated with purchased
goods and services by 28% by 2030 from a 2019 base year

Purchased goods and services

Scope 1 and 2

Achieve

28% reduction

735

Net-Zeroby 2050(1,000 tons CO2e)

Scope 1 and 2

Reduce absolute Scope 1 and 2 GHG emissions by 47% in line witha 1.5°C reduction pathway by 2030 from a 2019 base year

47% reduction
Carbon Neutralization using carbon removal offsets

2019

2022

2030

2050

Note: These are the plans as of May 31 2023, and they are subject to revision in accordance with future business strategies

Our 2022 Scope 3 emissions associated with purchased
goods and services reduced by 11% from the 2019 baseyear.

Environmental management system and reporting
In our more complex operations, we align our approach toenvironmental management with internationally recognized
standards – ISO 14001 and ISO 50001. In our smaller and lesscomplex operations in Japan, we have implemented our own“JT Green System.” We use external disclosures and ratings

Scope 3agencies, such as CDP, to review our approach and performance. We have been conducting climate scenario analyses
since 2019, and we endorsed the Task Force on Climaterelated Financial Disclosures (TCFD) recommendations in
2020. Read the results of our latest scenario analysis on P. 80.

Conservation of biodiversity
For the JT Group, the conservation and enhancement of
biodiversity starts with understanding how our business canimpact, and can be impacted by, biodiversity and ecosystemservices, such as pollination, soil fertility, water purification,and climate regulation. Our biggest impact is in the directleaf supply chain. So this is where we focus.
In Brazil, we have partnered with the LIFE Institute, adopting
the LIFE methodology for business and biodiversity. Thismethodology enables a clear and objective analysis of
impacts (positive and negative), risks and opportunities ina business’s relationship with biodiversity. It also enables

evidence-based environmental investment decisions.
We have used the LIFE methodology to evaluate our direct
impacts, including those of more than 10,000 integrated
farmers, for six years.
JTI Brazil participated and presented our efforts, as a LIFE
partner, at the UN Biodiversity Conference, COP15, inMontreal in December 2022. It was recognized as the only
case involving such a huge group of suppliers applying biodiversity metrics together. We aim to be the first company inthis sector and agribusiness to attain LIFE certification.

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BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERSThe Group’s sustainability initiatives

Improving our environmental impact
Climate change
Climate change is the biggest environmental challenge facing society and our business. The effects of climatechange, such as global warming and modified weather patterns, will have serious implications for our supply
chain, given that our products are mainly agriculture-based, but also for our own operations based in various locations around the world. We are committed to tackling this issue. That’s why we are reducing our Greenhouse Gas(GHG) emissions to support the global action to address climate change, with the longer-term aim of achieving
Net-Zero carbon emissions from our value chain. In February 2022, we committed to being Carbon Neutral for ourown operations by 2030. We also aim to achieve Net-Zero for our entire value chain by 2050. In support of this, wehave set more ambitious 2030 science-based reduction targets and in 2022 they were validated by the Science
Based Targets initiative (SBTi) as being in line with the 1.5°C scenario.

Scenario analysis
Transition risk: Carbon pricing
Increases in carbon tax may increase procurement costof tobacco leaf and other materials and services. It may
also lead to additional company expenditure due to tax
increases for the Group’s direct operations. If a carbon tax is
imposed on raw or secondary materials, or services used ineach phase of the agricultural value chain (e.g. agricultural

ImpactOur approach to addressing climate-related risks is aligned with the recommendations of the Task Force on Climate-related
Financial Disclosures.
Indicator

Governance

Description

Climate-related issues are of strategic importance to our business. Through our business-wide
enterprise risk management process, we have identified climate-related risk as one of ourenterprise-level risks for our tobacco business, which also needs to be considered in local risk
inventories and assessment processes. Board oversight is critical and climate-related issues, especially those that may have impacts on business strategy, are brought up in quarterly Board-level

Mitigation planchemicals, agricultural machinery, processing machinery,storage and distribution), then the JT Group will bear the
additional cost and/or transfer cost to the price of finishedgoods.
See the Details of Climate Scenario Analysis.

In our climate scenario analysis, we assumed that under a 4°C scenario, carbon tax will increase to 3,884 4,640 JPY/ton of GHG emissions. Based on a 2°C scenario, it would rise to 13,488 - 15,106 JPY/ton of GHG
emissions in 2050, based on the IEA World Energy Outlook 2018. In real terms, the potential financial impact
would be at least 700,000,000 JPY based on a 4°C rise and at least 7,500,000,000 JPY based on a 2°C rise. We
calculate financial impact by multiplying forecast GHG emissions in 2050 in regions where carbon taxes may
exist, by the carbon tax level in those locations. GHG emissions in 2050 are predicted based on our expected
reduction in emissions and the Company’s sales growth.
We manage this risk by reducing our energy consumption through capital investment and energy saving
programs, as well as renewable energy programs (onsite generation of renewable energy, purchasing green
energy). We are also decarbonizing our fleet and engaging with suppliers to understand their climaterelated risks and develop appropriate mitigation measures, following the JT Group Environment Plan 2030.

meetings. See P. 102 for ESG-related index to executive remuneration.

Strategy

4Our corporate governance position and structure can be found on the JT website.

Physical risk: The impact on crop growth conditions

Through climate scenario analysis performed in 2019, we identified two main risks: ”potential
cost increases due to governments raising carbon taxes to further reduce GHG emissions“ and”the impact on leaf tobacco growing due to changes in environmental conditions.” Our plan is
to mitigate these risks by continuing to implement climate-related initiatives across our value

Changes in atmospheric carbon dioxide levels could affect tobacco leaf growth. There is also a risk of shifts in the presence
and prevalence of tobacco crop pests and diseases related toclimate change. Other risk factors include water scarcity andhigher-than-average temperatures and unusual precipitation

chain and address areas for improvement.

patterns. All of these could impact the availability and qualityof key natural resources for the JT Group, including tobacco
leaf. Such issues could occur in one or more of our tobacco
sourcing countries. As a result, the cost of sourcing tobacco
leaf would increase.

4See the JT website for general information on environmental initiatives and Risk factors (P. 116).

Risk management

We consider climate-related risks and identify risk mitigation and management approaches
through our enterprise risk management (ERM) process.
We also include these risks in local risk inventories, assessment processes, and action plans, which
are partly based on our ongoing country-level climate scenario analysis.
We will compare business-wide risks from local assessments and identify the most critical ones.
4See the Country-Based Climate Scenario Analysis.

Metrics and targets

Our Group Environment Plan 2030 includes a commitment to reduce GHG emissions from ourown operations by 47% (2030 versus 2019). We have also set a longer-term GHG emissions
reduction target, as well as targets for renewable electricity, backed by our Group-wide climate
scenario analysis.

ImpactWe assume that, based on a 2°C rise, the potential financial impact would be at least 32 billion JPY.
If temperatures rise by 4°C, we could see a financial impact of up to 37 billion JPY.

Mitigation plan

We manage this risk by implementing action plans to reduce the financial impact on our business. Thesemay include shifting leaf growing regions based on the climate-related impacts we identified and implementing climate change adaptation measures (e.g. smart agriculture and breeding). We may also introduce
measures to improve yield in growing regions, and to mitigate increased costs and a potential decrease inprocurement volumes.
Primarily, to date, we have managed this risk by building strong relationships with our suppliers and having
a geographically diversified supply chain (for example, the JT Group sources tobacco leaf from more than
30 countries).

4Read more about the JT Group Environment Plan 2030, Environmental data/External verification and Data calculation,
consolidation methods on JT.com.

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BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERSThe Group’s sustainability initiatives

Investing in people

Our employees are assets to the Company; their skills and spirit are the driving force behind everything weachieve. We are recognized as an “employer of choice” around the world, and our positive workplace culture andenvironment help us to attract, retain, and develop talented individuals. We are also taking further steps toengagement survey targeting more than 50,000 employees
worldwide – using, for the first time, the same questions
across all our JT Group businesses globally. The survey response rate was 92%, which is 17% higher than the externalbenchmark. Overall, the Employee Satisfaction (ESAT) score(“How happy are you working at this company?”) was 77, below the Global Top 10% benchmark of 81. We can infer thatthe impact of major internal and external changes in theworking environment, such as transformation in Japan andchanges in working patterns due to the COVID-19 pandemic
have contributed to the low ESAT score. Given this result,
we recognize that improving employee engagement is anurgent issue and will implement initiatives at the executive
level with a focus on clear and transparent communication.

create a diverse, equitable and inclusive culture where everyone can feel comfortable and be themselves.

Diversity, equity and inclusion

The JT Group human resources management philosophy
We believe that highly motivated employees with diverse
skills and talent form the foundation of the JT Group’s
success and contribute to our sustainable growth. In lightof this, the JT Group proactively takes steps to secure longterm engagement and employee satisfaction.

TREAT ALLEMPLOYEES FAIRLYAND RESPECTFULLYENSURE
TRANSPARENCY OF
RULES AND
STANDARDSPROVIDE ALL JT
GROUP EMPLOYEESWITH GROWTHOPPORTUNITIES

Motivated employees with diverse talent are the bedrockof our success. The JT Group has employees of over 100
nationalities, and establishing a diverse, equitable andinclusive workplace for all our employees to enjoy their workand perform to the best of their abilities is therefore a toppriority for us. We respect different backgrounds and values,
such as age, gender, sexual orientation, disability, ethnicity,religion, and nationality, as well as experience and expertise.
We believe that a diverse workforce brings a rich mix ofviewpoints and perspectives, which can inspire new ideas,lead to solutions to complex issues, and drive our businessforward. Our continuous efforts to promote a diverse,
equitable and inclusive culture in our workplace have beenrecognized by numerous awards externally.
4Read more about our external recognition on P. 128.

Developing and retaining talent
Today’s business environment is evolving rapidly, and the
COVID-19 pandemic created additional pressures. To attract,develop, and retain motivated employees with diverse
talent, we provide all JT Group employees with growth
opportunities, in addition to remaining flexible, for example
by adapting to remote ways of working.
We have implemented various global and regional learning
programs to upskill our diverse employees. Many of ourcourses are offered online, enabling employees to develop

Gender equality: Women in leadershipnew skills even remotely. We constantly invest in our
employees, including at a managerial level, to ensure all
employees flourish in their careers.
We believe that providing many different development
and career opportunities combined with flexible ways ofworking is essential to improve employee engagement,
which leads to long-term employee retention, increased
productivity, and improved quality of work.

Employee engagement
We measure the effectiveness of the Company’s people-come-first culture through an annual employee
engagement survey at the regional or department level,
and a Group-wide survey every three years. The feedback
we receive from employees helps us to understand our

082Japan Tobacco Inc. Integrated Report 2022

strengths, progress, and areas for improvement. It also helps
us to make the JT Group an even better place to work, sothat we can attract and retain the best talent.

We are committed to promoting gender equality in our
workplace to attract, develop and retain diverse skills andtalent. To further empower women, we hold workshops for
top management and line managers, as well as training andseminars for female employees. Our new Group-wide target
for women’s representation in leadership is to reach 25% by2030. We find it desirable that this should be more than 40%
over time.

New Ways of Working (N-WOW)
Recognizing that different people have different working
styles and needs, we promote a workplace environmentthat allows all employees to fulfill their potential. N-WOW isa movement to boost flexibility and employee retention.
In July 2021 our tobacco business set out its N-WOW global
guidance for the employees, which became a global policy
in July 2022, adopting a hybrid way of working that focuseson outcomes rather than time spent in the workplace.
Employees now have the flexibility to work up to 50% of
their time per month away from the office, benefit from flexible core hours, and work up to 10 days abroad, among othermeasures which redefine where and how work is done. In
Japan, we introduced full-time flexible working and no-limit
remote working in February 2020. Our approach towards new
ways of working is still evolving.

A family-first approach
In 2021, we introduced a new family leave policy for our
tobacco business. The policy grants 20 weeks of paid familyleave, regardless of gender, sexual orientation, age, or
location, when an employee becomes a parent via naturalbirth, surrogacy, or adoption. In Japan, we have provided
paid parental leave and paid spouse maternity leave, andalso financial support with childcare costs.
In addition to childcare, in some countries with an aging
population, we offer support for employees who lookafter senior family members. We will continue to work on
expanding programs to foster employees' well-being.
4Read more about investing in people on JT.com.

In 2022, we conducted a Group-wide employee

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FINANCIAL INFORMATION /OTHERSThe Group’s sustainability initiatives

Investing in people: Health and safety

Our approach
We believe that our employees have the right to be protected from work-related injuries and illnesses. We are
therefore responsible for providing a safe working environment and promoting a culture which prioritizes healthand safety.
We focus on creating safe workplaces, building safety competence, and developing our safety culture. Our
health and safety standards always meet—and usually exceed—the legal requirements. Their scope extends
beyond our employees to cover contractors and visitors to our operations.

In 2022, we trained 2,194 employees. Due to the pandemic,
some of the driver risk assessments and training wereconducted remotely, but we also organized on-the-roadtraining for high-risk drivers where possible. We plan to train
a further 4,300 drivers in 2023.
In the sales division of our Japanese operations, we have set“prevention of vehicle accidents during sales activities” as apriority issue within our Occupational Health and Safety Plan.

Supporting employee well-being
Our Health & Safety Policy
Our Health & Safety Policy is driven by the following guiding principles:  nPeople come first	The health, safety, and well-being of our employees,
their families, and the communities in which we operate
are at the heart of everything we do.
  nSafety is everyone’s responsibility	Everyone shares the responsibility for a safe and healthy
workplace, and we each have a role to play in making it
happen.
  nNothing we do is worth an injury

	We aim to create an injury- and illness-free workplace
where everyone goes home safe and healthy after
each day’s work and where business results shall neverconflict with safety performance.
  n

We do the right thing	All our offices, sales operations and factories should
always comply with all national and local laws andregulations. Where the local legislation and regulatory
framework do not provide adequate controls, we will
adopt our own standards to protect the health and safetyof our employees, contractors and visitors.

Our health and safety commitment
We strive for zero harm among our employees and to carryout all our business activities in a safe manner.
Our publicly available Health & Safety Policy establishes ouroverall intentions and direction for maintaining health, safety
and well-being in the work environment. The Policy applies to

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all employees (direct and indirect) worldwide, and to contractors and visitors on site.
In our international tobacco business, all locations must

Employee well-being is essential for us to develop andexample, we have recruited on-site health staff at 11 key

retain motivated employees and enable them to fulfill theirlocations across the country, to help employees take carepotentials. We run a variety of well-being programs acrossof their physical and mental health. Since the onset of thethe Group, such as ergonomic assessments and ensuring

COVID-19 pandemic, we have continued to offer employees

general occupational hygiene.

one-to-one interviews with our health staff via video calls.
We have also continued to run online programs focusing on

have their own Health and Safety Policy reflecting the

To design these programs, we gather well-being data from

Corporate Safety vision and principles, including commit-

our local offices. In 2018, we expanded our data scope by in-ments to the prevention of incidents, compliance with local

troducing new rules requiring all local offices to report their

In 2020 we set up a Company-wide walking challenge

legal requirements, workers consultation and participation

occupational health cases to our headquarters. This allows

program. It’s a sponsored walk-run in collaboration with theon safety matters and continuous improvement. The policies

us to understand our global risks and develop a consistentglobal non-profit organization TABLE FOR TWO, and using

must be signed by senior management, yearly reviewed,

approach to occupational health, while strengthening our

the health management portal site Pep Up. This initiativeand communicated to all staff and contractors.

existing protection measures.

has created a range of opportunities to promote health,

Local managers are responsible for investigating report-

Efforts to reduce the risk of traffic accidents
In some countries with poor infrastructure and traffic
management, our people are more at risk of being involved
in road traffic accidents. With this in mind, in 2019, we rolled
out a new driver safety policy and implementation guidelines across our international tobacco business. Considering
the growing number of female employees, the policy
also includes maternity protection for female drivers, e.g.
special safety belts, additional rest time. Focusing on driver
behavior, the new guidelines require local offices to conduct
a risk assessment to identify high-risk drivers. They must also
send periodic progress reports and action plans. In 2020,
we completed a driver safety compliance assessment. The
results showed that our markets and leaf origins comply
80% on average with our global guidelines. In 2021, this average increased to 85%. The assessments also allowed us to
identify best practices that were then integrated into a new
Driver Safety standard. This will be published in Q2 2023.

ed issues and identifying the causes. If the issues are
attributed to the work or workplace, we take appropriate
measures immediately to protect employees’ well-being
and prevent recurrences.
In our Japanese operations, in addition to occupational safety and health activities, we are building a comprehensive
health support system under the leadership of our CEO. For

sleep, diet, and exercise.

contribute to society, and revitalize the organization. We’ve
run this event in each of the three years since its inception
and twice in 2022, May and October. 6,009 of our employees
took part. For every 8,000 steps one of our employees
completes in a day, we donate one meal to a developing
country. In the 2022 financial year, we raised 1,858,860 yen
for TABLE FOR TWO.
These programs have had a positive impact on employee
productivity and the absenteeism rate in Japan, which has
recently been below 1%.
We are pleased to announce that JT was named as a “White
500” company for the seventh year running. This award
is presented by Japan’s Ministry of Economy, Trade, andIndustry. It recognizes large enterprises that are making
outstanding progress towards better well-being among
their employees.
4Read more about targets and progress for health and safety on JT.com.

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BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERSThe Group’s sustainability initiatives

Improving our social impact

Respect for human rights

For our Group to grow sustainably, it is vital for us to contribute to the sustainable development of our society. The

We respect human rights across our value chain and recognize the International Bill of Human Rights and theInternational Labour Organization’s Declaration on Fundamental Principles and Rights at Work. The JT Group
Human Rights Policy follows the framework provided by the UN Guiding Principles on Business and Human Rights.

JT Group Community Investment Policy determines a common goal across the JT Group: “To contribute to the development of inclusive and sustainable communities.” We believe that everyone should have the opportunity to participate in society, and that inclusive societies are better for business. In line with our community investment policy,
and as a responsible local community member, we work with a wide range of stakeholders to resolve social issues.

Our focus areas
Through long-term partnerships with local and international organizations, we have 522 community investment
programs in 65 countries. Based on global and local needs,
these programs help communities to become more inclusive, sustainable, and resilient. We focus on three specificissues:A five-pillar strategy
1.	Reducing inequalities, e.g., helping underprivileged
people gain access to food and education.
2.	Improving community resilience in disaster-prone
areas, e.g., providing access to clean water.
3.	Protecting the environment, e.g., protecting andreinvigorating forests and green public spaces.

Measurement and management

1. Embed
2. Identify and prioritize
3. Respond
4. Measure
5. Report

Our human rights due diligence

To measure the social impact of our efforts, we use theBusiness for Societal Impact (B4SI)* Framework provided by
Corporate Citizenship.
In 2022, we invested around 51 million US dollars in corporate community investment in countries where we operate.
We encourage more accurate reporting and measurement
to ensure all of our programs deliver social impact according
to our policy.

Our human rights strategy is based on five pillars listed to
the right. This circular approach provides a systematic wayof conducting ongoing due diligence and is in line with the
UN Guiding Principles on Business and Human Rights, theOrganisation for Economic Co-operation and Development(OECD) guidelines, and the Food and Agriculture
Organization (FAO) guidance on responsible agricultural
supply chains.

* B4SI is the global standard in measuring and managing corporate social impact

Volunteering opportunities

In line with the UN Guiding Principles, we have madehuman rights due diligence an essential and integrated
part of our business. This enables us to identify and assess
actual and potential human rights risks. Embedding humanrights due diligence – which is in part informed by ourwidely applied Human Rights Impact Assessments – is our
responsibility. It helps us to prevent adverse impacts on

people and ensure the highest standards of behavior are
upheld within our business and value chain. In 2022, we
assessed two new markets: Bolivia and the Philippines. We
also conducted three leaf supply chain impact assessments
in Brazil, Indonesia and Tanzania.
4Read more about respecting human rights on JT.com.

JT Group Human Rights Report

Volunteering brings mutual benefits for employees, ourbusiness, and the community. It also enables our teams to
make a positive impact in the communities where they live
and work by sharing their skills and knowledge.

volunteering activities. We do this by organizing programsand events, or by providing the necessary resources (funds
through corporate matching, employee time, in kind, or
employee donations).

We actively encourage our employees to take part in

4Read more about improving our social impact on JT.com.

In 2021, to coincide with the 10th anniversary of the UN
Guiding Principles, we published our first standalone JT
Group Human Rights Report, which examines the potential
JT Group human rights risks arising from our worldwide
operations. The report identifies nine salient human rights
issues. It sets out how we are going about improving our
performance.
4Read the JT Group Human Rights Report.

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FINANCIAL INFORMATION /OTHERS

GOVERNANCE
To make transparent, fair, agile and courageous decisions in our
pursuit of the 4S model, the JT Group operates a self-governancesystem. Through strong governance we work to realize the sustainable medium- and long-term growth of profit and corporate
value, while contributing to the prosperity of our stakeholders,the economy and society at large.
Encompassing a wealth of facts related to the JT Group’s governance, this section also presents a roundtable discussion among
the board chair and Outside Directors focusing on our initiatives
and challenges in maintaining good governance.

090	Executive roundtable096

Corporate governance

104

Management structure

110	Internal controls

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Executive roundtable

Mutsuo Iwai

Main Kohda

Yukiko Nagashima

Masato Kitera

Tetsuya Shoji

Chairperson of the Board

Independent Outside Director

Independent Outside Director

Independent Outside Director

Independent Outside Director

How do we view the JT Group’s governance?
Corporate governance in pursuit of the 4S model, ourmanagement principle
Iwai

As a corporation with an Audit & Supervisory

Board, JT manages its organization and businesses with
objectivity and neutrality, and has been enhancing its supervisory functions. In addition to slimming down the Boardof Directors and introducing an Executive Officer system, in2012 we brought in Outside Directors, which now hold fourof the nine Board of Directors’ seats. We have built an effective corporate governance system through measures including the establishment of the Advisory Panel on Nomination
and Compensation, comprised entirely of directors who
do not serve as Executive Officers, more than half of them
Independent Outside Directors.
The JT Group believes that corporate governance is a framework for transparent, fair, timely and decisive decision-making
in pursuit of the 4S model, our core management principle.
Good governance is a priority issue in the recently revised
JT Group materiality, and we are working to further enhance
governance to ensure that we remain a corporation that canfulfill and win the trust of our many stakeholders.

Kohda

I have had the pleasure of working with the JT

Shoji

For good governance to reach throughout anGroup as an Outside Director since June 2012, when the of-organization, I think the diversity and inclusion of its board

fice was first established, and I’ve enjoyed many opportuni-means a lot, which we see in the Outside Directors on the JTties to visit Group operations and tobacco sourcing regions

board. With different backgrounds and specialties, each of

in several countries. Most recently I visited a subsidiary in

you views and handles things differently. In not accommo-

Brazil, where I was impressed with how well and consistent-

dating your views or concerns to suit JT practices, you eachly the organization has absorbed the 4S model. The plantbring unique experience and ideas to the table in making

makes and demonstrates the policy of worker safety first,

decisions. I believe our ability to discuss matters from di-and the growers are treated as the center of leaf-tobaccoverse viewpoints leads to more effective advice and support

production. In multiple situations I have been able to experi-

for decision makers. I feel strongly that the Company seri-

ence how much the Company cherishes its people.

ously considers the opinions and perspectives we offer.

What do you think are the main challenges
for JT governance?
Nagashima If there is an illness called “overserious gov-

ernance,” we’d better check to be sure that JT doesn’t haveit from time to time. I say this because JT’s culture is to do
everything seriously, and the flip side of that is overdoing it
and harming ourselves, which we have to watch for. If governance is steering the ship, as Mr. Iwai has said, we have tokeep building our helmsmanship skills. That by itself, I think,indicates self-evolution, and to do that we have to continually ask why we’re doing it and maintain a balanced view.

At JT, every discussion, decision-making processes andresponse to negative events refers to the 4S model, with its

In a recent roundtable talk, our chairperson and Outside Directors discussed
what JT can do for the future of theGroup and society from the standpointof governance. Here are some highlights.

Iwai

We created the 4S model when JT first went

focus on four kinds of stakeholders. I can’t think of anotherpublic, thinking what the Company should be moving for-company in which these management principles have soward. Having been personally involved in the work of mak-thoroughly penetrated. I think this is a JT Group strength.

ing and promoting the model over the years, I’m delighted
to know that our effort has successfully reached those on

Nagashima I feel the 4S model has become the very flesh

and blood of the JT Group, to a surprising degree. I think we
can fairly attribute this to the great deal of time the Company has allowed for the model to become established as partof its mission to do the tobacco business right. I think the
4S model has permeated the organization through the daily
practice of doing business right in accordance with the 4S
model.

the production floors and work fronts. In Japanese the word
“governance” is usually translated to mean “management
and oversight,” but its original meaning is to grasp the helmand steer. So I think that within JT, governance should mean
paying close attention to the JT Group Purpose we’ve justestablished and applying the 4S model in steering the JT
Group ship on the right course. As we move forward we
make it a rule to follow only the correct course and avoid
shortcuts, even if there is one, and given that conviction weare able to take some risks along the way. It’s my job to build

KiteraI feel JT has learned and come to embrace

the important aspects of governance through years ofan environment where you, the Outside Directors, can speak
frankly to help JT on a successful voyage.

KiteraIn Japanese society the means to the goal

often becomes the goal. When I ask people in other companies why they are doing a given thing, for example, I often
hear, “doing it is meaningful by itself.” This is my second year

challenge in the tobacco business. I’m confident that theat JT as an Outside Director, and I’ve yet to see the means toorganization has integrated good governance practices due

the goal become the goal itself here. This I think is a strength

to the broad understanding that unless good governanceof JT in operating globally. I have no doubt that here at JT,

reaches across the entire Group, not just the head office, thisgoals are set in pursuit of what is essential.

business would not be possible.

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Executive roundtable

You’re right on point there. Now we have athan ever. We thought the “fulfilling moments” that tobac-

Group Purpose spread throughout the organization will

excellence. We may need to work harder to communicate

way to be clearer that what we offer society, markets andco products offer, much as luxury products do, would beremain a continuing challenge. As our Tokyo head officethat about ourselves.

consumers as we do business serves the purposes of whatmeaningful to future society rather than just useful, and thus

we do. I think we’re ready with ways to increase the value ofwould continue to be highly valuable. That thinking led toour people, while allowing everyone in the firm to confirm

the Purpose.

Shoji

Ensuring that the 4S model and the new JT

world how it is embracing these challenges and pushing for

manages our operations, including the large-scale tobacco
business, we have to be sure we are steering in the right
direction, with the right touch. At the same time our domestic and international tobacco businesses are now operating

Iwai

Ms. Kohda often tells me JT should work hard-

er on more PR. (laughs)

under a unified team, with head office functions moved to

In deciding between perfection and speed, JT seems to be

Geneva, and a range of functional shifts are moving forward,

biased toward perfection. That said, it can sometimes makeincluding the delegation of authority. As this progresses I

big decisions surprisingly fast. From the governance stand-understand we are taking a fresh look at how we govern

point it would help with the evolution of our decision-mak-international operations from Japan. With the JT Group Pur-ing if we on the board undertake more frequent and precise

pose and 4S model as shared touchstones, I think they will

reviews of major investments. In that context my personal

generally guide our decisions.

challenge is to eliminate, even if imperfectly, the asymmetric
distribution of information between Outside Directors andExecutive Officers. I’d like to encourage you to engage indiscussions while actively exchanging opinions with regularShoji

the meaning of their personal commitment to our business.

Because the ability to enjoy such moments is a subjective
concept, different for each person, we know we can’t makeKohda

I take the JT Group Purpose to be an im-them happen for everyone. What we can do may be limited

mensely deep theme. Roughly speaking it’s about some-given such diversity in the concept, in addition to different

thing at the root of capitalism and human life. People havetime frames and various life situations. In discussing ex-

been pushing straight toward affluence. There is justified

isting and future business and new products and making

concern, however, that we have sacrificed a lot to get there.

decisions in board meetings, I don’t think of the Purpose

JT raises this question and is prepared to rise to the chal-as all-encompassing or almighty. I think it would be great,

lenge. It encourages its employees to explore this kind ofthough, if we can, within its limitations, discuss the points

awareness for themselves and go deeper. I want JT to takeconnecting what JT can do with what society wants.

its time in cultivating and extending the Purpose.
Kohda

employees.

I think that JT is an organization in whichpeople, including us directors, put lots of enthusiasm into

JT is reliably functioning as a corporation with an Audit & Su-

discussions that might seem naive to outsiders.I think it’s apervisory Board. In the medium term, I think it’s also import-

good quality, in any case.

ant to regularly examine whether JT’s governance system isreliably functioning, while deepening our understanding of

Shoji

what society demands of us, such as the Corporate Gover-Every person sees and interprets this concept

differently. But the Purpose clarifies the grounds for ournance Code.

decisions as we work to be a company that suggests ways
Kohda

Taking a bird’s-eye view, JT has what we mighteach have different metrics for them. Board meetings arecall “square” DNA, because it began as a government corpo-

and what role should the Board of Directors

forums for discussing that kind of difference in viewpoint,

ration with exclusive rights to market tobacco products. Our

play in actualizing that Purpose?

where what you called “naive” discussions are practical, I

people are serious, nearly to a fault, and the agenda items
that come up in board meetings are perfectly prepared. Thatsaid, JT people are not satisfied with perfection. Their DNA
demands constant improvement. When I need something
explained and ask a tricky question, they look into it seriously and take specific action. I think that may be an importantdriver that’s brought JT to where it is today. While I think
seriousness is an important quality, being too square canmake us inflexible or overcautious, leading to missing good
opportunities.

Fulfilling Moments, Enriching Life
KiteraI think the recently established JT Group

Purpose is brilliant in ways that no other company has
shown. This has a lot to do with the difficulty of the tobacco
business, which we cannot overcome without this Purpose.
If we were to take what the Company does now for granted

Nagashima In creating the Purpose I didn’t ask the proj-

think. We need to always look back to the beginning. Giv-

ect team to make something pretty, but rather I empha-

en that the definition of what the Purpose embodies will

sized the importance of maintaining a process in whichchange with time and technologies, how can we incorpo-

everyone feels ownership of the result and can proudly

rate it in our products and services? It’s sobering to thinksay, “This is our Purpose.” I’m very happy to know that so

about our responsibility to evolve the board to support thismuch time went into that process. It did take time, but I

kind of visioning from the viewpoints of consumers, markets

think it’s wonderful that each person involved is able toand society.

own it and give it life.
Kiteraand write it down as the Purpose, we wouldn’t need it. The
Purpose is there to help us to go beyond what we’re doing

Iwai

In discussing the Purpose we went deeper

When you mention naive discussions, I recall

that I felt much the same in the diplomatic community I

JT is a global company, making active social contributions

now. Executive Officers should use the JT Group Purpose as

on two points: how society will change and what we canwas part of before. Whenever we discuss what or how to do

through taking leadership in Japan in promoting diversity

a guiding star in promoting internal discussion that leads to

do. In a society where, following various developments,

things, if we don’t begin with naive discussion, we may get

and inclusion in workplaces, but from my perspective JT has

real action.

efficiency is given too much value, we projected that

off on the wrong foot. So now I feel I’m up for a lot of naive

bringing our humanity back would be more important

discussion to help find our best path.

sometimes been too modest. I’d like JT to further show the092

to experience fulfilling moments. We four Outside Directors

What is your hope for the JT Group Purpose,

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Executive roundtable

Nagashima Count me in for naive discussion as well. At

the same time, I want to help measure up to market expectations, with a certain urgency in mind.

Attitudes toward board discussions
Kohda

Nagashima Looking back over the year I notice a re-cord-high percentage of individuals among JT investors. On

the capital markets and shareholders in accordance with thebetween us and those who have been Executive Officers at

the markets institutional investors are more active, and we

4S model with a sense of great responsibility. Through deepJT. We can’t bridge that gap, and we mustn’t try to bridge it

have to conduct higher-quality and more active dialogue

discussions about specifically how we should express thatby force. I think it’s important to stay aware that the value

with them. So we’re running a study group focusing on

responsibility, we continue to clearly inform them about

Outside Directors can contribute is all the greater for that

this. Taking a fresh look at where JT stands now, Executive

our capital policies, investment priorities and shareholder

asymmetry.

Officers are discussing how to approach investors for dia-

returns.

Before each board meeting JT provides us

Transparency of information is also important. A given factwith detailed explanations of the agenda items. Recently

can be seen from different perspectives, but the fact itself

it’s become regular practice for the four of us to attend themust not be omitted. At JT, this is assured.

briefings together. Those sessions ahead of the meetings areimportant opportunities for sharing information and exchanging views, and I am allowed to ask pointed questions.
I always get detailed feedback from the Executive Officers. In
any discussions I feel well-informed, not just of the specificsubject but of the related risks and actions involved as well.
That’s why I strongly feel that JT maintains a fair discussion
practice.

Iwai

Nagashima The asymmetric distribution of informationthat Chairperson Iwai mentioned is an important difference

logue as well, as a high priority. We Outside Directors havebeen given opportunities to get updated on what’s been
decided by the Executive Officers, including examination
to determine whether a decision is truly the right one. On
those occasions we can take advantage of the differences

KiteraI don’t think the functions of Outside Directors

are the same for all corporations; they vary depending oneach situation. At JT I feel a good breathing balance between Outside Directors and Executive Officers. There arein viewpoint between Executive Officers and Outside Directors. I think it would be wonderful if we can use the energy
those differences generate as opportunities to improve ourknowledge.

We are working to increase the satisfaction of

The new Purpose clarifies the direction JT should take forthe long term, so we should follow through on what we
promise with specific actions and return the results to ourstakeholders—in other words, deliver value to our shareholders, investors, consumers and employees. We will facevarious challenges along the way, but we’re committed
to discussing with the board how to overcome them andevolve our strategies for the better.

times when we Outside Directors have to oversee Executive
Officers to fulfill our intended function. At JT I feel that’s handled successfully, by both parties breathing together rather
than unilaterally, dominated by “supervisors.”

Dialogue with capital markets
Kohda

When I came in as an Outside Director in 2012

there were 51,000 JT shareholders. By the end of 2022 thatgrew to over 700,000. Despite divestment by institutions,
I understand that JT remains trusted by individual shareholders because it maintains a rock-solid financial base andreliable shareholder returns.
Shoji

This is only my second year as an Outside

Director, so there’s a gap between you three and me interms of the information I have, of course. In briefings aheadof board meetings I’m able to check the historical background of a given topic, and I can also catch up with theothers when I get private briefing time. So my knowledge
on agenda topics is deeper by the time the board meeting
happens. In the board meetings of other companies, I often
see agenda items that are not fully explained, obviously
showing the desire of the Executive Officers to push them

In watching what some individual investors abroad havebeen doing, totally disregarding what’s happening to thecorporations they invest in, I strongly feel that we should
communicate with individual investors, from the PR standpoint in addition to IR, to inform them fully and accurately. I
think this is one of the major challenges JT will have to embrace. I’m aware that JT is able to operate with the supportof individual investors, so I’ve been stressing the importanceof communication, which boils down to how we respond tothat fact.

through. JT’s fair approach to raising agenda items and moretransparent discussions are very helpful.

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Corporate governanceCorporate governance structure

latter is comprised entirely of Directors who do not serve as
Executive Officers, and more than half of its members are
Independent Outside Directors. We have also streamlined
our Board of Directors and expedited operational execution
by delegating authority to Executive Officers.

Our corporate governance system

We continuously seek to improve corporate governance andincrease management transparency and objectivity through,General Meeting of Shareholders

Select/dismiss
members

Select/dismiss
members

Accounting
AuditorBoard of Directors

9 directors(4 Outside Directors)
ReportOversee performance
Audit
Report/proposeCooperate

Audit & Supervisory
Board

5 members(3 outside members)

Audit & Supervisory
Board Members’
OfficeReportOperational
Review andBusiness
Assurance
Division

ReportAdvisory Panel on Nomination
and Compensation

6 members(4 outside members)

Report/propose

JT Group Compliance
Committee
President andChief Executive Officer

Internal
audit

Divisions
Group
audit

Internal Director and Executive Officer

5 members(3 outside members)

Executive Officers

Subsidiaries

ReportInternal Director

Board of Directors (met 13 times with 98% attendance rate in fiscal 2022)

Select/dismiss
members
Report results ofaudit

Outside Director

We have established the JT Corporate Governance Policy inrecognition that improvement in corporate governance isconducive to sustainable profit growth and corporate value

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supervisory functions and make management transparent.
In March 2022, we amended the term of the Board of
Directors to one year from the previous two-year term inorder to build a management foundation to address thechanges in the business environment in a timely mannerand to strengthen our corporate governance by clearly
defining the responsibilities of the Directors and enhancing
trust with shareholders. The Board discussed importantmatters including the Business Plan and nomination of
Executive Officers in 2022.

Advisory Panel on Nomination and Compensation

Legal and Compliance
DivisionInternal Auditor

Outside Auditor

over the medium and long terms, benefits our stakeholders
and, in turn, helps to move the economy and society
forward. We believe that the Corporate Governance Codehas high affinity with the 4S model, and fully comply withthe principles of the Corporate Governance Code, which
includes the principles of the Prime Market.
We will endeavor to continuously enhance our corporate
governance as a key management priority.
Please visit our website for more on the JT Corporate
Governance Policy.

Rationale behind current governance regime
We are strengthening objective and impartial management
oversight functions by positioning an independent and fair
Audit & Supervisory Board that appropriately oversees thejob performance of Executive Officers and Members of theBoard (hereinafter Directors).

Our Board of Directors is responsible for setting JT Groupmanagement strategies, making decisions on importantmatters and overseeing all operations. The Board meetsonce monthly as a general rule, and meets promptly
whenever necessary, in order to make a decision with regard
to the important matters, including those specified by laws
and regulations, and to supervise business execution. It also
receives reports on the state of operational execution fromthe Directors. It includes at least one-third of Independent
Outside Directors with qualifications conducive to sustainable profit growth and the increase of corporate value
in the medium and long terms in order to strengthen theReportBasic policy
The JT Group believes that corporate governance is aframework for transparent, fair, timely and decisive decision-making in pursuit of the 4S model, our management
principle. Pursuing the 4S model means striving to fulfill
our responsibilities to our valued consumers, shareholders,
employees and the wider society, carefully considering therespective interests of these key stakeholder groups, andexceeding their expectations wherever we can.

for instance, the appointment of an additional Outside
Director and outside Audit & Supervisory Board Member
in 2019 and further appointment of an additional Outside
Director in March 2022. Through such measures, we settled
upon our current corporate governance regime as we
believe it functions effectively with respect to operational
execution and oversight.

We have built an effective corporate governance regime under the Audit & Supervisory Board’s oversight. It includes the
JT Group Compliance Committee and the Advisory Panel on
Nomination and Compensation, both established voluntarily. The former has outside experts serving in key roles; the(met 7 times with 97% attendance rate in fiscal 2022)

The Advisory Panel on Nomination and Compensation’s
purpose is to render the Board’s decision-making moreobjective and transparent, and to upgrade the Board’s
oversight functions by having the Board deliberate on executive appointment and remuneration in accordance withresults of deliberation in the 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; and reporting the resultsof deliberation on remuneration of Directors and Executive
Officers. In order to ensure its independence and objectivity,
the Panel is comprised entirely of Directors who do not serve

as Executive Officers, in which more than half of its members
are Independent Outside Directors. The Panel determinedto elect a member from the Independent Outside Directors
as its Chairperson starting March 2022. Ms. Main Kohda waselected as the Chairperson for 2023. In 2022, the Panel met to
discuss changes to decision-making regarding the selectionof a chairperson for the Panel from among the Independent
Outside Directors based on mutual election; review remuneration levels; review executive candidates; decide on
candidates for the Board of Directors and Audit & Supervisory
Board nominations and discuss the development of a skills
matrix; discuss revisions to remuneration for directors; andreview the key performance indicators (KPIs) for the executive bonus and performance share unit plan for 2023.

Audit & Supervisory Board (met 15 times with 100% attendance rate in fiscal 2022)
The Audit & Supervisory Board conducts operational and accounting audits as an independent body serving the interestsof shareholders. It has five members, three of whom are outsiders, all of whom have experience in such fields as corporate
management, law, finance, and accounting. The Audit &Supervisory Board Members proactively exercise their authority, including attending and speaking at Board of Directors

meetings and other important meetings as well as actively
inspecting business sites. In addition, they also conduct audits
appropriately from an objective viewpoint in accordance withthe characteristics of the duties of the independent outside/standing Audit & Supervisory Board Members. In 2022, theAudit & Supervisory Board discussed issues including auditing
policies and preparation of Audit Report.

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Corporate governanceEvaluation of effectiveness of the Board of Directors

Succession planning

We evaluate annually the effectiveness of our Board of
Directors through a multi-step process. First, all Directors
and Audit & Supervisory Board Members complete a
self-assessment questionnaire with regards to factors
including the Board’s operations, oversight function anddialogues with shareholders and investors. Second, theBoard’s administrative staff interview the Directors and Audit& Supervisory Board Members individually as necessary
to delve deeper into their questionnaire responses andcompile the evaluation results. Lastly, the Board reviews andanalyzes the self-assessment results with the aim of further
improving its effectiveness.

We place priority on fostering successive generations of executives who will manage our future operations, expanding
our pool of executive candidates and improving its quality.

discussions on identification of the medium- and long-term
challenges the candidates are facing and the policies weprovide to support their growth.

To develop a steady stream of highly skilled, highly qualified
leaders capable of excelling in the global arena, we selectfuture executive candidates from each hierarchy throughGroup-wide open recruitment and nomination by top management. Our CEO, along with other senior management,
are deeply involved in these selections.

Especially for those who are regarded highly qualified as our
directors or Audit & Supervisory Board Members, we review
their development status and deliberate to enhance a succession plan and its planning process with input from both
external consultants and the Independent Outside Directors
on our Advisory Panel on Nomination and Compensation.

Our CEO participates in meetings held to support the
next-generation executives. In these meetings, participants
discuss which candidates receive support to become thenext-generation executives based on several factors. The
first factor is based on close examination of whether they
have an excellent mind of ownership, corresponding toa high sense of ethics, integrity and a broad perspective.
The second factor is based on their qualifications in termsof their abilities to accomplish achievements through ourGroup’s growth strategies as an executive or executive
officer. Other factors include the consideration of objective,
external evaluation and competitiveness in markets. We
also formulate development programs, which provide avariety of challenging business experiences; review statusesof development based on the programs ; and hold regular

As one example, our JT-Next Leaders Program, launched in2013, aims to continuously cultivate young executives whowill spearhead the JT Group globally.

For 2022, the questionnaire was administered as outlined
below.
We take advice from external consultants in drafting thequestionnaire and analyzing the results in order to ensure
objectivity and further improve the evaluation process.
nnn uestionnaire drafting period: Sept.–Nov. 2022
QPeriod for evaluation: 2022 (Jan. 2022–Dec. 2022)
Response period: Nov. 25, 2022–Dec. 9, 2022

n

n

n

 articipants: Total of 15 Directors and Audit & SupervisoryP
Board Members
Summary: Evaluation of each question (5 grades) andopen-ended response entry
Discussion by the Board of Directors: Feb. 22, 2023

Main evaluation items are as follows:
1. Role, function and composition of the Board of Directors(6 questions)
2. Operation of the Board of Directors (8 questions)
3. C ollaboration with auditing organizations and risk management (3 questions)
4. Relationships with shareholders and investors (3questions)
5. Voluntary committees (2 questions)
6. Issues for enhancing deliberation and sharing (1 question)
Evaluation items were also properly reviewed to ensure
they cover matters that require continued verification. In
addition, questions were formulated to confirm the status of
improvements concerning issues raised in 2021.

In 2022, the following initiatives were conducted for issues identified in the effectiveness evaluation pertaining to 2021.
Key issues

Initiatives in detail• Initiatives to further improve the quality of • Continued improvements in the Board of Directors operations
deliberations and discussions• F urther expansion of opportunities to discuss medium- and long-term strategies, etc.
• More robust discussions from a long-term • Further expansion of progress reporting and information sharing on key meaperspectivesures, etc.

As in 2021, the Board effectiveness evaluation for 2022
yielded generally positive results across all evaluation
items. It confirmed that the Board is functioning not only
effectively but increasingly so. In particular, the permeationof the 4S model as the guiding principle to which the Boardof Directors strives to conform itself is considered one of theBoard’s strengths. From the standpoint of improvements
since 2021, the Board was especially highly rated for the
sharing of information regarding medium- and long-term
strategies and progress on significant measures, etc., in a bid
to improve business understanding and the exchange of
opinions with executives.

For 2023 and beyond, the Board is pursuing initiatives focused on addressing the issues identified below, in order to continuously enhance the Board’s effectiveness.
Key issues

The Company’s action plans going forward• Further enhancement of the supervisory
functions of the Board of Directors• More effective and efficient operations of
the Board of Directors• Creation of more robust opportunities to share medium- and long-term strategies, key issues, the status of discussions at voluntary committees, etc.
• Continued improvements in Board of Directors operations, including smootherproceedings

The Company will continue to implement the necessary improvements, including the above mentioned initiatives, in the aimof further improving effectiveness.

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It is open to employees in their 40s or younger who fulfil theconditions, including new recruits not yet officially onboarded. Applicants are screened objectively based on an integrated assessment with internal/external evaluation, such as
human assessment, 360-degree surveys, and interviews with
Executive Officers. We preferentially support the successful
applicants’ personal growth on a Group-wide basis overmultiple years. Through such programs, we are expanding
our talent pool from the bottom up age-wise as we continue to pursue reinforcement of our human resources.

Our policy pertaining to listed subsidiary’s governance
We have a publicly listed subsidiary, namely Torii
Pharmaceutical Co., Ltd. (hereinafter Torii), in light of the
management benefits of owning a subsidiary, including
capital market discipline and enhancement of humancapital by utilizing stock remuneration. Another motivation
is for Torii to acquire increased competitive advantage in its
business through factors, such as credibility building andrecruitment of excellent human capital, both of which areimportant in the pharmaceutical business.
Together with Torii, we have built an integrated value chain
to collaborate efficiently with each other. Specifically, we
conduct R&D while Torii handles manufacturing, sales andpromotional activities. From a Group-wide perspective, we
continue to optimize our pharmaceutical business modeland deepen collaboration between JT and Torii by, forinstance, having consolidated all R&D and clinical development functions into JT.

In regard to owning a listed subsidiary, we believe it is anindispensable prerequisite for the subsidiary to maintainindependence in terms of management and to duly protect
its minority shareholders’ interests in order for, not only thesubsidiary, but also for the Group to grow in value. Therefore,
we are striving to build an appropriate governance regime
for Torii as a listed subsidiary.
We have instituted the Group’s Responsibility and Authority
Regulations as an internal decision-making regulation.
Torii has opted to adopt these regulations, thereby gaining
autonomy in terms of decision-making authority. Suchautonomy ensures its independence as a listed subsidiary.
Additionally, Torii is upgrading its governance regime’s
effectiveness by transiting to a majority-independent Boardof Directors, which was approved at its Annual General
Meeting of Shareholders on March 26, 2020.

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FINANCIAL INFORMATION /OTHERS

Corporate governance

Executive remuneration

Composition

Monetary remuneration

Monetary remuneration(Performance-linked)

Ratio*1

Base salary33-42%

Executive bonus
31-35%

2022

Executive remuneration policy
The Board determines the policies on executive remuneration including the methodology on determination of each
Director’s remuneration. These policies are determined
after being deliberated and reported by the Advisory Panelon Nomination and Compensation comprised entirely of
Directors who do not serve as Executive Officers, in whichmore than half of whose members being Independent
Outside Directors, in order to ensure independence andobjectivity. Based on these policies, our basic concept on

executive remuneration is as follows:
n

n

n

n

S et remuneration at an adequate level to retain personnel
with superior capabilities
Link remuneration to Company’s performance so as tomotivate executives to achieve their performance targets
Link remuneration to Company’s value in medium andlong terms
Ensure transparency by implementing objective andquantitative frameworks

Executive remuneration setting process
We benchmark the amount of remuneration for each
Director based on a survey on remuneration for directors
conducted by third parties, taking into account the
remuneration levels of major Japanese manufacturers withsimilar sizes and profits (benchmark corporate group) thatare expanding overseas. Specifically, after benchmarking
the level of base salaries for directors of peer companies,
and the percentage of variable remuneration including
annual bonuses and medium- and long-term incentives, theamount of remuneration for each Director is determinedfollowing various calculation methods stipulated in internal
regulations, based on deliberations at the Advisory Panelon Nomination and Compensation, within the maximum
amount approved at the Annual General Meeting. Currently,
the Board considers that the Representative Director andPresident is most qualified to determine the amount of
remuneration for each Director with having an overview of
the Company’s management and performance as well as
taking into account the evaluation on each Director’s execution of duties. Based on this concept, the Board delegates its

determination to the Representative Director and President.
The Representative Director and President determines theamount of remuneration for each Director including basesalary, executive bonus, monetary compensation claims forthe allotment of restricted stock remuneration plan and of
performance share unit plan, based on various calculation
methods stipulated in internal regulations, in accordancewith deliberation at the Advisory Panel on Nomination andCompensation. The Board concludes the Representative
Director and President’s determination is aligned with thepolicies. In 2021, Masamichi Terabatake, the Representative
Director and President, determined the amount of
remuneration.
The remuneration for Audit & Supervisory Board Members
is also benchmarked in the same way, and is determined bydeliberation among the Audit & Supervisory Board Members
within the maximum amount approved at the Annual
General Meeting.

Composition of executive remuneration
Executive remuneration comprises of (1) monthly “base salary,” (2) “executive bonus” linked to the Company’s businessperformance in a fiscal year, as well as (3) “restricted stock remuneration plan” and (4) “performance share unit plan,” bothof which are linked to the corporate value in the medium
and long terms. The composition of executive remuneration
is as follows.

Directors who also serve as Executive Officers
For the Directors who also serve as Executive Officers, remuneration consists of “base salary,” “executive bonus,” “restricted
stock remuneration plan” and “performance share unit plan.”

100Japan Tobacco Inc. Integrated Report 2022

This composition reflects that their role is to achieve performance targets through day-to-day operational execution.
From 2023, as for the medium- and long-term incentives
that consist of restricted stock remuneration plan andperformance share unit plan, we will increase the ratio of
mid- to long-term incentives further in the executive remuneration composition, as stated above, seeking to further
promote aggressive management from a medium- andlong-term perspective. The illustration in the next pageshows specific ratios after revision.

Composition

Monetary remuneration

Monetary remuneration(Performance-linked)

Ratio*1

Base salary
29-34%

Executive bonus
28-29%

2023

Stock remuneration

Stock remuneration(Performance-linked)

Restricted StockRemuneration Plan*2PSU*2

25-33%
Stock remuneration

Stock remuneration(Performance-linked)

Restricted StockRemuneration Plan*2PSU*2

38-43%*1 The composition ratios vary depending on the duties of Members of the Board and the ranges are indicated in the illustration*2 The ratio of restricted stock remuneration plan and performance share unit plan is about 3 to 1
*3 Under performance share unit plan, 50% is paid as cash towards tax payment*4 T he above illustration shows the ratio of remuneration composition if the “executive bonus” and “performance share unit plan” 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

Internal Directors and non-executive officers
Internal Directors and non-executive officers receive remuneration that consists of the “base salary” alone and excludes
performance-linked remuneration, as they are responsiblefor determining Group-wide management strategies toenhance corporate value and for fulfilling their supervisory
function: for example, monitoring the execution of mediumand long-term growth strategies, and others.

Outside Directors
Remuneration for Outside Directors is composed of “basesalary” alone and does not include performance-linked

compensation to ensure their independence. An Outside
Director who serves as the Chairperson of the Advisory
Panel on Nomination and Compensation receives remuneration at a level of the amount corresponding to theduty, in addition to the remuneration level of other Outside
Directors.

Audit & Supervisory Board Members
Remuneration for the Audit & Supervisory Board Members is
composed of “base salary” alone in light of their key responsibility for conducting audits.

Components of executive remuneration
Base salary
Executives are remunerated with a monthly base salary as
per their responsibilities. They are individually evaluatedon achievement of their performance targets throughexecution of their duties that will lead to the Company’s sustainable profit growth. Performance targets are set throughinterviews with the Group CEO at the beginning of the fiscal
year and evaluated at the end of the year. The base salary
for the following fiscal year will be set within a certain range
reflecting the individual performance evaluations. However,an individual performance evaluation is not applicable for
the Group CEO.

Executive bonus
Executive bonus for Directors who also serve as Executive
Officers will be paid as monetary remuneration reflecting
the performance of a fiscal year. Core revenue at constantcurrency, adjusted operating profit (AOP) at constant currency, adjusted operating profit on a reported basis, profit
results, and an RRP-related index, which will be used to measure the performance of the business itself, will be the key
performance indicators (KPIs) for the calculation of executive
bonuses, from the viewpoint of providing with shareholders
shared value of the performance of the business itself, whichis the foundation of sustainable profit growth, as well as theachievement rate of profit growth, and setting indices conducive to sustainable profit growth over the medium andlong terms. In calculating the amounts of executive bonuses, 15% accounts for core revenue at constant currency, 35%
for AOP at constant currency, 25% for adjusted 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 bonuses has been set to 50%.
Performance-linked payout is based on the KPI achievementin 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 Director who is a recipient of an executive bonus has carried out certain wrongful
behavior, the officer involved will be required to refund apart of the executive bonus already paid.

Restricted stock remuneration plan
The restricted stock remuneration plan is designed tofurther enhance shared value in the medium and longterms between the Directors who also serve as Executive
Officers (hereinafter eligible directors) and the shareholders.
Eligible directors receive monetary compensation claims
every fiscal year towards restricted shares and allocationof the Company’s common share by paying all of themonetary compensation claims in kind in accordance withJapan Tobacco Inc. Integrated Report 2022

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GOVERNANCE

Corporate governancethe resolution of the Board of Directors (the allotment being
made from treasury shares). The Company enters into anagreement with the eligible directors with regards to theallotment of the shares. Although the restriction period isthirty years, in cases where any eligible director retires due
to expiration of the term or resigns due to reasons deemed
reasonable by the Board of Directors, from a position as
Director or any other positions separately specified by the
Board of Directors during the restriction period, the transfer
restrictions are removed on all of the allotted shares that theeligible director owns.
In the event that we acknowledge wrongful behavior as
determined by the Board or any other wrongful act by a
Director who was allotted restricted stock remuneration
plan during the restriction period, all or a part of theallotted shares are acquired by the Company without any
compensation.

Performance Share Unit Plan (PSU)
PSU is a performance-linked stock compensation systemthat aims to strengthen shared value with shareholders,to enhance company value over the medium and longterms and to commit to achieving business results over themidterm. PSU offers monetary remuneration claims and cash
to the Directors who also serve as Executive Officers during
the first year of the performance evaluation period, as performance-linked stock compensation. After a three-year performance evaluation period ends, attainment rates of numerictargets including earnings are determined following a review
by the Advisory Panel on Nomination and Compensation.
As a general rule, eligible directors receive the cash andmonetary claims after the end of each performance evaluation period. Eligible directors receive monetary remuneration
claims towards the purchase of Company shares and receive
the Company’s common shares (the allotment is made fromthe treasury shares).
We determine necessary indices to calculate the numberof shares given to eligible directors including each numerictarget used in this compensation system and performance-linked factors following a review by the Advisory
Panel on Nomination and Compensation. Profit (attributable
to the owners of the parent company) has been set as aperformance share unit plan KPI for the evaluation periods
starting in 2020 and 2021. For the evaluation period startingin 2022, the Company has decided to introduce an ESGrelated index on top of profit, in order for the Company andshareholders to seek an agreement on a mutual perspectiveof evaluating and being evaluated. The decision was madeto enact this same change for the evaluation period startingin 2023. Performance-linked payout is set to be in the range
of 0% to 200% based on the KPI (i.e., profit) achievement inboth 2020 and 2021. In 2022 and 2023, 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.
In the event that we acknowledge wrongful behavior as
determined by the Board or any other wrongful act by a
Director during the performance evaluation period, theDirector is disqualified from receiving all or a part of the cash
and monetary claims that were planned to be paid.

PSU
KPI

Purpose/Details

Ratio

ProfitIntroduced to share attainment rate of profit growth with shareholders

100%

ESG-related index

Introduced in order for us (evaluatee) and shareholders (evaluator) to seek agreement on what is
conducive to corporate value
For 2023, indicator for evaluation will be based on efforts to realize Net-Zero, specifically, the degreeof achievement for GHG emissions reduction target.

±10%

Total amount of remuneration in 2022
Total amount by component (JPY MM)

Category

Total amount(JPY MM)

Base salary

Executive bonus

Restricted stock
remuneration

PSU

Directors (excluding Outside
Directors)

1,399

511

514

194

180

7

Audit & Supervisory Board
Members (excluding outside
members)

82

82

—

—

—

2

Outside Directors
Total

148

148

—

—

—

7

1,629

741

514

194

180

16

Notes: 1. The amount of PSU in the diagram is the amount booked as expenses for 2021
2. Executive bonus and PSU are categorized as performance-linked remuneration
3. Restricted stock remuneration plan and PSU are categorized as non-monetary compensation
4. The diagram above includes a Director who retired on March 23, 2022

Maximum amount of executive remuneration
The maximum total amount of executive remuneration for all Directors has been changed as follows with effect from 2023, as
resolved at the Ordinary General Meeting of Shareholders. The Company's Audit & Supervisory Board Members are eligible only
for base salary and the maximum amount of remuneration in total is set as 240 million yen per annum.
Internal Directors
Before revision

KPIs for executive remuneration
We have introduced indices such as one on a reported basis

conducive to medium- and long-term growth and further

and non-financial to design a more multifaceted system forstrengthen shared value with shareholders.

Base salary

Executive bonus

assessing our performance. We aim to evaluate our initiatives

Executive bonus
KPI

102

Purpose/Details

Ratio

Adjusted operating
profit at constantcurrency

Assess performance of business itself which is the foundation of sustainable profit growthProfitIntroduced to share attainment rate of profit growth with shareholders

25%Core revenue atconstant currency

Assess growth rate of top line. This KPI is introduced given significance of assessment of top-line growth
to realize medium- and long-term sustainable profit growth15%

Adjusted operating
profit on a reported
basis

Assess business performance including FX impact. This KPI is introduced to assess current
performance from a multifaceted perspective considering the balance between the constant FX basis
and reported basis

25%

RRP-related index

Assess qualitatively the implementation of strategies and attainment rate regarding RRP (ReducedRisk Products), our focus area

±10%

Japan Tobacco Inc. Integrated Report 2022

35%

Number of
eligible persons

Restricted Total amount of monetary remuneration
stock remuneration
Number of shares
plan
distributed

PSU

After revision

Within 800 million yen(160 million yen for OutWithin 1,100 milside Directors)
lion yen(100 million yen for Up to 0.3% of profit (profOutside Directors) it attributable to ownersof the parent company)
Within 210 million
yenWithin 600 million yen

Within 115,200
sharesWithin 300,000 shares

Total amount of monetary remuneration andcash for tax payment

Within 130 million
yen

Up to the amountobtained by multiplying fixed number ofbase share units*1 (upto 200,000 shares) withshare price at offering*2

Number of shares
distributed

Within 76,800
sharesWithin 100,000 shares

OutsideDirectors

Executive
Officers

Non-executive
officers

O

O

O

O

—

—

O

—

—

O

—

—

*1 Number of base share units (determined by the Board of Directors based on the duties, etc., of respective eligible Members of the Board) x Offering ratio (within arange of 0-200% based on the degree of achievement of targets)*2 A
 fter the performance evaluation period ends, based on the closing price of the ordinary shares of the Company on the TSE on the preceding business day ofthe date of the resolution by the Board of Directors concerning the allotment of the ordinary shares of the Company under the plan (or the closing price on theimmediately preceding business day, if transactions are not executed on that day), the amount shall be determined by the Board of Directors of the Company
within the range not particularly favorable to eligible Members of the Board

Japan Tobacco Inc. Integrated Report 2022

103

IDENTITY

MATERIALITY andSUSTAINABILITY

BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERSManagement structure
Directors and Audit & Supervisory Board Members
Nine Directors (including four Outside Directors)
The Directors marked with * also serve as Group Executive Officers

Mutsuo Iwai
Chairperson of the Board
Date of birth: October 29, 1960
Number of shares held: 40,100

Shigeaki Okamoto
Deputy Chairperson of the
Board
Date of birth: February 20, 1961
Number of shares held: 3,000

Masamichi Terabatake*
Representative Director andPresident, Chief Executive
Officer
Date of birth: November 26, 1965
Number of shares held: 184,400(As of March 24, 2023)

April 1983	Joined the Company (Previously, Japan
Tobacco and Salt Public Corporation)
June 2003	Vice President, Corporate Planning
Division
July 2004	Vice President, Corporate Strategy
Division
June 2005	Senior Vice President; and President,
Food Business
June 2006	Member of the Board; Senior Vice
President; and President, Food Business
June 2008	Senior Vice President; and Chief Strategy
OfficerJune 2010	Member of the Board; Senior Vice
President; Chief Strategy Officer; andPresident, Food Business
June 2011	Member of the Board, Japan Tobacco Inc.
	Executive Vice President, JT International S.A.
June 2013	Senior Vice President; and Chief Strategy
OfficerJanuary 2016	Senior Vice President; and President,
Tobacco Business
March 2016	Representative Director and Executive
Vice President; and President, Tobacco
Business
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 (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.

April 1983	Entered the Ministry of Finance (hereinafter the Ministry)
July 2006	Director for the Budget Bureau, Planningand Administration Division of Budget
Bureau, the Ministry
July 2009	Head of Secretariat Division, Minister’s
Secretariat, the Ministry
August 2012	Deputy Director-General of the Budget
Bureau, the Ministry
July 2015	Deputy Vice Minister, the Ministry
July 2017	Director-General of the Budget Bureau,
the Ministry
July 2018	Administrative Vice Minister, the Ministry (Retired from the office in July 2020)
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(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 Office

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 President, Food Business
June 2012	Senior Vice President; and Chief Strategy
OfficerJune 2013	Member of the Board, Japan Tobacco
Inc.

	Executive Vice President, JT International S.A.
January 2018	President and Chief Executive Officer
March 2018	Representative Director and President,
Chief Executive Officer (Current Position)
Significant Concurrent Positions Outside the Company
Chairman and Managing Director, JT International
Group Holding B.V.

Kei Nakano*
Representative Director andExecutive Vice President
Date of birth: March 1, 1968
Number of shares held: 31,100

Main Kohda
Director (Independent Outside Director)
Date of birth: April 25, 1951
Number of shares held: 0

Yukiko Nagashima
Director (Independent Outside Director)
Date of birth: April 4, 1961
Number of shares held: 0

Masato Kitera
Director (Independent Outside Director)
Date of birth: October 10, 1952
Number of shares held: 0

Tetsuya Shoji
Kiyohide Hirowatari*
Representative Director andExecutive Vice President
Date of birth: November 11, 1965
Number of shares held: 66,300

104Japan Tobacco Inc. Integrated Report 2022

April 1989	Joined the Company
July 2010	Vice President, Legal Division
June 2012	Senior Vice President; Chief Legal Officer; and Vice President, Legal Division
July 2014	Senior Vice President; and Chief Legal Officer
January 2015	Senior Vice President; and Head ofTobacco Business Planning Division,
Tobacco Business
January 2017	Senior Vice President, Human Resources
January 2018	Executive Vice President, Compliance,
General Affairs, Legal, Corporate
Strategy, IT, CSR, Human Resources andOperation Review & Business Assurance

March 2018	Representative Director and Executive
Vice President, Compliance, General
Affairs, Legal, Corporate Strategy, IT,
CSR, Human Resources and Operation
Review & Business Assurance
January 2019	Representative Director and Executive
Vice President, Corporate, Pharmaceutical and Processed Food Businesses
January 2022	Representative Director and Executive
Vice President, Corporate, Sustainability
Management, Pharmaceutical andProcessed Food Businesses (Current
Position)

Director (Independent Outside Director)
Date of birth: February 28, 1954
Number of shares held: 0

April 1991
Joined the Company
April 2011	Vice President, M&S Strategy Department, Tobacco Business Development
June 2014	President and Chief Executive Officer, TS
Network Co., Ltd.
January 2016	Senior Vice President, Communicationsof the Company
October 2019	Senior Vice President, Corporate
Strategy

March 2020	Director, Japan Growth Investments
Alliance, Inc.
January 2022	Senior Vice President, Corporate
Strategy of the Company
January 2023	Representative Director and Executive
Vice President, Finance, Corporate
Communications, Business Development and D-LAB (Current Position)

September 1995	Started independently as novelist(Current Position)
January 2003	Member of Financial System Council,
the Ministry of Finance
April 2004	Visiting Professor, Faculty of Economics,
Shiga University
March 2005	Member of the Council for Transport
Policy, the Ministry of Land, Infrastructure, Transport and Tourism
November 2006	Member of the Tax Commission, Cabinet
Office, Government of Japan
June 2010	Member of the Board of Governors,
Japan Broadcasting Corporation

June 2012	Outside Director of the Company(Current Position)
June 2013	Outside Director, LIXIL Group Corporation
June 2016	Outside Director, Japan ExchangeGroup, Inc. (Current Position)
June 2018	Outside Director, Mitsubishi Motors
Corporation (Current Position)
Significant Concurrent Positions Outside the Company
Novelist
Outside Director, Japan Exchange Group, Inc.
Outside Director, Mitsubishi Motors Corporation

April 1985	Joined Recruit Co., Ltd. (Currently,
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 of the Company(Current Position)
June 2021	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, Sumitomo
Corporation

April 1976	Entered the Ministry of Foreign Affairs(hereinafter the Ministry)
January 2008	Director-General for Sub-Saharan African Affairs, Middle Eastern and African
Affairs Bureau, the Ministry	Secretary General, Fourth Tokyo
International Conference on African
Development
July 2008	Director-General, International Cooperation Bureau, the Ministry
January 2010	Deputy Vice-Minister, the Ministry
September 2012	Assistant Chief Cabinet Secretary
November 2012	
Ambassador Extraordinary and Plenipotentiary of Japan to People’s Republic of China

April 2016	Ambassador Extraordinary and Plenipotentiary of Japan to the French Republic
June 2016	Ambassador Extraordinary and Plenipotentiary of Japan to the French Republic, Principality of Andorra and Principality of Monaco(Retired from the position in December 2019)
April 2020	Adviser of the Company
June 2020	Outside Director, Marubeni Corporation(Current Position)
	Outside Director, Nippon Steel Corporation (Current Position)
March 2021	Outside Director of the Company(Current Position)
Significant Concurrent Positions Outside the Company
Outside Director, Marubeni Corporation
Outside Director, Nippon Steel Corporation

April 1977	Joined Nippon Telegraph and Telephone Public Corporation
June 2006	Senior Vice President and General Managerof the Personnel Department, Nippon Telegraph and Telephone West Corporation
June 2009	Senior Vice President and Head ofGeneral Affairs, Nippon Telegraph andTelephone Corporation
June 2012	Senior Executive Vice President andRepresentative Member of the Board,
NTT Communications Corporation
June 2015	President & CEO and Representative
Member of the Board, NTT Communications Corporation
October 2018	Representative Member of the Board, NTT, Inc.

June 2020	Corporate Advisor, NTT Communications Corporation (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)
March 2022	Outside Director of the Company(Current Position)
Significant Concurrent Positions Outside the Company
Corporate Advisor, NTT Communications Corporation
Outside Director, Sapporo Holdings Limited
Outside Director, Hitachi Zosen Corporation
Outside Director, Mitsubishi Logistics Corporation

Japan Tobacco Inc. Integrated Report 2022

105

IDENTITY

MATERIALITY andSUSTAINABILITY

BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERSManagement structure
Five Audit & Supervisory Board Members (including three Outside Audit & Supervisory Board Members） (As of March 24, 2023)

Hideaki KashiwakuraStanding Audit & Supervisory
Board Member
Date of birth: February 28, 1969
Term of office: 4 years from March 2023
Number of shares held: 0

Tsutomu Hashimoto
Standing Audit & Supervisory
Board Member

April 1991	Joined the Company
July 2012
Controller
October 2014	Vice President, M&S Management
Department, Tobacco Business Division
January 2017	Manager, Hokkaido Branch, Tobacco
Business Division
January 2019	Deputy Chief Financial Officer (Assistantto CFO)

April 1991
Joined the Company
March 2019	Vice President, Operational Review andBusiness Assurance

January 2021	President, Chief Executive Officer, JT
BusinessCom Inc.
March 2023	Standing Audit & Supervisory Board
Member of the Company (Current
Position)

March 2023	Standing Audit & Supervisory Board
Member of the Company (Current
Position)

Date of birth: May 31, 1967
Term of office: 4 years from March 2023
Number of shares held: 200

Shigeru Taniuchi
Standing Audit & Supervisory
Board Member(Independent Outside Audit &Supervisory Board Member)
Date of birth: September 7, 1962
Term of office: 4 years from March 2023
Number of shares held: 0

Nobuo Inada
Audit & Supervisory Board
Member (Independent
Outside Audit & Supervisory
Board Member)
Date of birth: August 14, 1956
Term of office: 4 years from March 2023
Number of shares held: 0

Hiroko Yamashina
Audit & Supervisory Board
Member (Independent
Outside Audit & Supervisory
Board Member)
Date of birth: May 20, 1963
Term of office: 4 years from March 2023
Number of shares held: 0

April 1986	Entered the Ministry of FinanceJuly 2008	Director, Allowance Control and Mutual
Assistance Insurance, Budget Bureau,
Ministry of FinanceJuly 2009	Director, Agriculture, Forestry and Fisheries Section Budget Bureau, Ministry of
Finance
July 2010	Director, Treasury, Financial Bureau,
Ministry of FinanceJuly 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 Coordination Division,
Financial Bureau, Ministry of Finance(Retired from the office in July 2014)
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, Ministryof Health, Labour and Welfare
July 2017	Deputy Director-General of Minister’s
Secretariat, Elderly Health Care, Ministryof Health, Labour and Welfare
July 2018	Director, Social Welfare and War Victims’
Relief Bureau, Ministry of Health, Labourand Welfare
August 2020	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
the Digital Garden City Initiative Panel,
Cabinet Secretariat
December 2021	Concurrently serving as Head of Preparation Work Group for Bill of EstablishingChildren and Families’ Agency, Cabinet
Secretariat
June 2022	Concurrently serving as Head of preparation Work Group for Establishment ofChildren and Families’ Agency, Cabinet
Secretariat (Retired in June 2022)
March 2023	Standing Outside Audit & Supervisory
Board Member of the Company (Current
Position)

April 1981	Appointed as Public Prosecutor
October 2008	Deputy Vice-Minister of Justice, Ministryof Justice
August 2011	Director-General, Criminal Affairs
Bureau, Ministry of Justice
January 2014	Vice-Minister of Justice, Ministry ofJustice
September 2016	Superintending Prosecutor, Sendai High
Public Prosecutors Office
September 2017	Superintending Prosecutor, Tokyo High
Public Prosecutors Office
July 2018	Prosecutor-General (Retired in July
2020)

October 2020	Registered as Attorney at Law (Current
Position)
June 2021	Outside Director, Audit & Supervisory
Board Member, Nomura Securities Co.,
Ltd. (Current Position)
March 2023	Outside Audit & Supervisory Board
Member of the Company (Current
Position)
Significant Concurrent Positions Outside the Company
Attorney at Law, Inada Law Firm
Outside Director, Audit & Supervisory Board Member,
Nomura Securities Co., Ltd.

April 1986	Joined Orient Leasing Co., Ltd. (Currently, ORIX Corporation)
March 2007	Head of Office of Internal Controls, ORIX
Corporation
May 2010	Executive Officer, ORIX Life Insurance
Corporation
January 2013	Managing Executive Officer, ORIX Life
Insurance Corporation
January 2014	Corporate Officer, ORIX Corporation
January 2016	Group Executive, ORIX Corporation(Current Position)

President, ORIX Credit Corporation
January 2021	Chairman, ORIX Credit Corporation(Current Position)
March 2023	Outside Audit & Supervisory Board
Member of the Company (Current
Position)
Significant Concurrent Positions Outside the Company
Group Executive, ORIX Corporation
Chairman, ORIX Credit Corporation

Executive Officers
President
Masamichi Terabatake(As of January 1, 2023)

Akihiro Koyanagi

Kenji Ogura

Manufacturing, Tobacco Business, Japan

Corporate Governance, Compliance

Daniel Torras

Hisato Imokawa

Executive Vice Presidents
Kiyohide Hirowatari

Performance & Integration, Tobacco Business,Japan

Chief Sustainability Officer

Corporate, Sustainability Management, Pharmaceutical and Processed Food Businesses

Suguru Fujiwara

Chief Executive Officer*

Kei Nakano

Corporate Affairs & Communications, Tobacco
Business, Japan

Finance, Corporate Communications, Business
Development and D-LAB

Muneaki Fujimoto

Senior Vice Presidents
Junichi Fukuchi

Shigenori Ohkawa

Chief Executive Officer, Tobacco Business, Japan

Eiichi Kiyokawa

Hiromasa Furukawa

Chigusa Ogawa
Leaf Procurement, Tobacco Business, Japan

Shuichi Hirosue
Marketing, Tobacco Business, Japan

Chief Financial Officer and Corporate Communications

Yoshiyuki Mishima
People & Culture

President, Pharmaceutical Business

Head of Central Pharmaceutical Research Institute, Pharmaceutical Business

Sales, Tobacco Business, Japan

Nobuya Kato

Food Business

Hisashi Shimobayashi
Information Technology

Yuki Otaki
D-LAB* Masamichi Terabatake concurrently serves as
President, Tobacco Business

Osamu Hirose
General Counsel

Hiroyuki Fukuda
Corporate Strategy

Members of the JTI Executive Committee(As of April 1, 2023)

Eddy Pirard

Rob Stanworth

Vassilis Vovos

President and Chief Executive Officer

Executive Vice President, Chief Consumer andProduct Officer

Executive Vice President, Chief Financial Officer

Takehiko Tsutsui

Note: The members above report directly to Eddy
Pirard, President and Chief Executive Officer

Koji Shimayoshi
Executive Vice President and Deputy CEO

Executive Vice President, Reduced-Risk Products

Stefan Fitz
Executive Vice President, Chief Commercial
Officer

Notes: 1. F or reasons for appointment of the Directors and Audit & Supervisory Board Members, please refer to the Notice of Convocation of the 38th Ordinary General
Meeting of Shareholders
Notes: 2. W e have established a set of independence criteria. For details, please refer to the JT Corporate Governance Policy

106

Japan Tobacco Inc. Integrated Report 2022

Japan Tobacco Inc. Integrated Report 2022

107

MATERIALITY andSUSTAINABILITYIDENTITY

BUSINESS andSTRATEGIESFINANCIAL INFORMATION /OTHERS

GOVERNANCE

Management structure

The concept of skills necessary for the Directors

We have adopted the following composition of the Board of
Directors in order to enable the Directors to identify the JT
Group management strategies and make decisions on important matters, as well as to effectively supervise all operations. The Advisory Panel on Nomination and Compensation
has repeatedly engaged in discussions on the compositionof the Board of Directors:nT he Board may have as many members as necessary andappropriate, up to a maximum of 15. It comprises diverse
professionals with a high sense of ethics and integrity as
well as knowledge, experience and skills, taking into consideration such factors as gender, international experience,
work experience, race, ethnicity, cultural background, andother aspects of diversity, along with the skills necessary toserve as Directors.

nT he Board includes at least one-third of Independent
Outside Directors with qualifications conducive to theCompany’s sustainable profit growth and corporate
value over the medium and long terms, in order tostrengthen the supervisory functions and transparency ofmanagement.

We expect in particular that each Director will demonstrateskills based on their knowledge and experience in thefollowing areas, in light of our management principle, JT
Group Purpose and business plan, in order for the Boardof Directors to properly fulfill its roles and responsibilities.
We believe that the Board of Directors as a whole has thenecessary skills at this time.

Areas in which skills are expected to be particularly effective
n

n

n

n

n

n

108

“ Corporate Management,” including the JT Group’s management strategy, operations, and business strategy basedon 4S model, our management principle
“Global Management,” which is essential for the JT Group,
which operates globally
“Corporate Finance, Accounting and Capital Policy” and“Legal, Compliance, and Risk Management," which are thebasis of decision-making for effective management andbusiness activities
“IT/Information Security” is one important managementfoundation for strengthening the competitiveness of the
JT Group
“Corporate Governance,” which is the foundation of ourcorporate activities in order to maximize stakeholder value,
pursue sustainable profit growth, and grow corporate value
over the long term
“Sustainability/Environment and Society,” which we consider core to our management initiatives and for which we
formulate strategies based on the 4S model and materiality
analysis

Japan Tobacco Inc. Integrated Report 2022nn

“ D&I/Organizational Behavior and Human Resource
Management,” one of our focus areas, is being promoted
so that all JT Group employees can feel motivated in theirwork and maximize their abilities
“Business Development/M&A” to formulate strategies andcarry out measures for further development and businessgrowthIn addition, in light of the roles and responsibilities of the
Audit & Supervisory Board Members to oversee the job
performance of the Directors, we are particularly expecting
Audit & Supervisory Board Members to demonstrate theirskills in the areas of “Corporate Finance, Accounting andCapital Policy,” “Legal, Compliance and Risk Management,”
and “Corporate Governance.” At present, we believe that theentire Audit & Supervisory Board has the necessary skills.

Skills matrix for proposed Directors and Audit & Supervisory Board Members
Areas in which skills are expected to be particularly effective

Name

Position

Corporate
Management

GlobalManagement

MutsuoIwai

Chairpersonof the Board●●

ShigeakiOkamoto

DeputyChairpersonof the Board

Masamichi
Terabatake
Kiyohide
Hirowatari
Kei
NakanoMain
Kohda
YukikoNagashima
MasatoKiteraTetsuya
Shoji

Representative Director●

Representative Director●

Representative Director●

Standing
Audit &

HideakiSupervisory
Kashiwakura Board●●●

IT/Information
Security●●

D&I/Organizational
SustainBehavCorporate
ability/Businessior andGoverEnvironDevelopHumannancement andment/M&A
Resource
Society
Management
●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

OutsideDirector
OutsideDirector●●

OutsideDirector
OutsideDirector

Corporate
Legal,
Finance,CompliAccountance anding and
Risk ManCapitalagement
Policy

●
●

●
●

●

●
●

●
●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

MemberTsutomu
HashimotoStanding
Audit &
Supervisory
Board
MemberShigeru
TaniuchiStanding
and Outside
Audit &
Supervisory
Board
Member

Nobuo
Inada

OutsideAudit &
Supervisory
Board
MemberHirokoYamashina

OutsideAudit &
Supervisory
Board
Member●●●●Japan Tobacco Inc. Integrated Report 2022

109

IDENTITY

MATERIALITY andSUSTAINABILITY

BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERSInternal controls

Risk management
The JT Group identifies and closely monitors risks that could
affect its operations and implements measures to both prevent them from materializing and minimize their impacts ifthey were to materialize. We have established an integrated

system for identifying and managing all identified risks. Ourrisk management process comprises the following four
steps.

such guidelines to their personnel (defined as employees,
directors, etc.; likewise below) and endeavor to increase
compliance effectiveness by conducting various training
programs and other educational activities for their respective personnel.

① Identify risks② Assess risks

Executive Officers assess risks in their respective organizational units probability of materializing and themagnitude of its impact if it were to materialize. They identify material risks that should be prioritizedwith attention and report them to the executive in charge of risk management. Based on such reports, theexecutive in charge of risk management identifies Group-level material risks with the potential to inflict major
losses in terms of attainment of the Group’s management targets and business strategies and reports said risks
to the CEO.

③ F ormulate plansto address risks④ M onitor progressof plans

Executive Officers oversee formulation of plans to address the JT Group’s material risks and submit them tothe executive in charge of risk management and the CEO.
Executive Officers regularly report to the executive in charge of risk management and the CEO on the progressof the plans to address the Group’s material risks.

We have prepared crisis management and disaster responsemanuals in preparation for emergencies. When a crisis or
natural disaster occurs, we set up an emergency project task
force. We have made advance arrangements to enable concerned organizational units and subsidiaries to swiftly takeappropriate action in close coordination with each other

under the direction of senior executives. Such incidents andpertinent information about them are reported to the Boardof Directors in a timely and appropriate manner.

The JT Group Compliance Committee is headed by the
Chairperson of the Board and includes external experts as
key members. It meets regularly every year. It deliberates
on Group-wide compliance-related matters, including
annual Compliance Action Plans’ implementation status and110

Japan Tobacco Inc. Integrated Report 2022

ReportCompliance Office
Approve initiatives

ReportDivisions in each business & corporate divisions

Group companies

4Please see Risk factors (P. 116) for more on risks facing the JT Group.
* Composed of two internal and three external members

Compliance
We enforce strict compliance. We have instituted a Code of
Conduct that mandates that all directors and employees
act in compliance with applicable laws, government
regulations, our Articles of Incorporation and societal
norms pursuant to regulations established by the Board of
Directors. To ensure fair and effective compliance practices,
we have established the JT Group Compliance Committee
as a deliberative body that reports directly to the Board of
Directors.

JT Group Compliance Committee*
Supervise/Advise

adoption/revision of compliance-related regulations and ourCode of Conduct, to deeply instill a compliance mindset in
employees. We have also appointed an Executive Officer incharge of compliance to oversee our Legal and Compliance
Division, which implements and promotes a cross-Group
compliance regime and endeavors to identify compliancedeficiencies. In 2022, the JT Group Compliance Committee
met three times to discuss compliance promotion initiatives,among other matters. The outcomes of its discussions wereincorporated into the 2023 Compliance Action Plan.

Action Plans formulated by the JT Group Compliance
Committee include actions to maintain/enhance compliance programs, address priority compliance issues, conduct
trainings and seminars, operate the internal reporting
system and implement Compliance Promotion Month.

Compliance surveys

Board of Directors
An executive appointed by the CEO to be in charge of risk management (currently the executive officer incharge of corporate governance and compliance) identifies all risks that could affect the JT Group.

Compliance Action Plans

We annually conduct a Group-wide questionnaire survey
to check the status of compliance practices in our Japanese
operations. In 2022, 94.1% of employees completed thesurvey. The survey’s findings are reported to directors andemployees, and are used by concerned organizational units
to reassess their respective compliance plans and formulate
and implement measures to improve compliance.

Internal reporting system (whistle-blower
system)Group companies have set up hotlines for their employees
and other parties to report acts suspected of being legal/
regulatory violations and other such concerns. Compliancepromotion departments that receive a report or query via
their hotlines investigate its details and then take action,
including recurrence prevention measures, as needed.
Additionally, JT has set up another hotline apart from theone staffed by its Legal and Compliance Division. The
second hotline is independent from organizational units
involved in operational execution and staffed by Audit &Supervisory Board Members, who investigate the detailsof any reports or queries received via the hotline. JT thentakes action, including recurrence prevention measures, as
needed. JT refers or reports serious problems involving the
JT Group to the JT Group Compliance Committee for further
review as needed.

Group companies’ respective organizational units that
promote compliance (e.g., JT’s Legal and Compliance
Division and subsidiaries’ corresponding organizational
units) distribute the JT Group Code of Conduct and otherJapan Tobacco Inc. Integrated Report 2022

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BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERSInternal controls

Quality control
We are committed to maintaining the public’s trust in our
products. To do so, we have implemented quality assurance
systems across all of our businesses.

Tobacco business
For tobacco products, we are building a globally uniform
quality assurance model and making necessary changes
based on this model with the aim of providing high-quality
products.
Our quality assurance activities fundamentally aim to improve quality and rectify deficiencies by providing feedback
to concerned organizational units about quality issues identified based on quality information from markets and related
research. For example, when our RRP (Reduced-Risk Product)
devices are in the development stage, we confirm that they
not only comply with applicable laws and regulations but
also that they meet industry safety standards for electric
products by having them evaluated as needed by external
specialists.
Additionally, in conjunction with measures to strengthen
the tobacco business’s operating model, we established
Quality Assurance in January 2022 as a new organization
independent from the tobacco business’s markets and other

Internal auditing
global operational functions. Quality Assurance endeavors
to provide high-quality products by assuming accountability
for quality assurance activities across the entire value chain
from R&D through procurement, manufacturing, marketing,
distribution and sales based on fair decisions from theconsumer’s* standpoint.

Pharmaceutical businessIn our pharmaceutical business, we are strictly committed
to safety and quality control in compliance with regulations
such as the Pharmaceutical and Medical Device Act andministerial ordinances that govern pharmaceutical quality
and safety.

Processed food businessIn our processed food business, we place utmost priority on
food safety management across the entire value chain fromsourcing ingredients to delivering products to consumers.
We do so under our four-pronged framework, consisting of
the following viewpoints: Food Safety, Food Defense, Food
Quality and Food Communication.

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The Division formulates annual internal audit plans subject
to the CEO’s approval. Its head mandatorily reports internal
audit results to the CEO, reports annually to the Board of
Directors, and may freely and regularly confer with the CEO
and our subsidiaries’ senior-most executives about internal
audit findings, internal controls’ status and risk assessments.

Our subsidiaries may set up their own internal auditingorganizations at their own discretion. Those that have done
so include major subsidiaries JTI, TS Network, Torii andTableMark. Subsidiaries’ internal audit plans are approved
by, and their audit results reported to, their respective
presidents. JT’s Operational Review and Business Assurance
Division coordinates internal audits with subsidiaries’internal auditing organizations. Subsidiaries’ annual internal
audit plans and their internal audit results are reported to
the Group CEO and our Board of Directors through ourOperational Review and Business Assurance Division. To
increase internal audits’ efficiency and effectiveness, weperiodically hold meetings to improve audit quality throughinformation sharing among internal auditing staff acrossthe Group. We also conduct joint audits with and provide
auditing assistance to subsidiaries as necessary.

*Adult consumers. Minimum legal age for smoking varies in accordance withthe legislation in each country

Internal controls over JT International

Information security
We have established information security regulations toclearly demonstrate our commitment to information security and comprehensively promote information security measures on an ongoing basis. Specifically, we have adopted a
JT Group IT Governance Policy and JT Group Information
Security Standards and mandated and implemented therequired IT risk mitigation measures have been implemented which include, access restrictions, antivirus defenses,
education, audits, and monitoring. We strive to manage andsafeguard our IT systems, data and other information assets
in an appropriate manner. We are continuously pursuing initiatives to strengthen our information security with respect
to both hardware and software. Hardware-wise, we continually test and improve our key IT systems’ security-related

Our Operational Review and Business Assurance Division
conducts internal audits from an objective standpoint
independent from organizational units involved in operational execution and reports directly to the CEO. It assesses
management and operational systems and the state ofoperational execution across all business activities from thestandpoint of legal compliance and rationality with the aimof safeguarding Company property and increasing operational efficiency. To fulfill its responsibilities, it has unrestricted authority to observe all activities, inspect all records andquestion all personnel on a Group-wide basis.

technologies and operations. Software-wise, we conduct
security-related educational activities globally to promote
proper handling of information assets by all employees. In
2022, 88% of all JT Group company employees attended
security training programs. Additionally, we extended asingle information classification and protection solution
across all our business divisions and established a unified
approach to security operations across the JT Group. We arealso conducting educational activities across the entire JT
Group, having rolled out our internally developed i-secure
program. The i-secure program’s effectiveness is constantly
being measured by employee behavior metrics. It has been
instrumental in raising employees’ awareness of information
security.

The tobacco business is operated by JTI, a subsidiary ofholding company JT International Group Holding B.V. With
appointees from JT occupying a majority of seats on thelatter’s Board of Directors, JT sets the tobacco business’s
overall strategy. Major decision-making authority and settlement procedures between JT and JTI are prescribed ininternal regulations, most notably our Authority andResponsibility Regulations. From an operational agility
standpoint, JT has delegated a certain degree of authority
to JTI while retaining approval authority over JTI’s budgets
and midterm plans, as well as proposed investments thatexceed a certain materiality threshold. Through such arrangements, JT endeavors to exercise governance over JTI.
JTI has its own internal regulations on delegation of responsibilities and authority called the JTI Operating
Guidelines. JTI delegates authority to its market subunits,

plants and executive officers within the scope of authority
delegated to it by JT.
Additionally, JT’s Audit & Supervisory Board Members
and Operational Review and Business Assurance Division
are authorized to audit JTI. JT’s Audit & Supervisory Board
Members audit JTI as warranted. While JTI’s internal audits
are conducted by its own internal auditing staff, JT’s
Operational Review and Business Assurance Division audits joint JT-JTI operations in coordination with JTI’s internal auditing staff. The results of audits by JTI’s internal auditing staff are reported to the president of JT’s Tobacco
Business Headquarters, who is also chairman of JT
International Group Holding B.V.
Through these arrangements, JT is building an appropriate governance regime.

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BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERSFINANCIAL INFORMATION/OTHERSThis section explains the Group's current financial status through qualitative environmental assessment,
including risk factors and outside evaluations in addition to our financial performance trends according to
the numbers.

114

116

Risk factors

120

Regulation and key laws

123

Litigation

124

Long-term consolidated financial data

126

Glossary of terms

128Awards and recognitions

130

Shareholder information and contact information

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Risk factors
The JT Group is a leading global tobacco company, selling products in more than 130 markets. It also
operates pharmaceutical and processed food businesses. Our operations are subject to various risks stemming from their attributes, changes in business environments, and other factors.

We have established an integrated system for identifying and managing all identified risks. We promote a four-step risk management process: (1) identify risks, (2) assess them, (3) formulate plans to address them and (4) monitor the plans’ progress.

We identify and closely monitor risks that could affect our operations and implement measures to prevent them from materializing and mitigate their impacts in the event that they come to pass.

This following discussion of risk factors should be read together with “FORWARD-LOOKING STATEMENTS” at P.131.

Risk factors

1 Large or repeated
tax increases

Risk description

The risks enumerated below are not all-inclusive. Other risks exist that could affect our operations and/or financial results.

Potential impact(s)Main measures to address risk

Tobacco products are subject to tobacco taxes or other similar taxes in addition to sales tax or VAT. Some countries have

Large or repeated increases in taxes on tobacco products tend

• Promote understanding among relevant authorities that large or repeated tax

been raising tobacco taxes or discussing tax increases from a fiscal and/or public health standpoint. Additionally, VAT rates

to lead to reduced consumption of, and/or increased illicit

increases may have counterproductive consequences, such as growth in illicit

generally tend to increase over time. Our policy with respect to tax increases is to raise prices to pass on the tax increase totrade in, tobacco products. They may also induce consumers*

trade and decreased tax revenue due to reduced demand

consumers*, taking into account not only the tax increase’s magnitude but also the price elasticity of demand for tobac-

to switch to lower-priced products. Consequently, they may• Optimize product portfolio for adaptability to changes in consumers* preferenc-

co products. We also endeavor to minimize tax increases’ impact on our operations through measures to drive top-line

result in reductions in our unit sales, revenue and/or profits.

es and behavior

growth and improve cost efficiency. Most governments have adopted a reasonable approach to taxation, recognizing that

• Strengthen and expand global operational platform and increase number oflarge or repeated tax increases may end up reducing tax revenues. In some instances, however, past tax increases haveconsistently profitable markets to avoid overdependence on profits from amaterially affected our business in certain markets.

few markets• Further improve cost efficiency to ensure adequate profitability• Set prices appropriately to minimize tax increase impact in affected markets

2G
 rowth in illicittrade

3 Tightening of
tobacco regulations

Illicit trade is a problem for not only the tobacco industry but also society as a whole. It harms the tobacco industry by diverting

Growth in illicit trade results in decreased demand for legitimate

demand from law-abiding businesses. Its potential societal harms include reduction in government tax revenues, increased

products and may lead to reductions in our unit sales, revenue

authorities and law enforcement agencies

organized crime, and adverse health consequences due to poor production quality or inadequate post-production quality

and/or profits. Costs incurred to combat illicit trade may also weigh• Do business only with reputable parties in accord with stringent compliance

controls. Together with the rest of the tobacco industry, we continue to endeavor to eradicate illicit trade, particularly cigaretteon profits. Additionally, circulation of counterfeit products may

policies

smuggling and counterfeiting.

undermine trust in legitimate products and, in turn, impair the• Educate consumers* on negative consequences of purchasing illegitimate

Illicit trade tends to grow following large or repeated tax increases. Additionally, regulations on cigarette ingredients and packag-

value of both the brand and brand owner for a number of reasons,products

ing may facilitate illicit trade by making cigarettes easier to counterfeit and illegitimate products harder to detect.

including the low quality of counterfeit products.

4For more details on activities to eradicate illicit trade, please see Tackling illegal trade for more details.

The tobacco industry is subject to many regulations, most notably on sales promotion activities (including advertising).

Imposition of stricter regulations on sales promotion activities• Expeditiously collect accurate information to learn of regulatory developments

Regulatory developments may affect our operations and/or financial results.

may undermine top-line growth strategies’ effectiveness by• Pursue constructive dialogue with governments and regulatory authorities toSuch regulations can also lead to growth in illicit trade to the potential detriment of our law-abiding, above-board

depriving us of opportunities to grow brand equity. It can also

encourage reasonable, unbiased regulation that fulfills its intended objective

businesses. Additionally, if stricter regulations are imposed on communications with consumers*, they may preclude

cause us to incur additional regulatory compliance costs under

4Please see Regulation and key laws (P. 120) for more details.

effective sales promotion activities and, in turn, adversely affect top-line growth.

certain circumstances. Our unit sales, revenue and/or profits

As a responsible company, we comply with the laws and regulations of every market in which we operate. We believe

may decrease as a result of such impacts.

• Take action to eradicate illicit trade in cooperation with governments, regulatory

laws and regulations should rightfully differ from one country to another as a reflection of countries’ respective legal
systems, cultures and social conditions.

4 Competition

Our tobacco business is engaged in fierce competition with competitors.

Market share fluctuations may affect our financial results.

•O ptimize product portfolio by offering products that meet consumers’* needs

In the tobacco business, we have been expanding our operations through not only organic growth but also M&A, includ-

Additionally, markets in which we operate sometimes becomeand changing preferences/behavior, and by achieving strong brand positioning

ing acquisitions of RJR Nabisco Inc.’s non-U.S. tobacco business and Gallaher Group Plc. As a result of such acquisitions,embroiled in price competition due to events such as a brandin every price segment

we compete with both global tobacco companies and local players with strong footholds in their respective markets.

repositioning or a price cut in pursuit of market share gains.

• Strengthen sales capabilities and conduct effective sales promotions

Market shares fluctuate in response to various factors, including regulatory changes, shifts in consumer* preferences/

Such price competition may negatively impact our profit mar-

• Further improve cost efficiency to ensure profitability

behavior, and local economic conditions. Market shares are also prone to short-term fluctuations in response to one-off

gins in individual markets.

• Strengthen and expand global operational platform and increase number of consis-

events such as competitors’ new product launches and accompanying sales promotion campaigns.

5 Country risk

tently profitable markets to avoid overdependence on profits from a few markets

To realize long-term growth, we have continued to expand our earnings foundation through M&A, entry into new markets

Political instability, economic recession, social unrest or other• Collect and monitor information related to country risk in markets in which weand organic growth in existing markets, mainly in our tobacco business. Such geographic expansion has been accompa-

such events could disrupt our operations in the market in ques-operate to maintain stable operations

nied by increased exposure to country risk. If political, economic or social turmoil were to occur in a market in which wetion. The disruption includes interruption in supply chains or• Strengthen and expand global operational platform and increase number of consis-

operate, our operations and/or financial results may be affected. With the extension and increasingly complex effects of the

distribution, damage to assets or facilities, or difficulties in staffing

tently profitable markets to avoid overdependence on profits from a few markets

Russia-Ukraine war, the Company has been operating in the Russian market in strict compliance with all sanctions imposedand sales management. This may lead to a decrease in our unit

nationally and internationally. Since the challenges of operating in Russia at this time are unprecedented, the Company issales, revenue and/or profits.

unable to reasonably estimate the outlook and the impact on financial results as of the issued date of Integrated Report 2022.
*Adult consumers. Minimum legal age for smoking varies in accordance with the legislation in each country

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FINANCIAL INFORMATION /OTHERS

Risk factors
Risk factors

6 Currency risk

Risk description

Potential impact(s)Main measures to address risk

Our operations’ global scope exposes us to currency risk.

Our consolidated financial results are affected by changes in other• Formulate foreign-exchange hedging policies that comprehensively take into

While we prepare our consolidated financial statements in Japanese yen, our overseas subsidiaries prepare their financial

currencies’ exchange value against the yen. The international

account prevailing foreign-exchange market conditions, among other factors, andstatements in various other currencies, including the Russian ruble, euro, pound sterling, Taiwanese dollar, US dollar andtobacco business’s financial results, the reporting currency for

mitigate currency risk by hedging with foreign-currency debt or other suitable

Swiss franc. Changes in such foreign currencies’ exchange value against the yen affect our reported earnings. Additionally, inwhich is the US dollar, are affected by changes in other currencies’

instruments in accordance with said policies

our international tobacco business, JT International Holding B.V. consolidates its foreign subsidiaries’ financial statements into

exchange rate against the US dollar. Subsidiaries’ transactions infinancial statements presented in US dollars. Its financial statement data are affected by changes in exchange rates between

currencies other than their respective reporting currencies are

the US dollar and other local currencies used by those foreign subsidiaries. We generally do not hedge risks stemming fromalso subject to currency risk.

such currency translation of financial statements except to hedge the currency risk posed by translating foreign subsidiaries’equity into yen. We hedge this risk with foreign-currency debt, a portion of which is designated as net-investment hedges.
Additionally, gains or losses on the sale or liquidation of subsidiaries that were acquired in a transaction denominated in a nonyen currency and impairment losses recognized against such subsidiaries are affected by changes in the acquisition currency’s
exchange value against the yen between the acquisition date and the date of the sale, liquidation or impairment.

7 Pandemics

We operate businesses globally. Global pandemics have the potential to severely impact our operations. Since the global

Global pandemics could impede normal product supplies due to• Implement various preventive/anti-pandemic measures, including proactively uti-

spread of COVID-19 in 2020, the Company has been operating all businesses in accordance with the policies and guidance

confusion in distribution, limit consumption and alter consumer

lizing telecommuting and imposing stricter workplace hygiene controls, to preventof governments worldwide. We will continue watching and scrutinizing the possible effects of the prolonged pandemic on

behavior due to travel restrictions and lockdowns in leading

infections and keep employees and their families safe

our operations and financial results, as well as currency-exchange trends and the actions of leading governments. We are notmarkets, and subsequently may adversely affect our operations• Build stable supply chains from business continuity standpoint through such means

currently experiencing any business disruptions due to the pandemic, but our financial results could be adversely affected in

and/or financial results.

as sourcing from multiple suppliers and maintaining safe production operations

the event of renewed spread of COVID-19 or an outbreak of another pandemic.

8 Unfavorable
litigation
developments

through such means as stringent process hygiene controls

Some of JT’s subsidiaries are defendants in lawsuits filed by plaintiffs seeking damages for harm allegedly caused by smok-

To date, the JT Group has never lost a case or paid any settlement award• Apply a system in order to deeply cooperate internally and externally, quickly under-

ing or vaping, the marketing of tobacco or E-Vapor products or exposure to tobacco smoke. There are lawsuits involving

in connection with smoking/vaping and health-related litigation. How-

stand the information regarding the case and share information with managementsmoking/vaping and health-related cases pending in which some of JT’s subsidiaries are named as defendant or for which JT

ever, the Group is unable to predict the outcome of currently pending or

and relevant departments

may have certain indemnity obligations pursuant to the agreement for JT’s acquisition of RJR Nabisco Inc.’s non-U.S. tobacco

future lawsuits. A decision unfavorable to the JT Group and payment of• Coordinate with experienced external counsel if necessary and respond to litigation

business.

a substantial amount of monetary compensation could materially affectcases pertaining to the JT Group in a timely and appropriate manner

In addition, JT and/or some of its subsidiaries are also defendants in lawsuits other than the smoking/vaping and health-relat-

its financial performance.

4Please see Litigation (P. 123) for more details.

ed cases and may face further lawsuits in the future.

Moreover, critical media coverage of these lawsuits may reduce social tolerance of smoking, strengthen public regulations concerning
smoking and prompt the filing of a number of similar lawsuits against
the JT Group, forcing it to bear litigation costs and materially affecting its
business performance.
Apart from smoking/vaping and health-related ones, the JT Group also
may become a defendant in further litigation. Should any problems ariseon the Group’s product quality, this may lead to claims seeking productliability. Such litigation cases may negatively affect the Group’s businessperformance or the manufacture, sale and import and export of its products, should the outcome of any such claims prove unfavorable.

9 Natural disasters

Our financial results could be adversely affected by earthquakes, tsunami, typhoons, floods and/or other natural disasters’ conse-

Natural disasters could disrupt not only our own operations but•R outinely gather and relay information related to crisis management on ongoing basis

quences, potentially including employee casualties, supply shortages due to damage to suppliers’ facilities, disruptions in trans-also any of our value chain partners’ operations. Such disruptions• Periodically review business continuity plans and revise them as warranted

portation, distribution services and/or sales channels, power outages, water service interruptions, and reduced demand for our

could adversely affect our financial results.

• Conduct initiatives such as disaster preparedness drills and foster disaster-prepared-

products.

ness mindset among employees

To minimize natural disasters’ impact on our operations, we have adopted a Business Continuity Plan, the scope of which
includes global supply-chain optimization.

10 Climate change

118

Climate change associated with global warming has various adverse impacts, including flooding and landslides due to ab-

Climate change could adversely affect our operations and/or value• Conduct climate scenario analysis in accord with TCFD recommendations and de-normal weather events such as torrential rainfall; intense heat waves, heavy snowfall and drought due to anomalous weather;chains and, in turn, our financial results. Additionally, our financial

velop the capability to more accurately ascertain climate change’s potential impacts

water-resource change and biodiversity loss. Such impacts’ potential consequences include supply chain disruptions andresults could be adversely affected by increases in operating ex-

on our operations and take appropriate action to mitigate themchanges in the environments in which tobacco leaf and/or other agricultural commodities we use in our products are grownpenses stemming from the transition to a decarbonized society.

• Strive to reduce Greenhouse Gas (GHG) emissions to Net-Zero across our value

or raised. Such consequences may adversely affect our products and/or financial results through deterioration in thesechain to mitigate climate change’s impacts

inputs’ quality and/or increases in their prices/sourcing costs.

• Implement the measures in Section 9 above to address risks posed by natural disas-

Additionally, if a carbon tax is imposed on energy derived from fossil fuels in conjunction with the transition to a decarbon-

ters, which may be exacerbated by climate change

ized society to mitigate climate change’s impacts, our profits may be reduced by increased operating expenses.

4Please see Improving our environmental impact (P. 78) for more details.

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Regulation and key laws

Tobacco business
The tobacco regulatory environment has been becoming increasingly stringent since the WHO Framework Convention
on Tobacco Control (FCTC) took effect in February 2005.
The FCTC’s objective is to “reduce continually and substantially the prevalence of tobacco use and exposure totobacco smoke.” The FCTC covers price and tax measures
to reduce tobacco demand, non-price measures to reduce
tobacco demand (e.g., protection from exposure to secondhand smoke, regulation of tobacco products’ contents andemissions, regulation of tobacco product disclosures, regulation of tobacco products’ packaging and labeling, regulationof tobacco advertising, promotion and sponsorship) andmeasures to reduce the supply of tobacco products (e.g.,measures to prevent illicit trade in tobacco products andsales of tobacco products to minors).
While the FCTC requires its signatory countries to develop,
implement, periodically update and review national tobacco
control strategies, plans and programs, it leaves to the discretion of each country the specifics of national regulations’content, scope and methods. The FCTC’s governing body,the Conference of the Parties (COP), has been meeting
regularly since the FCTC first took effect. The COP is a forum
for ongoing discussions among FCTC-signatory countries on
issues such as formulating FCTC Article-specific guidelines
and protocols (which must be separately ratified or otherwise agreed to by the parties).
Among FCTC-signatory countries, Russia, one of our key
markets, enacted a comprehensive tobacco control law in
February 2013 and phased it in from June 2013. The law
restricts retail sales locations and point-of-sale displays of
tobacco products; prohibits advertising, sales promotions
and sponsorship; sets minimum retail prices; bans smoking
in public; and combats illicit trade in tobacco products.
The EU revised its July 2001 Tobacco Products Directive (TPD)
effective May 2014. The revised TPD tightened restrictions
on tobacco product packaging and labeling, added new
regulations on tobacco product additives, tobacco productflavor and E-Vapor products, and also included measures toaddress illicit trade. EU-member countries have implemented
regulations associated with the revised EU TPD.

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Australia mandates generic packaging of tobacco products
under its Tobacco Plain Packaging Act, which took effect inDecember 2012. The law prohibits tobacco packaging frombearing logos, brand images, promotional text or anythingelse except the product name printed in a standardized fontand color. Plain packaging regulations have since been adopted elsewhere, including in France and the U.K. A numberof other countries are exploring the possibility of following
suit or have already decided to follow.

existing tobacco product regulations to RRP while others
have newly adopted separate regulations. In the E.U. forexample, it was decided in November 2022 that a flavor
ban regulation previously applied only to certain tobacco
products would also be applied to HTP (heated tobacco
products). Also, in the U.S., sales of certain flavored E-Vapor
cartridges were banned from February 2020. With a global
regulatory consensus yet to take shape, regulatory treatment of RRP varies widely among markets/countries.

various initiatives to address this issue in coordination withgovernments and concerned organizations in addition toappropriately operating in accord with our GMPs.

In Japan, the Tobacco Business Act (TBA) prescribes that weare obligated to purchase a grower’s entire tobacco crop
excluding any portion not suitable for manufacturing tobacco products and that our own tobacco products as well astobacco products imported by a designated distributor may
be sold by retailers only at prices approved by the Ministerof Finance. Tobacco product sales and promotional activities
in Japan are regulated under the TBA, related laws/regulations and voluntary industry standards. One regulatory
requirement is that advertisements and product packaging
must carry a cautionary statement about the health implications of consuming tobacco products. In accordance with
the Tobacco Institute of Japan (TIOJ)’s voluntary standards,
which were revised in 2020, the cautionary statement on
tobacco product packaging was changed to be consistent
with the latest scientific knowledge, and the area it occupied on the packaging was enlarged. Revisions to the TIOJ’s
advertising voluntary standard included measures to more
effectively shield those under 20 years of age from tobacco
product ads, including online, and new restrictions on
point-of-sale ad size and display methods.

Regulatory impacts on our operating performance

Pharmaceutical R&D, manufacturing, sales and marketingare stringently regulated in Japan and major overseas markets. Additionally, regulatory authorities globally have beenreviewing new drug applications (NDA) increasingly rigorously in recent years in response to a growing imperative toensure drug safety. Given the need to demonstrate safety inlarger sample sizes over sufficiently long timeframes, clinical
trials are growing in both scale and duration. Meanwhile,with required NDA documentation being internationallystandardized both qualitatively and quantitatively, drug
companies now commonly use a single set of data available
in multiple countries for drug development, a practice that
increases development efficiency and reduces costs.

In July 2018, the Health Promotion Act (HPA) was amended
to better prevent unwanted exposure to secondhand smoke
in facilities frequented by the public. We recognize public
places that allow smoking are going to decrease in number
under the amended HPA, which fully took effect from April
1, 2020. While it is difficult to predict smoking environmentchanges in detail, we expect our financial results to beaffected to some extent.
In relation to RRP (Reduced-Risk Products), the U.S. andEuropean countries are starting to establish new guidelines
and frameworks for scientifically assessing the reduction in
health risks associated with smoking. Tobacco makers havebeen stepping up activities to obtain official certificationof risk-reduction benefits. Some countries have applied

While the future content of laws, regulations and industry
guidelines on smoking, tobacco products and tobacco
product marketing, sales promotions, packaging andlabeling is impossible to accurately predict, we expect theregulations discussed above to expand in scope and/or new
regulations (including municipal regulations) to be imposed
in Japan and overseas markets in which we sell products.
We are supportive of reasonable and appropriate regulationof tobacco, but if tobacco regulations like those describedabove are tightened or if we are not afforded enough time
to adequately adapt to such regulatory tightening, ourfinancial results may be adversely affected by contraction
in tobacco product demand, loss of market share and/or
increased regulatory compliance expenses.

Self-regulation of marketing
In addition to complying with the regulations of every
country and region in which we operate, we also operatein accord with our own Global Marketing Principles (GMPs),
the principles based on our recognition of the importanceof responsibly marketing tobacco products. Our GMPs are
based on the recognition of the importance of conducting
responsible marketing activities for tobacco products, anddescribe the principles for advertising, promotion, andothers activities conducted by the Group. This includes
ensuring that marketing activities are targeted at peopleof 18 years of age or older, and of legal smoking age. These
marketing activities are not aimed at encouraging anyone
to start smoking or discoursing them from quitting, even
if they are of legal smoking age. We also recognize thatthe prevention of smoking by minors (those who have
not reached legal smoking age) is an issue that needs
to be addressed by society as a whole. We are pursuing

Please visit JTI.com for more details.

Pharmaceutical business

In Japan, pharmaceutical manufacturing and sales are
regulated by the Ministry of Health, Labour and Welfare(MHLW) and/or prefectural authorities under the Act on
Securing Quality, Efficacy and Safety of Products Including
Pharmaceuticals and Medical Devices (the “Pharmaceuticaland Medical Device (PMD) Act”). The PMD Act requires
companies that manufacture and sell pharmaceuticals to
be licensed in every prefecture in which they operate andto renew those licenses every five years. Additionally, every
pharmaceutical manufactured or sold in Japan must be
approved by the MHLW. Japan’s National Health Insurance(NHI) program maintains a drug formulary and sets official
drug prices. The NHI is planning to radically reform drug
pricing. The planned reforms include annual drug pricerevisions, paring-down of the list of drugs qualifying forpremium pricing intended to incentivize drug discovery andreduce off-label drug use, and tiered reductions in long-listed drug prices based on generic substitution rates.

Japan Tobacco Inc. Integrated Report 2022

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IDENTITY

Our processed food business is regulated as a food productmanufacturer and distributor, mainly under the Food Safety
Basic Act, Food Sanitation Act and Food Labeling Act.
The Food Safety Basic Act, enacted and effective from2003 with the purpose to ensure food safety and protect
consumers, charges food companies with a responsibility to
implement safeguards necessary to ensure food safety froma scientific standpoint through risk control, assessment andcommunication at each stage of their entire supply chains.
The Food Sanitation Act aims to keep food and beverages
free of hygienic hazards and protect the health of consumers. It requires food companies to acquire knowledge andtechnology, verify ingredient safety, inspect their facilities,
and otherwise act diligently to fulfill their responsibilities toensure the safety of their food products, additives, utensils,
containers and/or packaging. As part of the revision in 2018,
additional requirements such as hygiene management inline with the HACCP (Hazard Analysis and Critical Control
Point) are in place. The Food Labeling Act, aiming to upholdconsumer interests and contribute to making food production support the protection and/or promotion of consumer
health, sets labeling standards for food products offered for
sale, including with respect to allergen content, shelf life, ingredients, and place of origin. Food companies are required
to label their products in compliance with these standards.
In addition to meticulously complying with these and otherapplicable laws and regulations, our processed food business is committed to the highest standards of food safety
management from the four perspectives—food safety, fooddefense, food quality and food communication—in orderto provide consumers with safe, high-quality food productsthat they can enjoy with peace of mind.

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BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERS

Litigation

Regulation and key laws

Processed food business

MATERIALITY andSUSTAINABILITY

Japan Tobacco Inc. Act
JT was established pursuant to the Japan Tobacco Inc.
Act (the “JT Act”) to manufacture, sell and import tobacco
products. Under the JT Act, the Japanese government must
always own at least one-third of our total issued shares(excluding any non-voting share classes*¹). The Minister ofFinance must approve any offerings of newly issued stock or
subscription rights to shares, as well as any issuance of stock,subscription rights to shares or bonds cum subscription
rights to shares in conjunction with a stock swap. In addition
to manufacturing, selling and importing tobacco products
and operating businesses incidental thereto, we are permitted by the JT Act to engage in other businesses as required
to fulfill our purpose and subject to the Minister of Finance’s
approval. Other matters requiring the Minister of Finance’s
approval include appointment/dismissal of Directors,
Executive Officers and Audit & Supervisory Board Members,
amendments to our Articles of Incorporation, appropriationsof capital surplus (excluding appropriations to rectify anaccumulated deficit), mergers, split-ups and dissolution. We
are also required to submit a statement of financial position,statement of income and business report to the Minister ofFinance within three months of every fiscal year-end.
The Reconstruction Financing Act*², which took effect on
December 2, 2011, directed the government to reassessstate involvement in the tobacco industry under the
Tobacco Business Act by March 31, 2023, and to explore thepossibility of divesting its JT shareholdings.
*1 Defined as classes of shares with no right to vote on any resolutions at
general meetings of shareholders*2 The Act on Special Measures for Securing Financial Resources Necessary for
Reconstruction from the Great East Japan Earthquake

Some of JT’s subsidiaries are defendants in lawsuits filed byplaintiffs seeking damages for harm allegedly caused bysmoking or vaping, the marketing of tobacco or E-Vapor
products or exposure to tobacco smoke. There are lawsuits
involving smoking/vaping and health-related cases pendingin which some of JT’s subsidiaries are named as defendants
or for which JT may have certain indemnity obligations pursuant to the agreement for JT’s acquisition of RJR Nabisco
Inc.’s non-U.S. tobacco business. In addition, JT and/or someof its subsidiaries are also defendants in lawsuits other than
the smoking/vaping and health-related cases.
There are 10 ongoing health care cost recovery cases in
Canada pending against JTI-Macdonald Corp. (hereinafterreferred to as JTI-Mac), our Canadian subsidiary and JT’s
indemnitees (RJR Nabisco Inc.’s affiliates), brought by
Canadian provinces. In addition, there are 8 pending classactions in Canada where plaintiffs are seeking damages forharm allegedly caused by smoking of cigarettes. Damages
claimed in some of these cases reach sums in the multi-billion-dollar range. We will continue to take all appropriate
actions to defend such claims vigorously and believe there
are a number of valid defenses.
On March 8, 2019, JTI-Mac filed for protection from its
creditors under Canada’s Companies’ Creditors Arrangement
Act (CCAA). The Ontario Superior Court granted the CCAA
application on the same date and extended the protection infavor of JTI-Mac. All the Canadian matters against JTI-Mac referred to herein have been stayed by the court order. JTI-Mac
carries on business in the ordinary course under the CCAA.
In recent decades, numerous, large-scale smoking andhealth-related cases have been brought against tobacco
product manufacturers in the U.S. and some of the cases initially resulted in verdicts with massive damage awards. We
are not defendants in any of these lawsuits, nor are we subject to any indemnity claims with respect to them. The JT
Group’s U.S. tobacco business does not include the businessthat it acquired from RJR Nabisco Inc. in 1999, as well as the
Natural American Spirit’s non-U.S. business that it acquired
from Reynolds American Inc. group in January 2016.

There is ongoing litigation in the U.S. alleging health effects
associated with E-Vapor use and harm caused to consumers
by misleading representations and advertising for whichplaintiffs are seeking damages and/or demanding healthwarnings against E-Vapor manufacturers in the U.S. One
such case has been brought against a number of E-Vapor
manufacturers including JT subsidiaries. This case has been
stayed by a court order. We believe that we have valid
grounds to defend this claim and intend to do so vigorously.
Even now, the scale of the JT Group’s U.S. tobacco businessremains small. Hence, we believe that litigation in the U.S.
will not materially affect its businesses in the near future.
Please see “Contingent Liabilities” in our Consolidated
Financial Statements’ “Contingencies” note for major lawsuits to which some of JT’s subsidiaries or indemnitees are
named as defendants.
To date, the JT Group has never lost a case or paid any
settlement award in connection with smoking/vaping andhealth-related litigation. However, the Group is unable topredict the outcome of currently pending or future lawsuits.
A decision unfavorable to the JT Group and payment of a
substantial amount of monetary compensation could materially affect its financial performance. Moreover, regardlessof 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 JT Group, forcing it to bear litigation costs andmaterially affecting its business performance. Apart fromsmoking/vaping and health-related ones, the JT Group also
may become the defendant in further litigation. Should any
problems arise on the Group’s product quality, this maylead to claims seeking product liability. Such litigation cases
may negatively affect the Group’s business performance or
the manufacture, sale and import and export of its products,
should the outcome of any such claims prove unfavorable.

Japan Tobacco Inc. Integrated Report 2022

123

MATERIALITY andSUSTAINABILITYIDENTITY

BUSINESS andSTRATEGIESFINANCIAL INFORMATION /OTHERS

GOVERNANCE

Long-term consolidated financial data
Fiscal year-end
changedIFRS adopted(Millions of yen)
2022

2012

2013

2014*1, *3

2015*3

2016

2017

2018

2019

2020

2021

Revenue

2,120,196

2,399,841

2,019,745

2,252,884

2,143,287

2,139,653

2,215,962

2,175,626

2,092,561

2,324,838

2,657,832

Cost of sales(899,437)(979,975)(822,538)(920,056)(872,433)(843,558)(933,034)(942,299)(898,001)(956,861)(1,090,989)

SG&A expenses(733,486)(828,942)(752,559)(789,346)(754,115)(786,911)(770,407)(831,707)(784,472)(888,574)(941,538)

Operating profit

532,213648,260

499,880

565,229593,329

561,101

564,984

502,355

469,054

499,021653,575

Profit attributable to owners of the parent company

343,596

427,987

362,919

485,691

421,695

392,409385,677

348,190

310,253

338,490442,716

Adjusted EBITDA/Adjusted operating profit

621,977

641,777

588,684

626,657

586,777

585,300

595,463

515,927

486,952

610,434

727,779

Capital expenditures

137,450

156,158

112,448

129,751

112,998

140,905

159,808

131,434

112,883

100,882

101,044

Depreciation & amortization

116,462

132,921122,171

139,057

140,794

145,407

158,671

183,852

179,654

187,057

199,651

R&D expenses

56,862

57,10344,00857,79658,19360,60065,37764,07960,84765,01670,808Current assets

1,213,146

1,489,713

1,696,874

1,798,217

1,605,990

1,707,767

1,809,406

1,925,673

2,003,919

2,321,289

2,723,591

PP&E & intangible assets (excl. goodwill)

1,021,129

1,165,088

1,121,039

1,014,343

1,104,805

1,224,782

1,261,917

1,243,673

1,122,894

1,062,995

1,022,399

Goodwill

1,316,476

1,584,432

1,539,376

1,429,287

1,601,987

1,891,210

2,008,416

2,002,595

1,909,392

2,060,965

2,446,063

301,816

377,533

347,417316,388431,592

397,725

381,661

381,130

345,177

328,960

356,025

Total assets

3,852,567

4,616,766

4,704,706

4,558,235

4,744,374

5,221,484

5,461,400

5,553,071

5,381,382

5,774,209

6,548,078

Current liabilities

1,112,968

1,255,834

1,360,098

1,265,920

1,356,574

1,478,623

1,430,185

1,501,757

1,323,793

1,500,326

1,562,664

Non-current liabilities

847,168

764,842

722,106

770,790859,759

900,833

1,330,770

1,307,702

1,458,095

1,387,803

1,368,653

Total liabilities

1,960,137

2,020,675

2,082,204

2,036,710

2,216,333

2,379,456

2,760,955

2,809,459

2,781,888

2,888,128

2,931,317

Total equity

1,892,431

2,596,091

2,622,503

2,521,524

2,528,041

2,842,027

2,700,445

2,743,611

2,599,495

2,886,081

3,616,761

68

96

100

118

130

140

150

154

154

140

188

EPS (yen)

181.07235.48199.67270.54235.47219.10215.31

195.97174.88190.76249.45Equity (yen)993.98

1,378.57

1,395.74

1,369.06

1,371.39

1,541.94

1,468.44

1,501.12

1,421.92

1,583.10

1,994.78

Net cash flows from operating activities

466,608

396,496543,696

468,432

376,549

419,212461,389

540,410

519,833

598,909483,799

Net cash flows from investing activities(147,928)(163,473)(49,110)(63,271)(687,509)(352,632)(383,307)(123,571)

5,354(97,499)(101,822)

Net cash flows from financing activities(569,473)(145,189)(388,859)(254,852)

91,318(77,032)(62,360)(333,832)(297,404)(353,138)(306,176)

Cash & cash equivalents at FY-end

142,713253,219

385,820526,765

294,157

285,486

282,063

357,158

538,844

721,731866,885

ROE (%)

20.0

19.9

14.4

19.5

17.2

15.0

14.3

13.2

12.0

12.7

13.9

Debt equity ratio (times)

0.18

0.15

0.09

0.10

0.23

0.27

0.38

0.37

0.38

0.33

0.27

Dividend payout ratio (%)

37.6

40.8

50.1

53.2

55.2

63.9

69.7

78.6

88.1

73.4

75.4

Ratio of equity attributable to owners of the parent
company to total assets (%)

46.89

54.27

53.92

53.78

51.77

52.89

48.17

47.95

46.88

48.65

54.07

Other non-current assets*2

Per share data
Dividends (yen)Cash flow data

Financial metrics*4*1 2014 was nine months long (Jan.-Sep. 2014) because of a change in fiscal year-end from March to December*2 Above figures for 2012 are adjusted EBITDA*3 In 2015, the beverage business was classed as a discontinued operation, due to the Company transferring its shares and other securities in its beverage vending
machine operator subsidiary, as well as terminating the manufacturing and sale of beverages. Revenue, cost of sales, SG&A expenses, operating profit, adjusted
operating profit, capital expenditures and R&D expenses for 2014 and 2015 shown on this page are based on values for continuing operations*4 In 2015, the beverage business was classed as a discontinued operation, due to the Company transferring its shares and other securities in its beverage vending
machine operator subsidiary, as well as terminating the manufacturing and sale of beverages. The consolidated dividend payout ratio, including the discontinued
operation, was 43.6%

124

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IDENTITY

MATERIALITY andSUSTAINABILITY

BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERS

Glossary of terms
Unless otherwise stated, terms and numbers reported in this glossary are in accordance with IFRS.

Financials
Operating profit + Amortization cost of acquired intangibles arising from business acquisitions + Adjusted
items (income and costs)*

ALP

Agricultural Labor Practices* Adjusted items (income and costs) = Impairment losses on goodwill ± restructuring income and costs ± others

CDP

Headquartered in London, CDP is the leading international non-profit organization that accelerates action to achieve asustainable economy, assessing disclosure and actions by companies from around the world.

Adjusted operating profit atconstant currency

Constant currency is computed using the same foreign exchange rates as in the equivalent period in theprevious fiscal year for the tobacco business. Results at constant currency are provided additionally and are
not an alternative to finance reporting under International Financial Reporting Standards (IFRS).

Contraband

Genuine products smuggled from abroad that are diverted from the legitimate supply chain and sold in a country
other than the intended retail market without payment of domestic duty in that country.

Counterfeit

Clusters

The JT Group’s tobacco markets are divided into three distinctive clusters: Asia, Western Europe, EMA. Please
note that these three clusters are specifically designed to provide insight into our business for guidance
purposes only and do not reflect the JT Group's management structure.
• Asia cluster includes the tobacco regions of Japan and Asia Pacific• EMA cluster includes the tobacco regions of Eastern Europe, MENEAT, Americas and Global Travel Retail

Fake products appearing to be genuine brand products protected by intellectual property rights. Counterfeit products
are manufactured without authorization from the rightholders and with the intent to copy the genuine brand to
deceive the consumer. They are also sold without duties being paid.

DJSI (Dow Jones
Sustainability Indices)

The DJSI was created jointly by S&P Dow Jones Indices and SAM. It is a globally recognized environmental, social andgovernance (ESG) stock index and sustainability benchmark that tracks stock performance of the world’s leading
companies in terms of governance and economic, environmental and social dimensions.

GHG emissions

Greenhouse Gas emissions• Scope 1 emissions: Direct GHG emissions from corporate activities, such as burning of fossil fuels at factories.
• Scope 2 emissions: Indirect GHG emissions from consumption of purchased electricity, heat or steam.
• Scope 3 emissions: Other indirect emissions, including from manufacture of products bought from othercompanies.

SBTi (Science Based
Targets initiative)

The SBTi was formed in 2015 by CDP, the UN Global Compact (UNGC), the World Resources Institute (WRI), and theWorld Wide Fund for Nature (WWF). The SBTi validates targets submitted by companies to confirm and communicatethat they are science-based and in line with the Paris Agreement.

SDGs

The Sustainable Development Goals (SDGs) were adopted by all United Nations Member States in 2015 as a universal
call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity by 2030.

TCFD (Task Force on
Climate-related Financial
Disclosures)

TCFD was established by the Financial Stability Board (FSB) to examine how climate-related information should be
disclosed, and how financial institutions should respond. TCFD positions climate change as a serious risk to the world’s
economy and publishes its recommendations for companies to identify and disclose items such as “Governance,”“Strategy,” “Risk Management” and “Metrics and Targets.”

Adjusted operating profit

Core revenue at constantcurrency

FCF (Free cash flow)

The sum of revenues in the pharmaceutical business, processed food business, and others, as well as the core
revenue in the tobacco business, which is computed using the same foreign exchange rates as in the equivalent period in the previous fiscal year. Results at constant currency are provided additionally and are not analternative to finance reporting under International Financial Reporting Standards (IFRS).
FCF is the sum of cash flows from operating activities and investing activities, excluding the following items:• From investing CF: Purchase of investment securities (both short-term and long-term), payments into time
deposits, proceeds from sale or redemption of investment securities (both short-term and long-term),
proceeds from withdrawal of time deposits and other investing activities not for business operation purposes• From operating CF: Depreciation from lease transactions, interest received, dividends received, interest paid
and income taxes related to these items excluding lease transactions, and other items

IFRS (International Financial
Reporting Standards)

The JT Group adopted IFRS from the fiscal year ended March 31, 2012.

ProfitProfit attributable to owners of the parent company

Revenue

Revenue excluding tobacco excise taxes and revenue from agent transactions•C ore revenue: Core revenue includes all revenue excluding those from distribution, contract manufacturing
and other peripheral businesses.

RRP-related revenue(tobacco business)

Reduced-Risk Products (RRP)-related revenue, as a part of core revenue, represents all sales of RRP, principally
consumables, devices and related accessories.

Total volume(tobacco business)

The volume of tobacco-based products which excludes contract-manufactured products, waterpipe, RRP
devices and related accessories.

Products

126

Sustainability

Combustibles

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

FCT (fine cut tobacco)

Loose tobacco products also known as rolling tobacco. These can be used for both RYO (roll-your-own) cigarettes, i.e.
using rolling papers, and MYO (make-your-own) cigarettes, i.e. by filling a filter tube with cut tobacco.

GFB (Global Flagship
Brands)Winston, Camel, MEVIUS, LD

RRP (Reduced-Risk
Products)

Products with the potential to reduce the risks associated with smoking.
• E-Vapor: Products which consumers use by heating electronically a nicotine-based liquid that contains no tobacco leaf.
• Heated tobacco products (HTP): Products that contain tobacco leaf and create a tobacco-enriched vapor byheating electronically the tobacco, either directly or indirectly, without any combustion.
• Heated tobacco sticks (HTS): High-temperature heated tobacco products.
• Infused tobacco capsules (Infused): Low temperature heated tobacco products.
• Oral: Products delivering nicotine in the form of a closed pouch. These pouches can contain tobacco and are
known as snus. Without tobacco, these consumables are referred to as nicotine pouches. To deliver nicotine andflavor, these pouches are inserted between the consumer's lip and gum.

Japan Tobacco Inc. Integrated Report 2022

OthersConsumers(tobacco business)

Adult consumers. Minimum legal age for smoking varies in accordance with the legislation in each country.

BnU

Billion units

JPY BN

Billion Japanese yen

USD MM

Million US dollars

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MATERIALITY andSUSTAINABILITY

BUSINESS andSTRATEGIESGOVERNANCE

FINANCIAL INFORMATION /OTHERS

Awards and recognitions

Dow Jones Sustainability Indices (DJSI)S&P / JPX Carbon Efficient Index

Top Employer

EY’s Global Equality Standard (GES) certificate

We are a member of the DJSI Asia Pacific Index for the ninth

We have been selected as a member of S&P/JPX Carbon
Efficient Index since its launch in 2018.

JT International (JTI) was certified as a Global Top Employer forthe ninth consecutive year.

In 2021, JTI became one of the first multinational companies
to receive EY’s new Global Equality Standard. This is one of the
only global certificates that assesses companies on equal
opportunities and equal pay in the workplace.

consecutive year.

JTI News & Views, January 2023

JT Group press release, December 2022

JTI News & Views, November 2021

FTSE Blossom Japan Indices
We have been selected as a member of FTSE Blossom Japan
Index every year since its launch in 2017 by GPIF. We have also
been selected as a member of FTSE Blossom Japan Sector
Relative Index since its launch in April 2022.

Morningstar Japan ex-REIT Gender Diversity
Tilt Index
We have been selected as a member of Morningstar Japan
ex-REIT Gender Diversity Tilt Index (one of the gender diversity
indices of GPIF) in April 2023.

Swiss LGBTI LabelPRIDE Index

In 2020, JTI Geneva, the headquarters of our tobacco business,
was awarded the “Swiss LGBTI Label,” a certification for companies and organizations with an open and inclusive structure.

In the PRIDE Index, which recognizes the most LGBTQ+friendly companies, our Japanese operations (JT) achieved
Gold status, the highest ranking, in 2022 for the seventh consecutive year.

JTI News & Views, September 2020

November 2022

CDP

Science Based Targets

White 500

Sports Yell Company

We continued achieving a place on CDP’s “A List” for climatechange for the fourth consecutive year.
We were also recognized as a global leader for engaging our
supply chain in addressing climate change for the fourthconsecutive year.

We have set a long-term GHG emissions reduction target inline with the Paris Agreement. GHG reduction targets for 2030
from our operations have been validated in 2022 by the
Science Based Targets initiative (SBTi) as being in line with the
1.5°C global warming scenario.

In 2023, JT has been recognized as a Certified Health andProductivity Management Outstanding Organization (“White500”) for its excellent health-conscious management by the
Ministry of Economy, Trade and Industry (METI) and the
Nippon Kenko Kaigi since the launch of this recognition in2017.

JT was recognized by the Japan Sports Agency as a “Sports Yell
Company 2023” for its active efforts to promote sports and improve the health of its employees.

JT Group press release, December 2022

128

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November 2022

February 2023

March 2023

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MATERIALITY andSUSTAINABILITYIDENTITY

Shareholder information
Common stock
8,000,000,000

Issued:2,000,000,000(Treasury shares 225,146,463)

Government offerings of JT shares

Name

Shares held

Minister of Finance

666,925,200

The Master Trust Bank of Japan, Ltd. (Trust Account)

176,102,300

Custody Bank of Japan, Ltd. (Investment Trust Account)

64,286,400

SMBC Nikko Securities Inc.

46,559,021

STATE STREET BANK WEST CLIENT – TREATY 505234

23,290,941

SSBTC CLIENT OMNIBUS ACCOUNT

20,568,543

JAPAN SECURITIES FINANCE CO., LTD.

18,279,700

Composition of shareholders

Barclays Securities Japan Limited BNYM

18,088,600(excluding treasury shares)

JT Group Employee Shareholding Association

11,665,343

Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.

11,211,542

Number of shareholders: 722,051

Share registrar
Mitsubishi UFJ Trust and Banking Corporation
4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo

Listing
Tokyo Stock Exchange: Prime Market

Other institutions
1.96%

Minister of Finance 37.58%

Securities companies
5.63%
Foreigninstitutions
and others
13.65%

Financial
institutions
17.13%

Individuals and others
24.06%

MethodOffering by bids

2014

2015

2016

2017

2018

2019

2020

2021

2022

JT

111.2%

117.5%

159.5%

142.9%

140.5%

111.7%

110.7%

104.8%

116.8%

134.4%

TOPIX

118.6%

140.2%

157.1%

157.6%

192.6%

161.9%

191.2%

205.3%

231.5%

225.8%TOPIX: Foods

112.0%

135.6%

174.3%

170.7%

202.5%

173.7%

174.4%

172.5%

179.9%

192.9%

Contact information

Japan Tobacco Inc.

JT International S.A.

1-1, Toranomon 4-chome,

8, rue Kazem Radjavi

Minato-ku, Tokyo 105-6927, Japan

1202 Geneva, Switzerland

TEL: +81-3-6636-2014

TEL: +41-22-703-07-77

URL: https://www.jt.com/

URL: https://www.jti.com/

Japan Tobacco Inc. Integrated Report 2022

Offering by non-bids

Offer price(Pricing date)

Bid price: From 1,362,000 yen to 2,110,000 yen
Weighted average price: 1,438,000 yen(August 29, 1994)

1,438,000 yen(August 31, 1994)

Number of shares offered

229,920 shares

164,356 shares

Offer term

From August 15 to 18, 1994

From September 2 to 8, 1994

Note:
Listing date: October 27, 1994
Tokyo Stock Exchange: First Section

Second, Third and Fourth Offerings
Second Offering

Third Offering

Fourth Offering

MethodOffering by book-building formula Offering by book-building formula Offering by book-building formula

Offer price(Pricing date)

815,000 yen(June 17, 1996)

843,000 yen(June 7, 2004)

2,949 yen
(March 11, 2013)

Number of shares offered

Japan: 237,390 sharesInternational: 35,000 shares(Total: 272,390 shares)

Japan: 198,334 sharesInternational: 91,000 shares(Total: 289,334 shares)

Japan: 145,625,500 sharesInternational: 107,636,300 shares(Total: 253,261,800 shares)

Offer term

From June 18 to 19, 1996

From June 8 to 10, 2004

From March 12 to 13, 2013

Period covered

Published

In principle, this report covers the period from January 1, 2022 to December 31,

June 2023

2022, but also includes some information related to activities before and after

Note: Baselines for all percentages are a share price and actual performance as of the end of March 31, 2013. TOPIX and TOPIX: Foods are calculated based on figures
including dividends. Taking account of a change in fiscal year-end from March to December in 2014, the figures from 2014 onwards are calculated based on ashare price and actual performance as of December 31

130First Offering

Editorial policy

Total shareholder return
2013

FINANCIAL INFORMATION /OTHERS

GOVERNANCE

As of December 31, 2022

Principal shareholders

Authorized:

BUSINESS andSTRATEGIES

this period.

Referenced guidelines

Scope of report

Reporting Framework” was referred to in the writing of this report. In addition,

Japan Tobacco Inc. and consolidated subsidiaries

the GRI Standards of the Global Reporting Initiative were referred to withThe International Integrated Reporting Council’s “International Integrated

regard to ESG information.

FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements. These statements appear in a number of places in this document and include statements regarding the intent, belief, or current and future expectations of our managementwith respect to our business, financial condition and results of operations. In
some cases, you can identify forward-looking statements by terms such as“may,” “will,” “should,” “would,” “expect,” “intend,” “project,” “plan,” “aim,” “seek,” “target,”“anticipate,” “believe,” “estimate,” “predict,” “potential” or the negative of theseterms or other similar terminology. These statements are not guarantees of
future performance and are subject to various risks and uncertainties. Actual
results, performance or achievements, or those of the industries in which
we operate, may differ materially from any future results, performance or
achievements expressed or implied by these forward-looking statements.
In addition, these forward-looking statements are necessarily dependent
upon assumptions, estimates and data that may be incorrect or imprecise
and involve known and unknown risks and uncertainties. Forward-looking
statements regarding operating results are particularly subject to a variety ofassumptions, some or all of which may not be realized. Risks, uncertainties
or other factors that could cause actual results to differ materially from thoseexpressed in any forward-looking statement include, without limitation:(1) increase in awareness of health concerns related to smoking;(2) regulatory developments, including, without limitation, tax increases andrestrictions on sales, marketing, packaging, labeling and use of tobacco
products, privately imposed restrictions and governmental investigations;(3) litigation around the world alleging adverse health and financial effects
resulting from, or relating to, tobacco products;(4) our ability to further diversify our business beyond the tobacco industry;(5) our ability to successfully expand internationally and make investments
outside Japan;(6) competition, changing consumer preferences and behavior;(7) our ability to manage impacts derived from business diversification orbusiness expansion;(8) economic, regulatory and political changes, such as nationalization, terrorism, wars and civil unrest, in countries in which we operate;(9) fluctuations in foreign exchange rates and the costs of raw materials; and(10) catastrophes, including natural disasters.

Japan Tobacco Inc. Integrated Report 2022

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