Integrated Report 2021
Japan Tobacco Inc.

Purpose of our Integrated Report
This report consolidates important information for our stakeholders tobetter understand the JT Group. For detailed information, please visit our
website.
In this report, we integrate financial information, e.g., management principle, business plan and business performance, and non-financial information, namely sustainability information that supports the JT Group’s growthin the mid to long term. The purpose of this report is to inform our various
stakeholders, including shareholders and investors, of the current and future
value creation story of the JT Group.

018 VALUE CREATION

088 GOVERNANCE

020 Our history

090 Message from the Chairperson

022 Our value creation process

092 Messages from Outside Directors

024 Our value chains

094 Corporate governance
102 Management structure
108 Internal controls

JT website
Sustainability
•

•

•

•

•
•

•

Top management
messageOur sustainability
strategy
Respecting humanrights
Improving our social
impactJT website
Investor Relations•

Management
information•

Results and reports•

For shareholders•

IR calendar•

For debt investors

Financial information

Non-financial information

Value creation story

Environment
Governance andcompliance
Investing in people

Detailed information

002 CORPORATE PROFILEand
026 BUSINESSSUSTAINABILITY

004 Our management principle

028 Business Plan 2022

006 Message from the CEO

030 Sustainability

012 At a glance

034 Message from the CFO

014 Key performance indicators• Financial performance review• Non-financial performance review

038 Message from the CSO
040	Overview of tobacco business and its sustainability
initiatives• Products & services• Building sustainable supply chains• Optimizing the regulatory environment and tackling illegal trade verview of pharmaceutical business and its sustain060 O
ability initiatives
064	Overview of processed food business and its sustainability initiatives
068 Investing in people• Health and safety

112

FINANCIALINFORMATION/
OTHERS

072 Three absolute requirements for sustainability• Respect for human rights• Improving our social impact• Improving our environmental impact

116 Financial review

080 Risk factors

124 Glossary of terms

084 Regulation and key laws

126 Awards and recognitions

087 Litigation

128 Shareholder information and contact information

114 11-year consolidated financial data

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” at P.129 for further details.

Japan Tobacco Inc.

Integrated Report 2021

001

CORPORATE PROFILE
The JT Group is a leading global tobacco company operating in over 70 markets, and our products are sold in over 130 markets.
To provide an overview of the Group, this section discusses the Group management principle
and vision that form its foundation for value
creation, outlines its businesses, and presents
key financial and non-financial performanceindicators. The section also has a special section
featuring a message from the CEO explaining
initiatives the Group is undertaking to continuously deliver value.

004

Our management principle

006

Message from the CEO

012

At a glance014

Key performance indicators• Financial performance review• Non-financial performance review

002

Japan Tobacco Inc.

Integrated Report 2021

003

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Our management principle

Management principle

VISIONTo pursue the 4S model

To continue to be a growing global company that provides diverse value, unique to the JT Group.
Shareholders

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 mid to long term. We firmly believethat pursuing the 4S model is the best approach to continuously grow our corporate value and serve our four stakeholder constituencies’ common interests.

Based on our 4S model, our vision is to continue to bea growing global company that provides diverse value,unique to the JT Group.
Our long, rich history has endowed us with three key
strengths: a solid financial base, superior brand equity
and a diverse workforce. To realize our vision, we plan toConsumers

Employees

Societyleverage these strengths as sources of competitiveness inour business activities. We will create a variety of products
and services that meet the needs of our consumers andsociety, enhance the corporate value of the JT Group, andcreate social value that contributes to the development of asustainable society.

The JT Group MISSION
To create, develop and nurture our unique brands to
win consumer trust, while understanding and respecting
the environment, and the diversity of societies andindividuals.

Consumers

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 realizing themid- to long-term profit growth, placing priority on striking
a balance between profit growth through business investments and shareholder returns.

The JT Group WAY
n

n

n

004

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.

Japan Tobacco Inc.

Act with integrity, always putting the consumer first.
 ontinue to evolve while remaining committed toCquality in all its aspects.
Harness the power of diversity across the JT Group.

Our mission is to create, develop and nurture our uniquebrands to win consumer trust, while understanding andrespecting the environment, and the diversity of societies
and individuals through the 4S model. Our Code of Conduct
and values guide the way in which every employee should
act on a daily basis. We have codified these into three statements we call the JT Group WAY.
The world in which we live encompasses diverse naturalenvironments, societies and peoples. By embracing suchdiversity, we believe we can create brands that offer value toour consumers.

We define a brand as all of the products, services andactions trusted by consumers and believe it is the key toforming deep bonds of trust between us and our consumers. Setting our brands as our most valuable management
resource, we will continue to create, develop, and refine
distinctive brands that win consumers’ trust.
In order to achieve our mission, each and every one of us
at the JT Group practices the JT Group WAY as a personalphilosophy.

Integrated Report 2021

005

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Message from the CEO

Driving changes on our own initiative
Since its inception, the JT Group has grown by keeping its focus on the future, anticipating challenges and adapting swiftly to change. I am convinced this proactive
approach will continue to lead the JT Group towards more sustainable mid- to longterm growth, further supported by organizational reforms and cultivating a working environment where each and every employee can initiate changes on their own.

Knowing the business environment
The JT Group’s business environment remains difficult topredict because of changes in the international politicalsituation, and risks related to exchange-rate fluctuations,as well as the persistent impact of the pandemic and thesubsequent changes in consumer behavior and operations
by businesses around the world.
It is undeniable that all our business segments currently
face, and will continue to face, increasingly challenging environments. The tobacco business continues to experiencetighter regulations and higher taxes, combined with increasing demand for reduced-risk products (RRP), especiallyheated tobacco sticks (HTS). Meanwhile, the pharmaceuticalbusiness is facing higher hurdles for new drug approval andgrowing pressure to lower prices, while the processed foodbusiness is facing rising costs for personnel, distribution and
raw materials.
In addition, digital technology is constantly progressing,consumer preferences and behaviors are evolving withincreasing awareness of sustainability and ESG priorities, andthe needs and expectations among our shareholders, as well

as society at large, are changing. Amid these major, rapid
global trends, it is vital that we drive initiatives proactively
rather than react passively.
2022 is also marked by the unprecedented crisis of the war
in Ukraine. I would like to express my sincere condolences tothose who have tragically lost loved ones in the war, and tothe many others who have had to face devastating difficulties, such as having to leave everything behind in order toseek safety. I sincerely hope that peace will return soon.
While the JT Group’s first priority is the safety and securityof our employees and their families, we are also working
hand in hand with international and local aid organizations
to establish relief programs and provide immediate help tothose affected. We will continue to closely monitor the situation and prioritize our employees and their families’ safety,
while extending all possible support to those in need, taking
all necessary decisions to address the changing situation inaccordance with our Group’s management principle, whichis to pursue the 4S model.

Masamichi Terabatake
Representative Director and President,
Chief Executive Officer

Note: The word, consumers, used in the context of the tobacco business means adult consumers. Minimum legal age for smoking varies in accordance with the legislationin each country.

006

Japan Tobacco Inc.

Integrated Report 2021

007

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Message from the CEO

Driving changes on our own initiative
The JT Group has always marked its growth by taking
matters in its own hands, adapting swiftly and implementing strategic initiatives. An example of such growth
is represented by our tobacco business, where we madelarge-scale acquisitions, like those of RJRI and Gallaher;
expanded geographically into emerging markets; enhanced
equity, mainly for global flagship brands; and continuously
allocated resources to increase presence in the expanding
RRP category.
More recently, based on the anticipated, long-term businessenvironment, and in order to increase profitability andstrengthen our competitiveness in the tobacco business,
we announced in February 2021 that we had refined ourinvestment prioritization to two key categories – HTS andcombustibles – and were introducing initiatives to strengthen the tobacco business operating model, including those
aimed at combining the existing tobacco businesses andstrengthening competitiveness in the Japanese market.
The road leading to the combination of the tobacco
businesses took many steps. In the tobacco business, weformerly ran our Japanese-domestic and international
tobacco businesses separately, which presented challenges
for us when formulating and executing a globally uniform
strategy, as well as when striving to ensure effective allocation of global resources. These challenges were especiallyapparent in the circumstances we faced to strengthen competitiveness in the RRP category. I believed it was urgent toestablish an operating structure without divisional borders

sites, implementing a voluntary retirement program, andreducing the total domestic tobacco cultivation area.
between Japanese-domestic and international operations,or between JT and JTI, to allow speedy decision-making
under unified management. Additionally, for the JT Groupto follow through on its customer-first policy and maintainsustainable growth, we needed a structure enabling us toeffectively and efficiently offer products and services thatexceeded consumer needs and expectations.
Faced with these challenges, after taking charge as CEO, I
worked to unify teams for R&D initiatives and RRP management both in Japan and abroad, led the transformation of
our international tobacco business, and relocated the JT
head office building in Tokyo. Through these initiatives, theGroup has been reinforcing our foundation and sharpening
our global competitiveness.
As a result of these initiatives, we kicked off January 2022with our new operating model, built around a unified,
global tobacco business, for the JT Group to further growand evolve into a truly global company. With this step, thetobacco business headquarter function has been consolidated at the headquarters in Geneva, creating a simpler
business operation structure, optimal for accelerating speed
through efficient, effective decision-making. I firmly believethat this will enable us to strengthen our competitiveness in
the growing RRP category, mainly in HTS, by leveraging andallocating global resources in a prioritized and timely manner with a global perspective, as well as building a system
to maximize the value we offer our consumers. Furthermore,going forward, we also plan to share and deploy bestpractices on a global basis in a more energized and timely
manner. In respect to the Japanese market, operations willcontinue under the global operating model, with Japan set
as one of our key markets.
In preparation for the global tobacco business, in theJapanese market we determined that it is imperative that we
increase competitiveness to further enhance value to ourconsumers in an environment where overall business volume has shrunk amidst growing uncertainty. As a result, wehave executed initiatives conducive to overcoming anticipated challenges identified in this changing environment.
Over the past few years, we have undertaken a number of
initiatives, sometimes requiring difficult decisions, such asreforming the sales organization, closing some production

008

Japan Tobacco Inc.

Leaving no stone unturned, we also reorganized the
Corporate function. In addition to fulfilling an administrativerole, this institution acts to identify and address mid- tolong-term management issues. It is designed to be anorganization facilitating inter-division collaboration without
the constraints of divisional walls, generating high-quality
output that addresses issues identified by the JT Group.
The most important factors in these kinds of reformare for each employee to understand the goals, andcorrespondingly change their awareness and behavior to become the ones initiating change. Consequently, every member of the Board of Directors, including myself, is actively
communicating with employees about the background andintent of the reform initiatives we have been undertaking,so that this knowledge permeates our workforce. By helping
each employee become more adaptive to change throughthese initiatives, we are in turn strengthening the JT Groupas an organization. Just as we have been initiating change
and overcoming challenges promptly through our strong
leadership, we will promote behavioral changes and securesustainable mid- to long-term growth.

Business Plan 2022
As announced in February 2022, Business Plan 2022, ourthree-year business plan, marks the continuation of our
fundamental pursuit of sustainable mid- to long-term profit
growth. More specifically, we remain committed to achieving mid to high single digit average annual growth in adjusted operating profit at constant FX over the mid to long term.
We also expect to steadily grow both profit and shareholder
returns in line with our shareholder-return policy.
The key to achieving these objectives lies in growth of thetobacco business, which is the core driver of the JT Group’s
profit growth. Consequently, we will continue to focus on
investing our management resources intensively for top-line
growth and increasing profitability, designating HTS andcombustibles as our top-priority categories. We see that the
HTS segment provides the largest potential for sustainableprofit growth within the RRP category, which we expect,with anticipated demand increases in this category, tobecome a strong pillar for our future growth. While the RRP
category is our top investment priority in terms of futuresustainability of the JT Group, we project nonetheless that
combustibles will remain the tobacco industry’s biggest
category through the coming decade. Therefore, we will
also support efforts to continue increasing combustibles’
top-line contribution, while enhancing their profitability
through lower costs and higher efficiency.
Moving on to our mid-term projections and goal, we projectthat HTS share in the tobacco industry as a whole will
increase from the current 15% to about 20% by the end of

2027. Within this environment, the JT Group announced, inFebruary 2022, its ambition to achieve HTS segment sharein the mid-teens across our key markets by the end of 2027,
and by doing so, reach break-even in the RRP business.
Having said this, in considering developments in the war in
Ukraine, we have decided to suspend the launch of Ploom X in
the Russian market, which was planned for 2022, and are reviewing our global launch plans to optimize the future developmentof Ploom X by being flexible and ensuring a state of readiness.
Needless to say, it is clear that RRP will be of significancein the industry; we expect that they will continue to gainincreased attention and traction with consumers as theseproducts have the potential to reduce the health risks
associated with smoking by offering solutions that do not
involve burning tobacco and produce no smoke and lessodor. They thus significantly reduce not only the potentiallyharmful constituents in smoke generated from burning
tobacco leaves, but also the inconvenience to non-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.
Moving on to the pharmaceutical and processed foodbusinesses, while they will continue to face a challenging
business environment, their role of supplementing profit

Integrated Report 2021

009

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Message from the CEO

growth for the JT Group remains unchanged. In the pharmaceutical business, we will continue to enhance the valueof products already introduced and still in development,
as well as cultivating in- and out-licensing opportunities toreinforce our business foundation. In the processed foodbusiness, we will follow through on existing initiatives,
such as allocating more resources to high-value-added andhigh-priced products, mainly in our core frozen and ambient
food business, in order to promote a high-quality top-line
increase leading to sustainable profit growth.

Lastly, we will continue allocating management resources
to, and prioritizing investment in, businesses delivering
sustainable profit growth, particularly the tobacco business,the core driver of the JT Group. We will also aim to increase
returns to shareholders through mid- to long-term profit
growth while maintaining a target payout ratio of about
75%*, and to achieve that objective, we will continue ourefforts to grow adjusted operating profit at constant FX.

environmental initiatives thus far, and contribute to the shift
to a decarbonized society, the JT Group has revised its goals
for energy consumption and greenhouse gas emissions in
our Environment Plan 2030. We will further enhance andexpand our initiatives to achieve carbon neutrality by 2030,
and net zero for the entire value chain by 2050.
Concerning our responsibility to society, we have been

conducting human rights due diligence assessments toovercome challenges across our supply chain. Furthermore,
we have published the Group’s first Human Rights Report.
Our social initiatives are multifaceted, including a newGroup goal to increase our proportion of women in
management to 25% by 2030, while recognizing that it isdesirable that this should eventually come to exceed 40%.

*To be in the range of approximately ±5%.

Conclusion
Toward mid- to long-term growthPursuing the 4S model to provide higher value tostakeholders
Change in the social and business environments is accelerating, notably in terms of awareness of sustainable businesspractices as part of ESG considerations. I believe that aproactive and committed contribution to the developmentof society, through operations based on pursuing the 4S
model, is essential to the long-term growth of the JT Group.
To realize this ambition, we have identified, based on the 4S
model, a set of priority issues (materiality) for our businessand a wide range of stakeholders, and used these to focus
our sustainability strategy.

Sustainability at the JT GroupIn 2021, we continued to actively undertake initiatives basedon our sustainability strategy. With ESG interest growing
every year in the business world, we understand it is particularly important to reinforce the foundation of ESG, whichis governance. To that end, we reflect our efforts to evolve
corporate governance not only in our dialogue with stakeholders, including the capital markets, but also in appropriate responses to social demands related to governance, andanalysis of the assessment of Board effectiveness, among
other factors. What we have learned from these processes isreported to the management team and Board of Directors,
whereupon, after conducting the necessary discussions, it
has led to measures for improvement. Examples include a

010

Japan Tobacco Inc.

We made it standard practice to involve the Board of
Directors, and myself as CEO, in setting the goals for oursustainability strategy, and discussing and managing specific measures for achieving those goals, which we are firmly
committed to deliver on. Since 2020, we have been holding
regular Sustainability Advisory Forums, chaired by our CSO
and involving representatives of JT Group businesses andfunctions, to discuss sustainability issues. Additionally, as we
believe our proactive participation in the sustainability management process is essential, we made the Sustainability
Management Division independent of other Corporategroups in January 2022, when we also reorganized ourCorporate function.

Amid a business environment in which we are experiencing
major, rapid global change, I believe it is important for us totake a fresh look at the value the JT Group offers to society,the reason for our existence, and the essence that has been,
and will continue to be, at our core. In 2020, we created
D-Lab within the Corporate research and development
division, to explore opportunities beyond the existing scopeof business. Today, D-Lab has various projects underway tostrengthen our business portfolio, including new businesses.

As such, we will keep striving to demonstrate to our consumers, shareholders and wider society they can entrust the
JT Group to deliver “moments of pleasure” in the 20 to 30
years to come.
Lastly, I would like to stress my commitment to assuring the
growth of the RRP category as top priority on my agenda,
and I look forward to continuing to update you on what the
future holds for the JT Group.

revision of the director tenure policy and the disclosure of
information related to our integrated report.
We are also reviewing the KPI related to executive remuneration in order to strengthen the commitment frommanagement to deliver sustainable profit growth for the JT
Group, and to reflect a multifaceted performance scorecard
using not only financial indicators, which measure current
business performance, but non-financial indicators as well.
Going forward, we will continue to enhance corporate governance based on dialogue with all our stakeholders, as laidout in our management principle of pursuing the 4S model.
As for the environment, climate change is a pressing challenge requiring worldwide attention. To further enhance ourIntegrated Report 2021

011

CORPORATE PROFILE

BUSINESS andSUSTAINABILITYVALUE CREATIONGOVERNANCE

FINANCIAL INFORMATION /OTHERSAt a glance

The JT Group is a leading global tobacco company operating in over 70 markets and our products are sold in

Global business foundation

over 130 markets. In addition to the tobacco business, we are developing pharmaceutical and processed foodbusinesses.
Revenue (2021)
Processed foodbusiness 6.3%

Others 0.1%

Number of employees (As of December 31, 2021)
Processed foodbusiness 8.8%

2,324.8

55,381
employees(JPY BN)

Pharmaceuticalbusiness 3.5%

Tobaccobusiness 90.1%

Others 1.8%

Pharmaceuticalbusiness 2.4%

Tobaccobusiness 87.0%

The Group’s tobacco business has the third largest sales
volume in the world* and includes three of the top ten
global-selling brands in its product portfolio.
The Group has a global manufacturing footprint and aims
to manufacture quality tobacco products that secure

consumers’ trust. As of the end of 2021, the Group operates
six factories in Japan (four manufacturing tobacco andtwo tobacco-related factories), and 33 factories in 28 othercountries (including tobacco-related factories).
* Excluding China National Tobacco Corporation

Location of Factories related to Tobacco Manufacturing(As of December 31, 2021)n

Factories manufacturing finished goods

Switzerland
Germany

SwedenPolandSerbianOther tobacco-related factories

RussiaRussiaRussiaUkraineRussiaCanadaKazakhstan
GreeceTobacco Business

Canary Islands

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

TurkeyIranRomania
JordanEgypt
Sudan
Ethiopia

Its key markets include Japan, the Philippines, Taiwan, Italy, Spain, the U.K., Romania,
Russia, 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.

Bangladesh
Bangladesh

MyanmarU.S.

TaiwanDominican Republic

Philippines

Tanzania
MalawiIndonesia* RRP (Reduced-Risk Products): Products with the potential to reduce the risks associated with smoking.
Japan

BrazilPharmaceutical 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.

Processed Food Business
The processed food business handles the frozen and ambient food business, mainly forfrozen noodles, packaged cooked rice, and frozen okonomiyaki (Japanese savory pancakes); the seasonings business, focusing on seasonings including yeast extracts; and the
bakery business through bakery chain outlets, mainly in the Tokyo metropolitan area.

Factories

39 factories
Processed food business 5 factories
Tobacco business*There are no factories in the pharmaceutical business.

Major products include Reito-Sanuki-Udon (frozen noodles), Takitate-Gohan (packaged
cooked rice), and the and the HIMAX (yeast extract seasoning) in particular.

012

Japan Tobacco Inc.

Integrated Report 2021

013

CORPORATE PROFILE

BUSINESS andSUSTAINABILITYVALUE CREATIONFINANCIAL INFORMATION /OTHERS

GOVERNANCE

Key performance indicators
Financial performance review
Revenue

Profit2,324.8(JPY BN)

2,400
2,139.7

2,216.0

JPY
BN
11.1% YoY increase

2,324.8
2,175.6

2,092.6

1,800

Despite continued market share growth and positive price effects

400

392.4

338.5

385.7
348.2

338.5
310.3

JPY
BN
9.1% YoY increase
Profit decreased from 2017 through 2020, mainly as a result of a300

in the international tobacco business, consolidated revenue de-decline in operating profit and increasing financial costs net ofcreased for two consecutive years through 2020, mainly as a result

financial income. In 2021, however, profit grew 9.1% year on year toof negative foreign-exchange effects, growth in the Japanese RRP

1,200(JPY BN)(Reduced-Risk Products) market and a continued downtrend in the338.5 billion yen by virtue of operating profit growth.

200Japanese market as a whole. In 2021, consolidated revenue grew
11.1% year on year to 2,324.8 billion yen, driven mainly by positive
foreign exchange effects in addition to robust market-share growth

600

100

and buoyant overall demand in the international tobacco business.

0

2017

2018

2019

0

2021

2020

Adjusted operating profit
（%）

800

30

22.9% YoY increase on
constant FX basis+111.5 598.4 +12.0 610.4

26.9
600 585.3 595.5

515.9
23.7

487.0
23.3

25

00.0

400

JPY610.4BN (reported basis)

25.4% YoY increase
and 2020, mainly as a result of negative foreign-exchange effects
Japanese-domestic tobacco business. In 2021, adjusted operating

200

15

2021

revenue growth and positive foreign-exchange effects in the interyear to 598.4 billion yen.

FX

2021

Dividend per share
(JPY)

600

160
503.9

450

（%）

150

140

482.0

154

100
140
00.0

78.6

150
72.6

50

10

0
2017

2018

25

40

105.6

2019

2020

2021

482.0

JPY
BN
JPY21.9BN YoY decrease
In terms of free cash flow, the cash-generating capacity of ourbusinesses is stable. In 2021, free cash flow decreased 21.9 billion

75

69.7

63.9

80

300

154

88.1

120

404.2

profit increased 25.4% to 610.4 billion yen, boosted mainly bynational tobacco business. AOP at constant FX grew 22.9% year on

調整後営業利益率

2020

Adjusted operating profit on a reported basis declined in both 2019202017 2018 2019 2020 Business 2021 at
momentum constant FX

2019(JPY BN)in the international tobacco business and reduced revenue in the

0

2018

Free cash flow

(JPY BN)

27.4

2017

0

0
2017

2018

2019

2020

2021

配当性向（連結）

140

JPY

Until 2019, we had been increasing our dividend per share every
year. Based on the change in our shareholder returns policy, we
paid total dividends of 140 yen per share for 2021.

yen to 482.0 billion yen, largely because of non-recurrence of the
cash inflow a year earlier from the sale of the former JT head officebuilding.

014

Japan Tobacco Inc.

Please see at P.29 for details of our resource allocation policy, including ourshareholder returns policy.

Integrated Report 2021

015

CORPORATE PROFILE

BUSINESS andSUSTAINABILITYVALUE CREATIONFINANCIAL INFORMATION /OTHERS

GOVERNANCE

Key performance indicators

Non-financial performance review
2021 sustainability highlights
We continuously revisit the material issues of our Group,
while striving to achieve our aspirational goals. Summarized
here are some of our sustainability achievements andprogress. It is paramount that we continue to monitor andreport on our strategy, initiatives, goals, and progress. By

JT Group environmental performance dataassessing the impact, not only on our Group but on ourvalue chain as whole, we wish to create shared value for ourplanet and the communities in which we operate.

We announced our commitment to

To coincide with the 10th anniversary

accelerate our efforts to reduce green-of the United Nations Guiding

house gas (GHG) emissions across the entire

Principles on Business and Human Rights, wevalue chain and achieve

have published our first

net zero GHG
emissions by 2050. We aim to be

Rights Report. The report explainscarbon neutral for our own operations by 2030.

our approach to human rights’ due diligence

Among other initiatives, we plan to achieve

based on the JT Group Human Rights Policy. It

this by increasing the proportion of renewablealso identifies nine salient human rights issues

electricity that we use.

and the steps we are taking to remedy them.

4Read more on P. 76.

As a global organization, we recognize that we have a keyrole to play in reducing our environmental impact – notonly 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 the way.

GHG emissions Scope 1 and 2

GHG emissions Scope 3(CO2e thousand tons)(CO2e thousand tons)

1,000

8,000

750

6,000

7,331

Human

250

work proactively to fulfill this requirement.
In our latest Corporate Governance Report,

skills matrix for
the Directors and Membersof the Audit & Supervisory
Board. For the sustainable growth of ourGroup, we are introducing an ESGrelated index for director
remuneration, starting from FY2022.

we introduced a

331

306

347

359

4,000

2,000

378

4Read more on P. 73.
2019

key priorities of our Group and we

5,473

378
500

0

Corporate governance is one of the

5,812

EY’s
Global Equality
Standard certificate, as one of
In 2021, JTI received

Scope 1

2019

2021

2020

Scope 2

Water withdrawal

Waste generated(Thousand m3)(Thousand tons)

12,000160

10,835 10,777

the first multinational companies in the world.
EY’s GES is one of the first worldwide Diversity



0

2021

2020

10,500 10,690 10,411 10,227

140

9,856

9,000

120

6,000

80

3,000

40

134

133

134

133

2016

2017

2018

2019

127

124

2020

2021

& Inclusion (D&I) certifications measuring
equal opportunities and equal pay in theworkplace.
4Read more on P. 68.

0

2015

2016

2017

2018

2019

2020

2021

0

2015

4Read more on P. 88.

016

Japan Tobacco Inc.

Integrated Report 2021

017

VALUE CREATIONThe JT Group enhances corporate value by providing a wide range of products and services
that meet the needs of consumers and society.
At the same time, the Group creates social valuethat contributes to the sustainable development of society.
This section illustrates the value-creation process that the JT Group has been pursuing byenhancing the value chain based on strengths
honed over its entire history.

018

020

Our history

022

Our value creation process024

Our value chains

Japan Tobacco Inc.

Integrated Report 2021

019

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Our history
The JT Group has achieved sustainable growth by globalizing and diversifying its businesses through both organic growth and M&A.

The three strengths underpinned by our history and accomplishments
Solid financial base

Superior brand equity

Diverse workforce

Profit338.5BNJPY• Sustainable profit growth backed by
combination of organic growth andM&A• Ability to generate stable cash flows
underpinned by profit growth1949	Japan Tobacco andSalt Public Corporation founded1957 HOPE launched
1969 Seven Stars launched
1977 MILD SEVEN launched• High brand equity through continuous
investment in MEVIUS, our leading brand inJapan, as well as in Winston, Camel, LD andother global brands acquired through M&A• Strong R&D and innovative product development capabilities

1985	Japan Tobacco Inc. established1985	Food and pharmaceutical businesses
established1993	Central Pharmaceutical ResearchInstitute established• Corporate culture that respects diversity and leverages it into value creation
process• Group that maximizes synergies
generated from diversity

1994	JT goes public on Tokyo Stock2007	JT acquires Gallaher Group Plc (U.K.)

Exchange

1999	JT acquires RJR Nabisco Inc.’s non-U.S.
tobacco business2016	JT acquires Natural American Spirit’s
2008	JT acquires majority stake in KatokichiCo., Ltd. (currently TableMark Co., Ltd.)and Fuji Foods Corporation

non-U.S. tobacco business2016	Ploom TECH (Infused*) launched	2016 JT conducts tobacco business acquisi| tions, notably in the Philippines,
2018
Indonesia, Russia and Bangladesh

2019	Ploom TECH+ (Infused*) and Ploom S

1999	JT acquires Asahi Kasei Corporation’s
food business, including Asahi Foods
and seven other subsidiaries

2021	Ploom X (HTS) launched

Technology Development LLC

1998	JT acquires majority stake in Torii
Pharmaceutical Co., Ltd.

2015	JT acquires E-Vapor company, Logic(HTS*) launched2013	MILD SEVEN is renamed MEVIUS

2022	JT starts new business operating
model by combining former Japanese-domestic and International
tobacco businesses

2021–
1970s and earlier

1985–

1994–

2007–

2015–

Origins of the modern Japanese
tobacco industry

Privatizing and creating the baseof the current business portfolio

Stock listing and challenges for
globalization

Strengthening our position as a
global tobacco company

Japan Tobacco and Salt Public Corporation, under the authority of the Ministryof Finance, lays the foundation of theJapanese tobacco industry.

The public corporation privatizes under
the name Japan Tobacco Inc., founding
the tobacco, pharmaceutical andprocessed food businesses, which
persist to this day.

JT goes public aiming to be a multilateral and international company withtobacco business at its core.

By accelerating our global expansion,
JT obtains a diverse workforce andfoster its financial base.

Providing new value by addressing increasingly diverse consumer
needs and preferences

Through M&A, JT obtains the world’s
leading brands and a global businessfoundation and grows to become thethird largest global tobacco company.

JT strengthens the international tobacco
business through both geographicalexpansion driven by M&A and organic
growth in the existing markets, andprovides a wide range of product choices, including RRP (Reduced-Risk Products).

Redefining our investment
prioritization among tobacco
categories and strengthening
business operating model
JT allocates management resources
especially towards HTS* and Combustibles to strengthen its competitivenessand profitability aiming for its sustainable growth. By utilizing global resources at large with the combined tobacco
business, JT endeavors to globallyprovide products and services exceeding consumer needs and preferences.

* Infused: infused tobacco capsules, HTS: heated tobacco sticks

020

Japan Tobacco Inc.

Integrated Report 2021

021

CORPORATE PROFILE

BUSINESS andSUSTAINABILITYVALUE CREATIONGOVERNANCE

FINANCIAL INFORMATION /OTHERSOur value creation process
Our management principle pursues the 4S model. This principle guides our efforts to achieve our vision by enhancing corporate value and creating social value. We provide a wide range of products
and services through business activities leveraging our three strengths: a solid financial base, superior brand equity and a diverse workforce.

Our core capital

Our business activities and growth strategies

Financial capital• Adjusted operating profit at constant FX . . . . . . . . . ¥598.4 billion• Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥2,886.1 billion• FCF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥482.0 billion (2021)

Achieve quality top-line growthIntellectual capitalStrengthen cost competitiveness

Strong R&D Capabilities
We possess a diverse portfolio of competitive
brands and robust brand equity rooted in our ability
to deliver high-quality, innovative products.
(Tobacco Science Research Center, Central Pharmaceutical Research Institute, D-LAB, etc.)

Pro
cu
re
D
m
R& Three strengths driving
our global growth

Human capitalten

Our corporate culture respects diverse values
and generates synergy from a diverse workforce.
• Number of employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,381

Pharmaceutical BusinessSolidfinancial base

Superior
brand equity

in gSocial and relationship capital
We have global business operations anda wide collaborative network spanning the value chain.

Diverseworkforcec tur• Certified as a Top Employer in . . . . . . . . . . . . . . . . . 66 countries (2021)

Developing new, original drugs to savepeople around the world from diseaseufa• Employee nationalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Over 100

M

s

an

ale

Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Over 76,000 (2021)

SocietyM a r k e ti n g

Manufacturing capital

Our optimal manufacturing system and active
capital investment ensure superior quality and productivity.
Our system provides markets with products
in an efficient and timely manner.
• Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . ¥100.9 billion (2021)• Tobacco manufacturing bases . . . . . . . 39 factories (29 countries)• Processed food manufacturing bases . . . . . . . . . . . . . . . . . 28 factories• Three key therapeutic areas– Cardiovascular, Renal and Metabolism (CVRM)– Immunology– Neuroscience

By realizing sustainable profit
growth over the mid to long term
through business investments

Social value
Contributing to the sustainable
development of society throughour business activities
We contribute most significantly tothe following nine SDGs by achieving
specific targets in each business’ s focus areas,such as providing products and services
that exceed consumer expectations,investing in our people and building
a sustainable supply chain.

VISION
To continue to be a
growing global company
that provides diverse
value, unique to
the JT Group.

Processed Food Business

Sustainability Strategy
The JT Group’s three absolute requirements(all factories have achieved ISO22000 or FSSC22000 certification except
one that began operation in 2020)

Natural capital

Mid to high single digit annual average
growth of adjusted operating profit atconstant FX over the mid to long term

Improving shareholder returns• We own three of the top 10 highest-selling combustible brands in the world.

• Markets where our products are sold . . . . . . . . . . . . . . . . . Over 130• Markets where we operate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Over 70• Directly contracted tobacco leaf growers and tobacco leaf merchants

Consumers

Achieving consolidated profit targets• Combustibles– Cigarettes– Fine cut tobacco (FCT)• Reduced-Risk Products (RRP)– Heated tobacco products (HTP)– E-Vapor, etc.

• R&D expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥65.0 billion (2021)

n/S

Shareholders

Corporate value

Enhance business foundation

D is t ri b u ti o

We strive to fulfill our
responsibilities to our valued
consumers, shareholders,
employees and the wider society,carefully considering
the respective interests ofthese four key stakeholder
groups, continuously working to
exceed their expectations.

Expanding our product portfolio tosatisfy increasingly diverse consumer*needs and preferences

Business strategy(+22.9% year on year change)

To pursue the 4S model

The value we create

Tobacco Business

Sustainable profit growth and stable cash flows arebacked by a combination of organic growth and M&A.

Our management
principle

Our products and services

Realizing the future of dining in Japanthrough businesses that support our diet

Respect for human rights
An improved social and environmental impact

The natural environment is vital to our sustainable growth.
• Water resources . . . 9,856 thousand m3 of water withdrawal (2021)• Forest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Planted 9 million trees
Our measures to improve our environmental impact  P. 76

Good governance and business standards• Frozen and ambient foods• Seasonings• Bakery products

Corporate governance supporting all of these processes  P. 88

The external environment surrounding the JT Group  P. 80*Adult consumers. Minimum legal age for smoking varies in accordance with the legislation in each country.

022

Japan Tobacco Inc.

Integrated Report 2021

023

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERSOur value chains
R&D

Procurement

Manufacturing

MarketingDistribution/Sales• 5 R&D centers covering scientific research, technology &product development• Consumer-driven R&D focusing on what matters most to
consumers*• 1,364 IP filings, 90+ innovation partnerships with third-party
players• Leaf supply diversified across vertically integrated operations
and third parties• Reliability of leaf supply regardless of weather or market
fluctuations• Full compliance with regulations; assurance of leaf integrity
and origin• 39 factories across our footprint, out of which
six produce RRP• State-of-the-art equipment and manufacturing processes• Industry-leading quality standards for all our
products• Strong brand equity, notably Winston, Camel,
MEVIUS & LD
• Consumers* at center of our offerings: we provide
freedom of choice and superior quality• Full compliance with local regulation in all
countries where we operate• Sales in 130+ markets• Tailored RTC* on market-by-market basis• Motivated salesforce with strong ties with trade• Moving from “site-based” teams to “outcome-based” global teams• Continuously balancing risk mitigation and sourcing flexibility• Advanced planning and inventory management for uninterrupted manufacturing• Increasing emphasis on social and environmental sustainabilityof supply• Constantly reviewing and optimizing ourmanufacturing footprint• Ongoing capital expenditures to increase our
RRP production capacity• K aizen approach for all our manufacturing
processes• Continued investments behind our GFB and inbuilding Ploom brand• Nurturing consumer-centricity mindset acrossentire organization• Additional internal initiatives as self-regulation
and Code of Conduct• 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• To support the Paris Agreement on global
climate change, we are accelerating the paceof our environmental impact reduction
initiatives• Given growing importance, expanding ourcapabilities in areas of digital, advanced analytics
and B2C• Looking to enhance our e-commerce capabilities
in markets where it is legal for nicotine andtobacco products• Ability to stably manufacture high-quality
pharmaceuticals• Conduct responsible detailing activities

Initiatives to • Improving R&D efficiency through concentration of resources in targeted disease domains•P romoting efficient and expeditious clinical development through coordination among domestic and foreign R&D sites
maintain/• Proactively pursuing opportunities to out- and in-license compounds
upgradestrengths• Formulated guidelines to verify conformity
between drugs’ approved specifications andactual manufacturing processes• Continuing annual inspections of contract
manufacturing plants based on guidelines• Formulated internal standards based on guidelines on ethical drug detailing activity issued by Ministry of
Health, Labour and Welfare• Thoroughly complying with said standards through training of Torii Pharmaceutical’s medical sales reps

Priorities and • Add more research themes and expedite progressactions to • Develop proprietary drug-discovery technologies
address them

• Continuously monitor in compliance withlaws/regulations• Continue above initiative• Management systems that ensure stable,
efficient (low-cost) manufacturing of
high-quality food products based on foodsafety management• Top-market-share* products/brands (Sanuki Udon,
Gottsu-umai)

Tobacco Business

Strengths

Initiatives to • Enhancing cascading in R&D of consumers* related data andanalytics
maintain/• Protecting innovation with sound Intellectual Property (IP) stratupgradeegystrengths

Pharmaceutical BusinessPriorities and • As RRP (Reduced-Risk Products) industry innovation cycles get
shorter, JTG is implementing initiatives to accelerate theactions todevelopment of new RRP platforms
achieve themStrengths• As JTG exposure to RRP grows, we are adapting our device-procurement strategy to be more resilient in case of
disruptions• Develop of innovative drugs• Proprietary yeast, processing and freezing technologies• Ability to develop high-value-added products that meet
consumer needs and preferences• Stable, cost-competitive sourcing of high-quality ingredients(extensive supplier network and inspection program)Strengths*Fuji Keizai Co., Ltd.
Foodstuff Marketing Handbook 2022: Vol. 2, 3

*Route to consumer*Route to consumer• Sales force capable of proposing products thatmeet consumer needs with an extensive productlineup2020 results

Processed Food Business• Market insight based on communication with
consumers (identification of consumers’ increasingly
diverse needs/preferences, e.g. by using fan sites.)• Develop new products tailored to consumer needs based onmarket/competition research and analysis• Develop new technologies and production methods throughexternal collaborations• Verifying ingredients’ safety based on quality specification
certifications submitted by suppliers• Monitoring main ingredients’ pesticide residue content andperiodically inspecting ingredient production plants in accord
with applicable laws/regulations and our own standards• Inspecting source farms’ soil and water quality, verifying cropconditions, checking pesticide management practices, andinspecting livestock and fish farms• Mandatory certification of compliance withISO 22000 or FSSC 22000 international foodsafety standard across all JT-affiliated plants
and contract manufacturing plants globally• Verifying end products’ compliance with pesticide content and other safety standards
through monitoring inspections• Reducing contamination risk by establishingand complying with food defense guidelines• Conducting consumer-centric market analysis todevelop 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• Expanding 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 informationand labeling 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 throughproduction, processing, distribution and sales• Develop high-value-added products that meet consumer
needs and preferences–Develop new products that take into account environmental
Priorities and impact and sustainability• Strengthen supply chain to enable sourcing of safe,
high-quality ingredients–Building a sustainable supply chain by fostering transparent
relationships with suppliers and taking human rights andenvironment into account when sourcing ingredients• Manufacture safe, high-quality food products–Building optimal production systems that
ensure efficiency and product quality• Install energy-efficient equipment to reduce
environmental impacts–Pursuing transition to clean energy• Propose products and promote sales strategies in
response to increasingly diverse consumer needs
and trends–Proposing products personalized to consumers’
individual preferences and lifestyles• Strengthen sales capabilities and disclose information to reassure consumers–Disclosing more information, e.g. on website andproduct packaging• Stably supply consumers–Building an optimal logistics network that maximally utilizes in-house logistics (in response to Japanese government’s logistics-reform initiative)

Initiatives tomaintain/
upgradestrengths

actions toachieve them

*Adult consumers. Minimum legal age for smoking varies in accordance with the legislation in each country.

024

Japan Tobacco Inc.

Integrated Report 2021

025

BUSINESS and SUSTAINABILITY
This section covers the JT Group’s mid- to long-termbusiness and sustainability strategies and initiatives inthat context. Here our CFO and CSO explain Group capital policy, financial strategy and the principles for sustainability that together sustain Group value creation.

028 Business Plan 2022
030 Sustainability
034 Message from the CFO
038 Message from the CSO
040	Overview of tobacco business and its sustainability initiatives• Products & services• Building sustainable supply chains• Optimizing the regulatory environment andtackling illegal trade060	Overview of pharmaceutical business and its
sustainability initiatives
064	Overview of processed food business and its
sustainability initiatives
068 Investing in people• Health and safety
072 Three absolute requirements for sustainability• Respect for human rights• Improving our social impact• Improving our environmental impact
080 Risk factors
084 Regulation and key laws
087 Litigation

026

Japan Tobacco Inc.

Integrated Report 2021

027

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Business Plan 2022

Every year the JT Group publishes a three-year rolling business plan, reflecting the changing operating environ-Roles and targets of each business

ment, including economic trends, geopolitical risks and the competitive landscape. We will achieve sustainableprofit growth by investing in our businesses, maximally leveraging our resources on a Group-wide scale andtransforming ourselves even in a drastically changing operating environment.

Tobacco Business* The content of this section is based on the information disclosed in February 2022.

• Prioritize investment of management resources towards HTS and combustibles– Combustibles to remain the largest category over the coming decade– In RRP, HTS to be highest potential for sustainable profit growth

Operating environment outlook 2022-2024
Uncertainties are expected to increase due to COVID-19,
changes in consumer behavior caused by the pandemic andrisks of global economic stagnation, in addition to changes
in international political conditions, exchange rate fluctuations, and other factors.
In accordance, there is a necessity to:• Monitor changes in the business environment such as pandemic-driven governmental tax increases to secure financial resources, and tighter, more complex regulations• Consider uncertain geopolitical risks, such as economic
sanctions or political unrest in some markets

RRP (Reduced-Risk Products)–	Continued demand increase especially for HTS (heated
tobacco sticks)–	Intensified competition and regulatory developments inleading markets–	Uncertainty in device procurement due to global semiconductor shortage–	Continued downtrading and industry volume decrease inleading markets–	Profit pool likely to expand through pricing opportunities*1 On a basis of revenue, excluding revenue in China*2 Japan, Russia, U.K., Italy*3 Global basis (assumes existing geographic footprint and the current expansion plan)*4 Adult consumers. Minimum legal age for smoking varies in accordance with the legislation in each country.

Consolidated adjusted operating profit (AOP) at constant FX growth rate of mid to high single
digit

Outlook 2022-2024

Annual average growth of a mid single digit rate despite significant investments towards RRP

Supplemental note: Why we use adjusted operating profit at constant FX as the primary index
for performance management• Previously, adjusted EBITDA had been used as an index for
performance management, but to better manage business
investment and returns, starting with the 2014 Business
Plan it was replaced with adjusted operating profit, as thelatter does not require the addition of amortization and de-• Enhance investment in the HTS category to win more support from consumers*4 to:– Expand geographically (e.g., Russia and Europe)– Continue to improve products– Reinforce our strategic capabilities
Please refer to Overview of tobacco business and its sustainability initiatives (P. 40) for more details.

Mid- to long-term target

Japan Tobacco Inc.

Strategy of Tobacco
Business

Combustibles

Group profit target028• Strive to fulfill following goals by the end of 2027 (when the HTS segment is estimated torepresent 15% - 20%*1 of the total tobacco industry):– Drive segment share for HTS in the key HTS markets*2 to the mid-teens level– Reach break-even*3 in the RRP category

Pharmaceutical Business/
Processed Food Business• Adjusted operating profit is used to show, in a readily
understandable way, our business performance for the current fiscal year, excluding any effects of amortization costs
related to acquisition(s) in the previous years.

The tobacco business, the core and driver of the JT Group’s profit growth, aims to grow at a
mid to high single digit CAGR over the mid to long term of AOP at constant FX.

Resource allocation policy
Resource allocation policy
based on the 4S model• Prioritize business investments*1 for sustainable profit growth in the mid to long term
• Strike a balance between profit growth through business investments and shareholder return– Aim to enhance shareholder returns by realizing the Group’s mid- to long-term profit
growth, while maintaining a strong financial base*2– Target a dividend payout ratio of about 75%,*3 a competitive level*4 in the capital markets– Consider implementing a share buy-back program, mainly taking into account the Group’s
financial outlook of the respective year and mid-term capital needs

preciation costs, which vary with the business investment
in a given year.

• In order to more clearly illustrate the strength of our businesses themselves, we adopt the figures at constant FX,
thereby disregarding possible exchange rate fluctuations
which can move upward or downward significantly overthe short term due to factors not directly related to ourbusinesses, such as geopolitical risks.

T he pharmaceutical and processed food businesses aim to complement the JT Group’s profit
growth• Pharmaceutical business: Focus on R&D investments toward next-generation strategic products and maximize the value of each product• Processed food business: Ensure sustainable profit growth through quality top-line growth

Shareholder return policy*1 Investment towards the growth of the tobacco business is our highest priority. Pursue growth of AOP atconstant FX through quality top-line growth*2 The Group will maintain a strong financial base that secures stability in case of changes in business environment such as economic crises and flexibility enabling expeditious responses to business investment
opportunities*3 To be in the range of approximately ±5%*4 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 growthIntegrated Report 2021

029

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Sustainability

Our material issues

Overview of the sustainability strategy

To help the JT Group to grow, and to build a sustainable
future as a member of the society in which we operate,
we have identified a list of high-priority material issues.
Our materiality is based on the JT Group’s management
principle, the 4S model. In 2015, we performed a materiality
assessment covering the entire Group for the first time. We
selected our material issues through interviews with ourinternal and external stakeholders.
Since we first selected our original material issues, external circumstances and the business environment in which
we operate have changed. In 2021, we began updating theGroup’s materiality framework by revisiting and identifying
our material issues. With this in mind, external and internal

stakeholders are being consulted to prioritize our new
materiality topics.
In updating our materiality, there are several issues weare paying particular attention to: the rise and growth of RRP(Reduced-Risk products); the increasing global awareness tocombat climate change; impacts of the COVID-19 pandemic,
the progress of information technology; greater diversity
in the workplace; regulatory trends such as the revision ofJapan’s Corporate Governance Code, to name but a few. We
also recognize the importance of creating new shared value,
together with our stakeholders. Taking these factors into
consideration, as well as the ESG issues facing our Group, we
will set out our new materiality.

The JT Group’s sustainability strategy is based on the 4S
model, our management principle, and encompasses ourmateriality analysis. The foundations of our sustainability
strategy, which apply across the Group, are outlined below.

Three absolute requirements for sustainability

Respect for human rights

An improved social andenvironmental impact

Good governance andbusiness standards

We are committed to respecting
human rights across our global
operations and value chains, as
expressed in the JT Group Human
Rights Policy.

We are committed to protecting theenvironment and making a positive
difference wherever we operate.

We are committed to promoting
transparent, fair, and timely
decision-making that carefully
considers the respective interests ofconsumers, shareholders, employees, and the wider society.

4P. 73

4P. 75

4P. 88Laws andregulations

Product safety
and productresponsibility

Supply chain
management

Product
innovation andintellectual
property

Environment

Respecting
human rights

MediumImportance to external stakeholders

High

The JT Group’s materiality
Corporate
governance andtransparency

Environmental
impacts ofproducts

Information
security

Responsible
marketingAnti-competitive
behavior

Being aresponsible
employer

Anti-bribery
and corruption

Collaborations
andpartnerships

Employeedevelopment
and talentmanagement

Workplacehealth and safety

Focus areas by business segments
We have identified priority areas, aspirational goals andtargets for each business segment. As JT Group Environment

Plan 2030 was updated, greenhouse gas emission targets ofall of our business segments were also updated.

Tobacco businessWe have selected the following four focus areas for tobacco,
our core business. In 2019, we set out 11 specific targets
covering each focus area and have been reporting on progress. In 2020, we set a new target relating to the appropriate

Litigation

use and responsible disposal of materials, including plastics,
used in our products and packaging. As a result, a total of 12
targets are in place.

Focus areas

Products and services

Aspirational goals

We will be a total tobacco company offering consumers* an even greater choice of
products by focusing on quality, innovation, and reduced-risk potential.

Illegal trade

4P. 50Equality anddiversity inthe workplace

Political andregulatory
decision-making
processes

Contributions
to society

Tax practices

In 2021, we updated our JT Corporate Governance Policy
and the Group Environment Plan 2030, which includes acommitment for a net zero target.

We will be the employer of choice by investing in people.
4P. 68We will reduce environmental and social risks, and enable transparent and responsible

Supply chain

High

MediumPeoplepractices across our supply chain.

Regulatory environment andWe will ensure the Company is included in policymaking leading to fair and balanced

illegal trade

regulation, and enhance our cooperation with governments to combat illegal trade.

Importance to the JT Group
Value chain boundaries

Our supply chain

Our Company

4P. 54

4P. 57

Our customers and consumers

Read about the targets of our tobacco business and progress in 2021
030

Japan Tobacco Inc.

Integrated Report 2021

031

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Sustainability

Contributing to the SDGs

Pharmaceutical business
The mission of our pharmaceutical business is to create
innovative, original drugs to support patients in the shortest
time possible. In view of this mission, in 2019, we selected

Focus areas

Products and services

the following three focus areas. We subsequently set fivespecific targets for these focus areas.

The JT Group supports the Sustainable Development
Goals (SDGs) adopted by the United Nations. Through ourbusiness activities, we will contribute to the SDGs related toour business and its environment. We have mapped related

SDGs against our initiatives for sustainable business, andidentified the nine SDGs to which our business can best
contribute.

Aspirational goals

We will create innovative, original drugs to support patients in the shortest timepossible.

PeopleWe will strive to nurture talent development which enables us to create first-in-class(FIC) drugs.

Product safety and responsibility

We will strictly comply with all relevant laws, regulations, and industry standards in

Sustainability Advisory Forumorder to deliver safe drugs to patients.
Read about the targets of our pharmaceutical business and progress in 2021

Processed food business
The processed food business comprises three businesses:
frozen and ambient food, seasonings and bakery businesses.
Our mission is to deliver safe, high-quality food to our

Focus areas

Products and services

consumers. In 2019, we selected the following three focus
areas. We subsequently set eight specific targets for these
focus areas.

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 2021, three forums were held. We discussed and shared information on a number of sustainability
issues such as updating the Group’s materiality, progress ofthe sustainability strategy, action against climate change ordiversity and inclusion. Discussions at the forum are appropriately reported to the CEO and board of directors.

Aspirational goals

In the processed food business, we seek to provide
safe and delicious food for consumers, in the hopethat they will choose our products for their loved ones.
Through our three businesses of frozen ambient food,seasonings, and bakery, we are working on our sustainability issues. I have participated in the forum since
its inception. While being conscious of sustainability
trends or regulatory developments and the challenges
that we face, the forum serves as a place to discuss theGroup-wide sustainability issues.

”

Hiromasa Furukawa

We will continue to provide high-quality, technology-driven products in response to

Senior Vice President
Food Businessour customers’ needs: satisfaction and trust.

People“

We will ensure workplace safety for our employees, while continuously investing inpeople who can contribute to enhancing corporate value.

Supply chain

We will reduce social and environmental impacts and continue to deliver safe products to consumers.
Read about the targets of our processed food business and progress in 2021

Stakeholder engagement* Adult consumers. Minimum legal age for smoking varies in accordance with the legislation in each country.

032

Japan Tobacco Inc.

It is paramount that we regularly engage with our
stakeholders, striving to create value for the wider society.
Stakeholder engagement is essential for the Group’s
sustainable growth. Our 4S model is the foundation of ourmanagement principle. In accordance with this principle,
we communicate with a diverse group of stakeholders
every day.
4Read more about stakeholder engagement on our website.

Integrated Report 2021

033

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Message from the CFO“

E ven in a highly uncertain business environment, we are working to maintain astrong financial foundation and enhancebusiness investment to achieve profit
growth over the mid to long term and raise
shareholder returns.

”

Nobuya Kato
Senior Vice President, Chief Financial Officer

I took office as CFO in January 2022. Making the most of my experience, particularly related to mergers and acquisitions in the international tobacco business, I am committed to realizing sustainablegrowth for the JT Group and am undertaking reforms to that end, firmly supporting the CEO in thateffort.

Looking back on 2021 results
Our adjusted operating profit at constant FX – our primaryperformance indicator – increased by 22.9% year on year,
driven by the tobacco business through the year in spiteof the ongoing pandemic conditions and related highuncertainty. The international tobacco business in particular
contributed with a strong pricing effect and volume growth.
Turning to progress regarding our mid to long term KPI goal,
specifically, mid to high single digit growth in adjusted operating profit at constant FX, we see that over the past three
years we have been reporting year-on-year increases in our
growth rate. This has occurred despite difficult conditions inwhich we have consistently lagged behind our competitors
in terms of RRP market share amid overall industry volume
growth.

Both revenue and adjusted operating profit on a reported
basis increased year on year, the former by 11.1% to 2,324.8
billion yen and the latter by 25.4% to 610.4 billion yen,owing to robust top-line performance and favorable foreignexchange impacts.
Operating profit showed year-on-year growth by 6.4%, to499.0 billion yen, despite the higher costs in the Japanesedomestic tobacco business, including initiatives to enhance
management systems and adjust tobacco cultivation areas.
Despite an increase in corporate tax, profit for the term grewby 9.1% year on year, to 338.5 billion yen.
Although our ability to generate cash remains solid, free
cash flow was down by 21.9 billion yen compared withthe corresponding figure for 2020, partly due to the latterincluding a one-time revenue from the sale of the former JT
head office building.

Operating environment outlook 2022-2024
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 down-trading and contraction in demand, but we believe they cancontinue to reliably deliver profit by seizing appropriate
pricing opportunities and building market share.
Although the pandemic itself is not predicted to havea significant impact on our tobacco business, we mustnevertheless consider the possibility that the economic
stagnation may prompt some governments to raise tobacco

and/or consumption taxes to secure financial resources. We
also project that domestic demand for certain high-value
products, which surged in 2020 and 2021 as a consequenceof tighter travel restrictions and limited cross-border traffic,
and which ultimately contributed to the growth of ourinternational tobacco business, will gradually return topre-pandemic levels. In addition, we foresee tighter andmore complex government regulations on tobacco worldwide, as well as the impact of geopolitical factors on somemarket environments. However, as a responsible global firm,
the JT Group will comply to all regulations, while monitoring
the trend in government sanctions and regulations, andtake appropriate measures as necessary.

Financial policy
The JT Group draws up and executes its financial plans inline with two core values: resilience, to be able to maintainour businesses despite significant and/or unexpected risks,such as an economic crisis, and flexibility, to promptly
respond to attractive investment opportunities.

Cash flow management
In our cash flow management, we put highest priority on
stable cash generation from top-line business growth. On
the financial side, we are undertaking initiatives to reduce
foreign exchange impact and optimize operating capital. In
the tobacco business, particularly in the 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 mid to long terms.
We pursue cash creation via top-line growth, made possible
by, on the one hand, pricing that takes into consideration
tax hikes and inflation, and on the other, share gains building on the strength of our brand portfolio, enhanced witha long-term strategic investment view. Pricing is a driver of
profit growth in our tobacco business, but we refrain fromextreme pricing that could harm our brand equity or impair
profit growth in the long run. Consequently, we consider it
essential to understand the consumers* trends, competition,and regulations in each market before implementing any
price revision.
To reduce foreign exchange impact, we utilize natural hedging, by which we mean matching incoming and outgoingcurrencies, as well as risk-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 to reduce foreign exchange risk,taking into account possible impact on the profit-and-loss
statement.

* Adult consumers. Minimum legal age for smoking varies in accordance with the legislation in each country.

034

Japan Tobacco Inc.

Integrated Report 2021

035

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Message from the CFO

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. Excluding the temporary impact of M&A and so forth,over the past ten years we have been generating free cash
flow of about 400 billion yen per year.

FCF (BN JPY)

IR activities

600

455.4

451.3
400
200

316.0

503.9 482.0
404.2

386.7

212.6
72.6

105.6

0
-200
-400

-316.2
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 (FY)
(LfL)

Investment distribution
There is no change in our two key policies for management-resource allocation: give top priority to business
investment, and balance profit growth resulting from suchinvestment with shareholder returns. Based on the 4S model, our management principle, we will give top priority tobusiness investments leading to sustainable profit growth,
especially in the tobacco business.
In February 2021 we revised our shareholder return policy tobalance profit growth and shareholder returns, with the understanding that continued investment is needed to rebuild
our share of the RRP market and stay competitive. Although
in 2021 we revised our dividends upwards reflecting thestrong performance of our international tobacco business,under the current business plan, we will invest about 300
billion yen, particularly in HTS, as the necessity for substantial investment in HTS remains unchanged.
Under the circumstances, and based on the policy I outlined
earlier, we will aim to sustainably increase shareholder returns while maintaining a target payout ratio by continuing
to increase adjusted operating profit at constant FX, thefoundation of our current-term profit growth, over the mid
to long terms. Furthermore, as we have publicly announced,
we will be making significant investments to achieve ourgoals for carbon neutrality by 2030 and net zero by 2050.
Our total shareholder return, including dividends, hascontinued to be significantly below that of the TOPIX
average, mainly due to its stock price performance, and we
humbly accept this as an honest evaluation of the Company
by our investors. In order to further promote shared value
with our shareholders and pay closer attention to thestock-price trend, in our executive-compensation system
we have introduced a restricted-stock remuneration plan,
paid in Company shares, with the performance share unit
linked to business results over the most recent three-year
period. Additionally, reviewing our KPIs related to executive
remuneration, we have increased the percentage thatreported-base results comprise of executive bonuses, while
as an initiative to realize mid to long term growth we haveintroduced new assessment indices, including the ESG index(see P. 100 for details).

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.
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
conducting individual conferences on ESG matters. Due tothe pandemic, these IR events are still held mostly online,
as in 2021 when we held some 340 individual conferences.
IR representatives participate in conferences hosted by
securities houses and meets with domestic and overseas
institutional investors. On some of these occasions, the CEO,myself as CFO, and the director(s) in charge are present.

Japan Tobacco Inc.

The investor feedback we gather through such IR eventsis regularly reported to the Board of Directors and shared
among all Executive Officers and people in the relevant
divisions. Going forward, we will continue our efforts toensure that investors understand the JT Group’s businessresults and initiatives, and moreover, continue to properlyreflect their opinions and expectations in our strategies andbusiness operations.

Better communication with bond investors
The JT Group is also working to enhance communications
with bond investors. Corporate bonds are an importantmeans to procure funds to help achieve sustainable growth.
To reliably procure funds even in an unstable financial
environment, we are endeavoring to broaden our scopeof communications with domestic and overseas bondinvestors. To create more opportunities for dialogue withthem and facilitate better understanding of the JT Group,
we regularly hold non-deal roadshows in addition to those
held at the time of bond issuances. These roadshows havebeen held in Europe, the Middle East, and Asia since 2018,
and we plan to launch them in other regions in the future
to reach more bond investors and increase opportunities forcommunication.
We have also begun an initiative to upload to our website
new content designed for bond investors as part of our ongoing efforts to provide timely information tailored to theirneeds. In addition to these initiatives to enhance dialogue
with bond investors, we are strengthening engagementwith organizations that make ESG assessments widelyreferenced 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 our ESG initiatives.

My resolve as a new CFO
In participating in the process of crafting the image of what
the JT Group hopes to become over the long term, I hope to
set optimal financial targets, KPIs, resource allocation, investment discipline, and so forth, while further expanding andstrengthening the foundation for the Group’s sustainablegrowth over the mid to long term. I am aware of the need to
implement initiatives to raise our capital efficiency, and will036

In fiscal 2019 we began conferences specifically focused on
ESG, to have occasions to seek investor opinion, including
assessments of our Integrated Reports, and we continue toremain active in dialogue with investors, making the most of
the opportunities we have created. For individual investors,
we held an online briefing in May 2021 with about 1,200
participants.

begin discussions on that soon.
As I mentioned, I will work on sustainable funding for the
long-term future. Simultaneously, I will be working on implementing, and further improving, our short and mid-term
initiatives and necessary operations, while contributing toincreasing our stakeholder engagement.

Integrated Report 2021

037

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Message from the CSO“

 s the Group CSO, my wish is to embedAsustainability into the root of our management. I would like all our employees
to take actions that will lead us to thesustainable growth of our society andour business.

”

2021 Sustainability highlights by our CSO
We have outlined three basic requirements that apply across the whole Group, while each business has set out its
own focus areas. The following are some of our initiatives and progress in 2021.
Improving our environmental impact
In the updated JT Group Environment Plan 2030, our target is to achieve net zero greenhouse gas (GHG) emissions by 2050
throughout our value chain. We will continue to work on improving our environmental impact. Our GHG emission target has
been revised accordingly. Our initiatives are recognized by external parties. We were recognized by CDP, securing a place on its
prestigious ‘A List’ for tackling climate change and acting to protect water security for the third consecutive year.

Improving our social impact
We have long-term partnerships with local and international organizations, with around 400 community investment programsin 60 countries. These programs help communities to become more inclusive, sustainable, and resilient. In response to the
COVID-19 pandemic, precautionary measures were put in place, while we continued to provide opportunities for our employees to engage with their communities.

Hisato Imokawa
Senior Vice President, Chief Sustainability Officer

Respecting human rights
Our approach to human rights’ due diligence is collated and described in this report and is based on our Group Human Rights
Policy, our commitment to respecting human rights and our past and current initiatives. In 2021, we issued our first JT Group
Human Rights Report.

Where we stand
COVID-19 and geopolitical issues have triggered drasticchanges to our daily life and to our social environment.
As we continue to face challenges from the pandemic,
we should take initiative and act swiftly. Changes are also
seen within ESG, as ESG investment is gaining increasing

momentum. With both of these factors, we are enteringa period of transformation regarding how corporations
are managed. Some may take a pessimistic view of the
turbulent times, while others would see the changes asopportunities. Needless to say, the mindset of our Groupbelongs to the latter.

Sustainability of our GroupPursuing the JT Group’s 4S model is about pursuing thesustainability for a foundation as well as the universe where
we can exist and be utilized. Based on the 4S model, we
have a history of proactively transforming our Group andare equipped with the ability to transform. It is my belief
that disruptive environmental change is an arena where wecan show our true strength. Here in lies the essence of ourGroup’s sustainability.

My role as CSO and the challenges
The role of a CSO is to promote sustainability management
as a whole group, while anticipating where and how wewant to be in the future. I consider myself as part of an ecosystem with a very long-time axis. My role is to persistently
strive for new initiatives, to collaborate with a diverse rangeof partners, and to proactively embed a universal perspective in which we believe. In other words, the role of a CSO is
to look ahead to the year 2050, 2100 or even beyond, andto expand or to create the structures we need to enhance
our Group’s capability and assets, offering both financial andnon-financial value.

038

Japan Tobacco Inc.

2022 marks a year of significant transformation for our
tobacco business, our core business. It is also the starting
point of the transformation of the entire Group. As theGroup CSO, my wish is to embed sustainability into the rootof our management. I hope that all our employees will takeactions that will lead us to the sustainable growth of oursociety and our business, and I look forward to driving thischange together.

Investing in people
The effect of the COVID-19 pandemic persisted throughout 2021. We continued to find flexible ways to work, primarily throughremote working. We prioritized the safety and well-being of our employees and their families, by organizing or providing information about COVID-19 vaccinations. As reported in the previous report, we have set out a Group-wide target for representation of women in leadership and we continue to work on diversity initiatives.

GovernanceCorporate governance is one of the priority agendas for the JT Group and we work proactively to fulfill this requirement.
To ensure sustainable profit growth, we believe it is essential to further secure a strong commitment of the Group’s management. In this light, we are introducing an ESG-related index for director remuneration, starting from FY2022.

Business progress
Each business has set out focus areas with sustainability targets. In our tobacco business, we are reporting on the target progress for Reduced-Risk Products to reflect our resource allocation and focus on HTS (heated tobacco sticks). In leaf supply chain
management, Agricultural Labor Practices (ALP) remains our core program. Preparatory work is underway for the program to
be extended to additional sourcing countries.

We are also working to establish frameworks for pursuing sustainability initiatives.
Sustainability Advisory ForumIn order to discuss our sustainability issues and challenges, we have held regular Sustainability Advisory Forums since 2020.
CSO is the Chairman of the forum, and heads of the JT Group businesses and functions attend.

Materiality
Since we first set out our material issues, external circumstances and the business environment in which we operate havechanged. Bearing this in mind, we started to update the Group’s materiality in 2021. The new materiality will take into account the changes that our Group has gone through as well as current ESG issues. We will of course engage our stakeholders
throughout the process.

Integrated Report 2021

039

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Overview of tobacco business andits sustainability initiatives
Note: The word, consumers, used in the context of the tobacco business means adult consumers. Minimum legal age for smoking varies in accordance with the legislationin each country.

Eddy Pirard
Chief Executive Officer,
JT International S.A.

S tarting in 2022, post the combination of our two tobacco businesses, we embarked on a journeyguided by a unique strategic focus, under a single management team. By bringing together resources, talents and expertise, we are confident that we will enhance our competitiveness in numerous
areas, most notably in RRP (Reduced-Risk Products).

Tobacco industry overview
The tobacco industry includes different product categories.
While the best-known category is cigarettes, others include
FCT (Fine Cut Tobacco), cigars, pipe, oral and waterpipe
tobacco. In addition to these, there is a new category – RRP(Reduced-Risk Products) – which has been gaining popularity in recent years and encompasses different segments.
One RRP segment is HTP (Heated Tobacco Products), whichis growing in selected markets. HTP contain tobacco leaves
and generate a tobacco-enriched vapor by heating the
tobacco with no combustion. In general, HTP is regulated
and taxed as other tobacco products. In the HTP segment,
tobacco companies are focusing primarily on developing
HTS (heated tobacco sticks) through continuous innovation.
An additional product line-up in the HTP segment is Infused(infused tobacco capsules), a hybrid system which vaporizes
tobacco using indirect heating.
A second RRP segment is E-Vapor. E-Vapor products, whichheat a nicotine-based liquid instead of tobacco leaves, havereached a certain market presence in several countries.
Initially they were not regulated or taxed as tobacco040

Japan Tobacco Inc.

pandemic, including a return to industry volume growthin certain markets. Nonetheless, the tobacco industry
profit-generating model remains robust. Even amid thecurrent, challenging environment, we expect the industry
value to continue growing during Business Plan 2022,
mainly driven by a positive combustibles price/mix variance.
This divergence between industry value growth and volume
contraction is expected to continue. The RRP category,though smaller than combustibles, has been growing year
after year, and we expect this growth to continue, notably in
HTS. The largest RRP markets include the U.S., Japan, the U.K.,
Russia, Italy, China and South Korea. Importantly, and unlikein the combustibles category, the most successful RRP
segment can vary from one market to another, depending
on consumer preferences.
Excluding China National Tobacco Corp. (CNTC), the biggest
global players in the tobacco industry are the JT Group,
Philip Morris International, British American Tobacco, andImperial Brands. In addition to these four majors, key players

in the RRP category include JuuL Labs, a U.S. company specializing in E-Vapor products, and Swedish Match, a Swedishcompany focused primarily on oral products.
The JT Group’s tobacco business is ranked third in theworld (excluding China) by shipment volume. The Group
operates in over 70 markets while its products are sold inover 130 markets. It owns brands with strong equity as GFB(Global Flagship Brands), which satisfies a diverse worldwide
demand from adult consumers.
Following the global pandemic in 2020, the outlook forthe tobacco industry has become increasingly uncertain.
While the impact on consumer behavior will persist to someextent, we expect that COVID-19 will not have any material
impact in the mid term. We will continue to monitor changes in the business environment, as conditions differ frommarket to market, and some governments may raise taxes tofund fiscal spending in response to the pandemic.
* Based on 2021 data.

Tobacco business strategy
products, as they do not contain tobacco leaves. However,countries have started to make regulatory and/or tax changes to account for this relatively new RRP segment.
Another RRP segment is comprised of oral products, whichtake the form of small pouches to be inserted in the mouth
between the lip and the gum. Oral products can contain
tobacco, like snus, or not, like nicotine pouches. This segment has been growing in popularity, mainly in mature oral
tobacco markets such as Europe and the U.S.
The global combustibles industry volume totals theequivalent of 5.4 trillion units annually, representing a valueof roughly US$830 billion*. The largest cigarette market
is China, which accounts for over 40% of global volume,
followed by Indonesia, the U.S., Russia, Turkey, Germany
and Japan*. In China, there is a near-monopoly run by astate-owned enterprise covering product manufacturing,
distribution and sales.
Global combustibles industry volume* is declining,although we have seen some exceptional trends during the

In recent years, the tobacco industry has substantially evolved, driven by increased traction from RRP, as technology and product quality improvements generated higher consumer acceptance and adoption over past attempts to introduce productswith the potential to reduce the risks associated with smoking.

A clear and focused strategy
The JT Group believes that the RRP adoption trend willcontinue, as these products have potentially less risk for the
adult consumer. To address this evolving environment andensure sustainable growth in the mid to long term, the JT
Group has articulated a clear strategy for its tobacco business, prioritizing management resources towards HTS, thefastest-growing RRP segment, and combustibles, the largest,
most profitable category across the tobacco industry.
The combination of the JT Group’s tobacco businesses
into a single business segment will support this prioritization of resources, globalize the Group’s knowledge andexpertise, drive increased agility, and accelerate strategic
decision-making.

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 mid to long term.

Accelerating efforts in RRPThe RRP category is still to mature with each product segment being in different stages of development as consumer
acceptance varies from one market to another.
The JT Group expects HTS will offer the strongest growth
profile among existing product segments in RRP. In this context, the Group is prioritizing investments towards HTS andaccelerating efforts to increase share of segment. To increase

Integrated Report 2021

041

CORPORATE PROFILE

BUSINESS andSUSTAINABILITYVALUE CREATIONGOVERNANCE

FINANCIAL INFORMATION /OTHERS

Overview of tobacco business and its sustainability initiatives

our consumer base in HTS, we will invest approximately 300
billion yen between 2022 and 2024 including R&D, commercial expenses and capital expenditures. This is approximately
100 billion yen more than the investments made over thelast three years. Another investment area will address R&D
efforts towards next generation products, as we strongly
believe the RRP category will continue to expand beyond
the current product line-ups.

In addition, market prioritization will enable an emphasison driving returns while investment markets will focus ondelivering future growth in the combustibles category.

In July 2021, the JT Group launched Ploom X, its latest
heated tobacco device, in Japan. The initial consumer
feedback and reaction renewed 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 several international markets where HTS
appears to be a satisfactory alternative to combustibles
products.

Strengthening competitivenessThis effort will be complemented by focused investments inother product segments, as the JT Group believes success in
the RRP category is not limited to one single solution. These
additional segments, such as Infused, E-Vapor and oral, will
be considered exploratory opportunities in which the JT
Group aims to gain a better understanding of the dynamics
in each of these segments and collect relevant consumer
insights ahead of future growth.

The role of combustibles
Based on internal estimates, the combustibles industry
volume will continue to decline. However, combustibles
users will remain the largest cohort of consumers within theindustry for at least another decade.
In line with its 4S model, the JT Group intends to continue
satisfying the needs of these consumers, by exceeding their
expectations. To do so, resources will be allocated in priority
towards our GFB, with the intent of maximizing returns andsupporting the investments in RRP. Initiatives to support thisstrategy include GFB equity building, market prioritization,and investment markets.
GFB represent almost 70% of our global volume.
Consistently investing in the strengthening of the equityof Winston, Camel, MEVIUS and LD is key to increasing, orat least maintaining, the JT Group’s market share in the
combustibles category.

042

Japan Tobacco Inc.

These initiatives, combined with a solid pricing environment, will deliver quality top-line growth, sustainable profit
increase and cash generation to fund efforts in RRP.

As part of the Group’s continuous improvement efforts, weconstantly review our global supply chain and our market
operating models for efficiencies and better effectiveness.
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 portfolio simplification.

SWOT analysis of tobacco business

Strengths (Internal / Positive)



S

SWOT
ANALYSISW

Weaknesses (Internal / Negative)




O





Tobacco pricing model still intact, enabling
maximizing value creation from combustibles
Grow exposure to HTS segment
RRP category far from mature

Threats (External / Negative)

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 customer
expectations.
The JT Group also considers corporate initiatives like thesimplification of internal structures and the implementationof Global Business Service centers to better support markets,
the purpose of these moves being to continuously improvemargins, while maintaining quality, and to enhance cash
flow generation by optimizing working capital and capital
expenditures.

Limited RRP presence
New capabilities still in the making

Opportunities (External / Positive)TConsumers at the center of all we doPowerful and inspiring brands
Diverse and motivated workforce
Accelerating RRP investments

Tightening regulatory environment
Changing consumer preferences

Business Plan 2021 and its progress
Strategy in Business Plan 2021

Achievements in 2021

Concentrate our management resources on HTS andcombustibles

Japanese-domestic and international resources partially reallocated to HTS, our priority segment in RRP
Revised remuneration scheme to include RRP KPIs from 2022 onwards

Further strengthen RRP portfolio and digital strategies

Launched Ploom X in Japan, supported by digital campaigns
and new Ploom X CLUB portal

The Group believes that human resource development is
the key driver of sustainable profit growth in the tobacco
business.

Concentrate existing tobacco businesses into one tobacco
business

Combination effective from January 1, 2022
From blueprint to execution in only 18 months

With business operations in at least 70 markets and sales
in more than 130 markets, the JT Group’s global employee
workforce is very diverse, including over 100 nationalities.
As the Group believes that the quality of human resources
is the key to business activity and performance, it will
strengthen human resource development and enhance its
ability to attract, develop, and retain employees on a global
basis.

Strengthen competitiveness in Japanese market

Top-line and bottom-line strategies implemented, together withnew operating model

Building business foundations

In February 2021, we announced our Business Plan 2021,
together with our new strategy for the tobacco business.
Since then, both the Japanese-domestic and international
tobacco businesses have implemented a series of initiatives
in line with this plan.

In the Japanese-domestic business, Ploom X, our mostadvanced heated tobacco product, was launched in July,capturing 6.5% SoS in Q4. In combustibles, the continued
downtrading was addressed with greater focus on portfolio
management and new SKU launches.

In the international business, management focus in 2021
was on HTS and combustibles. Resources were partly reallocated to the HTS segment and new capabilities, as science,
R&D and digital were strengthened.

All these initiatives built a solid foundation to meet Business
Plan 2021 targets and generate sustainable profit growth in
the mid to long term.

Integrated Report 2021

043

CORPORATE PROFILE

BUSINESS andSUSTAINABILITYVALUE CREATIONFINANCIAL INFORMATION /OTHERS

GOVERNANCE

Overview of tobacco business and its sustainability initiatives

Performance over last five years

2021 performance and 2022 outlook

The combined international and Japanese-domestic tobacco businesses outperformed the industry volume over the last five
years through continued market share gains driven by GFB and acquisitions in important markets. This performance, together
with solid pricing and cost discipline, enabled the combined tobacco businesses to consistently grow currency-neutral core
revenue and adjusted operating profit.

Overview
2021 core revenue and AOP variance vs. PY
40
30

Total industry volume (BnU) *
3,200

2,993

10

2,944

2,847

600

+1.8%

2,857

2,400

450

1,600

73

150

2017

2018

2019

2020

0

2021

2017

Core revenue (JPY BN) *

520
582

569

2017


2018

International

Var at const FX

1,253

1,251

+7.7%

2019


182
187

168

1,482
1,251

2020

200

2021

Japanese-domestic

+5.6%

2

-3.6%

209

232

400

+1.9%

0



+7.9%

2018

International

Var at const FX

454

385

351

2017

2021

Japanese-domestic-11.0%

600

516

1,200

1,177



2020

+25.1%

+1.7%

-3.0%

1,800

600

International

2019

800

+13.3%

-0.6%

591

2018

460

436

Adjusted operating profit (JPY BN) *

2

2,400

+3.7%

446

428

398



0

79

85

93

0

67

300

800

0

Japanese-domestic

+8.9%

341

2019


341

2020

2021

Japanese-domestic+3.2%*1 Based on internal estimates and excluding China*2 The year-on-year variances are calculated based on the sum of the Japanese-domestic and the international tobacco businesses.

Japan Tobacco Inc.

80

+74

60

+43

40

+7.3%

+22.8%+10.6%

Core revenue

+8.6%
+0.8%
AOP

Core revenue

AOP

Our robust 2021 performance in both the international andJapanese-domestic tobacco businesses reflects the benefitsof our strong strategic focus and executional excellence,
despite COVID-19 continuing to impact the industry andconsumers globally.
The international tobacco business delivered industry-leading performance across all key indicators. Building on thecontinued strong market share momentum in its top-30
markets, and supported by a more resilient industry volume
in the first half, mainly due to lower illicit trade, total volume
grew to a historical record of 460 billion units.
These impressive volume gains, combined with strong
on-going pricing, resulted in solid top-line growth, and core
revenue growing 10.6% at constant FX. Adjusted operating
profit at constant currency also outperformed, setting arecord growth rate and marking the eleventh consecutive
year of double-digit increase.
In the Japanese-domestic tobacco business, both revenue
and profit increased for the first time in five years. The positive price/mix contribution exceeded the negative impact
from combustibles volume decline and the RRP revenue
growth further boosted the top-line. Adjusted operating
profit for the year was above guidance due to higher
revenue and reduced production costs, despite continued
investments in RRP.
These results would not have been possible without the commitment and dedication of our employees around the world.

044

2021 price/mix variance (JPY BN)

2

-1.8%
3,071

International *1+29.6%

20

Total shipment volume (BnU) *1

Price/Mix*1 Core revenue and adjusted operating profit (AOP) at constant FX*2 Contribution to core revenue growth at constant FX*3 Contribution to combustibles core revenue growth*4 Based on JTI’s top-30 markets (Cigarettes + FCT)

20
0International *2

Japanese-domestic *3

In the international tobacco business, we generated approximately 74 billion yen in favorable price/mix variance to core
revenue, an amount in line with the average of the previous
five years, with all clusters delivering positive contributions.
Pricing was driven by Russia, Spain, Taiwan, Turkey andthe U.K., along with many other markets, notably Canada,
Germany, Kazakhstan, the Philippines and Ukraine.
The Japanese-domestic tobacco business, following the
October 2020 retail price increase, registered a strong price/
mix variance of approximately 43 billion yen, which positively impacted core revenue.

Share of market
Share of market in combustibles
80
60
40

+1.7pp30.2%-0.7pp

59.8%

59.1%

31.9%

20
0

2020
2021
International *4

2020
2021
Japanese-domestic

In the international tobacco business, we accelerated our
growth momentum, delivering significant market sharegains by leveraging the strong equity of our brands, thehigh quality of our products, and the execution excellenceof our teams. As a result, we grew share 1.7 percentage
points to 31.9% across our top-30 markets, following a 1.4
percentage point increase in 2020.
In the Japanese-domestic tobacco business, while our market share declined in 2021 due to continued downtrading,we have implemented portfolio strategies to resume sharegains in the near-term.
Integrated Report 2021

045

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Overview of tobacco business and its sustainability initiatives

Key markets

GFB (Global Flagship Brands)
2021 marked another year of volume growth for GFB. These
flagship brands now exceed 350 billion sticks and represent
almost 70% of our global volume.
Winston volume grew 15 billion units across more than
60 markets globally, most notably in Iran, Italy, Poland andTurkey. The brand registered the highest ever combustibles
share in more than 30 markets around the globe, driven bymeaningful innovation.
Camel grew 18 billion units year on year in over 50 markets,primarily in Germany, Indonesia, Japan, Russia, Spain andTurkey. Among our top markets, Camel combustibles share
increased 1.0 percentage points to 5.8% in Japan, and 4.5
percentage points to 5.3% in Russia.
MEVIUS volume was down 3 billion units due to thedowntrading trend in Japan. Outside Japan, the brand grew
volume, despite the continued impact of travel restrictions
across Asia Pacific.

In 2022, we started to report three clusters: Asia, with Japan,
the Philippines and Taiwan as key markets; Western Europe,with Italy, Spain and the United Kingdom as key markets, andEMA*, with Romania, Russia and Turkey as key markets.
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 among consumers.

LD declined slightly due to industry volume contraction
in Ukraine, which was not offset by LD volume growth in
Jordan and Poland.
Going forward, we will continue strengthening the brandequity of our GFB to sustain their momentum across ourglobal footprint.

The 2022 forecasts represent the estimates for the JT Group’s
entire tobacco business.
Continued combustibles market share gains, amidst a
declining industry volume and the expected, unfavorable
comparison in the first half resulting from the gradual easingof COVID-19 restrictions, are expected to result in a total
volume contracting by approximately 3%, partially offset by
RRP volume growth.
While we expect solid combustibles price/mix contribution
to continue, as well as RRP-related revenue contribution,
core revenue is forecast to decline by 1% due to combustibles volume decline.
Adjusted operating profit is expected to increase by 4%,
at constant FX, mainly driven by combustibles pricing andbenefits generated by our initiatives to strengthen thecompetitiveness of the tobacco business.

046

Japan Tobacco Inc.

Combustibles
SoM 2021

Variance vs. PY

59.1%-0.7ppTaiwan48.1%+0.3ppPhilippines

36.7%+5.1ppRomania29.8%+0.7ppRussia39.8%+1.5ppTurkey27.7%+1.1pp

Italy

26.7%

+0.9pp

Spain

27.8%

+1.1ppUnited Kingdom

45.8%+0.8pp

Key market
Asia
Japan

EMA*

Western Europe

2022 outlook
Since January 2022, following the unification of our two
tobacco businesses, we started on a journey guided by aunique strategy, under a single management team, fullycommitted to deliver sustainable profit growth in the mid tolong term.

Except for Japan, we grew our share of combustibles market
in all key markets in 2021. The strong performance was driven
by GFB, as well as local brands in the Philippines and the U.K.

On March 10, 2022, we announced the suspension of all new
investments and marketing activities in Russia, including theplanned launch of our latest heated tobacco product, Ploom
X. We are deeply concerned by the developments in the war
in Ukraine, where many people are facing tragedy and devastation, and we sincerely hope peace will return soon. We
will continue to closely monitor the situation and prioritize
the safety of our employees and their families by extending
all possible support to affected people.

2022 guidance *
+4%

4
2
0

-4

-2%
-3%
VolumeGFBCore revenue

In 2021, total tobacco industry volume was down year on
year by 3%. In combustibles, volume decreased by 8% due
to growth of the RRP category, retail price increases andnatural decline.
RRP grew to account for 30% of the total tobacco industry in
2021, driven by pandemic-led changes in consumer behavior, as well as new HTP launches and marketing initiatives.
Our sales volume underperformed the industry due to consumers’ shift towards RRP and downtrading in combustibles.
In combustibles, given the current trends, we have strengthened our efforts to capture downtrading by developing thelower-priced MEVIUS S Slim line and E series. In addition, we
have positioned Camel in the value price range to capture
the outflow from cigarillos.
In RRP, we made steady progress with the launch of Ploom X
in July 2021, as described in further detail in the RRP section.

-1%

-2

Japan

AOP

* 2022 variance vs. prior year. Core revenue and adjusted operating profit (AOP) atconstant FX

In 2022, we forecast total tobacco industry volume to decline by approximately 4%, with the RRP category expected
to moderately expand.

RussiaIn 2021, industry volume declined by approximately 3%,
despite one of the largest excise tax increases experienced in
Russia. Lower illicit trade volumes, due to travel restrictions, andthe growing HTS segment partially offset the excise tax impact.
The pricing was robust, enabling the full pass-on of the excise
tax and fueling the growth of the industry‘s net sales year on
year. Although the value segment continued to expand, cigarettes remained affordable at an average price of US$2 per pack.
In this environment, our shipment volume increased by 5.1%,
and declined by only 0.2% when excluding inventory adjustments, clearly outperforming the rest of the industry.
Boosted by GFB, our combustibles share grew 1.5 percentage
points to 39.8%. Importantly, our total tobacco share increased
0.4 percentage points to 36.7%. As detailed in the RRP section,
Ploom continued to grow share and distribution coverage.

The U.K.
In 2021, we started the year on a very high comparative
base due to almost nine months of COVID-19-related disruptions in 2020. Industry volume had grown double-digit
while our own volume had outperformed, driven by strong
market share gains.
Twelve months later, our performance in the U.K. remained
impressive. Although industry volume continued to befavorably impacted by travel restrictions and reduced illicit
trade, we saw a gradual unwind of these catalysts in thesecond half of 2021.
Thanks to our well-balanced portfolio, Benson & Hedges incigarettes and Sterling in FCT strengthened their respective
positions, leading to a 0.8 percentage-point market share
increase, setting a record at 45.8%. Our share of retail value
also grew 0.8 percentage points.
In 2022, while we forecast a total tobacco industry decline
to low double digits due to factors such as higher non-U.K.duty-paid volume, we are confident that we can outperform
this situation, driven by the strong equity of our brands andoperational excellence.
* Eastern Europe, Middle East, Africa & Americas

Integrated Report 2021

047

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Overview of tobacco business and its sustainability initiatives

RRP (Reduced-Risk Products)
The RRP category is composed of several segments including HTS (heated tobacco sticks), Infused (infused tobacco
capsules), E-Vapor, and oral. As announced in February 2021,
the JT Group will prioritize the allocation of resources to
HTS, with the other segments viewed as exploratory opportunities for the time being.

2021 RRP performance
In Japan last July, we introduced Ploom X, our first HTP(heated tobacco products) born from a global development
effort. At the end of December, four-and-a-half months
after its nationwide rollout, the share of Ploom X in the HTS
category grew to 6.5%.
During the second half, we expanded the lineup of Ploom X
refills by introducing several new flavors under the MEVIUS
and Camel brands. In addition, we ran awareness campaigns, expanded device color and accessories offerings,
and leveraged Ploom shops to drive more trials.
In order to improve our communication with consumers
and further ascertain their preferences, we reinforced ourpresence in the digital channels with our new Ploom X CLUBportal. After less than six months since going live, 250,000
consumers were already members of Ploom X CLUB.
These initiatives resulted in Ploom X device sales in Japansurpassing 1 million units in December 2021, exceeding our
expectations.

At the end of December, Ploom X represented over 50% of
our RRP mix in Japan. Driven by Ploom X, our share of the
RRP category in Japan reached 11.8% in the last quarter.
In Russia, the HTS segment in 2021 represented approximately 9% of Russia’s total industry volume. The segment
continued to grow, albeit at a slightly slower pace than in
2020. Ploom also grew, reaching a 4.1% share of segment in
December, an increase of 1.5 percentage points comparedto the same period in the prior year, and within a highly
dynamic and competitive environment.
In addition, our Ploom distribution coverage in Russia has
tripled year on year to reach over 105,000 outlets, or around
60% of the total number of outlets.
Building on consumer insights and learnings from Japan,
we accelerated the introduction of improved HTS. The newsticks offer greater satisfaction to consumers in Italy, Russia
and the U.K., by bringing richer tastes and flavors.
In our exploratory RRP segments, we focused on important
markets. In E-Vapor, with our Logic brand, we prioritized
Ireland, Poland, the U.K. and the U.S. In nicotine pouches,
we prioritized Sweden, Switzerland and the U.K., leveraging
our Nordic Spirit brand. In Infused, we will keep focusing on
Japan with our pocket-size “Ploom TECH+ with” device. In
these segments, we will continue to improve our consumer
knowledge and ensure we have a winning business model
before committing extensive resources.

RRP outlook
We estimate that the HTS segment will represent 15% to
20% of total tobacco net revenues by the end of 2027,
confirming HTS as the biggest segment in the RRP category.
In February 2022, we announced our ambition to reachbreak-even in the RRP business by achieving an HTS segment share in the mid-teens across our key HTS markets by
the end of 2027. The potential implications on the 2027 ambitions, if any, of the decision to suspend new investments,
marketing activities and the launch of Ploom X in Russia areunder assessment.
To increase our consumer base in HTS, we will invest approximately 300 billion yen between 2022 and 2024, in R&D,
commercial expenses, and capital expenditures, among
other matters. This is approximately 100 billion yen more

¥

300BN

Investment in HTS over2022-2024

than the investments made over the last three years.
Through this accelerated investment, we plan to achievegeographic expansion, strengthen our product pipeline, andreinforce our strategic capabilities.
The HTS segment requires significant investments andachieving profitability takes time. In the short term, thebiggest investments will be in Ploom brand equity building,consumer acquisition and retention programs.
This high initial marketing investment will be optimized in
the mid term, paving the way to break even. Going forward,
we will continue to enhance our existing offerings, as well as
developing a robust product pipeline to keep acquiring new
adult consumers in the mid to long term.

Mid-teens

Share of segment goalin key HTS markets
by the end of 2027

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 encourage smoking or
using nicotine containing products among consumers.

048

Japan Tobacco Inc.

Integrated Report 2021

049

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Overview of tobacco business and its sustainability initiatives

Products & services (RRP)
Responsible innovation focusing on consumer choice has always been at the heart of what we do at the JT Group.
The growing global market for potentially RRP (Reduced-Risk Products) is a bold new frontier for delivering
exactly that. We believe that the direction the vaping products market takes will – and should – be driven by
consumers. It is up to us, the innovators in the tobacco industry, to listen to consumers and ensure their needs are
met with high-quality products.
We have committed to investing significantly in heated tobacco propositions to compete in the growing
global market of RRP. In the tobacco industry as a whole over the mid-term, we estimate the HTS segment will
represent 15-20%* of total revenues by the end of 2027. To make the most of future growth opportunities, wewill continue to explore non-combustible products such as E-Vapor and nicotine pouches.
*

Ploom X and the power of teamwork
Developed as a global initiative, Ploom X is designed todeliver the satisfying taste and elegant design that consumers are looking for.
To kick off this truly global project, our Product Designteam partnered with a design agency in the U.K. The technical configuration was then carried out by our R&D
teams in Japan, Germany, and Hong Kong. The products
are now manufactured in China, and quality assurance
takes place in Japan and Germany.
Ploom X features aesthetic and innovative design,

On a basis of revenue, excluding revenue in China

with a more intuitive user experience and no buttons on
its surface. This cutting-edge device is equipped with a
new heating technology, which focuses on air flow, significantly improving user experience.
A perfect example of “One Team” spirit, Ploom X is thefirst product we have ever developed remotely. Everyone
involved went the extra mile to make the project a success, in spite of the challenges of working across different
time zones during a pandemic. The result is a new starproduct that will help us to secure future growth.

Target in tobacco business: RRP

Reduced-Risk Products (RRP) offer real benefits to consumers and society. Our responsibility as a manufacturer
is to continuously develop and launch RRP that meet consumer expectations and to provide information on them.
We will lead in providing a range of consumer choice in
the RRP category.

KPI
progress

A consumer-centric approach
We take a consumer-centric approach to research anddevelopment, and focus on four major factors that motivate
consumers to consider RRP:The potential of reducing the risks associated with smoking
Affordability and value for money
Social considerations
Convenience of usage in a variety of locations andsituationsg

This approach to our RRP research and development
enables us to drive strong benefits for all of our key stakeholders: consumers, shareholders, employees, and the wider
society.

ggg

Our key heated tobacco product in 2021

JT Science: an online resource for all
JT Science is a valuable online resource for both scientists
and non-scientists. Our mission is to inform, educate, andcollaborate with anyone interested in learning about the science behind our products – from consumers and scientists
to the regulatory community.
We strive for an open, balanced, and fair environment where
factual scientific data and assessments are shared in atransparent way.

While there are currently no globally agreed standards forassessing the risk-reduction of the alternatives to combustible tobacco products, our team of scientists is developing
methods and applying them in research contributing to theincreasing scientific evidence on RRP. We will continue withthese studies and share progress updates on our science
website.

RRP supply chain

4Read more about our RRP portfolio at JT.com.

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. In addition to our in-house production capabilities, we source from manufacturers across Asia
and Europe.

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 among consumers.

050

Japan Tobacco Inc.

Integrated Report 2021

051

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Overview of tobacco business and its sustainability initiatives

Products & services (Responsible recycling
and disposal schemes)
We are constantly searching for ways to further reduce environmental impacts along our value chain (upstream
and downstream). We do this through improved product design and development, responsible procurement,
and efficient delivery of our products and services. Adopting innovative technologies and ways of working is
also essential. We will reduce the environmental impact of our products and packaging through:n

Design solutionsn

Facilitating responsible collection and disposalnConsumer awareness and education

Building a sustainable supply chain
Regulatory environment and illegal trade

Target in tobacco business: Product materials and packaging

We will reduce the environmental impact of our products
and packaging through design solutions, facilitating
responsible collection and disposal, and consumer awareness and education. More specifically, we will reduce our
packaging (including plastic) and ensure that the remaining 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.

KPI
progress

Ploom - Return scheme in Japan
In 2019, we collected used Ploom devices, capsules, and cartridges by introducing convenient collection boxes at around 300 shops selling Ploom inTokyo.
In 2020, this program was expanded to include the tobacco industry andwe continue to be one of the participating companies, and it was successfullylaunched throughout Japan in 2021.
Key achievements since 2020, were the introduction of around 1,200 collection points in 47 prefectures in total.

4Read more on responsible recycling and disposal schemes on JT.com.

052

Japan Tobacco Inc.

Integrated Report 2021

053

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Overview of tobacco business and its sustainability initiatives

Building sustainable supply chains
Maintaining a well-managed supply chain is essential for the sustainability of our business. To ensure the highest levels of sustainability and integrity at every stage, we work in close cooperation with all our suppliers. These
include both those from (a) the leaf supply chain and (b) suppliers of non-tobacco materials, other products andservices.

to produce a customized crop, while improving growers’
productivity, leaf quality and leaf integrity. The directcontracting model also allows us to maintain verifiable
provenance and traceability of leaf supply. At the sametime, contracting from third parties is essential to maintain aflexibility of leaf supply. Through our ALP program, we work
closely with these suppliers and support them in improving
labor practices on their farms.

Agricultural Labor Practices (ALP)

Leaf supply chain
We manage our leaf supply chain through a Supply Chain
Due Diligence (SCDD) process that takes into account social,environmental, and economic impacts. Since 2019, we havecommitted to specific targets tackling greenhouse gas

emissions, forestry, and Agricultural Labor Practices (ALP).
These targets are explained later in this section.
4Read more about our Leaf Supply Chain Due Diligence.

Target in tobacco business: Agricultural Labor Practices

We will implement our Agricultural Labor
Practices (ALP) program in all sourcing countries
by 2025.
Key progress in 2021
In 2021, the business intention was to implement ALP in two
more sourcing countries, Ethiopia and Bangladesh, as part of
ALP target. A great deal of time, effort, planning, and preparation was required to prepare the ALP roll-out in these new
regions. This included translating ALP documentation into
local languages and training local management, supervisors,and Agronomy Technicians. The team also tailored ALP observation criteria to the prioritized issues identified in thesecountry’s Supply Chain Impact Assessments (SCIAs).
ALP was successfully implemented in Bangladesh in
November 2021; unfortunately the program couldn’t be
implemented in Ethiopia due to a worsening geo-politicalsituation and security concerns in the country. Roll-out of
ALP in Ethiopia has been rescheduled to 2022.
Prior to implementing ALP in Bangladesh and Ethiopia, thelocal teams undertook detailed SCIAs in both countries with

054

Japan Tobacco Inc.

KPI
progress

Our ALP are based on the International Labour
Organization’s conventions and recommendations. The
program consists of three pillars: tackling child labor, respecting worker rights, and ensuring workplace health andsafety. As part of our approach to continuous improvement,
the ALP program allows us and our suppliers to identify
challenges on farms and improve growers’ labor practices.
Our Agronomy Technicians carry out observations on the
ground, and report through our online leaf portal. We
regularly review and act on these findings. We require ourthird-party leaf merchants to agree to the same ALP standards before we enter into a contractual agreement, and we
track ALP implementation reports yearly.

Sustainable Tobacco Program (STP)

the human rights consultancy, twentyfifty Ltd. This involved
two to three weeks conducting in-country interviews with
contracted growers, farm workers, and the broader growing
community. Once issues were identified, the local teams ran
a prioritization workshop to select the salient issues. Thesesalient issues then enabled them to select the most relevant
ALP observation criteria for those origins, rather than implementing with all possible observation criteria. This tailoredapproach was very effective.

Our international tobacco business is one of the five global
manufacturers on the Sustainable Tobacco Program (STP)
Steering Committee. Since 2019, we have been working
with third-party leaf merchants, external subject matter
experts, and various organizations on STP development.
One of the key themes of the STP is “Human and Labor
Rights.” We carried out pilot self-assessments on this subject
in 2020. Online self-assessments for the crop year 2021 alsobegan. Preparation for detailed in-country pilot assessments
is underway for 2022. As of June 2021, we have appointed
an external STP Secretariat to support the STP Steering
Committee in running the program.

Our approach to sourcing

Addressing child labor

We source tobacco through two supply models which
are either directly contracted growers or third-party leaf
merchants. These two models each supply approximately
50% of the total volume. In 2021, we worked with more than
59,236 directly contracted growers in Bangladesh, Brazil,
Ethiopia, Japan, Malawi, Serbia, Tanzania, Turkey, the U.S.,
and Zambia. Contracting leaf growers directly enables us

In 2020, we introduced a new governance model for
Achieving Reduction of Child Labor in Support of Education(ARISE), transferring ownership of the program to the representatives of subsidiary’s local offices in countries where wegrow our tobacco. These representatives are now responsible
for managing local partnerships, assessing projects, and implementing activities at a local level. These changes will allow

us to maximize efficiency, strengthen our relationship withgrowers, and harmonize the program with other relevant
community projects. Moving forward, we will embed the
ARISE program within the “Respond” element of our SCDD
process: Identify, Prioritize, Respond, Measure, Communicate
and Report. We will also integrate data requirements for childlabor into our existing leaf monitoring system, Leaf Point.
2021 was a year of transition for our flagship program ARISE
following the formal launch of our new ARISE model at the
beginning of the year.
Under the new model, the overall ARISE strategy remains
largely unchanged, as it has proven to be successful.
However, we now determine projects and project goals
based on local needs and challenges, and define Key
Performance Indicators (KPIs) accordingly.
The non-profit organization Winrock International continued
to implement the ARISE program during the first six monthsof the year, before our tobacco business took over the full
responsibility for identifying and implementing projects
during the second half of the year.
Unfortunately, due to COVID-19 related issues such as school
closures, we had to pause or adapt some of our programs in
2021, and delay some of the project deliverables. However,in spite of these challenges, our local teams successfullylaunched three new ARISE programs in Malawi, Tanzania, andZambia. Other locations are preparing to follow suit in 2022.
Moving forward, we will continue to expand this vitally
important program into countries where we have identified
a significant risk of child labor.
4Read more about the ARISE program.

Integrated Report 2021

055

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Overview of tobacco business and its sustainability initiatives

Optimizing the regulatory environment andtackling illegal trade
Our non-tobacco materials, other products and services‘Regulatory environment and tackling illegal trade’ is one of the four pillars of our tobacco business sustainability
strategy and a key focus area for us. We believe in fair and balanced regulation, which gives adults* the freedom to

We are just as committed to following social and environmental due diligence in our non-tobacco materials, otherproducts, and services supply chain. All of our suppliers are
required to comply with our Supplier Standards.

make informed choices, and we proactively engage in public policy debate. We also help governments to combat
the illegal trade of tobacco and tobacco products, which poses numerous challenges for society and our business,some of which have been exacerbated by the COVID-19 pandemic.

Target in tobacco business: Supplier screening

We will screen all key suppliers against environmental,social, and governance criteria by 2023.
Supplier screening
Our people, operations and supply chain stretches acrossthe entirety of the globe and we are keenly aware that ourbusiness doesn’t operate in a vacuum. We know that thesocial, ethical, and environmental footprint of our products
is also dependent upon our suppliers’ own actions.
Our Group-wide supplier screening process ensures that weapply enhanced due diligence. Prior to entering into a commercial relationship, our key suppliers* undergo a detailed
qualification and selection process, including screening
and onboarding. This process allows us to learn more about
the supplier and understand any gaps versus our standards
and requirements. In particular, it highlights any potential
risks relating to compliance, human rights, environment,
and health and safety. If any risks are identified through thisprocess, we offer support on how to mitigate the risks andmake necessary improvements. We follow progress on a
yearly basis and, if there is no improvement after an agreed
duration, we may consider terminating our relationship withthe supplier.
In 2020, we revised the JT Group Supplier Standards into
a global, Group-wide Supplier Standards, reflecting an increase in transactions with overseas suppliers. We have been
embedding these standards into all requests for proposals
and contracts, to ensure that all of our suppliers are aware of
our requirements.

KPI
progress

In our Japanese-domestic tobacco business, we screen key
suppliers using our supplier database, which lists companies
according to their D-U-N-S® Number**. In 2021, we built on
this process by reassessing the key suppliers identified as
high-risk in 2020. We also helped these suppliers to makethe necessary improvements.

Target in tobacco business: Engagement

New partnership with a leading sustainability
ratings company

Optimizing the regulatory environment

To structure and enhance our screening methodology,
our international tobacco business is now implementing
a new supplier information management system. We havealso partnered with a leading global sustainability ratingscompany to conduct individual sustainability performanceassessments of high-risk suppliers. This will help us to monitor environmental and social risks and enable transparent
and responsible practices across the supply chain.

We value and support the freedom for adults* to makeinformed choices. We play our part by being transparent
about our products, and ensuring that consumers are awareof the associated risks when deciding whether to use our
products or not. That is why we are transparent about our
positions on smoking and health.

* K ey supplier is defined as (a) suppliers with a planned or actual annual spendof more than 500,000 U.S. dollars or equivalent, (b) companies involved in
our Know Your Supplier (KYS) program, (c) third-party leaf merchants, (d)intermediaries or (e) contract manufacturing and licensees.
** The “D-U-N-S® Number” is a unique nine-digit identifier for businesses.
This number identifies a company as being unique from any other in the
Dun & Bradstreet Data Cloud.

We will always protect our ability to participate in public
policy debate with the aim to achieve balanced regulationthat meets societal concern and supports business growth.

We adhere to six core principles that define our attitude tosmoking. We also work in a highly regulated operating environment. We monitor trends in order to anticipate futurechanges in regulation and engage with authorities where
we see excessive or unworkable initiatives being proposed.
4 Read more about our views on specific regulatory topics on JTI.com.

KPI
progress

Developments in 2021
In 2021, we engaged openly and transparently in public
policy debate and made our views known to regulators,
NGOs, and other relevant stakeholders in the countries
where we operate. We responded on regulatory issues ofconcern to society and business, such as the reduction of
the impact of certain plastic products on the environmentand restrictions on characterizing flavors. We also participated in public discussions around good governance, anti-illegal trade, better regulation, transparency, and sustainability.
Publishing our external engagement principles was anotherimportant step.

Global Tobacco and Nicotine Forum 2021 (GTNF)
In 2021, we took part in the virtual Global Tobacco &nicotine products, and strategies to curtail the rise of ille-

Nicotine Forum. This international conference brought to-

gal networks.

gether the industry’s key stakeholders. We participated in

4Read more about our views on regulation and the latest regulatory
developments in the industry at JT.com.

panel discussions on risks emerging from the COVID-19
crisis, key causes of the illegal trade of tobacco and*056

Japan Tobacco Inc.

Minimum legal age for smoking varies in accordance with the legislation in each country. In Japan, smoking is not permitted for those under 20 years of age.

Integrated Report 2021

057

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Overview of tobacco business and its sustainability initiatives

Tackling illegal trade
Illegal trade fuels modern slavery, organized crime, andterror groups. It causes harm to society and consumers, as
uncontrolled products circumvent regulations and quality
controls, and undermines legitimate tobacco businesses.
That’s why tackling illegal trade is a top priority for us. Our
Anti-Illicit Trade team is recognized as the industry leader inthis area. This global team supports our long-term, sustainable future by protecting our business and reputation – aswell as our consumers and society – from criminal elements.

A responsible approach
Working in partnership with our markets and law enforcement, the Anti-Illicit Trade team secures our supply chain
and assists law enforcement in removing illegal tobacco
from the marketplace. It maintains a robust dialogue withgovernments and law enforcement agencies on the threatof illegal tobacco through public-private partnerships. The
team also provides counterfeit awareness programs for law
enforcement, globally.

Target in tobacco business: Illegal trade

We will engage in dialogue with law enforcement
agencies, with the goal to exchange intelligence
regarding illegal tobacco products, in order tosupport the reduction of illegal tobacco products.

KPI
progress

By tackling illegal trade, our tobacco business complies withapplicable laws and regulations while fulfilling its obligations
under the European Union Cooperation Agreement, signed
in 2007.
This means supplying tobacco products only in volumes
that correspond with the legitimate demand of the intended market of retail sale. Our international tobacco businesshas developed a global methodology to assist market
authorities in taking a consistent and accurate approach toannual legitimate market demand (LMD) calculations. Our
markets perform these in conjunction with their annual
plan. They create a proactive supply chain control mechanism to make sure that planned sales volumes are in linewith LMD, and ensure our compliance.
Compliance also means the implementation and operationof our Track and Trace program. This helps us to track the

movements of products along the supply chain, supporting
our supply chain analysis. The program has been an important element of our compliance policy for more than a decade – firstly as a self-regulation measure and later to meetlegal requirements in a growing number of jurisdictions.
As with all other regulations, we make every effort to comply with these obligations, while limiting any negative impact on our business operations. We also firmly believe thatthe fight against illicit trade can only be effective if measures
such as Track and Trace are implemented along with proper
enforcement by authorities and sanctions for those involved
in illegal trade. Governments must also implement further
measures to address products which will, by nature, escapethose obligations, such as counterfeits or illicit whites.** “Illicit whites” refer to tobacco products manufactured legitimately but
without any product flow control measures afterwards, and smuggled andsold in another market.

The perfect storm
The COVID-19 pandemic has blunted rather than extinguished the production and supply of illegal product. Some
decrease in supply and production was evident in morestrictly controlled economies during the pandemic. Westernmarkets in particular saw relatively little reduction in the
production and availability of illegal product. This is despite
criminal groups initially finding it difficult to source technicians and skilled workers to work on illegal production.
During the pandemic, heightened EU border controls
and regulations made it more difficult for criminals to bringillegal cigarettes to their markets of choice – usually thosewith high taxation policies, such as the U.K. and Ireland. By
moving illegal production and supply chains inside the EU,
criminals avoided border controls and reduced the risk of seizures or detection. More recently, with the lifting of COVID-19
related travel restrictions and opening of borders, the global
supply of illegal product has started to increase exponentially.
The resourcefulness of criminals is such that the flow ofProgress in 2021
In 2021, our Anti-Illicit Trade team provided 1,627 intelligence reports to law enforcement agencies, leading to theseizure of over 3.27 billion illegal cigarettes. Based on our information, law enforcement raided more than 53 counterfeit
tobacco factories and storage locations.
As a direct result of our work to tackle illegal trade, notified
seizures of counterfeit products in the EU have remained
consistently high over the past five years (over 98% of products seized are counterfeit). During the same period, notified
seizures of our own genuine products in the EU decreased
by 90%, thanks to our local teams’ efforts in securing our
supply chain, with the support of the global Anti-Illicit Tradeteam. This has been acknowledged by both Europol andmany law enforcement agencies. For example, the U.K.’s HM
Revenue and Customs recognized our international tobacco
business as an industry leader in the fight against illicit trade.

SwedenFinland
NorwayEstonia

1

LATVIA

Denmark
IrelandUnitedKingdom31

Lithuania

Belarus

NETHERLANDSPOLAND

Germany

BELGIUM

4

Czech
Republic

2

UkraineSLOVAKIAFranceSwitzerland

Italy

Austria1

1

Hungary

Moldova

ROMANIA

Croatia
SerbiaPortugal

SPAIN

Bulgaria

2

illegal product was still viable even when traditional sales
outlets were out of action. Technology was and still is increasingly being deployed to enable sales of illicit productto continue. This is a trend that’s likely to persist. With sales
opportunities unavailable during the pandemic, the online
world has become the environment of choice for criminals
to sell illegal tobacco products.
4Read more about our approach to tackling illegal trade, the impact of
COVID-19, and global trends at JTI.com.

GREECE

Other key wins in 2021n

Illegal tobacco factories raided by LEAs with JTI’s contribution (2020-2021)

Over 3.27 billion illegal cigarettes seized thanks to intelligence reports provided by our team to law enforcement.

n4 1% decrease in seizures of our genuine products resulting
from our efforts to ensure the security of our supply chain.
4Read more about how we tackle illegal trade on JT.com.

058

Japan Tobacco Inc.

Integrated Report 2021

059

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITYFINANCIAL INFORMATION /OTHERS

GOVERNANCE

Overview of pharmaceutical business andits sustainability initiatives

Pharmaceutical business basic strategy
The pharmaceutical business aims to contribute stable profits. Its basic strategy is to:n Focus on R&D investments towards next-generation products and out-licensing them at the optimal point in time; andn Maximize value of each product.

Muneaki Fujimoto

The pharmaceutical business focuses its R&D on these areas: Cardiovascular, Renal and Metabolism (CVRM); immunology; andneuroscience.

Senior Vice President,
President of Pharmaceutical BusinessBusiness Plan 2021 strategy and achievements
Strategy in Business Plan 2021

We are committed to creating innovative, original drugs to support patients in the shortest timepossible. We are proud to have received manufacturing and marketing approval in Japan for CORECTIM® Ointment 0.5% and 0.25% for an indication of atopic dermatitis, and ENAROY® Tablets 2mg·4mg
tablets for the treatment of anemia associated with chronic kidney disease. We have been making
steady progress in our R&D and aim to contribute to sustainable profit growth.

Business environment
SWOT analysis of pharmaceutical business

Focus on drug discovery capabilities• Focused on R&D areas where accumulated knowledge can be effectively utilized• Searched for drug targets with high therapeutic effects based on a deep understanding of biological phenomena and diseases• Developed platform of JT’s unique proprietary drug discovery technologies,
including AI drug discovery technology• Promoted open innovation with external research institutions such as academia

Develop compound pipeline• Commenced overseas clinical trial for JTT-861, a compound discovered by JT• Commenced phase-II clinical trial in Japan for JTE-451 as topical medication• Maximized product value–Received Japanese regulatory approval to add iron-deficiency anemia as new
indication for Riona® tablets and launched promotions–Received Japanese regulatory approval to manufacture and sell CORECTIM®
Ointment 0.5% and 0.25% (for pediatric atopic dermatitis)• For clinical development status of other drugs, please visit our website.

Enhance both in- and out-licensing
activities• Commenced phase III clinical trial in Japan for JTE-061 (tapinarof), in-licensed
from Dermavant Sciences GmbH. Tapirnof is jointly developed by JT and Torii
Pharmaceutical.

Worldwide pharmaceutical market*(USD BN)Strengths






S


SWOT

A N A L Y S I S

W

R&D specialization in small-molecule drug discovery
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
Maximal leveraging of intra-Group synergies through functional
specialization between JT (R&D) and consolidated subsidiary Torii
Pharmaceutical (domestic manufacturing and sales)

Weaknesses/Challenges

O

T



Expediting drug discovery process and developing proprietary drug
discovery technologies

Opportunities


Growth in pharmaceutical demand driven by societal aging in developed
countries as well as economic growth in developing countries

ThreatsPossibility of continual drug price reductions in domestic and overseas
markets amid global trend toward rationalization of drug costs
Increase in difficulty of new drug development and intensification of
its competition
Growth in generics and Rx-to-OTC switched drugs’* global market share

1,600

1,216.1
1,200 1,141.3 1,178.1

1,272.1 1,305.4

Achievements in 2021

800

Pharmaceutical business 2021 performance
400

0

2016

2017

2018

2019

* Copyright © 2022 IQVIA.
Calculated based on IQVIA World Review(Data Period, Year 2016-2020)
Reprinted with permission

2020

Revenue increased by 1.8% driven by top-line growth atour consolidated subsidiary, Torii Pharmaceutical, which
was partially offset by a decrease in overseas royalty
income. Torii Pharmaceutical reported its major growth insales of drugs for skin diseases and allergies, which led to its
top-line growth.
Adjusted operating profit decreased by 35.4% due to anincrease in R&D expenditures and SG&A expenses at Torii
Pharmaceutical.

Revenue and adjusted operating profit (JPY BN)
120

114.0
104.7
88.5

90

80.4

79.0

60

30

24.1

28.4
15.9

17.2

*Drugs previously available only by prescription that have been converted to OTC status

0060

Japan Tobacco Inc.

2017

2018

■ Revenue■ Adjusted operating profit

2019

2020

11.1
2021

Integrated Report 2021

061

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Overview of pharmaceutical business and its sustainability initiatives

Sustainability initiatives through business activities
Case study: Developing original drugs to save people from disease

Our sustainability strategy and focus areas

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
2021, we invested 29 billion yen in R&D. Our clinical development as of February 14, 2022, can be found here.

In the pharmaceutical business, we selected three focus areas and set five specific tar-

As a result of our initiatives, in Japan we launched ENAROY®
2mg·4mg tablets (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
CORECTIM® Ointment 0.25% for pediatric patients withatopic dermatitis in 2021.

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
Japan, we are currently conducting a phase-III clinical trial ininfant patients (under the age of 2) with atopic dermatitis.
The top-line results of the trial, which were released in 2021,
showed the CORECTIM® ointment’s effect in improving skineczema. The safety of the ointment within the treatment
period was also confirmed. Based on these results and otherclinical studies, we will aim to submit a manufacturing andmarketing application for delgocitinib ointment in Japan.
To enrich the lives of patients of all ages who are sufferingfrom diseases, and the lives of their families, we will continue to research and develop original drugs that can be usedsafely and with peace of mind.

gets for these focus areas in 2019 and have been reporting on progress every year.

KPI
progress

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

PeopleAspirational goal
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 ourpharmaceutical business activities are always carried out ina responsible and appropriate way. We provide e-learning

to help employees understand the importance of drug
safety and quality assurance. All of the employees in ourpharmaceutical business complete 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 goal
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 will continue
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.

062

Japan Tobacco Inc.

Integrated Report 2021

063

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITYFINANCIAL INFORMATION /OTHERS

GOVERNANCE

Overview of processed food business andits sustainability initiatives

Processed food business basic strategy

Hiromasa Furukawa
Senior Vice President,
Food Business

The processed food business comprises three businesses: frozen and ambient food, seasonings andbakery businesses. Our mission is to deliver safe, high-quality food to our consumers. We aim to contribute to the JT Group’s profit growth by continuing to optimize production operations, mainly in thefrozen and ambient food business, and by achieving high-quality top-line growth through such means
as increasing sales of our more profitable products.

Business environment
SWOT analysis of processed food business
Strengths


S

SWOT
ANALYSIS

Top-market-share* products and brands (Sanuki Udon, Gottsu-umai okonomiyaki)*Fuji Keizai Co., Ltd.
Foodstuff Marketing Handbook 2022: Vol. 2, 32020 results

W
O

T



Proprietary yeast, processing and freezing technologies

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

Weaknesses/Challenges


Lopsided sales mix by category



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






064

Japan Tobacco Inc.

Contraction in domestic demand due to societal aging and population
shrinkage; labor shortages due to working-age population shrinkage
Intensification of competition amid blurring of delineations between
distribution channels (retailers/takeout/restaurants, store/home delivery)

The processed foods 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 high-value-added products in response to changes in consumer preferences;
n increase profitability by optimizing production operations; andn minimize the impact of inflation in raw materials and logistics costs.
The processed food business operates three businesses. The frozen and ambient food business’s core products include frozenudon noodles, packaged cooked rice and okonomiyaki (Japanese savory pancakes); the seasoning business’s products include
yeast extract and oyster sauce; and the bakery business operates a chain of bakery outlets, mainly in the Tokyo Metropolitan area.

Business Plan 2021 strategy and achievements
Strategy in Business Plan 2021

Achievements in 2021

Build highly-profitable product portfolio

In the core frozen and ambient food business, we made steady progress in allocating
more resources to high-value-added/high-priced products, among other initiatives

Optimize production operations• Further increase TableMark
Group’s productivity

In addition to converting freezers to non-fluorocarbon refrigerants, we strengthened our production platform and increased productivity through such means as
relocating/consolidating production lines

Processed food business 2021 performance
Revenue is in a slight downtrend but remains in a long-term
growth trend in the core frozen food category. Adjusted
operating profit has been holding up fairly well, bolsteredlargely by product mix improvement and cost-cutting,
except in 2018, when raw material costs soared, and 2020,
when the pandemic erupted. However, the impact of laborand logistics cost inflation stemming from labor shortages
and the impact on raw material costs of international market
and exchange-rate movements still need to be monitored.
In 2021, revenue was down 1.4% year on year as a result of
two factors. First, demand for the frozen and ambient foodbusiness’s household products decreased relative to its
2020 level, which was transiently boosted by the pandemic.
Second, sales to the food service industry by the frozen andambient food and seasonings businesses also decreased.

Revenue and adjusted operating profit (JPY BN)
200

163.1

161.4

158.6

150

149.3

147.2

100

50

0

5.4

4.1

5.4

2017

2018

2019

■ Revenue■ Adjusted operating profit

(0.8)
2020

4.0
2021

Adjusted operating profit increased 4.7 billion yen year on
year, largely as a result of non-recurrence of an impairment
loss booked against the bakery business a year prior, and areduction in SG&A expenses.

Industry inflation driven by global food shortages; distribution cost
inflation due to labor shortages in logistics industry

Integrated Report 2021

065

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Overview of processed food business and its sustainability initiatives

Sustainability initiatives through business activities
Case study: Use of plastic film discontinued inside Gottu-umai okonomiyaki packaging, reducing annual plastic usage by 34t and CO2 emissions by 160t

Our sustainability strategy and focus areas

The processed food business’s sustainability strategy
designates “providing products and services that exceed
consumers’ expectations” as a priority. We aim to meet
consumer needs with products embodying a commitment
to quality and technology. Another priority is to build asustainable supply chain. We are endeavoring to reduce environmental and societal risks to ensure our supply chain’s
mid- to long-term sustainability. Based on such a mindset,
we are focused on developing environmentally conscientious products while meeting consumers’ needs.

targets for these focus areas in 2019 and have been reporting on progress every year.

4 Please visit our website for more on the processed food business’s sustainability strategy.

TableMark’s Gottsu-umai Okonomiyaki series has been
driving the frozen okonomiyaki market since its launch in
1999. Even today, it remains the top-selling product*1 in thefrozen okonomiyaki market.
Both numbers of frozen-food users and demand for moreconvenient food products are increasing against a societal
backdrop of growth in dual-breadwinner and single-occupant households, coupled with an increased frequency
of at-home meal preparation as spent more time at homeduring the pandemic.

Product packaging as of March 2022

The four Gottsu-umai Okonomiyaki products were previously covered with a sheet of plastic (polyethylene) film inside
the pouch in which they are sealed. We recently discontinued this practice, saving consumers the trouble of peelingit off before cooking. We expect the move to reduce ourplastic usage by some 34t and our CO2 emissions by roughly
160t*2 per year. Meanwhile, consumers will generate lesshousehold trash in addition to being able to enjoy delicious
okonomiyaki with less hassle.
Confident that such initiatives will lead to further growth in
the processed food business, we will continue to provide
safe products that consumers can enjoy with peace ofmind.
*1. Fuji Keizai Co., Ltd.
Foodstuff Marketing Handbook 2022: Vol. 2, 32020 results*2. Estimated using Ministry of the Environment’s 3R resource intensity calculation method based on the Gottsu-umai Okonomiyaki series’ actual plastic
film usage in 2020
4 See our website for more information on the JT Group Environment
Plan 2030.

In the processed food business, we selected three focus areas and set eight specific

KPI
progress

Four perspectives on food safety management
To deliver safe, high-quality processed food for consumers,
we have established four priorities to ensure that food safety
is deeply embedded within our operations. This helps us toensure that our business makes a positive impact on society
and the environment, today and in the future, by delivering
safe and sustainable food products.

Food safety standards
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 frozen
food products on our behalf are required to meet the foodsafety standard ISO 22000 or FSSC 22000, as an assuranceof food safety. We also work with multiple independent
advisors, who have helped to develop our approach to foodsafety since 2008. External expertise enables us to provide
our employees with a greater awareness of new developments and important topics in the field of food safety and/or quality control. In order to ensure food safety, we haveintroduced a system that records information about our
products at every stage of the process, from the raw materials and production to processing, distribution, and sales. Thismeans we can retrace our product to any point, if necessary.
*One of our factories, which started its operations in 2020, is on track to receive
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 wellthese guidelines are being implemented. We are working
on further utilization of factory cameras and enhancementof our drug management system both in our own factories
and our contracted factories.

Enhancing food quality
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 to
our consumers’ suggestions for improving product quality,
and swiftly share these with our factories and operations.

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.

066

Japan Tobacco Inc.

Integrated Report 2021

067

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Investing in people

Employee engagement
Our employees are assets to the Company: their skills and spirit are the driving force behind everything weachieve. At the JT Group, we are pleased to be an employer of choice. Our positive workplace culture and environment help us to attract, retain, and develop talented individuals. We are also taking further steps to create a diverse and inclusive culture where everyone can feel comfortable and be themselves.

We carry out an annual employee engagement survey ata regional or department level and a Group-wide survey
every three years. The feedback we receive from employees
helps us to understand our strengths, progress, and areas for
improvement. It also helps us to maintain our reputation asa top employer.
In our international tobacco business (JTI), we carry out
an employee engagement survey every year. In 2021, 89%

Diversity and inclusion

Target in tobacco business: Employer of choice

We will be a certified employer of choice every year
in at least 60 countries by focusing on talentmanagement, rewards, and empowerment.

KPI
progress

The JT Group human resources management philosophy
We believe that highly skilled and talented people form thefoundation of a company’s success and contribute to realsustainable growth. In light of this, the JT Group proactively
takes steps to secure long-term engagement and employee
satisfaction.

TREAT ALLEMPLOYEES FAIRLYAND RESPECTFULLYENSURE
TRANSPARENCY OF
RULES AND
STANDARDSPROVIDE ALL JT
GROUP EMPLOYEESWITH GROWTHOPPORTUNITIESWe have implemented various global and regional learning
programs. Many of our courses are offered online, enabling
employees to develop new skills even when working from

Establishing a diverse and inclusive workplace is a top priority for us, so that all our employees can enjoy their work andperform to the best of their abilities. We respect different
backgrounds and values, such as age, gender, self-identification, sexual orientation, disability, ethnicity, religion, and nationality, as well as experience and expertise. We believe thisbrings a rich mix of viewpoints and perspectives, which caninspire new ideas, lead to solutions to complex issues, anddrive our business forward. These efforts have also been recognized outside the company.

Race & Ethnicity

4Read more about our external recognition on P. 126.

Recognizing that different people have different working
styles and needs, we promote a flexible workplace environment that allows all employees to fulfill their potential. In July
2021, our international tobacco business launched its global
N-WOW policy, adopting a hybrid way of working that focuses on outcomes rather than time spent in the workplace.

Gender equality – women in leadership
One of our commitments is to promote gender equality inthe workplace. To further empower women, we hold workshops for top management and line managers, as well as
training and seminars for women employees. Our new
Group-wide target for women’s representation in leadershipis to reach 25% by 2030. We find it desirable that this should
be more than 40% over time.

LGBT+ inclusion

Developing and retaining talent
Today’s business environment is evolving rapidly, and
COVID-19 adds additional pressures. To attract, develop,
and retain the best talent, we need to remain flexible, forexample by adapting to remote ways of working.

home. We constantly invest in our employees, including at a
managerial level, to ensure they flourish in their careers.
We believe that engaged employees lead to long-term
employee retention, increased productivity, and improved
quality of work. The high level of employee engagement

Supporting our LGBT+ employees is vital for us to create amore equal JT Group, in which everyone is empowered tobe themselves and do their best. In 2021, JT and JTI cosigned the UN Standards of Conduct for Business Tackling
Discrimination against the LGBTI community.

across our Group helps us to minimize employee turnover.
4Read more about our Human Resources on JT.com.

068

Japan Tobacco Inc.

of eligible JTI employees took part in the survey. Overall,
employees reported being clear about our Company visionand how they are contributing to it, with 81% saying they
are confident in our leadership team. 87% also responded
favorably to the question “How happy are you working at
JTI?” (the main metric of employee engagement). The variations between different business units highlighted the needto develop tailor-made action plans with local relevance.

Our international tobacco business is committed to breaking down barriers and creating a safe environment which allows people of all races and ethnicities to thrive in the workplace, diversifying all levels of the business, including leadership. We are working with a group of volunteers who makeup embRACE, an employee resource group focused on raceand ethnicity.

New Ways of Working (N-WOW)

Wellbeing
In light of COVID-19, well-being has become more important and relevant than ever before. In 2020, we launched a
global well-being program to support the physical, mental,
emotional, and financial well-being of our people and thecommunities in which we operate.

MyGeneration
We value the diverse perspectives that each generation
brings to the workplace. Our vision is to support age-diverse
teams, creating optimum conditions for collaboration,knowledge exchange, and mutual respect. To support thismission, we created two MyGeneration working groups at
the headquarters of our international tobacco business in
2020.

Integrated Report 2021

069

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Investing in people

Health and safety
Our employees have the right to be protected from work-related injuries and illnesses. It is our responsibility to

Supporting employee well-being

provide them with a safe working environment and to promote a culture that prioritizes health and safety.
Our global health and safety mission reflects our vision of zero workplace injuries. We aim to provide leadership in the development and implementation of global standards and programs to properly manage and mitigate health and safety risks arising from our business activities. It’s also important to us to build awareness anddevelop a sustainable safety culture across the business.

We care deeply about employee well-being because we

In our Japanese operations, in addition to occupational safe-

want our employees to feel comfortable and motivatedty and health activities, we are building a comprehensive

every day. We run a variety of well-being programs acrosshealth support system under the leadership of our CEO. For

the Group, such as ergonomic assessments and ensuring

example, we have recruited on-site health staff at 11 key

general occupational hygiene.

locations across the country, to help employees take care of

To design these programs, we gather well-being data fromTarget in tobacco business: Zero injuries

In line with our vision of zero workplace injuries,
we will reduce injury rates by 25% by 2023 and 50%
by 2030. (Baseline year: 2015).

our local offices. In 2018, we expanded our data scope bySince the onset of COVID-19, we have continued to offer

introducing new rules requiring all local offices to report

employees one-to-one interviews with our health staff

their occupational health cases to our headquarters. This

via video calls. We also continued to run online programs

allows us to understand our global risks and develop a con-focusing on sleep, diet, and exercise.

sistent approach to them, while strengthening our existing
KPI
progress

protection measures.
Local managers are responsible for investigating reported
issues and identifying the causes. If the issues are attributed
to the work or workplace, we take appropriate measures

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.
nNothing 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. Business results must never conflict withsafety performance.
n

Safety is everyone’s responsibility	Everyone shares the responsibility for a safe and healthy
workplace, and we each have a role to play to make thisa reality.
n

We do the right thing	All our offices, sales operations, and factories shall always
comply with all national and local laws and regulations.

immediately to protect employees’ well-being and prevent
recurrences.
guidelines across our international tobacco business.
Considering the growing number of female employees, thepolicy also includes maternity protection for female drivers.
Focusing on driver behavior, the new guidelines require
local offices to conduct a risk assessment to identify highrisk 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 comply with 80% of our global guidelines on average.
In 2021, this figure increased to 85%.

We trained 1,380 employees in driver safety in 2020 and
2,361 in 2021. Due to the pandemic, some of the training
was carried out remotely (online driver risk assessment
and coaching sessions), but we also organized ‘on the road’
training for high-risk drivers, where possible. Our plan is totrain a further 4,000 drivers in 2022.

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 sixth year running. This award is presented by Japan’s Ministry of Economy, Trade, and Industry.
It recognizes large enterprises that are making outstanding
progress towards better well-being among their employees.

Our response to COVID-19
In 2020 and 2021, responding quickly and effectively to the

Vaccination program

COVID-19 pandemic was a priority. We have taken consid-

In 2021, at all 20 of our sites in Japan, we offered COVID-19
vaccinations to all JT Group employees and their families,
business partners, etc. In total, we vaccinated around 20,000
people.

erable measures to ensure the safety of all employees andtheir families, and all of our other stakeholders. The qualityof our response allowed us to maintain operations even at
the peak of the pandemic while reducing the impact on our

Driver safety training

their physical and mental health.

employees.

In our international operations, we also offered workplacevaccinations where possible, in line with local government
guidelines and regulations. We actively encouraged
employees to get vaccinated if possible, and produced an
employee information booklet about the vaccine.
By the end of 2021, 80% of JTI employees (over 36,000) had
been vaccinated: well above the average national vaccination rate in most locations. This is a significant achievement,
which highlights the success of our vaccination campaigns.

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, werolled out a new driver safety policy and implementation

070

Japan Tobacco Inc.

4Read more about our health and safety on JT.com.

Integrated Report 2021

071

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Three absolute requirements for sustainability
Respect for human rights
The JT Group’s three absolute requirements for sustainability

1. Respect for human rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P. 73
2. An improved social and environmental impact . . . . . . . . . . . . . . . . . . . . P. 75
3. Good governance and business standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . P. 88

Respecting human rights is one of the three absolute requirements that drive our sustainability strategy. 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. Our human rights strategy is based on five pillars; Embed, Identify and prioritize, Respond, Measure, andReport. This circular approach provides a systematic way of conducting ongoing due diligence and is in line with
the UN Guiding Principles, the OECD-FAO Guidance for Responsible Agricultural Supply Chains.

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

Making our ambitions a reality
We have committed to assess 100% of high-risk countries* by 2025.
In 2021, we assessed five new markets: Cambodia, Jordan,
Nigeria, Angola and Romania. In total, we completed 10
Human Rights Impact Assessments and 17 self-assessment
questionnaires across our entire value chain. We also
conducted one Supply Chain Impact Assessment (SCIA),
one Grower Livelihoods Assessment and used our leverage
to conduct a supplier human rights workshop. By the endof the year, 30 out of 67 (45%) high-risk countries had beenassessed.

2015
Countries

2021

45%
30

2025

67

Read more on ‘Human Rights Impact Assessments: key findings’ on JT.com
We believe this demonstrates our approach to prioritizing,
which involves considering where our greatest risks topeople lie. It also shows our willingness to go into countries
with histories of human rights allegations and assess theon-the-ground reality.
We will continue to prioritize countries based on a set ofrisk-based criteria; we are committed to assessing actual and
072

Japan Tobacco Inc.

potential human rights risks in at least six countries eachyear.
* In addition to the high-risk countries identified, we completed the assessment
in Japan, home to our HQ and many subsidiary companies, given its scale ofbusinesses; tobacco, pharmaceuticals, and processed food.
We also conducted the assessment in Switzerland (HQ of tobacco business),
China and Thailand (processed food).

Integrated Report 2021

073

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Three absolute requirements for sustainability

Respect for human rights

Improving our social impact

Key progress in 2021

For our Group to grow sustainably, it is vital for us to contribute to the sustainable development of society. Ourcommunity investment policy determines a common goal across the JT Group: “To contribute to the development

In 2021, we published our first standalone Human Rights
Report. This gave us the opportunity to look back on ourachievements, and recognize the path to take in our future
human rights journey. We also identified nine salient
human rights issues. These will be the core of our humanrights due diligence from now on. Other milestones

included upgrading our self-assessment questionnaire,and launching this tool in five new countries. Designed tofocus on the newly established salient issues, the updated
questionnaire also covers the response to new COVID-19
related guidelines and controls.

of inclusive and sustainable communities.” We believe that everyone should have the opportunity to participate insociety, and that inclusive societies are better for business. In line with our community investment policy, and as a
responsible local community member, we recognize the value of nature, society, and human diversity. This is why
we work with a wide range of stakeholders to resolve social issues.

Salient issues
In 2021, we identified nine salient issues:
n
n
n
n
n
n
n
n
n

Child labor
Environmental impacts
Fair wage
Forced labor
Harassment and gender impacts
Health and safety
Health risk
Non-discrimination and equality
Working hours

Identifying salient issues
To identify the salient human rights issues for the JT Group,
the assessment analyzed them for severity and likelihood,in line with the UN Guiding Principles. We identified the fullrange of human rights that could potentially be negatively
impacted by our activities, before prioritizing potential
negative impacts by severity and likelihood.

Assessing severity
The severity of human rights impacts was assessed by theirscale, scope, and irremediability. Based on this, we identified
the severity of each human rights issue with a scoring
system for risk mapping.

Assessing likelihood
After assessing the likelihood of human rights issues in the
JT Group, we analyzed our five key business categories: Leaf
sourcing, Processing, Manufacturing, Office, and Sales andMarketing, across 130+ countries. We also determined themagnitude of risk for operational categories in each country,
by quantifying each risk using environmental and social
country indices published by Verisk Maplecroft and country
indices published by international organizations.

Mapping riskThis mapping exercise was done for our three businesses;
tobacco, pharmaceuticals, and processed food. In the
consolidated map of those businesses, the issues of highseverity and high likelihood were finally identified as salientin the JT Group.

JT Group Target : Community investment

Between 2015 and 2030 we will invest US$600 million to
help make communities inclusive and resilient, with our
employees contributing 300,000 volunteering hours.

KPI
progress

Our focus areas
Through long-term partnerships with local and internationalorganizations, we have around 400 community investment
programs in 60 countries. Based on global and local needs,
these programs help communities to become more inclusive, sustainable, and resilient. We focus on three specificissues:
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., replanting trees
with the help of our employees.
In 2021, in spite of COVID-19 restrictions, we implemented
328 programs to reduce inequalities, 22 programs to improve community resilience, and 32 programs to protect theenvironment globally.

Measurement and management
To measure the social impact of our efforts, we use theBusiness for Societal Impact (B4SI)* Framework provided
by Corporate Citizenship. In 2021, we invested around 50
million U.S. dollars in corporate community investment incountries where we operate. We encourage more accurate

reporting and measurement to ensure all of our programs
deliver social impact according to our policy.
* B4SI is the global standard in measuring and managing a company’s social
impact.

Volunteering opportunities
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.
We actively encourage our employees to take part in074Japan Tobacco Inc.

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).
4Read more about our community investment activities on JT.com.

Integrated Report 2021

075

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Three absolute requirements for sustainability

Improving our environmental impact
Climate change and other environmental issues are of increasing societal concern. Our operations impact the environment through resource usage, emissions, and waste generation, as do most industries. The environment also hasa direct impact on 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.

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 Emissions,
Natural Resources, and Waste. The revised targets for GHG
emission reduction by 2030 are in line with science-based
thinking and the JT Group is currently preparing to obtainvalidation of its targets from the Science Based Targets
initiative. 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.

10 years of climate action

Achieving net zero in our entire value chain by 2050
We have now set new targets to help de-carbonise our business operations.
Objective

TargetJT Group will transition all of its energy use to zero carbon
energy by 2050.

We will increase the proportion of renewable electricity that we use to 50% by 2030 and 100% by 2050.

Emissions
JT Group will reduce its emissions and commits to be
Carbon Neutral for its own operations by 2030 andachieve Net-Zero Greenhouse Gas emissions across its
entire value chain by 2050.

076

Japan Tobacco Inc.

Addressing climate change is not new for JT Group; wehave achieved a lot during the last 10 years. However, we
recognize that there is much more to do. Our dedication to

Sustainable Tobacco Program 2.0. and
Sustainability Program Team launched;
Endorsement of TCFD recommendations;
Country-level CSA piloted;
Green Mobility Program launched;First Power Purchase Agreements;
Net-zero target established2015-2017

We commit to reduce absolute Scope 3 GHG emissions
associated with purchased goods and services by 28%
by 2030 from a 2019 base year.

disclosures and ratings agencies, such as CDP, to review
our approach and performance. We have been conducting climate scenario analysis since 2019, and we endorsed
the Task Force on Climate-related Financial Disclosures(TCFD) recommendations in 2020. Read the results of our
first round of analysis result on P. 78.

stronger science-based targets and to our net-zero commitment, provide a clear pathway for the years ahead.

2020-2021

We commit to reduce absolute Scope 1 & 2 GHG emissions by 47% in line with a 1.5 degree reduction pathway by 2030 from a 2019 base year.

Environmental management system and reporting
In our more complex operations, we align our approach toenvironmental management with internationallyrecognized standards – ISO 14001 and ISO 50001. In oursmaller and less complex operations in Japan, we have
implemented our own “JT Green System”. We use external

Ensuring a sustainable wood supply and further contributing to forest
conservation and rehabilitation are key objectives set out in the JT Group
Environment Plan 2030.
Our Agroforestry Programs address sustainable forestry, wood use, andmanagement. In Malawi and Zambia, we encourage growers to build ‘live
barns’ by planting trees that will form the main structure of a Burley curingbarn within three years. This helps conserve vital wood resources and reduces grower’s barn maintenance effort and costs. In Brazil, Tanzania, andZambia, where we contract growers that require wood as a fuel source forcuring, we promote best forestry practices, validated through dedicatedforestry R&D, to achieve 100% renewable wood supply by 2030.
We are using a remote-sensing, high-resolution satellite imagery monitoring platform to help us monitor the effectiveness of woodlots, to estimate wood production on small-scale farms, and to verify progress of forestry targets both for ourselves and our growers. Data are captured at fieldlevel by our Agronomy Technicians via the AgroMobility mobile application and then uploaded to the monitoring platform.

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

EnergyAgroforestry contributes to forest conservation

2014
First emissions
reductions JTG
global targets
launched

2010-2013
First JTG carbon footprint, firstreporting to Carbon Disclosure Project(later CDP), Scope 3 Materiality Matrix,
and JTI suppliers invited to respond to
CDP Supply Chain for first timeFirst LCAs, green tariffs andcertificates;
Energy Opportunities
Scheme and Renewable
Energy Task Teamestablished2018-2019
SBT validation and launch;
JTG Environment Plan 2030;
Group level Climate
Scenario Analysis
conducted

Integrated Report 2021

077

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Three absolute requirements for sustainability

Improving our environmental impact
Climate change
Climate change is the biggest environmental challenge facing society and our business. The effects of climate change,such as global warming and modified weather patterns, will have serious implications for our supply chain, given 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 operations. In February 2022, we committed to be carbon neutral for our own operations by 2030. We also
aim to achieve net-zero GHG emissions for our entire value chain by 2050. In support of this, we have set more ambitious 2030 science-based reduction targets, for which we will seek SBTi (Science-Based Targets initiative) validation.
We also aim to obtain validation for our longer-term net-zero target.

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

GovernancePhysical risk: leaf sourcing
Changes in environmental conditions for leaf growing
include the CO2 level in the atmosphere, as well as shifts
in the presence and prevalence of tobacco crop pests anddiseases related to climate change. Other factors include
water scarcity and higher-than-average temperatures andunusual precipitation pattern. All of these could impact the

We 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).

Climate-related issues are of strategic importance to our business. Through our business-wide
Enterprise Risk Management (ERM) process, we have identified climate-related risk as one of ourEnterprise Level Risks (ELR) for our tobacco business. This risk also needs to be considered in local
risk inventories and assessment processes. Board oversight is critical and climate-related issues
4Governance report

Transition risk: carbon pricing

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

Increased carbon tax may also increase procurement costsof tobacco leaf and other materials, and impact Company
expenditure in our direct operations. For example, a carbon
tax may be imposed on raw or secondary materials, or forservices used in each phase of the agricultural value chain

chain and address areas for improvement.

availability and quality of key natural resources for the JT
Group, including tobacco leaf. This could occur in one ormore of our tobacco sourcing countries. As a result, the costof sourcing tobacco leaf would increase.

ImpactDescription

and potential impacts on business strategy are discussed in quarterly Board-level meetings.

Strategy

Scenario analysis(e.g. agricultural chemicals, agricultural machineries, processing machineries, storage and distribution). As a result,
the JT Group will bear the additional costs and/or these willbe transferred onto the raw material price.

4Risk factors (P. 80)

Risk management

We consider climate-related risks and identify risk mitigation and management approaches
through our 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 criticalones.

ImpactOur Group Environment Plan 2030 includes absolute reduction of GHG emissions from our own
operations by 47% (2030 versus 2019). We have also set a longer-term GHG emission reduction

Metrics and targets

target, as well as targets for renewable electricity. These are backed by our Group-wide climate
scenario analysis.
4Read more about JT Group Environment Plan 2030 and Environmental data/External verification on JT.com.

078

Japan Tobacco Inc.

Mitigation planIn 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 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 new JT Group Environment Plan
2030.

Integrated Report 2021

079

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

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

Risk factors

1 L arge or repeated tax
increases

We identify and closely monitor risks that could affect ouroperations and implement measures to prevent themfrom materializing and mitigate their impacts in the eventthat they come to pass.

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

Risk description

The risks enumerated below are not all-inclusive. Other risks
exist that could affect our operations and/or financial results.
This following discussion of risk factors should be read together with “FORWARD-LOOKING STATEMENTS” at P.129.

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

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

lead to reduced consumption of, and/or increased illicit trade in,creases may have counterproductive consequences, such as growth in illicit trade

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

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

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

tions in our unit sales, revenue and/or profits.

and behavior

and improve cost efficiency. Most governments have adopted a reasonable approach to taxation, recognizing that large or• Strengthen and expand global operational platform and increase number of con-repeated tax increases may end up reducing tax revenues. In some instances, however, past tax increases have materiallysistently profitable markets to avoid overdependence on profits from aaffected 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

2 Growth in illicit trade

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 orga-

products and may lead to reductions in our unit sales, revenue and/authorities and law enforcement agencies

nized crime, and adverse health consequences due to poor production quality or inadequate post-production quality controls.

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

Together with the rest of the tobacco industry, we continue to endeavor to eradicate illicit trade, particularly cigarette smuggling

profits. Additionally, circulation of counterfeit products may under-• Educate consumers* on negative consequences of purchasing illegitimate prod-

and counterfeiting.

mine trust in legitimate products and, in turn, impair the value of

ucts

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

both the brand and brand owner for a number of reasons, including

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

the low quality of counterfeit products.

4For more details on activities to eradicate illicit trade, please see Tobacco Business: Regulatory environment and illegal trade (P. 57) 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 busi-

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

encourage reasonable, unbiased regulation that fulfills its intended objective

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

cause us to incur additional regulatory compliance costs under

4Please see Regulation and Key Laws (P. 84) for more details.

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

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

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

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. Ad-• Optimize 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-ditionally, markets in which we operate sometimes becomeand changing preferences/behavior, and by achieving strong brand positioning ining acquisitions of RJR Nabisco Inc.’s non-U.S. tobacco business and Gallaher Group Plc. As a result of such acquisitions, weembroiled in price competition due to events such as a brandevery price segmentcompete 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. Such

• Strengthen sales capabilities and conduct effective sales promotions

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

price competition may negatively impact our profit margins in• 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

individual markets.

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

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

consistently profitable markets to avoid overdependence on profits from a few
markets*Adult consumers. Minimum legal age for smoking varies in accordance with the legislation in each country.

080

Japan Tobacco Inc.

Integrated Report 2021

081

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Risk factors

Risk factors

5 Country risk

Risk description

Potential impact(s)Main measures to address risk

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 such

• Collect and monitor information related to country risk in markets in which we oper-

and organic growth in existing markets, mainly in our tobacco business. Such geographic expansion has been accompanied

events could disrupt our operations in the market in question. The

ate to maintain stable operations

by increased exposure to country risk. If political, economic or social turmoil were to occur in a market in which we operate,

disruption includes interruption in supply chains or distribution,• Strengthen and expand global operational platform and increase number of consistent-

our operations and/or financial results may be affected. As announced in 10th of March 2022, concerning the recent Rus-

damage to assets or facilities, or difficulties in staffing and sales

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

sia-Ukraine war, the Company suspended all new investments and marketing activities in the Russian market. In addition, as

management. This may lead to a decrease in our unit sales, revenue

announced in 28th of April 2022, given the challenging and unpredictable environment, the Company has continued to eval-and/or profits.

uate various options for the Russia business, including the potential transfer of ownership. Since the challenges of operating in
Russia at this time are unprecedented, the Company is unable to reasonably estimate the outlook and the impact on financial
results as of the issued date of Integrated Report 2021.

6 Currency 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, U.S. dollar andtobacco business’s financial results, the reporting currency for

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

Swiss franc. Changes in such foreign currencies’ exchange value against the yen affect our reported earnings. Additionally, inwhich is the U.S. dollar, are affected by changes in other currencies’ments 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 U.S. dollar. Subsidiaries’ transactions infinancial statements presented in U.S dollars. Its financial statement data are affected by changes in exchange rates between

currencies other than their respective reporting currencies are also

the U.S. dollar and other local currencies used by those foreign subsidiaries. We generally do not hedge risks stemming fromsubject 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 non-yen
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. In recent years, theGlobal pandemics could adversely affect our operations and/or• Implement various preventive/anti-pandemic measures, including proactively uti-

global spread of COVID-19 has triggered a global economic slowdown and wrought unprecedented changes in lifestyles. We

financial results through such occurrences as a global economic

lizing telecommuting and imposing stricter workplace hygiene controls, to prevent

must closely monitor the COVID-19 pandemic’s impact on our businesses, including mid to long-term consumption/demand

slowdown or lifestyle changes.

infections and keep employees and their families safe

trends. We are not currently experiencing any business disruptions due to the pandemic, but our financial results could be• Build stable supply chains from business continuity standpoint through such meansadversely affected in the event of renewed spread of COVID-19 or an outbreak of another pandemic.

as sourcing from multiple suppliers and maintaining safe production operations
through such means as stringent process hygiene controls

8 Unfavorable litigation
developments

Certain JT Group companies are being sued for damages due to smoking, marketing of tobacco products and exposure to

If a lawsuit is decided against us, we may be held liable for substantial• Establish internal and external coordination channels, swiftly ascertain information on

secondhand smoke. Lawsuits involving smoking-related health claims are pending against certain JT Group companies, in-damages, and/or incur other consequences, that could adversely

litigation and related matters and share it with management and concerned organi-cluding suits where we may be found to have indemnity obligations pursuant to the agreement under which we acquired RJR

affect our financial results. Additionally, critical media coverage ofzational units

Nabisco Inc.’s non-U.S. tobacco business. We cannot predict the outcome of any current or future lawsuits.

ongoing lawsuits against us could make the public less tolerant of• Continue to appropriately defend against litigation claims in coordination with exter-

Additionally, we may be sued on grounds other than smoking-related health claims. For example, we could be sued on a

our products and lead to stricter public regulation of smoking. Suchnal legal counsel

product liability claim in the event that a product-quality problem were to arise.

media coverage could also lead to subsequent lawsuits against us and

4Please see Litigation (P. 87) for more details.

additional litigation expenses.

9 Natural disasters

Our financial results could be adversely affected by earthquakes, typhoons, floods and/or other natural disasters’ consequences,

Natural disasters could disrupt not only our own operations but• Routinely gather and relay information related to crisis management on ongoing basis

potentially including employee casualties, supply shortages due to damage to suppliers’ facilities, disruptions in transportation,

also any of our value-chain partners’ operations. Such disruptions• Periodically review business continuity plans and revise them as warranted

distribution services and/or sales channels, power outages, water service interruptions, and reduced demand for our products.

could adversely affect our financial results.

• Conduct initiatives such as disaster preparedness drills and foster disaster-prepared-

To minimize natural disasters’ impact on our operations, we have adopted a Business Continuity Plan, the scope of which

ness mindset among employees

includes global supply-chain optimization.

10 Climate change

082Japan Tobacco Inc.

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 devel-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

op the capability to more accurately ascertain climate change’s potential impacts onwater-resource change and biodiversity loss. Such impacts’ potential consequences include supply chain disruptions andresults could be adversely affected by increases in operating expens-

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 grownes stemming from the transition to a decarbonized society.

• Strive to reduce greenhouse gas emissions to net zero across our value chain toor raised. Such consequences may adversely affect our products and/or financial results through deterioration in these inputs’

mitigate climate change’s impacts

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 decarbonized

ters, which may be exacerbated by climate change

society to mitigate climate change’s impacts, our profits may be reduced by increased operating expenses.

4Please see Improving Our Environmental Impact (P. 76) for more details.

Integrated Report 2021

083

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

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
and emissions, regulation of tobacco product disclosures,
regulation of tobacco products’ packaging and labeling, regulation of tobacco advertising, promotion and sponsorship)and measures to reduce the supply of tobacco products(e.g., measures to prevent illicit trade in tobacco products
and sales of tobacco products to minors*). The Japanese
government ratified the FCTC in June 2004.
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 and E-Vapor
products, and also included measures to address illicit
trade. EU-member countries have implemented regulations
associated with the revised EU TPD.

084

Japan Tobacco Inc.

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.
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 minors* from tobacco product ads, including online, and new restrictions on point-of-sale ad size anddisplay methods.
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

existing tobacco product regulations to RRP while others
have newly adopted separate regulations. The U.S., for example, banned the sale of certain flavored E-Vapor cartridges
in February 2020. With a global regulatory consensus yet
to take shape, regulatory treatment of RRP varies widely
among markets/countries.

Regulatory impacts on our operating performance
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 in which we operate, we also operate in accord with
our own Global Marketing Principles (GMPs), the principles
based on our recognition of the importance of responsibly
marketing tobacco products. Our GMPs include not marketing to minors* and not encouraging anyone, including
adults*, to start smoking or dissuading anyone from quitting. We believe that preventing minors* from smoking is an
issue that requires society-wide engagement. We are pursuing various initiatives to address this issue in coordination
with governments and concerned organizations in addition
to appropriately operating in accord with our GMPs.

Pharmaceutical businessPharmaceutical 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 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 isplanning to radically reform drug pricing. The planned
reforms include annual drug price revisions, paring-downof the list of drugs qualifying for premium pricing intended
to incentivize drug discovery and reduce off-label drug use,
and tiered reductions in long-listed drug prices based on
generic substitution rates.

Please visit JTI.co.jp (Japanese only) for more details.
*Minimum legal age for smoking varies in accordance with the legislation in eachcountry. In Japan, smoking is not permitted for those under 20 years of age.

Integrated Report 2021

085

CORPORATE PROFILE

Regulation and key laws

Processed food business
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 working to upgrade our safety management fromfour standpoints - food safety, food defense, food quality
and food communication - so that it can provide consumers
with safe, quality food products that they can enjoy withpeace of mind.

086

Japan Tobacco Inc.

VALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Litigation

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 ten 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’ non-U.S. business that it acquired
from Reynolds American Inc. group in January 2016.

There is ongoing litigation in the U.S. alleging healtheffects associated with E-Vapor use and harm caused toconsumers* by misleading representations and advertising
for which plaintiffs are seeking damages and/or demanding
health warnings 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 casehas been stayed by the court order. We believe that wehave valid grounds to defend this claim and intend to do sovigorously.
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” of our Consolidated
Financial Statements’ “Contingencies” note for major lawsuits to which some of JT’s subsidiaries or indemnitees are
named as defendants.
To date, JT Group have 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
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 concerning smoking and prompt the filing of anumber of similar lawsuits against the JT Group, forcing it
to bear litigation costs and materially affecting its businessperformance. Apart from smoking/vaping and health-related ones, the JT Group also may become the defendant infurther litigation. Should any problems arise on the Group’s
product quality, this may lead to claims seeking profit liability. Such litigation cases may negatively affect the Group’sbusiness performance or the manufacture, sale and importand export of its products, should the outcome of any suchclaims prove unfavorable.
*Adult consumers. Minimum legal age for smoking varies in accordance withthe legislation in each country.

Integrated Report 2021

087

GOVERNANCE
Enhancement of corporate governance is a key management priority for the JT Group as it continuallyworks to improve.
This chapter provides an overview and outlines our
initiatives to enhance Group governance, which supports all our business activities, setting out a framework for transparent, fair, timely and bold decision-making in pursuit of the 4S model.
Here, our Chairperson of the Board and Outside Directors explain details of board discussions and their work
to enhance governance.

090

Message from the Chairperson

092

Messages from Outside Directors

094

Corporate governance

102

Management structure108	Internal controls

088Japan Tobacco Inc.

Integrated Report 2021

089

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Message from the Chairperson“

 oing all we can to create a better future forD
the JT Group and our society as a whole”

Mutsuo Iwai
Chairperson

Revision of Shareholder Return Policy
For sustainable profit growth over the mid to long term,
Company policy balances profit growth with shareholder
returns, with highest investment priority placed on growthof the tobacco business. In order to fully embody this established principle and moreover demonstrate our resolve tobuild shareholder returns through profit growth, we on the

Board have revised our shareholder return policy. In discussion, we agreed that it is important to follow through on our
strategy to attain our mid-term goals for RRP and HTS, andpromptly show results that contribute to sustainable profit
growth.

Stronger corporate governance
I was elected to chair the Board of Directors of Japan
Tobacco Inc. effective from the beginning of fiscal 2022.
To keep building our corporate value, especially in anenvironment of constant, drastic change, it is vital that now,
more than ever, we take our decisions and actions to thenext level. Just as all our directors make the most of theirrespective skills and expert knowledge, I too will tap into myexperience as deputy chair up to fiscal 2021 and as a leader
in the Group’s tobacco and processed food businesses
for years before, and do my utmost to help cultivate ourcorporate value over the mid to long term.
In meetings of the Board in fiscal 2021, we discussed an ideal operating model for sustainable profit growth, businessstrategies to that end, and corporate governance practices
to help sustain them. We also considered ways to help makeour society more sustainable, an essential condition for ourown sustainable growth. Please let me now share some ofwhat came out of those discussions.

A stronger operating model for the tobacco business
As of January 2022, the Company has introduced a new
operating model that unifies our former Japanese-domestic
tobacco business and international tobacco business. The
Board of Directors approved this reorganization as a necessity for the Company’s mid- and long-term growth. Further,
our Outside Directors expressed strong support for it aswell, emphasizing that this will facilitate the evolution of theinitiatives we have been taking as a global company alongmore forward-looking lines.
At the same time, we made decisions on measures toreinforce our competitiveness in the domestic market,
including an early voluntary retirement program. The Boardof Directors instructed Executive Officers to communicate
the new measures to everyone in the Company in ways thatwill fuel motivation, assuring that employees affected by the
new measures, especially those retiring early, are fully provided with care, and emphasizing that the success or failureof the new operating model depends on the awareness andactions of not just the management team but of each andevery employee going forward.

2027 goals for RRP and HTS
While the Company will work to ensure sustainable growthon the strength of a unified tobacco business, it is important
to clearly show our road map for success. In February 2022,
we publicly announced the goals we aim to achieve by 2027.
Ahead of this announcement, the Board had received reports
090

Japan Tobacco Inc.

from executive officers on the status of RRP-related markets,
product development, customer response to our products, andbusiness risks. I understand that the tobacco business is steadily
implementing global initiatives, and I hope to see yet further
progress as we enhance investment under Business Plan 2022.

I believe that ensuring the Company can achieve sustainable mid- and long-term profit growth – while assuring
stakeholder interests and contributing, ultimately, to thedevelopment of our economy and society – necessitatesfurther reinforcing corporate governance. In this context,
the effectiveness of the Board of Directors, which is responsible for supervising all the Company’s businesses, is especially important. For that reason, we assess the effectivenessof the Board every year, and proactively work to address any
challenges revealed from the assessment results, so as tomake our corporate governance practices even better. An
Outside Director commented that the Company’s Board isalready far more effective than those of many companies,
and yet we will commit ourselves to facing the challenges
identified by our assessments and continue working to
improve.

We also place high value on our discussions with stakeholders, including those representing the capital markets, as well
as a range of monitoring results, and continually create opportunities to hear shareholder opinions through dialogue
about our ESG responsibilities. The suggestions we receive
through these initiatives lead to discussion by the Board
on how to improve. For example, in fiscal 2021 we decided
to revise our KPI related to executive remuneration so as
to encourage sharing with investors at a deeper level, andstrengthen our commitment to growth over the medium
and longer terms.
4For details about assessments of Board effectiveness and our initiatives for
improvement, see P. 96.
4For details about executive remuneration, see P. 98.

Building sustainability for our businesses and our society
Our businesses are rooted in interaction with the society inwhich we operate. This is why, for our sustainable growth,
it is essential to contribute to social development throughour business operations. Based on this understanding, theCompany has made it a standard practice to involve theBoard of Directors in the processes of setting sustainability
goals, discussing specific measures to achieve them, andmanaging their progress. I believe this has borne impressive
fruit, such as new targets for greenhouse-gas emissions, environmental goals concerning our products and packaging,and our target ratio for women in management, as well as
the JT Group’s recent first report on human rights, whichsummarizes our initiatives in this area, especially regarding
our tobacco business. The Group’s progressive initiatives
have met with resounding support from our Outside

Directors, and I myself feel confident about them as well.
At the same time, I recognize the strong interest the capital
markets are demonstrating in what the Company is working
to achieve over the long term and our strategies for success.
The Board maintains close contact with our Executive
Officers to ensure that any insights are applied to ouroperations.
In light of our changing environment, popular interest in thesustainability of our businesses as well as the society wherein they operate will only grow. The JT Board of Directors
will continue our utmost effort, through dialogue with our
stakeholders, to help build a better society in which theGroup can sustainably grow.
Integrated Report 2021

091

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Messages from Outside Directors

I will do my utmost to help JT win better understanding among our
stakeholders.

Main Kohda
Independent Outside Director

I have long held a very positive evaluationof the JT Group as an organizationthat is highly aware of its own need for
self-transformation. I particularly value its
commitment to carefully and comprehensively designing initiatives to enhance
its operating model and optimizing its
workforce with further growth in mind,
constantly challenging itself and neverbeing satisfied with the status quo. Underpandemic conditions these initiatives
have required decisions that are far moreconsequential than is normally the case,but I believe that they have been the rightdecisions for cultivating the mid- to longterm growth of the Group.

In terms of sustainability, the JT Group
maintains an ambitious approach relative
to the industry as a whole, and I expect
it will follow through on those initiatives
to steadily achieve the goals set out in its
sustainability strategy. As market interestin corporate ESG responsibilities rises, it
is essential for us to maintain good communication with investors to foster theirpositive evaluation of the Group’s efforts,based on the understanding that we seesustainability as an investment rather thana cost. I will do my best to facilitate theseendeavors.

In a drastically-changing international environment, I will contributeto the sustainable development of the unique businesses that comprise the JT Group.

Masato Kitera
Independent Outside Director

I am committed to supporting the JT Group to embrace the kind of organizational evolution demanded by frequent and unanticipated change.

Yukiko Nagashima
Independent Outside Director

092

Japan Tobacco Inc.

Currently, the JT Group is conducting
in-depth discussions regarding its purpose
and what it wants to become in the
future. Above and beyond the specificattributes of our vision, what I think isimportant in these kinds of discussions is
how its ethos is reflected in the ways weconduct our business, and whether all
employees have a sense of ownership inthat. Only with that accomplished, I think,will we truly become what we want tobe. While I understand that the Executive
Officers are already attending to this carefully, as a director, I want to help chart our
vision of the future as set out in the midterm Business Plan, incorporating eachbusiness and in sync with the purposes of
the Group.

It is also important for the Board of
Directors to pursue further discussion,from a long-term perspective, on such key
topics as what the Company aims to become. Concerning the assessment of theeffectiveness of the Board, I can confirm
that the necessary processes have been
well executed, and the results are being
fed back to the Board. Improving our
discussions from a long-term perspective
has been identified as a challenge for2022 and beyond. I will endeavor to help
enhance initiatives to support the Board incarrying forward, and improving, its work
for sustainable growth of the JT Group.

I vividly remember the days during mystay in Geneva, 20 years ago, when I
learned about JT’s global businesses
and ambitious M&A strategies. The
environment surrounding JT today is very
different. The global environment haschanged substantially just in the past few
years, with the pandemic and emerging
geopolitical risks. To win the understanding of investors and other stakeholders
under these circumstances, we must
effectively articulate our management
team’s directions for the Company, as wellas our determination to pursue them, inthe most supportive ways.

JT has adjusted its performance indicatorsfor executive remuneration to better
integrate its initiatives for mid- to longterm growth and to more thoroughlyshare our values with shareholders. This isnothing less than a strong commitment
from management. The recent inclusionof non-financial indicators is especially
positive, and we will ensure that ourassessment framework functions as intended and remains easy for stakeholders
to understand.

If everything seems under control, you’re not going fast enough.

Tetsuya Shoji
Independent Outside Director

I have only recently been selected as an
Outside Director of the JT Group, but I
understand that today’s capital market
expects JT to demonstrate how it willachieve and maintain sustainable growth
in a rapidly and radically changing
business environment. Originally a public
corporation, JT has evolved through manychanges, not least of which was privatization, to become what it is today – but
I believe that bolstering the confidenceof the capital market necessitates that it
continues to evolve and transform.
While working for Nippon Telegraph andTelephone, another formerly public corporation, I experienced major transformation
as well. The mindset I adopted to handle
that process is encapsulated by the quotefrom racing driver Mario Andretti above,
describing what I believe is an ideal mindset for facing change. Based on personal
experience, I believe that it is essential for
a company not to settle for the status quo,
but rather to constantly challenge it, or,
as I like to phrase it, “to advance, lead andmaintain an international perspective.”
It is vital to make a habit of continually
evolving and updating both ourselves
and our work. As a member of the Board,
I will work with the management team torise to the challenge of breaking free ofcomplacence, and fostering sustainablegrowth and development for the Group
as it continues to hone the high-quality
technology and innovative expertise it has
been cultivating for all these years.

Integrated Report 2021

093

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Corporate governanceCorporate governance structure

JT Group Compliance Committee and the Advisory Panel on
Nomination and Compensation, both established voluntarily. The former has outside experts serving in key roles; thelatter 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
General Meeting of Shareholders

Select/dismiss
members

Select/dismiss
members

Select/dismiss
members
Report results of
audit

Independent
AuditorBoard of Directors

Report10 directors(4 outside directors)

6 members(4 outside members)

ReportReport/propose

Oversee performance
Audit

JT Compliance Committee
Report/proposeCooperate

Audit & Supervisory
Board

5 members(3 outside members)

Audit & Supervisory
Board Members’
OfficeReportOperational
Review andBusiness
Assurance
Division

5 members(3 outside members)

President andChief Executive Officer

Internal
audit

Executive Officers
ReportDivisions
Group
audit

Subsidiaries

Legal and Compliance
Division

ReportInternal Director

Advisory Panel on Nomination
and Compensation

Internal Director and Executive Officer

Outside Director

Internal Auditor

Outside Auditor

Basic 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.

over the mid to long term, benefits our stakeholders and, inturn, helps to move the economy and society forward. We
believe that the Corporate Governance Code has high affinity with the 4S model, and fully comply with the principlesof the Corporate Governance Code, which has been revisedin June 2021 to include the principles of the Prime Market.
We will endeavor to continuously enhance our corporate
governance as a key management priority.

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

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 the094

Japan Tobacco Inc.

Board (hereinafter Directors).
We have built an effective corporate governance regime under the Audit & Supervisory Board’s oversight. It includes the

We continuously seek to improve corporate governance andincrease management transparency and objectivity through,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.

Board of Directors (met 13 times with 100% attendance rate in fiscal 2021)
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 inthe mid to long term in order to strengthen the 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 2021.

Advisory Panel on Nomination and Compensation (met 5 times with 100% attendance rate in fiscal 2021)
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 FY2022 term. In 2021, it met
to specify the skills required of the Board of Directors; discuss
the development of a skills matrix; review remunerationlevels; review executive candidates; deliberate on candidates
for the Board of Directors nominations; and review the key
performance indicators (KPIs) for the executive bonus andperformance share units for FY2022.

Audit & Supervisory Board (met 15 times with 100% attendance rate)
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 2021, theAudit & Supervisory Board discussed issues including auditing
policies and preparation of Audit Report.
Integrated Report 2021

095

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Corporate governanceEvaluation of effectiveness of the Board of Directors

Succession planning

We annually evaluate 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

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.

programs ; and hold regular discussions on identification of
the mid- to long-term challenges the candidates are facing
and the policies we provide 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. Our CEO participates
in meetings held to support the next generation executives.
In these meetings, participants discuss which candidates
receive support to become the next generation executives
based on several factors. The first factor is based on close
examination of whether they have an excellent mind ofownership, corresponding to a high sense of ethics, integrity
and a broad perspective. The second factor is based on
their qualifications in terms of their abilities to accomplish
achievements through our Group’s growth strategies as
an executive or executive officer. Other factors include
the consideration of objective, external evaluation andcompetitiveness in markets. We also formulate development
programs, which provide a variety of challenging businessexperiences; review statuses of development based on the

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.

Board operations

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 take advice from external
consultants in drafting the questionnaire and analyzing theresults in order to ensure objectivity and further improve theevaluation process.
The evaluation items are as follows.

Composition (ratio between inside and outside members; diversity), Performance (frequency; stringency of agendas; pre-meeting briefing), Support & Coordination (coordination among Directors,
Audit & Supervisory Board members and internal auditing department; utilization of committees;
information-sharing outside Board), Discussion (fair and swift decision-making in line with management principle; unrestricted discussion), etc.

Oversight function

Reporting methods on business operations, Risk management system, Increase in awareness ofcompliance, Process of determining executives’ remuneration, Succession planning, etc.

Dialogues with sharehold- Sharing opinions from shareholders and investors,
Optimization of dialogue methods, etc.
ers and investors
The Board effectiveness evaluation for 2020 yielded generally positive results across all evaluation items as continuingfrom 2019. It confirmed that the Board is functioning not
only effectively but increasingly so. On the other hand, theevaluation identified areas where further improvement iswarranted. The areas of improvement include ones related
to the Board’s operations to further enhance discussions,and ones to further increase information-sharing that could
contribute to in-depth discussions on corporate governanceand further enhancements of the quality of the Board’s
decision-making. In addition, the Board has incorporated
the ongoing impact of the COVID-19 pandemic on the
Company’s business and worked on making the following
improvements throughout 2021.
Effective and efficient operations of the Board of Directors
aimed to further enhance discussions– Continued to hold detailed pre-meeting briefings regarding material matters– Secured sufficient deliberation time by allocating appropriate time for each agendan

Key issues• Initiatives to further improve quality ofdeliberations and discussions• Enhancement of discussions from longterm perspective
096

Japan Tobacco Inc.

– Continued online Board meetings and improved themeeting operations
Further enhancement in discussions and information sharing for better-quality decision-making by the Board– Shared enriched information on the following matters:• Updates on material measures concerning mid- to longterm strategies• Updates on material measures and verification of theireffectiveness• Updates on corporate governance and its future policies• Updates on dialogues with shareholders and investors• COVID-19 pandemic’s impact, countermeasures,and updates on Group employees and each businessn

As with the previous year, the results of the Board’s evaluation on its effectiveness in 2021 provided generally positive
feedback and exhibited improvements in the categories
mentioned above. Even 2022 onwards, the Board will continue to pursue improvements required for the issues listed
below, in order to continuously enhance its effectiveness.

Our action plans going forward• Continued improvements in Board of Directors operations• Further expansion of opportunities to discuss mid- to long-term strategies, etc.
• Further expansion of progress reporting and information sharing on key measures, etc.

As one example, our JT-Next Leaders Program, launched in2013, aims to continuously cultivate young executives whowill spearhead the JT Group globally. It is open to employees in their 30s or younger, 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 aGroup-wide basis over multiple years. Through such programs, we are expanding our talent pool from the bottom
up age-wise as we continue to pursue reinforcement of ourhuman 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. Another motivation is for Torii toacquire increased competitive advantage in its businessthrough factors, such as credibility building and recruitmentof excellent human resources, both of which are importantin 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.

Integrated Report 2021

097

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITYFINANCIAL INFORMATION /OTHERS

GOVERNANCE

Corporate governance

Executive remuneration

Base salary
Respective shares*1
Payment method

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

Set 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 mid to long term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 with similar
sizes and profits that are expanding overseas. Specifically,
after benchmarking the level of base salaries for directors ofpeer companies, and the percentage of variable remuneration including annual bonuses and mid- to long-term incentives, the amount of remuneration for each Director is determined following various calculation methods stipulated ininternal regulations, based on deliberations at the Advisory
Panel on Nomination and Compensation, within the maximum amount approved at the Annual General Meeting.
Currently, the Board considers that the Representative
Director and President is most qualified to determine theamount of remuneration for each Director with having an
overview of the Company’s management and performanceas well as taking into account the evaluation on each
Director’s execution of duties. Based on this concept, theBoard delegates its determination to the Representative
Director and President. The Representative Director andPresident determines the amount of remuneration for each
Director including base salary, executive bonus, monetarycompensation claims for the allotment of restricted stock
remuneration and of performance share unit, based on various calculation methods stipulated in internal regulations,in accordance with deliberation at the Advisory Panel on
Nomination and Compensation. The Board concludes theRepresentative Director and President’s determination isaligned with the policies. In 2021, Masamichi Terabatake,the Representative Director and President, determined theamount 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”,
both of which are linked to the corporate value in the mid
to long term. The composition of executive remuneration is
as follows.

098

Japan Tobacco Inc.

Short-term incentive

Base salary
Approx. 33~42%

Executive bonus
Approx. 31~35%
Cash

The remuneration is composed of base salary, executive
bonus, restricted stock remuneration plan and performance
share unit plan (PSU), as shown by percentage terms in the
diagram below, assuming baseline amounts for executive
bonuses and PSU. This composition reflects that their role isto achieve performance targets through day-to-day operational execution.

SharesShares & cash*3*1 Respective shares of total remuneration vary depending on each director’s duty, as shown by the range in the diagram.
*2 The ratio of restricted stock remuneration to PSU is 3:1*3 50% of the total amount of PSU is paid in cash for tax payment budget*4 T he diagram above is based on the Company’s assumptive performance and share price. Respective shares fluctuate in accordance with the fluctuations of theperformance and share price.

Directors who do not serve as Executive Officers(excluding Outside Directors)
Directors who do not serve as Executive Officers (excluding
Outside Directors) receive remuneration that consists of
the “base salary” alone and excludes performance-linked
remuneration, as they are responsible for determining
group-wide management strategies to enhance corporate
value and for fulfilling their supervisory function: for example, monitoring the execution of mid- to long-term growthstrategies, 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 Nominations 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
Directors who also serve as Executive Officers

Mid- to long-term incentive
Restricted stock
PSU*2
remuneration*2
Approx. 25~33%

An executive bonus for Directors who also serve as
Executive Officers is paid as monetary remuneration reflecting the performance in the fiscal year. Adjusted operating
profit at constant FX and profit (attributable to the ownersof the parent company) are the key performance indicators(KPI), respectively weighted at 75% and 25% in calculating
the amounts of executive bonuses. Performance-linked
payout is based on the KPI achievement in the range of 0%
to 200%. In the event that we acknowledge that a Director
who is a recipient of a bonus has conducted wrongful

behavior, a part of the received bonus is subject to return to
the Company.
Starting from FY2022, we have decided to introduce core
revenue at constant FX, adjusted operating profit on areported basis and an RRP (Reduced-Risk Products)-related
index as new KPIs on top of its existing KPI. Core revenue
at constant FX, adjusted operating profit at constant FX,
adjusted operating profit on a reported basis, and profit are
the KPI, weighted at 15%, 35%, 25% and 25%, respectively.
Performance-linked payout is based on the KPI achievement
and is in the range of 0% to 190% with either -10%, 0% or+10% added/deducted to results depending on evaluationsof the RRP-related index.

Restricted Stock Remuneration Plan
The Restricted Stock Remuneration Plan is designed to further enhance shared value in the mid to long term 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 allocation of the Company’scommon share by paying all of the monetary compensation
claims in kind in accordance with the resolution of theIntegrated Report 2021

099

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITYFINANCIAL INFORMATION /OTHERS

GOVERNANCE

Corporate governance

Board of Directors (the allotment being made from treasury
shares). The Company enters into an agreement with theeligible directors with regards to the allotment of the shares.
Although the restriction period is thirty 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 allof the allotted shares that the eligible 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
during the restriction period, all or a part of the allottedshares 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, toenhance company value over the mid to long term and tocommit to achieving business results over the mid-term.
PSU offers monetary remuneration claims and cash to the
Directors who also serve as Executive Officers during thefirst 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 and monetary 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, we have decided to introduce an ESG-related
index on top of profit. Performance-linked payout is set
to be in the range of 0% to 200% based on the KPI (i.e.,
profit) achievement in both 2020 and 2021. In 2022, 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% is added/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.

KPIs for executive remuneration
From 2022 onwards, we have introduced new indices suchshareholders. With this revision, the ratio that performance on

as one on a reported basis and non-financial to design aa reported basis accounts for in the KPIs used to determine

more multifaceted system for assessing our performance.

executive bonuses, our short-term incentive, has increased

We aim to evaluate our initiatives conducive to mid- to long-to 50%.

PSU
KPI

Existing
Newly-

Introduced 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
In 2022, we adopted our progress on initiatives to realize net zero as ESG-related index,
specifically target attainment rates to reduce GHG emissions

±10%

added

Total amount of remuneration in 2021
Category
Directors (excluding Outside
Directors)
Audit & Supervisory Board
Members (excluding outside
members)
Outside Executives
Total

Newlyadded100

Base salary

Executive bonus

Restricted stock
remuneration

PSU

Numbers(persons)

1,405

482

549

191

183

6

83

83

—

—

—

2

133

133

—

—

—

7

1,621

698

549

191

183

15

Maximum amount of executive remuneration
The maximum total amount of executive remuneration
for all Directors is 1,100 million yen per year (of which 100
million yen is set for Outside Directors). This amount comprises base salary and executive bonus. The maximum total
amounts of restricted stock remuneration and PSU for the
Directors who also serve as Executive Officers are 210 million

yen per year (115,200 shares) and 130 million yen per year
(76,800 shares), respectively. The maximum total amount of
remuneration for the Audit & Supervisory members is 240
million yen per year for all of the members. These maximum
amounts are all approved at the Annual General Meetings.

37th Annual General Meeting on March 23, 2022
Internal Executives

Purpose/Details

Total amount

Who also serve as
Executive Officers

O

O

O
—

Who do not serve as
Executive Officers

Outside Executives

Ratio

Base salary

35%

Executive bonus

Within 1,100 million yen(100 million yen for Outside Directors)

O—

Restricted stock
remuneration

Within 210 million yen
Within 115,200 shares

O

—

—

PSU

Within 130 million yen
Within 76,800 shares

O

—

—

Total

Within 1,440 million yen

Adjusted operating
profit at constant FX

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

25%Core revenue atconstant FX

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

Adjusted operating
profit on reported
basis

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

25%

RRP-related index

Assess qualitatively implementation of strategies and attainment rate regarding RRP(Reduced-Risk Products), our focus area

±10%

Japan Tobacco Inc.

Total amount by component (JPY MM)

Total amount(JPY MM)

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 and PSU are categorized as non-monetary compensation.
4. The diagram above includes a Director who resigned on March 24, 2021.

Executive bonus

Existing

Ratio

Profitterm growth and further strengthen the shared value with

KPI

Purpose/Details

Integrated Report 2021

101

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERSManagement structure
Directors and Members of the Audit & Supervisory Board
Ten 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: 36,000

Shigeaki Okamoto
Deputy Chairperson of the
Board
Date of birth: February 20, 1961
Number of shares held: 0

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
Officer

April 1983	Entered the Ministry of Finance (hereinafter the Ministry)
July 2001	Head of Management Office, General
Coordination Division, Planning and Coordination Bureau, Financial Services Agency
July 2002	Director for Supervisory and Financial
Risk Stabilization Management, General
Coordination Division, Supervisory
Bureau, Financial Services Agency
July 2004	Director of Research Division, Budget
Bureau, 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(As of March 23, 2022)

January 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)
Significant Concurrent Positions Outside the Company
Outside Director, Benesse Holdings, Inc.
Outside Director, TDK Corporation

Kiyohide Hirowatari*
Representative Director andExecutive Vice President
Date of birth: November 11, 1965
Number of shares held: 47,700

Kazuhito Yamashita*
Director
Date of birth: February 4, 1963
Number of shares held: 33,100

Main Kohda
Director (Independent Outside Director)
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)
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 Office

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
Masamichi Terabatake*
Representative Director andPresident, Chief Executive
Officer
Date of birth: November 26, 1965
Number of shares held: 132,700

Naohiro Minami*
Representative Director andExecutive Vice President
Date of birth: January 21, 1964
Number of shares held: 48,300

102Japan Tobacco Inc.

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.

April 1986	Joined the Company
December 2005	Controller
July 2010	Deputy Chief Financial Officer; andController
June 2012	Senior Vice President; Chief Financial
Officer; and Controller
July 2012	Senior Vice President; and Chief Financial Officer
January 2018	Executive Vice President, Chief Financial
Officer and Communications

March 2018	Representative Director and Executive
Vice President, Chief Financial Officer
and Communications
January 2022	Representative Director and Executive
Vice President; Finance and Corporate
Communications (Current Position)
Significant Concurrent Positions Outside the Company
Supervisory Board Member, JT International Holding
B.V.

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

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

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; Head of Tobacco
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)

April 1986	Joined the Company
May 2007	Vice President, Corporate, Scientific & Regulatory Affairs Division, Tobacco Business
July 2009	Vice President, Corporate Affairs Division, Tobacco Business
June 2010	Senior Vice President; and Chief
Corporate, Scientific & Regulatory Affairs
Officer, Tobacco Business
January 2015	Senior Vice President; and Head of China
Division, Tobacco Business

January 2019	Senior Vice President, Compliance, Sustainability Management and General Affairs
March 2019	Member of the Board and Senior Vice
President, Compliance, Sustainability
Management and General Affairs
January 2022	Member of the Board and Senior Vice
President, Corporate Governance andCompliance (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. (Current Recruit
Holdings Co., Ltd.)
April 2006	Corporate Executive Officer, Recruit Co., Ltd.
January 2008	President and Representative Director,
Recruit Staffing Co., Ltd.
October 2012	Corporate Executive Officer, Recruit
Holdings Co., Ltd.
June 2016	Standing Audit & Supervisory Board
Member, Recruit Holdings Co., Ltd.
(Current Position)
April 2018	Standing Audit & Supervisory Board Member, Recruit Co., Ltd. (Current Position)

March 2019	Outside Director 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, the 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

Integrated Report 2021

103

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERSManagement structure

Five Audit & Supervisory Board Members (including three Outside Audit & Supervisory Board Members） (As of March 23, 2022)

Ryoko Nagata
Standing Audit & Supervisory
Board Member
Date of birth: July 14, 1963
Term of office: 4 years from March 2019
Number of shares held: 12,400

April 1987	Joined the Company
April 2001	Vice President, Products Division, FoodBusiness Division, Food Business
June 2008	Senior Vice President; Head of Beverage
Business Division; and Vice President,
Product Division, Food Business Division, Food Business
July 2008	Senior Vice President; and Head of
Beverage Business, Food Business
July 2010	Senior Vice President; and Head of
Beverage Business

June 2013	Senior Vice President, CSR
January 2018	Senior Vice President, Assistant to
President
March 2018	Standing Audit & Supervisory Board
Member of the Company (Current
Position)
June 2021	Outside Director, Honda Motor Co., Ltd.
(Current Position)
Significant Concurrent Positions Outside the Company
Outside Director, Honda Motor Co., Ltd.

Executive Officers
President
Masamichi Terabatake

Senior Vice Presidents
Kenji Ogura

Chief Executive Officer*

Corporate Affairs & Communications, Tobacco
Business, Japan

Executive Vice Presidents
Naohiro Minami
Finance and Corporate Communications

Kiyohide Hirowatari

Hiroshi Yamamoto
Standing Audit & Supervisory
Board Member
Date of birth: November 29, 1963
Term of office: 4 years from March 2019
Number of shares held: 2,600

Toru Mimura
Standing Audit & Supervisory
Board Member(Independent Outside Audit &Supervisory Board Member)
Date of birth: December 26, 1955
Term of office: 4 years from March 2019
Number of shares held: 0

Hiroshi Obayashi
Audit & Supervisory Board
Member (Independent
Outside Audit & Supervisory
Board Member)
Date of birth: June 17, 1947
Term of office: 4 years from March 2019
Number of shares held: 0

Koji Yoshikuni
Audit & Supervisory Board
Member (Independent
Outside Audit & Supervisory
Board Member)
Date of birth: September 7, 1952
Term of office: 4 years from March 2019
Number of shares held: 0

April 1987	Joined the Company
July 2008	Vice President, Non-Tobacco Material
Procurement Division, Tobacco Business
June 2012	Vice President, Operational Review andBusiness Assurance Division

March 2019	Standing Audit & Supervisory Board
Member of the Company (Current
Position)

Corporate, Sustainability Management, Pharmaceutical Business and Food Business

Senior Vice Presidents
Kazuhito Yamashita
Corporate Governance, Compliance

Junichi Fukuchi

April 1979	Entered the Ministry of FinanceJuly 2010	Deputy Director-General of the Planningand Coordination Bureau; Secretary-General of the Executive Bureau, Certified
Public Accountants; Auditing Oversight
Board, Financial Services Agency
July 2011	Director General, Kinki Local Finance
Bureau, the Ministry of Finance
January 2012	Deputy Director-General, Minister’s
Secretariat, the Ministry of Defense(hereinafter the Ministry)
September 2012	Director-General, Bureau of Personnel
and Education, the Ministry
July 2013	Director-General, National Institute for
Defense Studies, the Ministry

July 2014	Director-General, Bureau of Finance andEquipment, the Ministry
October 2015	Vice-Minister of Defense for International Affairs, the Ministry
September 2016	Chairman, Sompo Japan Nipponkoa
Research Institute Inc.
October 2017	Director, Eltes Co.,Ltd.
March 2018	Registered as Attorney at Law (Current
Position)
March 2019	Standing Outside Audit & Supervisory
Board Member of the Company (Current
Position)
Significant Concurrent Positions Outside the Company
Attorney at Law, Shiba International Law Offices

April 1970	Judicial Apprentice
April 1972	Appointed as Public Prosecutor
May 2001	Director-General of the Rehabilitation
Bureau, the Ministry of Justice (hereinafter the Ministry)
January 2002	Deputy Vice-Minister of Justice, the Ministry
June 2004	Director-General of the Criminal Affairs
Bureau, the Ministry
June 2006	Vice-Minister of Justice, the Ministry
July 2007	Superintending Prosecutor, Sapporo
High Public Prosecutors’ Office
July 2008	Superintending Prosecutor, Tokyo High
Public Prosecutors’ Office
June 2010	Prosecutor-General
March 2011	Registered as Attorney at Law (Current Position)
April 2011	Outside Audit & Supervisory Board
Member, Daiwa Securities Co., Ltd.
(Current Position)

June 2013	Outside Director, Mitsubishi Electric
Corporation (Current Position)
June 2014	Outside Audit & Supervisory Board
Member, Nippon Steel & Sumitomo
Metal Corporation (Current Nippon
Steel Corporation)
March 2015	Outside Audit & Supervisory Board Member of the Company (Current Position)
June 2020	Outside Director, Audit & Supervisory
Committee Member, Nippon SteelCorporation (Current position)
Significant Concurrent Positions Outside the Company
Attorney at Law, Obayashi Law OfficeOutside Audit & Supervisory Board Member, Daiwa
Securities Co. Ltd.
Outside Director, Mitsubishi Electric Corporation
Outside Director, Audit & Supervisory Committee
Member, Nippon Steel Corporation

April 1975	Joined Japan Broadcasting Corporation(hereinafter the Corporation)
June 2003	Director Responsible for Finance ofNews Department, the Corporation
June 2005	Executive Director, Yokohama Broadcasting Station, the Corporation
June 2007	Chief of Secretariat for Board of Governors, the Corporation
February 2010	Senior Director, the Corporation
April 2012	Executive Director, the Corporation

April 2017	Vice President and Professor, the Graduate School of Project Design	Auditor, Hosei University (Current
Position)
March 2019	Outside Audit & Supervisory Board
Member of the Company (Current
Position)
April 2019	President, the Graduate School ofInformation & Communication (Current
Position)(As of January 1, 2022)

Chigusa Ogawa

Hiromasa Furukawa
Food Business

Kei Nakano
Corporate Strategy

Leaf Procurement, Tobacco Business, Japan

Yasuhiro Nakajima
Head of RRP Japan Office, Tobacco Business,Japan

Shuichi Hirosue
Marketing, Tobacco Business, Japan

Akihiro Koyanagi
Manufacturing, Tobacco Business, Japan

Takehisa Shibayama
Information Technology

Hiroyuki Fukuda
Corporate Communications

Osamu Hirose
General Counsel

Hisato Imokawa
Chief Sustainability Officer

Chief Executive Officer, Tobacco Business, Japan

Daniel Torras

Yuki Maeda

Performance & Integration, Tobacco Business,Japan

Nobuya Kato

Muneaki Fujimoto

Yoshiyuki Mishima

Chief Financial Officer, Tobacco Business, Japan

Eiichi Kiyokawa
Sales, Tobacco Business, Japan

President, Pharmaceutical Business

Chief Financial Officer

People & Culture

Shigenori Ohkawa
Head of Central Pharmaceutical Research Institute, Pharmaceutical Business* Masamichi Terabatake concurrently serves as
President, Tobacco Business.

Members of JTI Executive Committee(As of April 1, 2022)

Eddy Pirard

Guergana Andreeva

Lucine Ovumyan

President and Chief Executive Officer

Senior Vice President, People & Culture andCorporate Security

Senior Vice President,
Corporate Affairs and Communications

Executive Vice President and Deputy CEO

John Fraser

Takehiko Tsutsui

Roland Kostantos

Senior Vice President, Legal & Regulatory Affairs,
and Chief Compliance Officer

Senior Vice President,
Reduced-Risk Products

Koji Shimayoshi

Chief Operating Officer

Vassilis Vovos
Senior Vice President, Finance & Sustainability,
Chief Financial Officer

Tom Greene
Senior Vice President,
Chief Digital and Information Officer, Global
Business Services* The members above report directly to Eddy Pirard,
President and Chief Executive Officer.

For reasons for appointment of the Directors, please refer to the Notice of Convocation of the 37th Ordinary General Meeting of Shareholders.
For reasons for appointment of the Audit & Supervisory Board members, please refer to the Notice of Convocation of the 34th Ordinary General Meeting of Shareholders.
We have established a set of independence criteria. For details, please refer to ‘JT Corporate Governance Policy’.

104

Japan Tobacco Inc.

Integrated Report 2021

105

CORPORATE PROFILE

BUSINESS andSUSTAINABILITYVALUE CREATIONGOVERNANCE

FINANCIAL INFORMATION /OTHERSManagement structure

The concept of skills necessary for the Directors
The JT Group aims to achieve sustainable profit growthand enhance corporate value over the mid to long term by
pursuing the 4S model, which is our management principle.
Based on our 4S model, our vision is to continue to bea growing global company that provides diverse value,unique to the JT Group.
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.
The Board includes at least one-third of Independent
Outside Directors with qualifications conducive to theCompany’s sustainable profit growth and corporate value
over the mid to long term, in order to strengthen the
supervisory functions and transparency of management.

Skills matrix for proposed Directors and Members of the Audit & Supervisory Board

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

nAreas in which skills are expected to be particularly effective
n

n

n

n

n

n

106

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

Japan Tobacco Inc.

nn

“ D&I/Organizational Behavior and Human Resource
Management,” one of our focus areas, being promoted sothat 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 themembers of the Audit & Supervisory Board to oversee
the job performance of the Directors, we are particularly
expecting members of the Audit & Supervisory Board todemonstrate their skills in the areas of “Corporate Finance,
Accounting and Capital Policy,” “Legal, Compliance and Risk
Management,” and “Corporate Governance.” At present, we
believe that the entire Audit & Supervisory Board has thenecessary skills.

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
NaohiroMinamiKiyohide
Hirowatari
Kazuhito
Yamashita
Main
Kohda
YukikoNagashima
MasatoKiteraTetsuya
Shoji

Representative Director●●

Representative Director●●

Representative Director

●

●
●

●

OutsideDirector●

IT/Information
Security

●

●
●

●

●

●
●

●

Ryoko
NagataAudit &
Supervisory
Board
Standing
Member●Hiroshi
Yamamoto

Audit &
Supervisory
Board
Standing
MemberToru
MimuraAudit &
Supervisory
Board
Standing
OutsideMemberHiroshi
Obayashi

Audit &
Supervisory
Board
OutsideMemberKoji
Yoshikuni

Audit &
Supervisory
Board
OutsideMember

●
●

●

●

●

●

●

●

●

●

●
●

●

●

●

●

●

●

●
●

●

●

●

●

●
●

●

●

●

●
●

●
●

OutsideDirector●●●

OutsideDirector

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

Director

OutsideDirector

Corporate
Legal,
Finance,CompliAccountance anding and
Risk ManCapitalagement
Policy

●

●
●

●

●

●

●

●

●

●

●

●

●

●

●

Integrated Report 2021

107

CORPORATE PROFILE

BUSINESS andSUSTAINABILITYVALUE CREATIONGOVERNANCE

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.

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

② 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 need to be monitored andreport them to the executive in charge of risk management. Based on such reports, the executive in chargeof risk management identifies Group-level material risks with the potential to inflict major losses in terms ofattainment 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 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.

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

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.
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 andReportDivisions in each business & corporate divisions

Group companies* Composed of 2 internal and 3 external members

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 2021, the JT Group Compliance Committee
met three times to discuss compliance promotion initiatives,among other matters. The outcomes of its discussions wereincorporated into the 2022 Compliance Action Plan.

We annually conduct a Group-wide questionnaire survey
to check the status of compliance practices in our Japanese
operations. In 2021, 96.6% 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)
Approve initiatives

4Please see Risk factors (P. 80) for more on risks facing the JT Group.

ComplianceJapan Tobacco Inc.

ReportCompliance Office
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.

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 other108

JT Group Compliance Committee*
Supervise/Advise

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 Directors① Identify risks

Compliance action plans

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 other

Integrated Report 2021

109

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

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
Global Quality Assurance in January 2022 as a new organization independent from the tobacco business’s markets andInternal auditing
other global operational functions. Global 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 the consumer’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 categories: Food Safety, Food Defense, Food
Quality and Food Communication.

110

Japan Tobacco Inc.

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
required IT risk mitigation measures, including access restrictions, anti-virus defenses, education, audits and monitoring.
We endeavor to appropriately manage and safeguard our IT
systems, data and other information assets. We are pursuing
initiatives to strengthen information security with respect
to both hardware and software. Hardware-wise, we continually test and improve our key IT systems’ security-related
technologies and operations. Software-wise, we globally

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.

conduct security-related educational activities to promote
proper handling of information assets by all employees. In
2021, 99.4% of JT and its Japanese Group companies’ employees attended security training programs. Additionally,
we designated effective information management as a 2021
compliance priority and provided user education in light of
information security’s growing importance in a remote work
environment. We are also conducting educational activities
in our international tobacco business, having rolled out ourinternally-developed i-secure program across all overseas
geographies. The i-secure program’s effectiveness isconstantly being measured by employee behavior metrics.
It has been instrumental in raising employees’ information
security consciousness.

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 mid-term 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.

Integrated Report 2021

111

FINANCIAL INFORMATION/OTHERSThis chapter provides financial information,
shareholder information and information pertaining to other aspects of the JT Group as its
business activities work in concert to create
value.

112

114

11-year consolidated financial data

116

Financial review

124

Glossary of terms

126

Awards and recognitions

128

Shareholder information and contact information

Japan Tobacco Inc.

Integrated Report 2021

113

CORPORATE PROFILE

BUSINESS andSUSTAINABILITYVALUE CREATIONGOVERNANCE

FINANCIAL INFORMATION /OTHERS

11-year consolidated financial data
Fiscal year-end
changedIFRS adopted(Millions of yen)

2011*1201220132014*2, *4

2015*4

2016

2017

2018

2019

2020

2021

Revenue

2,033,825

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

Cost of sales(892,034)(899,437)(979,975)(822,538)(920,056)(872,433)(843,558)(933,034)(942,299)(898,001)(956,861)

SG&A expenses(733,169)(733,486)(828,942)(752,559)(789,346)(754,115)(786,911)(770,407)(831,707)(784,472)(888,574)

Operating profit

459,180532,213648,260

499,880

565,229593,329

561,101

564,984

502,355

469,054

499,021

Profit attributable to owners of the parent company

320,882

343,596

427,987

362,919

485,691

421,695

392,409385,677

348,190

310,253

338,490

Adjusted EBITDA/Adjusted operating profit

577,132

621,977

641,777

588,684

626,657

586,777

585,300

595,463

515,927

486,952

610,434

Capital expenditures

118,992

137,450

156,158

112,448

129,751

112,998

140,905

159,808

131,434

112,883

100,882

Depreciation & amortization

118,845

116,462

132,921122,171

139,057

140,794

145,407

158,671

183,852

179,654

187,057

R&D expenses

51,461

56,862

57,10344,00857,79658,19360,60065,37764,07960,84765,016

Current assets

1,331,050

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

PP&E & intangible assets

925,984

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

Other non-current assets

1,409,973

1,618,292

1,961,965

1,886,793

1,745,675

2,033,579

2,288,935

2,390,076

2,383,724

2,254,570

2,389,925

Total assets

3,667,007

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

Current liabilities

1,157,474

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

794,906

847,168

764,842

722,106

770,790859,759

900,833

1,330,770

1,307,702

1,458,095

1,387,803

Total liabilities

1,952,380

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

Total equity

1,714,626

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

Dividends (yen)10,000*5

68

96

100

118

130

140

150

154

154

140

EPS (yen)

168.50181.07235.48199.67270.54235.47219.10215.31

195.97174.88190.76Equity (yen)858.09993.98

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

Net cash flows from operating activities

551,573466,608

396,496543,696

468,432

376,549

419,212461,389

540,410

519,833

598,909

Net cash flows from investing activities(103,805)(147,928)(163,473)(49,110)(63,271)(687,509)(352,632)(383,307)(123,571)

5,354(97,499)

Net cash flows from financing activities(279,064)(569,473)(145,189)(388,859)(254,852)

91,318(77,032)(62,360)(333,832)(297,404)(353,138)

Cash & cash equivalents at FY-end

404,740

142,713253,219

385,820526,765

294,157

285,486

282,063

357,158

538,844

721,731

ROE (%)

20.3

20.0

19.9

14.4

19.5

17.2

15.0

14.3

13.2

12.0

12.7

Debt equity ratio (Times)

0.31

0.18

0.15

0.09

0.10

0.23

0.27

0.38

0.37

0.38

0.33

Dividend payout ratio (%)

29.7

37.6

40.8

50.1

53.2

55.2

63.9

69.7

78.6

88.1

73.4

Ratio of equity attributable to owners of the parent
company to total asset (%)

44.56

46.89

54.27

53.92

53.78

51.77

52.89

48.17

47.95

46.88

48.65

Non-current liabilities*3*3Per-share data

Cash flow data

Financial metrics*6*1 Data predating adoption of IFRS were converted to IFRS-basis.
*2 FY2014 was nine months long (Jan.-Sep. 2014) because of a change in fiscal year-end from March to December.
*3 Above figures for FY2011 and FY2012 are adjusted EBITDA.
*4 In FY2015, 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 expense for FY2014 and FY2015 shown on this page are based on values for continuing operations.
*5 Since a 200-for-one share split was done, effective as of July 1, 2012 and the dividend per share calculated on the assumption that the share split was conducted at
the beginning of FY2011 (April 1, 2011) is 50 yen.
*6 In FY2015, 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%.

114

Japan Tobacco Inc.

Integrated Report 2021

115

CORPORATE PROFILE

BUSINESS andSUSTAINABILITYVALUE CREATIONFINANCIAL INFORMATION /OTHERS

GOVERNANCE

Financial review
Analysis of results for the year ended December 31, 2021

Revenue*1
2020(JPY BN)2,092.6

Profit*3
310.3

2020

+229.4

International tobacco(JPY BN)+30.0

Operating profit

Japanese-domestic tobacco+3.9

Financial income/Financial cost

Pharmaceutical+1.4

Income tax-24.2

Processed food

-2.1

Profit attributable tonon-controlling interests+0.1

Others-0.4

2021

Profit grew 9.1% year on year to 338.5 billion yen, driven
largely by operating profit growth and a reduction in financial
costs net of financial income.

+22.4

338.5

2,324.8

2021

Revenue grew 11.1% year on year to 2,324.8 billion yen, with revenue growth in the international tobacco, Japanese-domestic
tobacco and pharmaceutical businesses offsetting a revenue decline in the processed food business.

Adjusted operating profit and operating profit
by business segment

Revenue by business segment(JPY BN)

Revenue

Adjusted operating profit*2/Operating profit
2020 Adjusted operating profit(JPY BN)

487.0

International tobacco:
Business momentum (at constant FX)
International tobacco:
Local currency vs. USD FX effect+101.5+3.5+8.5

International tobacco: USD vs. JPY FX effect

2020

2021

2,092.6

2,324.8(JPY BN)
2020

2021

Consolidated: operating profit

469.1

499.0

555.6

559.4

Japanese-domestic tobacco

151.8

125.5

Core revenue*4

515.7

519.8

International tobacco

296.4

394.5

International tobacco

1,306.2

1,535.7

Pharmaceutical

16.5

11.3

Core revenue*5

1,250.8

1,482.1

Processed food

(0.8)

2.9

Pharmaceutical

79.0

80.4

5.1

(35.2)

Processed food

149.3

147.2

2.5

2.1

Japanese-domestic tobacco

OthersOthers/Elimination(17.9)(111.4)

Japanese-domestic tobacco(16.2)(56.9)

Adjustments, total*6

Japanese-domestic tobacco+14.4

International tobacco(44.4)(59.9)

Pharmaceutical-6.1

Pharmaceutical

(0.7)

0.2

Processed food

+4.7

Processed food

(0.0)

(1.0)

Others/Elimination

43.5

6.2

-3.1

Others610.4

2021 Adjusted operating profit-111.4

Adjustments total
2021 Operating profit

Average exchange rate

499.0

Adjusted operating profit (AOP) at constant FX increased 22.9% year on year, with profit growth in the international tobacco,
Japanese-domestic tobacco and processed food businesses offsetting a decline in the pharmaceutical business.

2020

2021

USD/JPY106.76109.90USD/RUB

72.07

73.66

USD/GBP

0.78

0.73

USD/EUR

0.88

0.85

487.0

610.4

Japanese-domestic tobacco

168.1

182.4

International tobacco

340.9

454.4

Pharmaceutical

17.2

11.1

Processed food

(0.8)

4.0

Others/Elimination(38.4)(41.4)

Consolidated: adjusted operating profit• Please see Business and its sustainability initiatives for an analysis of revenue,
core revenue and adjusted operating profit by business segment.

Including foreign-exchange effects, AOP increased 25.4% year on year to 610.4 billion yen, boosted by exchange rate movementsthat benefited the international tobacco business.
Operating profit grew 6.4% year on year to 499.0 billion yen as a net result of AOP growth offset by expenses related to initiatives
to strengthen the tobacco businesses’ competitiveness and non-recurrence of a year-earlier gain on the sale of real estate mainly
attributable to the former JT Building’s sale in conjunction with head-office relocation.

116

Japan Tobacco Inc.

*1 Excludes excise and other tobacco taxes and transactions in which the JT Group acts as an agent.
*2 Adjusted operating profit = operating profit + amortization of intangible assets recognized in conjunction with business acquisitions ± adjustments (income and expenses).**3 Profit attributable to owners of the parent company*4 Includes revenue from the domestic duty-free business, the China business, cigarillos and RRP but excludes the Japanese-domestic tobacco business’s revenue
from distribution of imported tobacco and certain other revenue.
*5 Includes waterpipe tobacco and RRP (Reduced-Risk Products) but excludes revenue from distribution, contract manufacturing and other peripheral businesses.
*6 Amortization of intangible assets recognized in conjunction with business acquisitions ± adjustments (income and expenses).**Adjustments (income and expenses) = goodwill impairment losses ± restructuring income/expenses, etc.

Integrated Report 2021

117

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Financial review

Consolidated statement of financial position (Assets)
December 31, 2020

(JPY BN)

5,381.4+182.9Cash and cash equivalents
Trade and other receivables+44.4

Inventory+23.4

Property, plant and equipment-3.4

Goodwill+151.6

Intangible assets-56.5

Other assets+50.4
5,774.2

December 31, 2021

Total assets ended 2021 at 5,774.2 billion yen, a year-on-year increase of 392.8 billion yen largely attributable to an increase in
cash and cash equivalents and an increase in goodwill’s yen-equivalent value due to favorable exchange rate movements.

Consolidated statement of financial position (Liabilities and Equity)
December 31, 2020

(JPY BN)

5,381.4

Trade and other payables+119.2

Bonds

-51.3

Borrowings+11.0

Income tax payables-15.7

Other liabilities+43.0

Retained earnings+80.1

Treasury shares+0.6+205.9Other equity total
December 31, 2021

5,774.2

Total liabilities ended 2021 at 2,888.1 billion yen, a year-on-year increase of 106.2 billion yen largely attributable to an increase intrade payables stemming from growth in the international tobacco business’s unit sales.
Total equity ended 2021 at 2,886.1 billion yen, a year-on-year increase of 286.6 billion yen. This increase resulted largely from anincrease in exchange differences on translation of foreign operations and growth in retained earnings due to recognition of profit
attributable to owners of the parent company, partially offset by dividends paid.

118

Japan Tobacco Inc.

1. Significant accounting policies
Having acquired RJR Nabisco Inc.’s non-U.S. tobacco business in 1999 and Gallaher Group Plc in the U.K. in 2007, theJT Group has been growing steadily as a global company
with operations in more than 70 markets and product sales
in more than 130 markets. Against such a backdrop, the JT
Group adopted IFRS from the fiscal year ended March 31,
2012, to improve the international comparability of its financial information in capital markets and to diversify its financing sources in international markets.
For further details of significant accounting policies, pleaserefer to 1.(1).F. Notes to Consolidated Financial Statements in
Financial Statements and Independent Auditor’s Report.

2. Non-GAAP financial measures
The JT Group discloses certain financial measures not defined under IFRS (non-GAAP financial measures) in addition
to the data reported in its consolidated financial statements.
In managing its operations, it uses these measures to better
ascertain its businesses’ performance in pursuit of sustained
mid- to long-term growth. It also considers these to be
useful information for financial statement users to assess theGroup’s performance.
The JT Group internally monitors its international tobacco
business’s performance on a U.S. dollar basis, the currency
in which the international tobacco business’s consolidated
financial statements are presented. It therefore supplementally discloses the international tobacco business’s revenue
and adjusted operating profit in U.S. dollars. These non-GAAP
financial measures should be treated as supplementary information, not as a substitute for the corresponding financial
data reported in accord with IFRS.

Core revenue
For the tobacco businesses, the JT Group additionally discloses core revenue as a revenue subtotal. Specifically, the international tobacco business’s core revenue excludes revenue from
distribution, contract manufacturing and other peripheralbusinesses but includes revenue from waterpipe tobacco and
RRP (Reduced-Risk Products). The Group additionally discloses
core revenue’s growth rate at constant FX on a U.S. dollar-basis. The Japanese-domestic tobacco business’s core revenue
includes revenue from the domestic duty-free business, theChina business, RRP and cigarillos but excludes revenue fromdomestic distribution of imported tobacco and certain othersources.
The JT Group makes accounting adjustments to the financial
statements of subsidiaries that operate in hyperinflationary
economies in accord with the requirements of IAS 29 “Financial Reporting in Hyperinflationary Economies.” However, theadjustments mandated by IAS 29 are not included in core
revenue at constant FX.

Adjusted operating profit
As useful comparative information on its operating performance, the JT Group discloses adjusted operating profit(AOP), calculated as operating profit plus amortization of
intangible assets recognized in conjunction with businessacquisitions, plus or minus certain other adjustments (income
and expenses). These other adjustments are mainly goodwill
impairment losses and restructuring income/expenses.
The JT Group additionally discloses AOP at constant FX for
the international tobacco business and the Group as a whole.
AOP at constant FX is calculated using year-earlier exchange
rates to exclude foreign exchange effects.
The JT Group makes accounting adjustments to the financial
statements of subsidiaries that operate in hyperinflationary
economies in accord with the requirements of IAS 29. However, the adjustments mandated by IAS 29 are not included in
AOP at constant FX.

3. 2021 consolidated financial results
Please refer to P. 116-117 for analysis of revenue, adjusted
operating profit, operating profit and profit attributable toowners of the parent company.
Please refer to P. 118 for analysis of assets, liabilities and equity.
Please refer to Business and its sustainability initiatives foranalysis of financial results by business segment.

Capital expenditures
Capital expenditures are investments in assets needed to upgrade productivity of factories or other facilities, strengthen
competitiveness and/or operate in various business domains.
Such assets include property, plant and equipment such as
land, buildings and structures, machinery and vehicles in
addition to intangible assets such as goodwill, trademarks
and software, excluding assets acquired through businesscombinations and right-of-use assets.

Integrated Report 2021

119

CORPORATE PROFILE

BUSINESS andSUSTAINABILITYVALUE CREATIONGOVERNANCE

FINANCIAL INFORMATION /OTHERS

Financial review

In 2021, the JT Group’s capital expenditures totaled 100.9
billion yen.

in particular as its core profit growth driver and will place top
priority on investing in the tobacco business’s sustained profit
growth.

Capital expenditure(JPY BN)
2020

2021

112.9

100.9

Japanese-domestic tobacco

21.1

20.0

International tobacco

66.6

62.5

Pharmaceutical

9.1

6.0

Processed food

8.0

10.7

Others

8.2

1.7

Total

Of this total, the Group invested 62.5 billion yen in the international tobacco business, mainly to expand, maintain andreplace production capacity, increase RRP production anddevelop new products. In the Japanese-domestic tobacco
business, it invested 20.0 billion yen, mainly to maintain andupgrade production processes, increase their productivity,
accommodate new products and improve product specifications. In the pharmaceutical business, it invested 6.0 billion
yen, mainly to build out and strengthen R&D programs. In theprocessed food business, it invested 10.7 billion yen, mainly
to expand, maintain and replace production capacity.
These capital expenditures were funded with cash on handand borrowings.

Capital expenditure plans
In allocating management resources on a mid- to long-termbasis, the JT Group prioritizes business investments conducive
to sustained mid- to long-term profit growth in accord with its
management principle. It has designated the tobacco business

The pharmaceutical and processed food businesses are committed to rebuilding their operational foundations to augment
the Group’s profit growth and will make whatever investments
are required to do so.
Based on such a policy, the JT Group has budgeted 131 billion
yen for capital expenditures in 2022.
The JT Group discloses capital expenditure plans disaggregated by business because the plans encompass a wide range of
projects being pursued by Group companies individually. The
Group’s actual capital expenditures may differ greatly from theestimates in the table below as a result of numerous factors,
including those disclosed in the Risk factors section above.

4. Dividends
The 2021 year-end dividend was 75 yen per share. For 2021
as a whole, annual dividends inclusive of the 65 yen per shareinterim dividend totaled 140 yen per share.
The 2021 year-end dividend will be recognized in the Company’s accounting records in 2022. Dividends reported in
the 2021 financial statements are accordingly the sum of the2020 year-end dividend (record date: December 31, 2020)
and 2021 interim dividend (record date: June 30, 2021). For
more details, please refer to 1.(1).F. Notes to Consolidated

Financial Statements in Financial Statements and Independent Auditor’s Report.

5. Capital management
The JT Group’s management principle is the pursuit of its 4Smodel: we strive to fulfill our responsibilities to our valued
consumers, shareholders, employees and the wider society,carefully considering the respective interests of these four
key stakeholder groups, and exceeding their expectations
wherever we can. The JT Group believes that sustained midto long-term profit growth based on this principle will drive
continuous growth in the JT Group’s corporate value over the
mid to long term to the common benefit of all stakeholders.
The JT Group’s financial policy is to maintain a solid financialbase that is both robust against exogenous changes suchas economic crises and affords sufficient flexibility to nimbly
capitalize on attractive investment opportunities. The JT
Group monitors financial metrics to maintain a capital structure that balances financial robustness, financial flexibility andreturn on capital. It monitors its credit ratings as a proxy for
financial robustness/flexibility and ROE as a proxy for returnon capital while keeping a close eye on changes in both theinternal and external environments. It also monitors net interest-bearing debt (interest-bearing debt minus cash and cash
equivalents) and equity (attributable to owners of the parent
company), the balances of which as of the last two reporting
dates were as follows.
Capital management(JPY BN)As of Dec.
31, 2020

As of Dec.
31, 2021

Interest-bearing debt

958.9

918.6

Cash and cash equivalents(538.8)(721.7)

Net interest-bearing debt

420.0

196.9

Capital (equity attributable to owners of
the parent company)

2,522.8

2,809.3

Capital expenditure plan
2022
(JPY BN)Tobacco

120

106.0

Share buybacks
Main purpose of investment

Funding

Invest in RRP and maintain/renovate/replace production facilities

Internally funded

Pharmaceutical

3.0

Build out and strengthen R&D programs

Internally funded

Processed food

12.5

Expand/maintain/replace production capacity, upgrade productivity

Internally fundedJapan Tobacco Inc.

The Company holds 225,475,301 of its own shares (11.27% of
total shares issued) as treasury stock as of December 31, 2021.
Share repurchases require cash outlays. To enable opportunistic share repurchases, JT amended its Articles of Incorporation at its June 24, 2004, Ordinary General Meeting of
Shareholders to allow its Board of Directors to authorize sharebuybacks. JT may hold repurchased shares as treasury stockor use them for other purposes. Share repurchases give JT’s

management greater optionality to conduct capital management as fast and flexibly as needed in a rapidly changing
operating environment.

6. Financial activities
The Group Treasury Division formulates financial strategies
based on optimal financial risk management and provides
stable and efficient financial support on a Group-wide basis.
The Group is exposed to various financial risks (credit risk,
liquidity risk, currency risk, interest rate risk, market risk) in thecourse of its operations. To avert or mitigate these risks, theGroup manages risk pursuant to a set of policies. The Company’s CEO and Board of Directors are updated regularly on how
major financial risks are being managed. For more details on
financial risk management, please refer to 1.(1).F. Notes toConsolidated Financial Statements in Financial Statements
and Independent Auditor’s Report.

Intra-group cash management
To maximize its overall cash efficiency, the JT Group places
priority on intra-Group financing, mainly via a cash management system, to the extent legally permissible and economically rational.

External funding
The JT Group’s basic policy is to fund its short-term working
capital needs through short-term borrowings from financial
institutions, commercial paper or a combination of both.
The Group funds mid- to long-term investments throughborrowings from financial institutions, bond issuance, equity
or a combination thereof. It maintains diversification acrossfunding instruments and lenders, including by prearranging
multiple committed credit lines, to ensure stable and efficient
access to funding. The Company’s CEO and Board of Directors
are updated regularly on funding status.

External investment of spare funds
In investing spare funds, the JT Group’s policy is to seek
appropriate returns while ensuring safety and liquidity and to
not engage in speculative transactions. The Company’s CEO
and Board of Directors are updated regularly on the status ofinvestments of spare funds.

Integrated Report 2021

121

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITYFINANCIAL INFORMATION /OTHERS

GOVERNANCE

Financial review

7. Cash flows
Cash and cash equivalents at year-end 2021 vs. 2020
Cash and cash equivalents as of December 31, 2021 totaled
721.7 billion yen, a 182.9 billion yen increase from theiryear-earlier total of 538.8 billion yen.

Cash flows from operating activities
Operating activities in 2021 provided net cash of 598.9 billion
yen (vs. 519.8 billion yen provided in 2020), mainly by virtueof stable cash flow generated by the tobacco businesses.
Major uses of operating cash flow included payments of Japanese and foreign tobacco excise taxes and income taxes.

Cash flows from investing activities
Investing activities in 2021 used net cash of 97.5 billion yen(vs. 5.4 billion yen provided in 2020), largely to purchaseproperty, plant and equipment and intangible assets.

Cash flows from financing activities
Financing activities in 2021 used net cash of 353.1 billion yen(vs. 297.4 billion yen used in 2020), largely to redeem bonds
and pay dividends. Major sources of financing cash flow
included proceeds from bond issuance.

8. Liquidity
The JT Group is reaping substantial cash flow from its legacy operating activities and expects to continue to do so. It
assumes that cash flows from operating activities will remain
stable and be sufficient to meet its normal business activities’
funding requirements.
As of December 31, 2021, the JT Group had committed credit
lines from major Japanese and foreign financial institutions
totaling 478.0 billion yen, 100% of which was undrawn. Other
available sources of liquidity include a commercial paper
program, uncommitted credit lines, a domestic bond shelfregistration and an EMTN program.

122

Japan Tobacco Inc.

Long-term debt
The JT Group had 651.0 billion yen of bonds outstanding(including current portion) as of December 31, 2021, vs. 702.3
billion yen as of December 31, 2020. Its long-term borrowings
from financial institutions (including the current portion) as ofDecember 31, 2021, totaled 197.0 billion yen vs. 205.0 billion
yen a year earlier. Long-term lease liabilities as of December
31, 2021, totaled 43.3 billion yen vs. 49.4 billion yen at December 31, 2020.
As of December 31, 2021, JT’s long-term debt was rated A2
with a negative outlook by Moody’s Japan K.K., A+ with anegative outlook by S&P Global Ratings Japan Inc., and AA
with a stable outlook by Rating and Investment Information
Inc.

Liquidity(JPY BN)Book Value

Due within
1 yearDue after 1
through 2
years

Short-term borrowings as loans

70.6

70.6

—

—

—

—

—

Long-term borrowings as loans(current portion)

42.3

42.3

—

—

—

—

—

Bonds (current portion)

30.0

30.0

—

—

—

—

—

Long-term borrowings as loans

154.7

—

11.9

23.3

0.1

0.1

120.1

Year ended December 31, 2021

Due after 2
through 3years

Due after 3
through 4
years

Due after 4
through 5years

Due after
5 years

Bonds

621.0

—

60.0

—

96.8

—

473.3

Total

918.6

142.9

71.9

23.3

96.9

0.1

593.4

* Lease obligations are excluded.

Credit ratings are affected by numerous factors, including developments in the JT Group’s major markets and the successof its business strategies as well as factors beyond its control
such as macroeconomic developments. Ratings are subject toretraction or revision at any time. They should be evaluatedindividually, in isolation from other ratings. Under the Japan
Tobacco Inc. Act, the Company’s bondholders are granted astatutory lien against the Company’s assets in general. Thislien gives bondholders priority over unsecured creditors’
claims, with the exception of national and local taxes andother statutory obligations, in seeking repayment.

Short-term debt
Short-term borrowings from financial institutions as of December 31, 2021, totaled 70.6 billion yen vs. 51.6 billion yen asof December 31, 2020. No commercial paper was outstandingin either 2021 or 2020. Short-term lease liabilities as of December 31, 2021, totaled 17.2 billion yen vs. 17.1 billion yen asof December 31, 2020.

Integrated Report 2021

123

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION /OTHERS

Glossary of terms
Unless otherwise stated, terms and numbers reported in this glossary are in accordance with IFRS.
Financials
Adjusted operating profit

Operating profit + Amortization cost of acquired intangibles arising from business acquisitions + Adjusted
items (income and costs).** Adjusted items (income and costs) = Impairment losses on goodwill ± restructuring income and costs ± others

Adjusted operating profit atconstant FX

124

The same foreign exchange rates between local currencies vs USD as well as the exchange rates between JPY
and USD are applied as in the equivalent period in the previous fiscal year for the international tobacco
business. Results on a constant FX are provided additionally and are not an alternative to finance reporting
under International Financial Reporting Standards (IFRS).

Core revenue/Adjusted operating profit at constant FX(International tobacco business)

The same foreign exchange rates between local currencies vs USD are applied as in the equivalent period in
the previous fiscal year for the international tobacco business. Results on a constant FX are provided additionally and are not an alternative to finance reporting under International Financial Reporting Standards (IFRS).

Core revenue at constant FX(tobacco business)

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 FX are provided additionally and are not an alternative to financial reporting under International Financial Reporting Standards (IFRS).

Clusters

From FY2022, 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.

FCF (Free cash flow)

FCF is sum of cash flows from operating activities and investing activities, but excludes 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.

Includes cigarettes and FCT. From FY2022, combustibles include all tobacco products excluding contract-manufactured products, waterpipe, heated tobacco products, oral and E-Vapor.

FCT (fine cut tobacco)

FCT represents tobacco products which are packed in a loose, fine-cut form in pouches and are also known as rolling
tobacco, used for both RYO “roll-your-own” cigarettes (made using rolling papers) and MYO “make-your-own” cigarettes(made 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 its nicotine-based liquid without using tobacco leaf.
• Heated tobacco products (HTP): Products that contain tobacco leaf and create a tobacco-enriched vapor by heating
the tobacco without any combustion.
• Heated tobacco sticks (HTS): High temperature heated tobacco products.
• Infused tobacco capsules (Infused): Low temperature heated tobacco products.
• Oral: RRP consumables delivering nicotine in the form of a closed pouch. These pouches can contain tobacco andare 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.

Sustainability

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

Excludes tobacco excise taxes and revenue from agent transactions• Core revenue (International tobacco business): Includes revenue from waterpipe tobacco and RRP (Reduced-Risk Products), but excludes revenue from distribution, contract manufacturing and other peripheralbusinesses.
• Core revenue (Japanese-domestic tobacco business): Excludes revenue from distribution of imported
tobacco in the Japanese-domestic tobacco business, among others, but includes revenue from domestic
duty-free, the China business, cigarillos and RRP such as Ploom devices, capsules and sticks.
• Core revenue (tobacco business): Core revenue includes all revenue excluding those from distribution,
contract manufacturing and other peripheral businesses.

RRP-related revenue(tobacco business)

RRP-related revenue, as a part of core revenue, represents all the sale of RRP, principally consumables, devices
and the related accessories.

Volume, JT cigarette sales(Japanese-domestic tobacco
business)

Excludes sales volume of domestic duty-free, the China business and RRP while including cigarillos.

Volume, total shipment(International tobacco business)

The shipment volume of tobacco-based products which includes FCT (fine cut tobacco), cigars, pipe, oral(snus, nicotine pouch), kretek and T-Vapor but excludes contract-manufactured products, waterpipe tobacco
and E-Vapor.

Volume, total(tobacco business)

The volume of tobacco-based products which excludes contract-manufactured products, waterpipe, RRP
devices and related accessories.

Japan Tobacco Inc.

Products
Combustibles

ALP

Agricultural Labor Practices.

CDP

Headquartered in London, CDP is a leading international non-profit organization that accelerates action to achieve asustainable economy, assessing disclosure and actions by companies from around the world.

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

Fake products appearing to be genuine brand products protected by intellectual property rights. Counterfeit products
are manufactured without authorization from the rights’ owners 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 global sustainability benchmark and tracks
stock performance of the world’s leading companies in terms of economic, environmental and social criteria.

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 other companies.

SBT (Science Based
Targets)

SBT is a joint initiative that enables businesses to take swift climate action by setting ambitious emission reduction
target.

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.”

Consumers(tobacco business)

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 years of age.

BnU

Billion Units

JPY BN

Billion Japanese yen

USD MM

Million U.S. dollars

OthersIntegrated Report 2021

125

CORPORATE PROFILEVALUE CREATION

BUSINESS andSUSTAINABILITY

GOVERNANCE

FINANCIAL INFORMATION //FINANCIALOTHERS

Awards and recognitions

Dow Jones Sustainability Indices (DJSI)S&P / JPX Carbon Efficient Index

EY’s Global Equality Standard (GES) certificate

Swiss LGBTI LabelWe are a member of the DJSI Asia Pacific Index for the eighthconsecutive year. Also, we have been included in the
Sustainability Year Book 2022 based on 2021 Corporate
Sustainability Assessment by S&P
Global for the third consecutive

We have been selected as a member of S&P/JPX Carbon
Efficient Index since its launch in 2018.

In 2020, JTI, the headquarters of our international tobacco
business, was awarded the “Swiss LGBTI Label,” a certification
for companies and organizations with an open and inclusive
structure.

year.

In 2021, JTI received EY’s Global Equality Standard certificate,as one of the first multinational companies in the world. EY’s
GES is one of the first worldwide Diversity & Inclusion (D&I)
certifications measuring equal
opportunities and equal pay in theworkplace.

JT Group press release, November 2021

JTI News & Views, November 2021

JTI News & Views, September 2020

FTSE Blossom Japan Indices

CDP

PRIDE Index

Semi-Nadeshiko Brand 2022

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 in
April 2022.

We continued achieving a place on CDP’s “A List” for climatechange and water security for the third consecutive year.
We were also recognized as a global leader for engaging our
supply chain in tackling climate change for the third consecutive year.

In the PRIDE Index, which recognizes the most LGBT+-friendly
companies, our Japanese operations (JT) achieved Gold status,
the highest ranking, in 2021 for the sixth consecutive year.

JT was recognized as a “Semi-Nadeshiko Brand” for its efforts toempower female employees in the workplace.
March 2022

JT Group press release, November 2021

JT Group press release, December 2021

Science Based Targets (SBT)Top Employer

White 500

Platinum Kurumin Certification

We have set a long-term GHG emission reduction target in linewith the Paris Agreement, which was approved as an SBT by
the Science Based Targets initiative.

Our international tobacco business (JTI) was certified as a
Global Top Employer for the eighth consecutive year.

In 2022, JT was recognized as a Certified Health andProductivity Management Outstanding Organization (“White500”) for its excellent health-conscious management since thelaunch of this recognition in 2017.

JT has long been certified as a childcare-supporting company
by the Japanese Ministry of Health, Labour and Welfare.

February 2019
We will also be seeking validation of ournew, strengthened science-based
reduction targets announced in
February 2022.

126

Japan Tobacco Inc.

JTI News & Views, January 2022

November 2018

JT Group press release, March 2022

Integrated Report 2021

127

CORPORATE PROFILE

Shareholder information
Common Stock
8,000,000,000

Issued:2,000,000,000

Shares held

Minister of Finance

666,925,200

Master Trust Bank of Japan, Ltd. (Trust Account)

161,020,700

Mitsubishi UFJ Trust and Banking Corporation

SMBC Nikko Securities Inc.

42,916,800

4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo

Custody Bank of Japan, Ltd. (Trust Account)

41,665,100

Listing

State Street Bank West Client – Treaty 505234

21,441,841

Tokyo Stock Exchange: First Section

Barclays Securities Japan Limited

18,443,300

JAPAN SECURITIES FINANCE CO., LTD.

17,641,100

Share Registrar

Custody Bank of Japan, Ltd. as trustee for Mizuho Bank, Ltd.

Composition of Shareholders

Retirement Benefit Trust Account re-entrusted by Mizuho(excluding treasury stock)
Other institutions

Minister of Finance37.58%

1.96%

Securities companies

6.10%

First Offering
Method1,438,000 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
2nd Offering

Trust & Banking Co., Ltd.
JPMorgan Chase Bank 385771

12,397,794

Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.

12,056,526

3rd Offering

Offering 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

Editorial policy

Individuals and others

23.83%

Total Shareholder Return
2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

JT

130.9%

145.3%

153.4%

207.5%

186.2%

183.0%

145.9%

144.7%

137.1%

152.6%

TOPIX

123.8%

146.8%

173.6%

194.5%

195.1%

238.5%

200.4%

236.7%

254.2%

286.6%TOPIX: Foods

131.5%

147.3%

178.4%

229.3%

224.6%

266.4%

228.5%

229.4%

226.9%

236.6%* Baselines for all percentages are a share price and actual performance as of the end of March 31, 2012. 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 a shareprice and actual performance as of December 31.

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 (0)3-6636-2914

TEL：41-22-703-07-77

URL: https://www.jt.com/

URL：https://www.jti.com/

Japan Tobacco Inc.

4th Offering

MethodPeriod covered

Published

In principle, this report covers the period from January 1, 2021 to December 31,

June 2022

2021, but also includes some information related to activities before and after

128

Offering by non-bids

Bid price: From 1,362,000 yen to 2,110,000 yen
Weighted average price: 1,438,000 yen(August 29, 1994)

13.61%

16.92%

Offering by bids

Offer price(Pricing date)

17,428,100

Foreigninstitutions andothersFinancial institutions

FINANCIAL INFORMATION /OTHERS

GOVERNANCE

Government offerings of JT shares

Name

Number of shareholders: 691,779

BUSINESS andSUSTAINABILITY

As of December 31, 2021

Principal Shareholders

Authorized:

VALUE CREATION

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 suchas “may”, “will”, “should”, “would”, “expect”, “intend”, “project”, “plan”, “aim”, “seek”,“target”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or the negative of
these terms 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 inwhich we operate, may differ materially from any future results, performanceor 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.

Integrated Report 2021

129