[This is an English translation prepared for the convenience of non-resident shareholders. Should there be any inconsistency between
the translation and the official Japanese text, the latter shall prevail.]March 1, 2022
To Our Shareholders

MATERIALS DISCLOSED VIA THE INTERNET CONCERNINGNOTICE OF CONVOCATION OF
THE 37TH ORDINARY GENERAL MEETING OF SHAREHOLDERS
The items listed below are posted on the Company’s website (https://www.jti.co.jp/) to be offered to shareholders,pursuant to the provisions of laws and regulations as well as Article 17 of our Articles of Incorporation.

Business Report
Matters Concerning Subscription Rights to Shares
Overview of the Resolutions on the Development of Systems Necessary to Ensure the Properness of
Operations and the Operating Status of the Systems

Consolidated Financial Statements
Consolidated Statement of Changes in Equity
Notes to Consolidated Financial Statements

Nonconsolidated Financial Statements
Nonconsolidated Statement of Changes in Net Assets
Notes to Nonconsolidated Financial Statements(For the fiscal year from January 1, 2021 to December 31, 2021)

Japan Tobacco Inc.

1

Business Report
Matters Concerning Subscription Rights to Shares
1.

2.

Total number and others of subscription rights to shares as of December 31, 2021
(1) Total number of subscription rights to shares

3,652 units(2) Class and number of shares to be delivered
upon exercise of subscription rights to shares

Ordinary shares 730,400 shares(200 shares per subscription right to shares)

Status of subscription rights to shares held by Members of the Board and Audit & Supervisory Board
Members of JT as of December 31, 2021
Ordinary shares 402,800 shares(200 shares per subscription right to shares)(1) Class and number of shares to be delivered
upon exercise of subscription rights to shares(2) Value of property to be contributed whensubscription rights to shares are exercised¥1 per share(3) Assignment of subscription rights to shares

The approval of the Board of Directors is
required for the assignment of subscription rights
to shares.

(4) Conditions for exercising subscription rights
to shares

Subscription rights to shares holder may exercise
his/her subscription rights to shares only if he/sheloses his/her all position as Member of the Board,
Audit & Supervisory Board Member andExecutive Officer.

2

The status of ownership by Members of the Board and Audit & Supervisory Board Members of JT is asfollows.
Year
grantedPayment due
upon allotment ofsubscription
rights to shares

FY2007¥581,269 per unit

FY2008¥285,904 per unit

FY2009¥197,517 per unit

FY2010¥198,386 per unit

FY2011¥277,947 per unit

FY2012¥320,000 per unit

FY2013¥513,400 per unit

FY2014¥483,200 per unit

FY2015¥711,200 per unit

FY2016¥572,600 per unit

FY2017¥482,200 per unit

FY2018¥300,000 per unit

FY2019¥188,000 per unit

(Notes)1.
2.
3.

Exercise period of
subscription rights tosharesMembers of the Board

Audit & Supervisory
Board Members

Numberof units

Number ofshareholders

Numberof units

Number ofshareholders

16

1

-

-

18

1

15

1

40

1

36

1

72

2

30

1

41

2

32

1

72

4

23

1

63

4

14

1

71

5

8

1

127

5

17

1

113

5

13

1

168

5

21

1

374

6

-

-

630

6

-

-

From January 9, 2008
to January 8, 2038
From October 7, 2008
to October 6, 2038
From October 14, 2009
to October 13, 2039
From October 5, 2010
to October 4, 2040
From October 4, 2011
to October 3, 2041
From October 10, 2012
to October 9, 2042
From October 8, 2013
to October 7, 2043
From October 7, 2014
to October 6, 2044
From August 4, 2015
to August 3, 2045
From July 5, 2016
to July 4, 2046
From July 4, 2017
to July 3, 2047
From July 3, 2018
to July 2, 2048
From July 2, 2019
to July 1, 2049

Outside Directors are not included in the above category of “Members of the Board.”
The subscription rights to shares owned by an Audit & Supervisory Board Member are those thatwere granted to the individual while he/she was serving as an Executive Officer.
Based on the resolution of the 35th Ordinary General Meeting of Shareholders held on March 19,
2020, the stock option plan was abolished. Therefore, the Company did not issue any new
subscription rights as stock options during the fiscal year ended December 31, 2021.

3

Overview of the Resolutions on the Development of Systems Necessary to Ensure theProperness of Operations and the Operating Status of the Systems
The Board of Directors has resolved with regard to the development of systems necessary to ensure that theexecution of the duties by the Members of the Board complies with the laws, regulations and the Articles ofIncorporation, and other systems necessary to ensure the properness of operations of a stock company asfollows:(1) Systems to ensure that the performance of duties by the Members of the Board and employees of theCompany, as well as by Directors, etc. (meaning “Directors, etc.” as provided for in Article 100,
Paragraph 1, Item 5 (i) of the Ordinance for Enforcement of the Companies Act) and employees (withDirectors, etc. and employees hereafter collectively referred to as “directors and employees”) of
subsidiaries, conforms to laws, regulations and the Articles of Incorporation
A.

Compliance system
The Company shall establish Code of Conduct based on regulations concerning the compliance system
in order to ensure that directors and employees of the Company and its subsidiaries comply with laws
and regulations, Company’s Articles of Incorporation, the social norms, etc., and set up a JT Group
Compliance Committee as an organization responsible for ensuring thorough compliance. This
committee, headed by Company’s Chairman of the Board, mainly consists of outside members andreports directly to the Board of Directors.
The Company appoints an Executive Officer in charge of compliance with overseeing the Compliance
Office in an effort to establish and promote a group-wide, cross-sectional system and shed light on
issues.
The compliance promotion departments of the Company and its subsidiaries (meaning the Compliance
Office within the Company, and corresponding departments within subsidiaries) distribute materials
including the “JT Group Code of Conduct,” which explains the Code of Conduct, etc., to directors andemployees, and work to enhance the effectiveness of the compliance system by enlightening directors
and employees about compliance through training and other programs, etc.
(Internal reporting system)
In preparation for cases in which employees or other parties detect activities, etc. suspected of violatinglaws and regulations, the Company and its subsidiaries maintain consultation and reporting desks asinternal whistleblower systems. Compliance promotion departments that receive a report or request for
consultation investigate the details and take necessary action, while working to prevent recurrence of theissue. In addition, separate from the consultation and reporting desks that are handled by the Compliance
Office, the Company has established consultation and reporting desks that are independent of business
operations and are handled by Audit & Supervisory Board Members. An Audit & Supervisory Board
Member who receives a consultation or a report investigates its content, and the Company carries out
necessary measures and tries to prevent the recurrence.
The Company will bring matters of particular importance involving the JT Group to the JT Group
Compliance Committee, and will request deliberation or will report on the issue.
(System for excluding anti-social forces)
The Company and its subsidiaries are resolved to fight against, not to comply with, an unreasonable
demand and not to have any relations with anti-social forces.
The General Administration Division shall be the JT Group’s headquarters assuming the responsibility
for supervising efforts to exclude anti-social forces, the Company cooperates with police, lawyers andother relevant organizations and parties to gather and share information in order to deal with suchelements in an organized way.
In addition, the Company and its subsidiaries shall prohibit involving with anti-social forces and fullycommunicate to all directors and employees of the Company and its subsidiaries. At the same time, anawareness raising program for excluding anti-social forces is to be consistently administered for all
directors and employees, by providing relevant training, etc. as necessary.

4

B.

System to ensure the reliability of financial reporting
The Company has in place and operates an internal control system relating to financial reporting of JT
Group in accordance with the Financial Instruments and Exchange Act. The Company strives tomaintain and improve the reliability of its financial reporting by allocating a sufficient level of staff to
the task of evaluating and reporting financial results.

C.

Internal audit system
The Operational Review and Business Assurance Division of the Company oversees the internal audit
system and examines and evaluates systems for supervising and managing the overall operations and thestatus of business execution from the viewpoints of legality and rationality, in order to protect theCompany’s assets and improve management efficiency. In coordination with the internal audit functionsof all subsidiaries, the Operational Review and Business Assurance Division also undertakes theplanning and performance of the JT Group’s internal audit systems and policies, and supplements theinternal audit functions of subsidiaries.

(2) Procedures and arrangements for storage and management of information on the performance of
duties by the Members of the Board of the Company
A.

Storage and management of minutes
The Company makes sure to properly store and manage the minutes of General Meetings ofShareholders and meetings of the Board of Directors, in line with laws and regulations.

B.

Storage and management of other information
The Company makes sure that the information on important matters relating to business execution anddecision-making including the conclusion of corporate contracts is stored and managed by the relevant
departments and divisions as specified by the Responsibilities/Authorities Allocation Rules, andestablishes rules on managing the processes of decision-making, procurement and accounting.

(3) System for reporting matters concerning the performance of duties by Directors, etc. of subsidiaries to
the Company
The Company will require subsidiaries to regularly report important information to the Company’s
departments and divisions that are in charge of the subsidiaries.
(4) Rules on management of risk of loss of the Company and its subsidiaries, and procedures/arrangementsfor other matters
A.

System to evaluate and manage risk of loss under normal circumstances
The Company establishes internal policies, rules and manuals relating to JT Group for the managementof risk of loss relating to monetary and financial affairs, and ensures that relevant reports are made to the
President and Chief Executive Officer and the Board of Directors on a quarterly basis via Chief
Financial Officer. With regard to the risk of loss relating to other affairs, in accordance with authority
delegated to each department and division as per the Responsibilities/Authorities Allocation Rules,
responsible departments and divisions take on a supervisory role creating all types of committees to
conduct proper management and, depending on the level of importance, report risks to the President andChief Executive Officer and obtain approval for countermeasures.
In cooperation with the internal audit functions of subsidiaries, the Operational Review and Business
Assurance Division of the Company examines and evaluates the internal control systems, etc. of the JT
Group companies in light of the level of importance and the risks involved, and from an objective
standpoint that is independent of organizations responsible for business execution. It provides reports
and counsel to the President and Chief Executive Officer and also reports to the Board of Directors.

5

B.

Preparedness for possible emergencies
The Company produces a manual for crisis management and disaster response. In the event of an
emergency or a disaster, JT is ready to establish an emergency project system, and make prompt andproper responses under the leadership of senior management and through close cooperation between therelevant departments and divisions and subsidiaries. Events to which a response is made and the detailsof such events shall be reported to the Board of Directors.

(5) System to ensure that Members of the Board of the Company and Directors, etc. of its subsidiaries canperform their duties efficiently
A.

Board of Directors of the Company
The Board of Directors of the Company meets once a month in principle and on more occasions asnecessary, in order to make decisions with regard to the matters specified by laws and regulations andother important matters and to supervise business execution.
The Board of Directors of the Company receives reports from Members of the Board of the Company on
the status of business execution at least once every three months.

B.

Proper delegation of authority and system of responsibilities of the Company
For important management issues, particularly management policy and basic plans regarding overallbusiness operations of the Company, in addition to matters to be referred to the Board of Directors of theCompany, a clear decision-making process is stipulated in the Responsibilities/Authorities Allocation
Rules to have a system that enables to realize swift decision-making and high-quality businessexecution.
Executive Officers appointed by the Board of Directors execute business properly by exercising theauthority delegated to them in their respective areas in accordance with the JT Group management
strategies decided by the Board of Directors. In order to manage business operations in ways that
contribute to the business efficiency and flexibility of the Company, basic matters concerning theCompany’s organization, allocation of duties to officers and staff and the roles of individual divisions
are specified by the relevant internal rules.

C.

Formulation, etc. of rules and policies that apply to the JT GroupThe Company will construct an efficient system for business execution within the JT Group through theformulation, etc. of rules and policies that apply to the JT Group.

(6) Systems necessary to ensure the properness of operations in the Company and the business groupwhich consists of the Company and its subsidiaries
A.

Mission of the JT GroupThe JT Group has set itself the mission of creating, developing and nurturing its unique brands to win
consumer trust, while understanding and respecting the environment and the diversity of societies andindividuals, and there is a group-wide consensus on the mission.

B.

Group management
The JT Group shall specify the functions and rules common for all group companies to effectuate groupmanagement that optimizes the operations of the entire JT Group as a whole.
The Company has put in place systems for compliance (including the internal reporting system), internal
audits, financial affairs management, etc. in cooperation with its subsidiaries.

6(7) Matters for employees assisting Audit & Supervisory Board Members of the Company in their duties inthe event such employees were requested by Audit & Supervisory Board Members
A.

Establishment of Audit & Supervisory Board Member’s Office
The Company has established an Audit & Supervisory Board Member’s Office as an organization toassist the duties of the Company’s Audit & Supervisory Board Members (hereinafter simply “Audit &Supervisory Board Members,” with the terms “Audit & Supervisory Board,” “Audit & Supervisory
Board Member’s Office,” and “Manager of the Audit & Supervisory Board Member’s Office” also
referring to those items within the Company).

B.

Allocation of staff
The Company has allocated sufficient staff to the Audit & Supervisory Board Member’s Office. In
addition, the Company makes sure to review and reform the staffing structure as necessary based on
consultations with the Audit & Supervisory Board.

(8) Matters relating to the independence of employees belonging to the Audit & Supervisory Board
Member’s Office from the Company’s Members of the Board, and matters relating to the assurance ofthe effectiveness of instruction by Audit & Supervisory Board Members to those employees
A.

Management of employees affiliated with the Audit & Supervisory Board Member’s Office
The evaluation of the Manager of the Audit & Supervisory Board Member’s Office is made by the Audit& Supervisory Board and the evaluation of the other employees assigned to the Audit & Supervisory
Board Member’s Office is made by the Manager of the Audit & Supervisory Board Member’s Officebased on the advice of the Audit & Supervisory Board. The transfer and discipline of employees
assigned to the Audit & Supervisory Board Member’s Office is to be deliberated in advance with the
Audit & Supervisory Board.

B.

Duties of employees belonging to the Audit & Supervisory Board Member’s Office
Employees belonging to the Audit & Supervisory Board Member’s Office will follow the direction andorders of Audit & Supervisory Board Members in assisting the duties of the latter, and will not be
assigned to other concurrent positions relating to the business execution of the Company.

(9) System for reporting by directors and employees of the Company and its subsidiaries or persons
reported by directors and employees of its subsidiaries to the Audit & Supervisory Board and Audit &Supervisory Board Members
A.

Reporting to the Audit & Supervisory Board
When directors and employees of the Company and its subsidiaries detect any evidence of malfeasancein financial documents or serious breaches of laws or regulations or the Company’s Articles ofIncorporation, they are due to report them to the Audit & Supervisory Board, along with other relevant
matters that could affect the Company’s management.

B.

Appropriate reporting in response to requests by Audit & Supervisory Board Members
Directors and employees of the Company and its subsidiaries shall respond in a prompt and appropriatemanner when they are asked by Audit & Supervisory Board Members to compile important documents
for their perusal, to accept field audits and to submit reports.

C.

Reporting on the status of whistleblowing
The Compliance Office will report regularly to Audit & Supervisory Board Members on the status ofwhistleblowing involving the JT Group, and will make non-regular reports as necessary.

7(10) System to ensure that persons reporting to Audit & Supervisory Board Members are not subject todisadvantageous treatment due to having reported
The Company will thoroughly communicate within the JT Group that persons engaging in consultation orwhistleblowing are not to be subject to any disadvantageous treatment for reason of those actions.
(11) Matters concerning policies for the prepayment of expenses involving the performance of duties by
Audit & Supervisory Board Members, procedures for reimbursement, and the handling of otherexpenses or debts involving the performance of those duties
A.

Handling of expenses or debts in accordance with Article 388 of the Companies Act
When an Audit & Supervisory Board Member has made claim to the Company for the prepayment ofexpenses, etc. in accordance with Article 388 of the Companies Act, the Company will promptly handle
the relevant expenses or debt, with the exception of cases in which the Company deems the claimed
expenses or debt to be unnecessary to the performance of the duties of the Audit & Supervisory Board
Member.

B.

Setting of budgets, etc.
With regard to miscellaneous expenses for audits by Audit & Supervisory Board Members, theCompany will set a budget in order to secure the effectiveness of the audits. The Company will also bear
the portion of miscellaneous expenses for audits by Audit & Supervisory Board Members that are inexcess of budget, with the exception of cases in which the Company deems the expenses to beunnecessary to the performance of duties.

(12) Other systems to ensure effective auditing by Audit & Supervisory Board Members
A.

Attendance at important meetings
Audit & Supervisory Board Members are allowed to attend not only meetings of the Board of Directorsof the Company but also other important meetings of the Company.

B.

Coordination between the Operational Review and Business Assurance Division, Compliance
Office and the Audit & Supervisory Board Members
The Operational Review and Business Assurance Division and the Compliance Office maintaincooperation with Audit & Supervisory Board Members by exchanging information.

The status of systems necessary to ensure the properness of operations
A.

Status of initiatives concerning compliance

The JT Group has set itself the mission of creating, developing, and nurturing its unique brands to win
consumer trust, while understanding and respecting the environment and the diversity of societies andindividuals. The Company communicates this mission throughout the JT Group by means including its
inclusion in the “JT Group Code of Conduct” booklet, which is distributed to the directors and employeesof the Company and its subsidiaries.

In accordance with the JT Group Compliance Rules, the Company performs appropriate reporting to theBoard of Directors on the performance of the annual Compliance Plan, the occurrence of serious
compliance violations, actions taken in response to these, and other matters of importance.

In order to improve awareness of compliance and prevent improper actions, the Company conducts regulartraining for the directors and employees of the Company and its subsidiaries.

With regard to whistleblowing systems, the Company maintains consultation and reporting desks insideand outside the Company, and thoroughly communicates to directors and employees of the Company andits subsidiaries that persons who engage in consultation or whistleblowing are not to be subject to any
disadvantageous treatment for reason of those actions. In addition, the content of consultations andwhistleblowing are regularly reported within the JT Group Compliance Committee.
8



B.

C.

D.

With regard to the handling of anti-social forces, the Company continues to collect related declarations
and pledges from suppliers, and conducts regular training and other programs for the directors andemployees of the Company and its subsidiaries.

Status of initiatives to manage the risk of lossWith regard to the monetary and financial risks, the Company makes quarterly reports to the President,
Chief Executive Officer and the Board of Directors in accordance with the Group Treasury Principle.

With regard to the evaluation and examination of internal management systems, the Operational Review
and Business Assurance Division provides reports and counsel to the President and Chief Executive
Officer and also reports to the Board of Directors, in accordance with the Rules for Internal Audits.

With regard to crises and disasters, the Company makes quarterly reports to the Board of Directors
concerning events to which responses were made and the details of the events, in accordance with the“Decision Concerning the Preparation of Basic Policies and Systems Concerning the Construction ofInternal Control Systems.”

Status of initiatives concerning the properness and efficiency of the execution of duties


Meetings of the Board of Directors are held every month and as appropriate, in accordance with theRegulations of the Board of Directors. The Members of the Board in charge of businesses make quarterly
reports to the Board of Directors on the status of business execution within each business, including within
its subsidiaries.

With regard to decision-making, etc. on execution of important business, etc., the Company is converting
resolution procedures to electronic methods and is constructing a fast and efficient management system.
The Company also accurately records and creates minutes of meetings of the Board of Directors, andperforms appropriate storage and management of the information.

Securing the effectiveness of audits by Audit & Supervisory Board Members


Audit & Supervisory Board Members receive reports as appropriate from directors and employees of theCompany and its subsidiaries, regarding necessary information for audits. In addition to attending
important conferences, Audit & Supervisory Board Members also perform appropriate checks of thecontent of electronic resolutions concerning decision-making on the execution of business. In addition,
Audit & Supervisory Board Members regularly exchange opinions and otherwise communicate with eachsubsidiary’s own Audit & Supervisory Board Members to enhance audits performed by all Audit &Supervisory Board Members inside the JT Group.



The Operational Review and Business Assurance Division and the Compliance Office also coordinate on
conducting regular exchanges of information with Audit & Supervisory Board Members.



In order to assist the duties of Audit & Supervisory Board Members, the Company has established an
Audit & Supervisory Board Member’s Office that is independent of divisions responsible for execution,and has assigned necessary personnel to the Office. In addition, through consultation with Audit &Supervisory Board Members, the Company records a budget for expenses expected to be necessary for theduties of the Audit & Supervisory Board Members.
(Note) As of January 1, 2022, the name of the Compliance Office was changed to the Legal andCompliance Division. In addition, the functions of the General Administrative Divisionpertaining to leadership of responses to ensure the elimination of anti-social forces have beentransferred to the Corporate Governance Division.

9

Consolidated Statement of Changes in Equity(Year ended December 31, 2021)(Millions of yen)
Equity attributable to owners of the parent company
Other components of equity

Share capital

Capital surplus Treasury shares

Subscription
rights tosharesExchangedifferenceson translationof foreign
operations

Net gain(loss) on
derivatives
designated as
cash flow
hedgesNet gain (loss)
on revaluationof financial
assets measured
at fair value
through othercomprehensive
incomeAs of January 1, 2021

100,000

736,400(491,507)

1,252(614,374)

122

7,224

Profit for the period

－

－

－

－

－

－

－

Other comprehensive income(loss)－－－－

206,199

(68)

(65)

Comprehensive income (loss) forthe period

－

－

－

－

206,199

(68)

(65)

Acquisition of treasury shares

－

－

(0)

－

－

－

－

Disposal of treasury shares

－

－

609

(51)

－

－

－

Share-based payments

－

－

－

－

－

－

－

Dividends

－

－

－

－

－

－

－

Changes in the ownership interestin a subsidiary without a loss ofcontrol

－

－

－

－

－

－

－

Transfer from other componentsof equity to retained earnings

－

－

－

－

－

－

1

Other increase (decrease)

－

－

－

－

－

(327)

－

－

－

608

(51)

－

(327)

1

100,000

736,400(490,899)

1,202(408,175)

(274)

7,161

Total transactions with the owners
As of December 31, 2021

10

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

Total

Retainedearnings

Total

Noncontrollinginterests

Total equity

As of January 1, 2021－

(605,776)

2,783,718

2,522,834

76,6602,599,495

Profit for the period－－

338,490

338,490

1,691

340,181

Other comprehensive income(loss)(6,350)199,716－

199,716361

200,077

Comprehensive income (loss) forthe period(6,350)199,716

338,490538,206

2,052

540,258

Acquisition of treasury shares

－

－

－

(0)

－

(0)

Disposal of treasury shares

－

(51)

(558)

0

－

0

Share-based payments

－

－

479

479

33

512

Dividends－－(251,961)(251,961)(1,941)(253,902)

Changes in the ownership interestin a subsidiary without a loss ofcontrol

－

－

27

27

18

45

Transfer from other componentsof equity to retained earnings

6,350

6,351

(6,351)

－

－

－

－

(327)

－

(327)

－

(327)

6,350

5,973

(258,364)(251,782)(1,890)(253,672)－(400,086)

2,863,843

2,809,258

76,8232,886,081

Other increase (decrease)
Total transactions with the owners
As of December 31, 2021

11

Notes to Consolidated Financial Statements
1. Significant matters for preparing consolidated financial statements(1) Accounting principles for preparing consolidated financial statements
The consolidated financial statements of Japan Tobacco Inc. (hereinafter referred to as the “Company”) and its subsidiaries(hereinafter collectively referred to as the “Group”) are prepared in accordance with International Financial Reporting Standards(hereinafter referred to as “IFRS”) pursuant to the provisions of Article 120, Paragraph 1 of the Ordinance on Accounting ofCompanies. Pursuant to the provisions of the second sentence of the same paragraph of the same Ordinance, some disclosure
items required under IFRS are omitted.
(2) Scope of consolidation
Number of consolidated subsidiaries: 235 companies
Major consolidated subsidiaries: TS Network Co., Ltd., Japan Filter Technology, Ltd., JT International S.A., Gallaher Ltd., Torii
Pharmaceutical Co., Ltd., and TableMark Co., Ltd.
(3) Scope of equity method
Number of affiliates accounted for using the equity method: 13 companies
Major affiliates accounted for using the equity method: Megapolis Distribution B.V.
Joint ventures are accounted for using the equity method.
(4) Accounting policies
A. Basis and method of valuation for financial assets other than derivativesi) Initial recognition and measurement
Financial assets are classified into financial assets measured at fair value through profit or loss, fair value through othercomprehensive income, and amortized cost. The Group determines the classification at initial recognition.
Financial assets are classified as financial assets measured at amortized cost if both of the following conditions are met.
Otherwise, they are classified as financial assets measured at fair value.
• The asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows.
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
For financial assets measured at fair value, each equity instrument is designated as measured at fair value through profit orloss or as measured at fair value through other comprehensive income, except for equity instruments held for trading
purposes that must be measured at fair value through profit or loss. Such designations are applied consistently.
All financial assets are measured at fair value plus transaction costs that are attributable to the financial assets, except for thecase of being classified in the category of financial assets measured at fair value through profit or loss.
ii) Subsequent measurement
After initial recognition, financial assets are measured based on the classification as follows:(a) Financial assets measured at amortized cost
Financial assets measured at amortized cost are measured at amortized cost using the effective interest method.
(b) Other financial assets
Financial assets other than those measured at amortized cost are measured at fair value.
Changes in the fair value of financial assets measured at fair value are recognized as profit or loss.
However, changes in the fair value of equity instruments designated as measured at fair value through othercomprehensive income are recognized as other comprehensive income and the amount in other comprehensive income istransferred to retained earnings when equity instruments are derecognized or the decline in its fair value compared to its
acquisition cost is significant. Dividends on the financial assets are recognized in profit or loss for the year.
iii) Derecognition
Financial assets are derecognized when the rights to receive benefits from them expire or are transferred, or whensubstantially all the risks and rewards of the ownership are transferred.

12iv) Impairment of financial assets
With respect to financial assets measured at amortized cost, the Group recognizes an allowance for doubtful accounts for
expected credit losses. The expected credit losses are calculated based on historical loss experience or future recoverable
amounts.
An allowance for doubtful accounts for trade receivables is always recognized at an amount equal to the full lifetime
expected credit losses. In principle, with respect to financial assets except for trade receivables, an allowance for doubtful
accounts is measured at an amount equal to the 12-month expected credit losses. However, the allowance for doubtful
accounts is measured at an amount equal to the full lifetime expected credit losses if a credit risk on the financial asset has
increased significantly since initial recognition.
The Group assesses whether a credit risk on a financial asset has increased significantly based on a change of the default risk
considering the past due information, financial difficulties of obligors or downgrades of the internal credit rating.
The Group assesses a whole or part of a financial asset which is deemed uncollectible or extremely difficult to be collected
as a default and recognizes it as a credit-impaired financial asset.
The expected credit losses on trade receivables which are not assessed as credit-impaired financial assets are measured
collectively by an asset group consisting of a number of homogeneous counterparties.
An allowance for doubtful accounts for financial assets is recognized in profit or loss. If an event which causes a reduction of
the allowance for doubtful accounts occurs, a reversal of an allowance for doubtful accounts is recognized in profit or loss.
B. Basis and method of valuation for derivatives
The Group utilizes derivatives, including forward foreign exchange contracts and interest rate swap contracts, to hedge foreignexchange and interest rate risks. These derivatives are initially measured at fair value when the contract is entered into, and aresubsequently remeasured at fair value. Changes in the fair value of derivatives are recognized as profit or loss in the
consolidated statement of income. However, the gains or losses on the hedging instrument relating to the effective portion of
cash flow hedges and hedges of net investment in foreign operations are recognized as other comprehensive income.
C. Basis and method of valuation for inventories
The cost of inventories includes all costs of purchase, costs of conversion and other costs incurred in bringing the inventories
to their present location and condition.
Inventories are measured at the lower of cost or net realizable value, and the costs are determined by using the weightedaverage method. Net realizable value is determined as the estimated selling price in the ordinary course of business less theestimated costs of completion and estimated costs necessary to make the sale.
Leaf tobacco which is stored for more than 12 months before being used for production is included in current assets since it isheld within the normal operating cycle.
D. Depreciation methods for significant depreciable assetsi) Property, plant and equipment and investment property (excluding right-of-use assets)
Property, plant and equipment is measured by using the cost model and is stated at cost less accumulated depreciation andaccumulated impairment losses.
The acquisition cost includes any costs directly attributable to the acquisition of the asset and dismantlement, removal andrestoration costs, as well as borrowing costs eligible for capitalization.
Except for assets that are not subject to depreciation such as land, assets are depreciated using the straight-line method overtheir estimated useful lives.
Investment property is property held to earn rentals or for capital appreciation or both.
Investment property is measured by using the cost model and is stated at cost less accumulated depreciation and accumulated
impairment losses.
The estimated useful lives of major asset items are as follows:• Buildings and structures : 38 to 50 years• Machinery and vehicles : 10 to 15 years
The estimated useful lives and depreciation method are reviewed at each fiscal year end and if there are any changes made to
the estimated useful lives and depreciation method, such changes are applied prospectively as changes in estimate.

13ii) Intangible assets (excluding right-of-use assets)
Intangible assets are measured by using the cost model and are stated at cost less accumulated amortization and accumulated
impairment losses.
Intangible assets acquired separately are measured at cost at the initial recognition, and the costs of intangible assets acquired
through business combinations are recognized at fair value at the acquisition date. Expenditures on internally generated
intangible assets are recognized as expense in the period when incurred, except for development expenses that satisfy thecapitalization criteria.
Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives and aretested for impairment whenever there is any indication of impairment. The estimated useful lives and amortization method of
intangible assets with finite useful lives are reviewed at each fiscal year end, and the effect of any changes in estimate would
be accounted for on a prospective basis.
The estimated useful lives of major intangible assets with finite useful lives are as follows:• Trademarks : 10 to 20 years• Software : 5 years
Intangible assets with indefinite useful lives and intangible assets that are not ready to use are not amortized, but they aretested for impairment individually or by cash-generating unit annually or whenever there is any indication of impairment.
iii) Right-of-use assets
At inception of a contract, the Group assesses whether the contract is, or contains, a lease if the contract conveys the right tocontrol the use of an identified asset for a period of time in exchange for consideration. The Group elects not to recognize
right-of-use assets and lease liabilities for short-term leases within 12 months and leases of low-value assets.
If a contract is, or contains, a lease, except for short-term leases and leases of low-value assets, the Group recognizes rightof-use assets and lease liabilities on the consolidated statement of financial position at the commencement date. The Group
recognizes the lease payments associated with short-term leases and leases of low-value assets as an expense on a straight-line
basis over the lease term.
Right-of-use asset is measured by using the cost model and is stated at cost less accumulated depreciation and accumulated
impairment losses.
An acquisition cost of a right-of-use asset includes the amount of the initial measurement of the lease liability, any lease
payments made at or before the commencement date, and any initial direct costs. The right-of-use asset is depreciated using thestraight-line method over its estimated useful life or lease term, whichever is shorter. The lease liability is initially measured at
the present value of the lease payment that is not paid at the commencement date. The lease payments are apportioned between
the financial cost and the reduction in the lease liability based on the effective interest method. The financial costs are recognizedin the consolidated statement of income.
E. Policy on accounting of significant provisions
The Group has present obligations (legal or constructive) resulting from past events and recognizes provisions when it isprobable that the obligations are required to be settled and the amount of the obligations can be estimated reliably.
Where the effect of the time value of money is material, the amount of provisions is measured at the present value of theexpenditures expected to be required to settle the obligations. In calculating the present value, the Group uses the pretax
discount rate reflecting current market assessments of the time value of money and the risks specific to the liability.
In accordance with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets,” the Group recognizes a provision for
restructuring when it has a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it
will carry out the restructuring by starting to implement that plan or announcing its main scheme to those affected by it.
Restructuring provisions include only the direct expenditures arising from the restructuring, which meet both of the following
criteria:• necessarily entailed by the restructuring.
• not associated with the ongoing activities of the entity.

14

F. Post-employment benefits
The Group sponsors defined benefit plans and defined contribution plans as employee retirement benefit plans.
The Company is obligated to bear pension expenses for a mutual assistance association incurred with respect to services in or
before June 1956 (prior to the enforcement of the Act on the Mutual Aid Association of Public Corporation Employees). Suchobligations are calculated and included in liabilities related to the retirement benefits.
For each plan, the Group calculates the present value of defined benefit obligations, related current service cost and past
service cost using the projected unit credit method. For a discount rate, a discount period is determined based on the period
until the expected date of benefit payment in each fiscal year, and the discount rate is determined by reference to market yields
for the period corresponding to the discount period at the end of the fiscal year on high quality corporate bonds or government
bonds. Liabilities or assets for defined benefit plans are calculated by the present value of the defined benefit obligation,
deducting the fair value of any plan assets (including adjustments for the asset ceiling for defined benefit plans and minimum
funding requirements, if necessary). Expected interest costs and interest income are recognized as financial costs.
Remeasurements of defined benefit plans are recognized in full as other comprehensive income in the period when they are
incurred and transferred to retained earnings immediately. Past service costs are recognized as profit or loss in the period whenincurred.
The cost for retirement benefits for defined contribution plans is recognized as an expense at the time of contribution.
G. Accounting for revenuei) Revenue from contracts with customers
Revenue is recognized based on the following five-step approach.
Step 1: Identify the contract with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when the entity satisfies a performance obligation
The Group mainly engages in the sale of tobacco products, prescription drugs, and processed foods. Revenue is recognized
upon delivery of the products because the customer obtains control of the products upon delivery, by which the Groupevaluates that the performance obligation is satisfied. Revenue is measured at the consideration promised in a contract with acustomer, less discounts, rebates and taxes, including consumption tax.
The tobacco excise taxes and other transactions in which the Group is involved as an agency are excluded from revenue. The
amount after deducting the tobacco excise taxes and other transactions is presented as “Revenue” in the consolidated
statement of income.
ii) Interest income
Interest income is recognized using the effective interest rate method.
iii) Dividend income
Dividend income is recognized when the shareholder’s right to receive payment is established.
H. Goodwill
Goodwill is stated at acquisition cost less accumulated impairment losses.
Goodwill is not amortized. It is allocated to cash-generating units that are identified according to locations and types ofbusinesses and tested for impairment annually or whenever there is any indication of impairment. Impairment losses on
goodwill are recognized in the consolidated statement of income and no subsequent reversal is made.

15

I. Method of foreign currency translation
Consolidated financial statements of the Group are presented in Japanese yen, which is the functional currency of theCompany. Each company in the Group specifies its own functional currency and measures transactions based on it.
Foreign currency transactions are translated into the functional currency at the rates of exchange prevailing at the dates oftransactions or an approximation of the rate. Monetary assets and liabilities denominated in foreign currencies are translated
into the functional currency at the rates of exchange prevailing at the fiscal year end date. Differences arising from thetranslation and settlement are recognized as profit or loss. However, exchange differences arising from the translation offinancial instruments designated as hedging instruments for net investment in foreign operations (foreign subsidiaries),
financial assets measured at fair value through other comprehensive income, and cash flow hedges are recognized as othercomprehensive income.
The assets and liabilities of foreign operations are translated into Japanese yen at the rates of exchange prevailing at the fiscal
year end date, while income and expenses of foreign operations are translated into Japanese yen at the rates of exchange
prevailing at the dates of transactions or an approximation to the rate. The resulting translation differences are recognized asother comprehensive income. However, the income and expenses of the Group's subsidiaries in the hyperinflationary economy
are translated into Japanese yen at the rates of exchange prevailing at the fiscal year end date in accordance with thehyperinflationary accounting. Its details are stated in "M. Hyperinflationary Accounting Adjustments." In cases where foreign
operations are disposed of, the cumulative amount of translation differences related to the foreign operations is recognized as
profit or loss in the period of disposition.
J. Method of significant hedge accounting
The Group utilizes derivatives, including forward foreign exchange contracts and interest rate swap contracts, to hedge foreignexchange and interest rate risks. These derivatives are initially measured at fair value when the contract is entered into, and aresubsequently remeasured at fair value. Changes in the fair value of derivatives are recognized as profit or loss in the
consolidated statement of income. However, the gains or losses on the hedging instrument relating to the effective portion of
cash flow hedges and hedges of net investment in foreign operations are recognized as other comprehensive income.
At the inception of the hedge, the Group formally designates and documents the hedging relationship to which hedge
accounting is applied and the objectives and strategies of risk management for undertaking the hedge. The documentation
includes identification of hedging instruments, the hedged items, the nature of the risks being hedged and how the hedging
relationship’s effectiveness is assessed. These hedges are assessed on an ongoing basis to determine whether the hedging
relationship is effective prospectively, even though it is expected that there is an economic relationship between the hedged
item and the hedging instrument, that the effect of credit risk does not dominate the value changes that result from that
economic relationship, and that the hedge ratio of the hedging relationship is the same as that resulting from the quantity of thehedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge
that quantity of the hedged item.
If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio due to changes in an
economic relationship between the hedged item and the hedging instrument but the risk management objective remains thesame, the Group would adjust the hedge ratio so that it meets the qualifying criteria again. The Group discontinues hedge
accounting for the part that does not meet the requirement when the hedging relationship ceases to meet the qualifying criteria
after adjusting the hedge ratio.
Hedges that meet the stringent requirements for hedge accounting are classified into the following categories and accounted
for in accordance with IFRS 9.
i) Fair value hedge
The gain or loss on the hedging instrument is recognized as profit or loss in the consolidated statement of income. However,changes in the fair value of the hedging instrument are recognized as other comprehensive income if the hedging instrument
hedges an equity instrument designated as at fair value through other comprehensive income. Regarding the hedging gain orloss on the hedged item, the carrying amount of the hedged item is adjusted and the change is recognized as profit or loss inthe consolidated statement of income. However, changes in fair value of an equity instruments which the Group elected topresent in other comprehensive income are recognized as other comprehensive income.

16ii) Cash flow hedge
The effective portion of gains or losses on hedging instruments is recognized as other comprehensive income in the
consolidated statement of comprehensive income, while the ineffective portion is recognized immediately as profit or loss inthe consolidated statement of income.
The amounts of hedging instruments recognized in other comprehensive income are reclassified to profit or loss when thetransactions of the hedged items affect profit or loss. In cases where hedged items result in the recognition of non-financial
assets or liabilities, the amounts recognized as other comprehensive income are accounted for as adjustments to the original
carrying amount of non-financial assets or liabilities.
If the hedged future cash flows are no longer expected to occur, any related cumulative gain or loss that has been recognizedin equity as other comprehensive income is reclassified to profit or loss. If the hedged future cash flows are still expected tooccur, amounts that have been recognized in other comprehensive income are continued to be recognized in othercomprehensive income until the future cash flows occur.
iii) Hedge of net investment in foreign operations
Translation differences resulting from the hedge of net investment in foreign operations are accounted for similarly to a cash
flow hedge. The effective portion of gains or losses on hedging instruments is recognized as other comprehensive income,while the ineffective portion is recognized as profit or loss in the consolidated statement of income. At the time of thedisposal of the foreign operations, any related cumulative gain or loss that has been recognized in equity as othercomprehensive income is reclassified to profit or loss.
K. National consumption tax and local consumption tax are excluded from the consolidated statement of income.
L. The Company and certain subsidiaries apply for the consolidated taxation system.
M. Hyperinflationary Accounting Adjustments
As required by IAS 29, "Financial Reporting in Hyperinflationary Economies," the Group’s consolidated financial statements
include the operating results and financial condition of the Group’s subsidiaries in the hyperinflationary economy, restated interms of the measuring unit current at the end of the reporting period.
The Group's subsidiaries in the hyperinflationary economy have restated their non-monetary items held at historical cost, suchas property, plant and equipment, by applying the conversion coefficient at the acquisition date. Monetary items and nonmonetary items held at current cost are not restated, as they are considered to be expressed in terms of the measuring unit
current at the end of the reporting period.
(5) Changes in accounting policies
The Group has adopted the following new accounting standards, amended standards and new interpretations from the fiscal year
ended December 31, 2021.
IFRS
IFRS 16

LeasesDescription of new standards and amendments
Amendments to accounting treatment for COVID-19-Related Rent
Concessions beyond June 30, 2021

IFRS 16 mentioned above has been early adopted.
The adoption of the above standards and interpretations does not have a material impact on the consolidated financial statements.

17

2. Notes to accounting estimates
The following are estimates that have been recorded in the consolidated financial statements for the current fiscal year based on
accounting estimates and that will have material impacts on the consolidated financial statements for the next fiscal year.
(1) Impairment of Property, Plant and Equipment, Goodwill, Intangible Assets and Investment Properties
A. Amount recorded in the consolidated financial statements for the current fiscal year.
Plant and Equipment¥755,843 million
Goodwill
Assets¥2,060,965 million¥307,152 million

Investment Properties¥4,985 million
B. Information that helps understanding of the content of accounting estimates
With regard to property, plant and equipment, goodwill, intangible assets and investment properties, if there is any indicationthat the recoverable amount has declined below the carrying amount, the Group performs an impairment test.
Such indications include, but are not limited to significant changes with adverse effect on the results of past or projectedbusiness performance, significant changes in the use of acquired assets or in overall business strategy, and significant
deteriorations in industry or economic trends. With regard to goodwill, an impairment test is conducted at least once a year,
regardless of whether there are any indicators of impairment.
An impairment test is performed by comparing the carrying amount to the recoverable amount of the asset under assessment.
If the recoverable amount is below the carrying amount, impairment losses are recognized. The recoverable amount iscalculated based primarily on a discounted cash flow model. Certain assumptions must be made for the useful lives andfuture cash flows of the assets, the applicable discount rates as well as long-term growth rates. These assumptions are basedon the best estimates and judgments made by management. However, there is a possibility that these assumptions will beaffected by changes in uncertain future economic conditions, which may have a material impact on the consolidated
financial statements in future periods.
(2) Post-employment Benefits
A. Amount recorded in the consolidated financial statements for the current fiscal year.
Retirement benefit assets
Retirement benefit liabilities¥53,177 million¥296,176 million

B. Information that helps understanding of the content of accounting estimates
The Group has various types of retirement benefit plans, including defined benefit plans. In addition, the mutual pension
benefits plan of the Company is one of the public pension systems under the jurisdiction of the government of Japan and theCompany is legally obligated to bear a part of the pension costs of the plan.
The present value of defined benefit obligations on each of these plans and the related service costs are calculated based on
actuarial assumptions. These actuarial assumptions make use of estimates and judgments on a number of variables, including
discount rates and inflation rate.
The Group obtains advice from external pension actuaries with respect to the appropriateness of their actuarial assumptions
including the aforementioned variables.
The actuarial assumptions are determined based on the best estimates and judgments made by management. However, there
is a possibility that these assumptions will be affected by changes in uncertain future economic conditions, or by the
publication or amendment of related laws, which may have a material impact on the consolidated financial statements infuture periods.

18

(3) Provisions
A. Amount recorded in the consolidated financial statements for the current fiscal year.
Provisions¥47,725 million
B. Information that helps understanding of the content of accounting estimates
The Group recognizes various provisions, including provisions for asset retirement obligations and restructuring, in the
consolidated statement of financial position.
These provisions are recognized based on best estimates of the expenditure required to settle the obligations, taking into
account the pertinent risks and uncertainties which exist at the year-end for those obligations.
Expenditures required to settle the obligations are calculated by taking possible results into account comprehensively;
however, they may be affected by the occurrence of unexpected events or changes in conditions which may have a material
impact on the consolidated financial statements in future periods.
(4) Income Taxes
A. Amount recorded in the consolidated financial statements for the current fiscal year.
Income tax payables¥30,794 million
Deferred tax assets
Deferred tax liabilities¥120,419 million¥69,959 million

B. Information that helps understanding of the content of accounting estimates
The Group operates business activities around the world, and it recognizes current tax liabilities and income taxes as theestimated amounts to be paid to the tax authorities, based on the estimation in accordance with their laws and regulations.
Calculating current tax liabilities and income taxes requires estimates and judgment on various factors, including theinterpretation of tax regulations by taxable entities and the tax authority in the jurisdiction or the experience of past tax
audits.
Therefore, there may be differences between the amount recognized as tax liabilities and income taxes and the amount of
actual tax liabilities and income taxes. These differences may have a material impact on the consolidated financial
statements in future periods.
In addition, deferred tax assets are recognized to the extent that it is probable that taxable income will be available against
which deductible temporary differences can be utilized.
In recognizing the deferred tax assets, when judging the possibility of the future taxable income, the Group reasonably
estimate the timing and amount of future taxable income based on the business plan.
The timing when taxable income arises and the amount of such income may be affected by changes in uncertain future
economic conditions. Therefore, this may have a material impact on the consolidated financial statements in future periods.
(5) Contingencies
With regard to contingencies, any items that may have a material impact on business in the future are disclosed in light of all
the available evidence as of the year end and by taking into account the probability of these contingencies and their impact onfinancial reporting.
The content of contingencies is described in “8. Contingencies.”(6) Impact of COVID-19
Although sales volume in the duty-free market increased compared to the same period of the previous fiscal year in the tobacco
business, travel restrictions continued in various countries and it was unable to reach the level prior to the spread of COVID19. In contrast, in the International Tobacco Business, industry volume remained strong in several markets due to travel
restrictions. In addition, in the Processed Food Business, sales of food-service products within the frozen and ambient foodbusiness continued to decrease due to factors such as the impact of requests to restrict bar and restaurant operations.
Although the Group anticipates the impact of the spread of COVID-19 will continue to a certain extent from 2022 onward, theeconomies of countries around the world are expected to gradually recover. At present, there is no material impact on
accounting estimates and judgements.

19

3. Notes to consolidated statement of financial position(1) Accumulated depreciation of assets (including accumulated impairment losses)
Property, plant and equipment:¥
Goodwill and intangible assets:
Investment property:¥¥

1,043,554million
1,060,360million
4,306million(2) Assets pledged as collateral and liabilities relating to collateral
Pursuant to Article 6 of the Japan Tobacco Inc. Act, the Company’s properties are pledged as general collateral for its corporate
bonds.
Amount of liabilities relating to collateral
Bonds:¥

155,000million¥¥

1,306million
6,374million(3) Allowance for doubtful accounts directly deducted from assets
Trade and other receivables:
Other financial assets:20

4. Notes to consolidated statement of changes in equity(1) Class and total number of issued shares and class and total number of treasury shares(Thousands of shares)
Number of shares as ofJanuary 1, 2021

Increase for theyear ended
December 31, 2021

Decrease for theyear ended
December 31, 2021

Number of shares as ofDecember 31, 2021

2,000,000--

2,000,000

225,7550280

225,475

Issued shares
Ordinary shares
Treasury shares
Ordinary shares(Notes) The increase of 0 thousand treasury shares (ordinary shares) is due to purchase of shares less than one unit. The decrease of
280 thousand treasury shares (ordinary shares) is composed of 238 thousand treasury shares due to disposal for Restricted
Stock Remuneration Plan, 41 thousand treasury shares due to exercise of share options and 0 thousand treasury shares due tosale of shares less than one unit.
(2) Cash dividendsi) Dividends payments
Total dividends Dividends per share(Millions of yen)
(Yen)

Resolution

Class of shares

Basis date

Effective date

Annual Shareholders’Meeting

Ordinary shares

136,61777

December 31, 2020

March 25, 2021

Ordinary shares

115,344

65

June 30, 2021

September 1, 2021

(March 24, 2021)
Board of Directors(July 30, 2021)

ii) Dividends whose basis date is in the year ended December 31, 2021 but whose effective date falls in the year ending
December 31, 2022.
The following proposal will be placed on the agenda of the Annual Shareholders’ Meeting to be held on March 23, 2022.
(Proposal)

Class ofsharesTotal dividends(Millions of yen)

Source ofdividends

Dividends per
share (Yen)

Ordinaryshares133,089

Retainedearnings

75

Basis date

Effective date

AnnualShareholders’Meeting

December 31, 2021

March 24, 2022

(March 23, 2022)(3) Class and number of shares under subscription rights to shares as of December 31, 2021 (excluding rights whose exercise period
has not yet begun)
Ordinary shares

730,400shares21

5. Financial instruments(1) Status of financial instruments
The Group is exposed to financial risks (credit risk, liquidity risk, foreign exchange risk, interest rate risk and market pricefluctuation risk) in the process of its management activities, and it manages risks based on a specific policy in order to avoid or
reduce said risks. The results of risk management are regularly reported by the Treasury Division to the president and the Boardof Directors.
The Group policy limits derivatives to transactions for the purpose of mitigating risks from transactions based on actual demand.
Therefore, we do not transact derivatives for speculation purposes or trading purposes.
(2) Fair value of financial instruments
The carrying amounts on the consolidated statement of financial position and the fair values as of December 31, 2021 are as
follows:(Millions of yen)
Carrying amount on consolidated statement offinancial position

Fair value

1) Long-term borrowings

196,970

198,2902) Bonds

651,016

682,984

With regard to short-term financial assets and short-term financial liabilities measured at amortized cost, the fair value
approximates the carrying amount.
The fair value of long-term borrowings is calculated based on the present value which is obtained by discounting the total of theprincipal and interest by the interest rate assumed in a case where the same loan is newly made.
The fair value of bonds issued by the Group is based on the market price for those having market prices, and based on thepresent value that is obtained by discounting the total of principal and interest by the interest rate, for which the remaining
period and credit risk of such bonds are taken into consideration.

6. Investment property(1) Status of investment property
The Group owns some rental properties such as office buildings in Tokyo Prefecture and other areas.
(2) Fair value of investment property
The carrying amount on the consolidated statement of financial position and the fair value of investment properties as ofDecember 31, 2021 are as follows:(Millions of yen)
Carrying amount on consolidated statement offinancial position
Investment property

Fair value

4,985

11,374(Notes) 1. The carrying amount on the consolidated statement of financial position is the acquisition cost less accumulated
depreciation and accumulated impairment losses, if any.
2. The fair value of investment properties is determined based on a valuation conducted by an external real estate appraiser.
The valuation is made in accordance with the appraisal standards of the country where the investment property is locatedand based on market evidence of transaction prices for similar assets.

7. Per share information(1) Equity attributable to owners of the parent company per share:(2) Basic earnings per share:¥¥

1,583.10
190.76(3) Diluted earnings per share:¥

190.6822

8. Contingencies
Contingent liabilities
The Company and some of its subsidiaries are defendants in legal proceedings. Provisions are not accounted for in matters it is notpracticable to reasonably estimate the final outcomes.
The Company and some of its subsidiaries, who are defendants in such legal proceedings, believe that our defenses asserted in theseproceedings are based on substantial evidence and implement the system for response to action with the assistance of externallawyers.
(1) Smoking/vaping and health related litigation
One or more members of the Group become defendants in lawsuits filed by plaintiffs seeking damages for harm allegedly causedby smoking or vaping, the marketing of tobacco products, or exposure to tobacco smoke. As of December 31, 2021, there were atotal of 21 smoking or vaping and health related cases pending in which one or more members of the Group were named as adefendant or for which the Company may have certain indemnity obligations pursuant to the agreement such as for theCompany’s acquisition of RJR Nabisco Inc.’s overseas (non-U.S.) tobacco operations.
In March 2019, the Quebec Court of Appeal dismissed the appeal by three Canadian tobacco manufacturers including JTIMacdonald Corp. (hereinafter referred to as “JTI-Mac”), the Company’s Canadian subsidiary, of the lower court decision in thetwo class action lawsuits in Quebec. The Quebec Court of Appeal ordered a total damage award against the appellants ofapproximately ￥1,232.7 billion (approximately CAD 13.7 billion), in which the share of the total damage award against JTIMac is approximately ￥159.7 billion (approximately CAD 1.8 billion). Given the Quebec Court of Appeal’s decision, JTI-Mac
filed for protection from its creditors under the Companies’ Creditors Arrangement Act (CCAA), and the Ontario Superior Court
has granted the CCAA application and extended protection in favor of JTI-Mac (hereinafter referred to as “CCAA
Proceedings”). All of the below Canadian matters against JTI-Mac have been stayed by the CCAA Proceedings, under which
JTI-Mac carries on business in the ordinary course.
The major ongoing smoking and health related cases are as follows:i) Individual claim
There is one individual case brought against the Company’s indemnitee in South Africa.
ii) Class actions
There are eight ongoing class actions in Canada against the Company’s subsidiary and/or indemnitees. The cases are stayed by
the CCAA Proceedings.
iii) Health-care cost recovery litigation
There are ten ongoing health-care cost recovery cases in Canada pending against the Company’s subsidiary and indemnitees
brought by all the Canadian provinces (except three Canadian territories). The cases are stayed by the CCAA Proceedings.
(2) Other legal proceedings
The Company and some of its subsidiaries are also engaged in other legal proceedings such as commercial and tax disputes.

23

9. Significant subsequent events
No items to report.

10. All figures are rounded off to the nearest unit.

24

Nonconsolidated Statement of Changes in Net Assets(Year ended December 31, 2021)(Millions of yen)
Shareholders’ equity
Capital surplus

Retained earnings
Other retained earnings

Capitalstock

As of January 1, 2021

Reserve forLegal capital Total capital Legal retained investment
surplussurplusearnings
loss ondeveloping
newbusiness

Reserve for
reduction
entry

Specialaccount for
reduction
entry

Retainedearnings
brought
forward

Total retained
earnings

100,000

736,400

736,400

18,776377

41,711

327

966,416

1,027,608

Provision of reservefor investment loss
on developing new
business

－

－

－

－

356

－

－

(356)

－

Reversal of reservefor investment loss
on developing new
business

－

－

－

－

(377)

－

－

377

－

Provision of reserve
for reduction entry

－

－

－

－

－

764

－

(764)

－

Reversal of reserve
for reduction entry

－

－

－

－

－

(4,761)

－

4,761

－

Provision of special
account for reduction
entry

－

－

－

－

－

－

425

(425)

－

Reversal of special
account for reduction
entry

－

－

－

－

－

－

(327)

327

－

Dividends fromsurplus

－

－

－

－

－

－

－

(251,961)(251,961)

Net income

－

－

－

－

－

－

－

216,896

216,896

Purchase of treasury
shares

－

－

－

－

－

－

－

－

－

Disposal of treasury
shares

－

－

－

－

－

－

－

(67)

(67)

Net changes of items
other thanshareholders’ equity

－

－

－

－

－

－

－

－

－

Total changes of items
during the period

－

－

－

－

(22)

(3,997)98(31,212)(35,132)

100,000

736,400

736,400

18,776356

37,715425

935,204

992,476

Changes of items
during the period

As of December 31,
2021

25

(Millions of yen)
Shareholders’ equity

Valuation and translation adjustments
Subscription
rights tosharesTotal net
assets

16,2591,252

1,390,011

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

Provision of special
account for reduction
entry

－

－

－

－

－

－

－

Reversal of special
account for reduction
entry

－

－

－

－

－

－

－

Dividends fromsurplus－(251,961)

－

－

－

－

(251,961)

Net income－

216,896

－

－

－

－

216,896

Purchase of treasury
shares

(0)

(0)

－

－

－

－

(0)

Disposal of treasury
shares

609

542

－

－

－

－

542

Net changes of items
other thanshareholders’ equity

－

－

1,764

(12,505)(10,742)(51)(10,792)

Total changes of items
during the period

608(34,524)

1,764(12,505)(10,742)(51)(45,316)(490,899)

1,337,977

5,833

(316)

5,517

1,202

1,344,696

Treasury shares

Total
shareholders’equityValuationdifference on
available-forsale securities(491,507)

1,372,501

4,069

12,189Provision of reservefor investment loss
on developing new
business－－－

Reversal of reservefor investment loss
on developing new
business－－

Provision of reserve
for reduction entry－

Reversal of reserve
for reduction entry

As of January 1, 2021

Deferred
gains orlosses onhedgesTotalvaluation andtranslation
adjustments

Changes of items
during the period

As of December 31,
2021

26

Notes to Nonconsolidated Financial Statements
1. Significant accounting policies(1) Basis and method of valuation for securities
Shares of subsidiaries and affiliates:
Stated at cost determined by the moving-average method.
Available-for-sale securities:
Securities with a fair value:
Stated at fair value based on market prices on the closing date of the accounting period. (Valuation difference is stated as acomponent of net assets and the cost of securities sold is calculated by applying the moving-average method.)
Securities without a fair value:
Stated at cost determined by the moving-average method.
(2) Basis and method of valuation for derivatives
Stated based on the fair value method.
(3) Basis and method of valuation for inventories
Stated at cost as determined by the average cost method.
(Balance sheet amounts are measured at the lower of cost or net selling value.)(4) Depreciation methods for depreciable assetsi) Property, plant and equipment (excluding leased assets)
The declining-balance method is applied. However, the straight-line method is applied for buildings (excluding accompanying
facilities) acquired on or after April 1, 1998 and for accompanying facilities and structures acquired on or after April 1, 2016.
The main useful lives are as follows:
Buildings (excluding accompanying facilities):
Machinery and equipment:

38 to 50 years
10 yearsii) Intangible assets (excluding leased assets)
Straight-line method
The main useful lives are as follows:
Patent right:
Right of trademark:

8 years
10 years

Software:
Goodwill:

5 years
10 yearsiii) Leased assets
For finance leases that do not transfer ownership of the leased property to the lessee, depreciation expense is mainly computedby the straight-line method over the lease period as the useful life assuming no residual value.

27

(5) Policy on accounting of provisionsi) Allowance for doubtful accounts
Provided for possible losses from bad debts at an amount determined based on the historical default rate for ordinary
receivables and the individual recoverability of specific doubtful receivables from customers experiencing financial difficulties.
ii) Provision for bonuses
Provided based on the estimated payable amount to provide for the payment of bonuses to employees and directors.
iii) Provision for retirement benefits
Provided in preparation for the payment of retirement benefits to employees based on the estimated retirement benefit
obligations and fair values of plan assets as of the end of this fiscal year. In calculating retirement benefit obligations, thebenefit formula basis is used as the method of attributing expected benefit to periods up to the year ended December 31, 2019.
Past service cost is amortized using the straight-line method over the average remaining years of service of the employees(mainly 10 years).
Actuarial gains and losses are amortized from the year following the year in which the gains or losses are recognized using thestraight-line method over the average remaining years of service of the employees (mainly 10 years).
Also included in the provision for retirement benefits is the portion of public pension expenses for mutual assistanceassociation during certain periods in or before June 1956 (prior to the enforcement of the Act on the Mutual Aid Association of
Public Corporation Employees).
(6) Policy on translation of assets and liabilities denominated in foreign currency into Japanese yen
Receivables and payables denominated in foreign currencies are translated into Japanese yen at the rates prevailing at the closing
date of the accounting period with translation differences treated as gains or losses occurring in the corresponding fiscal year.
(7) Method of hedge accounting
Deferral hedge accounting is applied.
For interest rates and currency swaps, if they satisfy the requirements for treatment that incorporates swaps into underlying
accounting items (accounting by applying foreign exchange rate stipulated in the contracts; exceptional treatment), they areaccounted for by incorporating swaps into underlying accounting items.
(8) National consumption tax and local consumption tax are excluded from the nonconsolidated statement of income.
(9) Adoption of consolidated taxation system
The Company applies for the consolidated taxation system.
(10) Application of tax effect accounting for the transition from the consolidated taxation system to the group tax sharing system
Concerning items which transitioned to the group tax sharing system and those for which the non-consolidated tax payment
system were reviewed in line with the transition to the group tax sharing system, which has been established under the “Act for
Partial Amendment of the Income Tax Act and Relevant Acts.” (Act No. 8 of 2020), the Company will not apply the provisionsof Paragraph 44 of “Implementation Guidance on Tax Effect Accounting” (Statement No.28 issued by the Accounting Standards
Board of Japan (ASBJ) on February 16,2018), in accordance with Paragraph 3 of “the Practical Solution on the Treatment of theTax Effect Accounting from the Consolidated Taxation System to the Group Tax Sharing System” (PITF No.39 of March 31,2020). As a result, the amounts of deferred tax assets and deferred tax liabilities are reported based on the provisions of the tax
act before the amendment.
(11) Changes in presentation method(Application of the "Accounting Standard for Disclosure of Accounting Estimates")
The "Accounting Standard for Disclosure of Accounting Estimates" (ASBJ Statement No.31, March 31, 2020) has been applied
from the current fiscal year and “Notes to accounting estimates” are stated in the notes to nonconsolidated financial statements.

28

2. Notes to accounting estimates
The following are the estimates and assumptions that have material impacts on the amounts recognized in the nonconsolidated
financial statements.
For the impact of the spread of COVID-19, please refer to “Notes to consolidated financial statements 2. Notes to accounting
estimates”.
Evaluation of shares of subsidiaries and affiliates(1) Amounts recorded in the nonconsolidated financial statements for the current fiscal year
Shares of subsidiaries and affiliates¥1,492,833 million(2) Information that helps understanding of the content of accounting estimates
Of the shares of subsidiaries and affiliates recorded in the balance sheet at the end of the current fiscal year, the shares of JT
International Group Holding B.V., a subsidiary, amounted to ¥1,355,146 million. Whether or not to recognize impairment of
the shares of that company is determined by comparing the carrying amount of those shares to the actual value calculated
based on net assets of that company. In addition, the Company determines whether the actual value of those shares has
declined significantly or not based on the result of impairment test of goodwill allocated per cash-generating unit in the
consolidated financial statements in accordance with IFRS. The assumptions used in the impairment test are based on
management’s best estimates and judgement. However, they may be affected by the results of changes in uncertain future
economic conditions, and if a review is necessary, it may have a significant impact on the amounts recognized in thenonconsolidated financial statements in future periods.

29

3. Notes to nonconsolidated balance sheet(1) Receivables and payables with respect to subsidiaries and affiliates (excluding items separately presented)
Short-term receivables:¥
17,166 million
Short-term payables:
Long-term payables:(2) Accumulated depreciation of property, plant and equipment:¥¥

37,348 million
2,677 million¥

432,592 million(3) Pursuant to Article 6 of the Japan Tobacco Inc. Act, the Company’s assets are pledged as general collateral for its corporate
bonds.
Amount of liabilities relating to collateral:

Bonds

¥

155,000 million(4) Guarantee obligations
Guaranteed party

Guarantee amountType of guarantee obligation(Millions of yen)
JT International
Financial Services B.V.

505,083

Bond guarantee, guarantee
denominated in foreign currencies¥

505,083 million

(EUR
(USD

2,050 million)
1,525 million)(GBP

400 million)

JT International Company
Netherlands B.V.

31,530Loan guarantee, guarantee
denominated in foreign currencies¥(EUR

31,530 million
242 million)

JT International
Hellas A.E.B.E.

27,807

Loan guarantee, guarantee
denominated in foreign currencies¥(EUR

27,807 million
213 million)

JT International Holding B.V.

26,232¥

26,232 million

JT International spol. s r.o

JT International S.A.

13,612

12,212

Loan guarantee, guarantee
denominated in foreign currencies
Loan guarantee, guarantee(EUR

180 million)others¥

13,612 million

denominated in foreign currencies(CZK

2,595 million)

Loan guarantee, guarantee
denominated in foreign currencies¥(CHF

12,212 million
57 million)(EUR
PT. Karyadibya Mahardhika

10,595

Other (58 companies)

120,787

Total

747,858

Loan guarantee, guarantee
denominated in foreign currencies

21 million)others¥

10,595 million(IDR

1,311,940 million)

Loan guarantee(5) Payables to Directors and Audit & Supervisory Board Members
Long-term payables:¥

236 million(6) “Cash management system deposits received” are funds entrusted in the cash management system for domestic groupcompanies.

30

4. Notes to nonconsolidated statement of income(1) Net sales including tobacco excise taxes for the year ended December 31, 2021 amounted to ¥1,506,274 million.
Net sales including tobacco excise taxes are the amount of net sales plus the amount equivalent to tobacco excise taxes.
(2) Amount of transactions with subsidiaries and affiliates
Net sales:
Purchase of goods:¥¥

49,410 million
51,013 million

Selling, general and administrative expenses:
Dividends income:¥¥

62,312 million
182,578 million

Amount of non-operating transactions:¥

12,910 million(3) Total research and development expenses are ¥53,902 million, all of which were recorded as general and administrative
expenses.
(4) Business restructuring costs is related to strengthen business operation in the Domestic Tobacco Business, mainly relate to
redundancy pay associated with early retirement and impairment losses on non-current assets associated with Kyushu Factoryclosure.

5. Notes to nonconsolidated statement of changes in net assets
Class and number of shares of treasury shares(Thousands of shares)
Number of shares as ofJanuary 1, 2021

Increase for the year
ended December 31,
2021

Decrease for the year
ended December 31,
2021

Number of shares asof December 31, 2021

Ordinary shares

225,7550280

225,475

Total

225,7550280

225,475

Treasury shares(Note) The increase of 0 thousand treasury shares (ordinary shares) is due to the purchase of shares less than one unit. The decrease of
280 thousand treasury shares (ordinary shares) is composed of 238 thousand shares due to the grant of restricted sharecompensation, 41 thousand shares due to the exercise of share options and 0 thousand shares due to sales of shares less than
one unit.

31

6. Tax effect accounting(1) Breakdown of deferred tax assets and deferred tax liabilities by major cause
Deferred tax assets
Provision for retirement benefits
Obligations pertaining to mutual assistance pension benefits¥¥

22,916 million
7,800 million

Investments in subsidiaries
Accounts payable to employees who have agreed to early retirement¥¥

12,232 million
15,670 million

Other

¥

36,791 million

Subtotal¥

95,409 million¥(24,447)million¥

70,962 million

Deferred tax liabilities
Reserve for reduction entry¥(16,496)million

Deferred gains or losses on hedges
Valuation difference on available-for-sale securities¥¥(11,157)million(1,933)million

Other

Less valuation allowance
Deferred tax assets total¥(12,625)million

Deferred tax liabilities total¥(42,211)million

Net deferred tax assets¥

28,751 million(2) The breakdown of major items that caused significant differences between the effective statutory tax rate and the actual tax rate
when applying tax effect accounting
Effective statutory tax rate

30.43%(Adjustments)
Permanent difference arising from non-deductible items including entertainment expenses
Permanent difference arising from non-taxable items including dividends income
Tax credit of items including research and development expenses
Other

0.41%
(22.26%)(1.04%)
0.64%

Actual effective tax rate after applying tax effect accounting

8.17%

32

7. Related-party transactions
Subsidiaries and Affiliates
Transaction amountType

Ownership
ratio ofvoting rights

Name

SubsidiaryType

Table Mark
Co., Ltd.

Directownership
100%

Relationwithrelated-parties

Lending offunds

Description oftransaction

Lending offunds

Receipt of
repayment of
funds

millions of yen

millions of yen

Lending offunds(Notes 1, 2)

30,23331,744Item

millions of yen
Short-term loan
receivables fromsubsidiaries andaffiliates

2,179

Long-term loan
receivables fromsubsidiaries andaffiliates

35,856

Ownership
ratio ofvoting rights

Relationwith relatedparties

TS Network Co., Ltd.

Directownership
85.25%

Deposits received
for cashmanagement
systemReceipt of surplus funds(Notes 1, 2)-

Cash management
system deposits
received

249,782

Torii PharmaceuticalCO., Ltd.

Directownership
54.87%

Deposits received
for cashmanagement
systemReceipt of surplus funds(Notes 1, 2)-

Cash management
system deposits
received

23,362

JT International
Financial Services
B.V.

Indirectownership
100%

Guarantee ofobligations

Guarantee of obligations(Note 3)505,083--

JT International
Company Netherlands
B.V.

Indirectownership
100%

Guarantee ofobligations

Guarantee of obligations(Note 3)31,530--JT International
Hellas A.E.B.E.

Indirectownership
100%

Guarantee ofobligations

Guarantee of obligations(Note 3)27,807--

JT International
Holding B.V.

Indirectownership
100%

Guarantee ofobligations

Guarantee of obligations(Note 3)

26,232--Name

Description of transaction

Transaction
amountItem

millions of yen

SubsidiaryEnd-of-periodbalanceEnd-ofperiodbalancemillions of yen

Transaction conditions and policy on determination of transaction conditions(Notes) 1. Interest rates on lending of funds and that on receipt of surplus funds are reasonably determined taking into account interest
rates on the market.
2. For lending/borrowing from the cash management system, transaction amounts are omitted from the table above because of
their frequent occurrence.
3. Guarantees of obligations are made for bank loans, and guarantee fees are calculated based on the guarantee amount.

8. Per share information(1) Net assets per share:¥

757.10(2) Net income per share:(3) Diluted net income per share:¥¥

122.23122.18

9. All figures are rounded off to the nearest unit.

33