[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.]

Securities Code: 2914
May 30, 2014

To Our Shareholders

Mitsuomi Koizumi
President, Chief Executive Officer andRepresentative Director

Japan Tobacco Inc.

2-1, Toranomon 2-chome, Minato-ku, TokyoNOTICE OF CONVOCATION OF
THE 29TH ORDINARY GENERAL MEETING OF SHAREHOLDERS
You are cordially invited to attend the 29th ordinary general meeting of shareholders of Japan Tobacco Inc.
(“JT” or the “Company”) to be held as set forth below.
If you cannot attend the meeting, you may exercise your voting rights in written form or byelectromagnetic means including the Internet. Please see the “Reference Documents for the General
Meeting of Shareholders” hereinafter described and exercise your voting rights by 6:00 p.m., on
Monday, June 23, 2014, by returning to us by that time the Voting Rights Exercise Form enclosed
herewith indicating whether you are for or against each of the items, or by accessing the web-site
designated by us for the exercise of voting rights (http://www.evote.jp/).
Particulars
1. Date and Time of the Meeting: Tuesday June 24, 2014 at 10:00 a.m.
2. Place of the Meeting:Tokyo Prince Hotel
3-1, Shibakoen 3-chome, Minato-ku, Tokyo

3. Purpose of the Meeting:
Matters to be Reported:

1. Report on the Business Report, the Consolidated Financial
Statements, and the Accounting Auditors’ Report and JT’s Audit &Supervisory Board Report on the Consolidated Financial Statements
for the 29th Business Term (From April 1, 2013 to March 31, 2014)
2. Report on the Non-Consolidated Financial Statements for the 29th
Business Term (From April 1, 2013 to March 31, 2014)

Matters to be Resolved:
Company’s Proposals (Item 1 to Item 4)Distribution of Surplus
Item 1:
Partial Amendments to the Articles of Incorporation
Item 2:
Election of Eight (8) Directors
Item 3:
Election of One (1) Substitute Audit & Supervisory Board Member
Item 4:
Shareholder’s Proposals (Item 5 to Item 9)
Dividend Proposal
Item 5:
Share Buy-backItem 6:
Partial Amendments to the Articles of Incorporation
Item 7:
Cancellation of All Existing Treasury Shares
Item 8:
Partial Amendments to the Articles of Incorporation
Item 9:-1-

4. Other Decisions on the Convocation of the Meeting(1) If the voting right is exercised both by return of the Voting Rights Exercise Form and via the Internet,
only the exercise of the voting right via the Internet shall be valid.
(2) If the voting right is exercised more than once via the Internet, only the last exercise of the voting rightshall be valid.

Information on Matters Posted on JT’s Web-site
1. Notes to Consolidated and Non-Consolidated Financial Statements are posted on our web-site(http://www.jti.co.jp/) in accordance with laws and regulations, and the provision in Article 17 of the
Articles of Incorporation. Therefore, they are not included in this Notice of Convocation of the 29th
Ordinary General Meeting of Shareholders.
In addition to documents stated in the reference documents attached to the Notice of Convocation of the
29th Ordinary General Meeting of Shareholders, Notes to Consolidated and Non-Consolidated Financial
Statements posted on the Company’s web-site are included in Consolidated and Non-Consolidated
Financial Statements audited by Audit & Supervisory Board Members and the Accounting Auditors in thecourse of preparing Audit Report and Accounting Auditors’ Report respectively.
2. If there is any amendment to the “Reference Documents for the General Meeting of Shareholders,”
Business Report (available in Japanese), or Non-Consolidated and Consolidated Financial Statements(available in Japanese), it will be published on our web-site (http://www.jti.co.jp/).

JT’s web-site

http://www.jti.co.jp/* For those attending, please bring this Notice of Convocation of the 29th Ordinary General Meeting of
Shareholders with you.
* In case an agent attends the meeting, please present a proxy together with the Voting Rights Exercise Format the reception desk on arrival at the meeting.
Only one other shareholder who can exercise the voting rights at the 29th Ordinary General Meeting of
Shareholders is supposed to be eligible to serve as your agent.
* Please note that the meeting will be conducted in Japanese only. An interpreter, including a sign language
interpreter, may accompany you. If you would like to have an interpreter accompany you, please tell so at
the reception desk. It is also possible for us to arrange a Japanese sign language interpreter for you. If you
are in need of this service, please inquire us in writing by June 17 (your letter of inquiry must reach us by
this date).
* It is expected to be crowded immediately before the meeting begins. If meeting room No.1 becomes full,
you will be ushered to meeting room No.2. We ask that you come to the meeting at your earliest
convenience.

-2-

Instructions for Exercising Your Voting Rights
Exercise of voting rights at the Company’s General Meeting of Shareholders is shareholders’ important right.
Please by all means exercise your voting rights.

Relation between Item 1, company’s proposal, and Item 5, shareholder’s proposal:
Item 5 “Dividend Proposal,” which is a shareholder’s proposal, is a counter proposal against Item
1 “Distribution of Surplus,” which is the Company’s proposal. Therefore, Item 1 and Item 5 areincompatible. In addition, if there is no indication of for or against on each proposal, it shall bedeemed that you have voted “for” the Company’s proposal and “against” the shareholder’s
proposal. Accordingly, please note that, in cases where you exercise your voting rights to vote forboth Item 1 and Item 5 in written form or by electromagnetic means, or to vote neither for nor
against Item 1 and to vote for Item 5 in written form, the exercise of the voting rights concerning
Item 1 and Item 5 will be invalid.
There are three methods to exercise your voting rights as indicated below.
In case of attending themeeting

Please present the Voting Rights Exercise Form at thereception desk on arrival at the meeting. (Not required toplace a seal.)B．

In case of exercising the
Voting Rights by post

Please post the Voting Rights Exercise Form indicating
whether you are for or against each of the items so as tobe returned to us by 6:00 p.m., on Monday, June 23,
2014.

C．

In case of exercising the
Voting Rights via theInternet

See the next page.

A．

To institutional
investors

JT participates in the voting rights exercise platform operated andadministered by ICJ, Inc.

-3-

Instructions for Exercise of the Voting Rights via the Internet
For the exercise of the voting rights via the Internet, please access the designated web-site for the exercise of
the voting rights (“Voting Rights Exercise Web-site”), and exercise your voting rights after confirming theitems below.
If you have any inquiries, please contact “Inquiries on systems, etc. (Help Desk)” provided below.
For those attending, procedures for exercising your voting rights by post (return of the Voting Rights
Exercise Form) or via the Internet are unnecessary.
Particulars
1. Voting Rights Exercise Web-site
Voting Rights Exercise
Web-site

http://www.evote.jp/(1)The exercise of the voting rights via the Internet is available only by accessing the Voting Rights
Exercise Web-site from your computer or smartphone. (However, you will not be able to access theweb-site from 2:00 a.m. to 5:00 a.m. each day during the exercise period.)(2)If you use firewalls, etc. for the Internet connection, antivirus programs or a proxy server, you may not
be able to access the web-site depending on your Internet environment.
(3)The exercise of the voting rights via the Internet is only available until 6:00 p.m. on Monday June 23,
2014. We appreciate it if you exercise your voting rights at your earliest convenience.
2. Exercise of the Voting Rights via the Internet(1) On the Voting Rights Exercise Web-site, please indicate whether you are for or against each of theitems following the directions on the web-site using the “Log-in ID” and “Temporary Password”
described in the Voting Rights Exercise Form.
(2) In order to prevent unauthorized access (web spoofing) or alteration of the voting by nonshareholders, you will be asked to change your “Temporary Password” on the Voting Rights Exercise
Web-site.
(3) JT will notify you of the new “Log-in ID” and “Temporary Password” at each convocation of theGeneral Meeting of Shareholders.
3. In the Event Voting Rights Are Exercised More than Once
(1) If the voting right is exercised both by return of the Voting Rights Exercise Form and via the Internet,
only the exercise of the voting right via the Internet shall be valid.
(2) If the voting right is exercised more than once via the Internet, only the last exercise of the voting
right shall be valid.
4. Fees Incurred When Accessing the Voting Rights Exercise Web-site
Each shareholder shall bear any fees for accessing the Voting Rights Exercise Web-site (Internet provider
connection fees, communications fees, etc.).

-4-

If you have any inquiries, please contact “Help Desk” shown below.
Mitsubishi UFJ Trust and Banking Corporation
Corporate Agency Division
Inquiries on systems, etc.

Help Desk
Tel: 0120-173-027 (Japanese-language only)(Business hours: 9:00 to 21:00, Toll-free)-5-

REFERENCE DOCUMENTS
FOR THE GENERAL MEETING OF SHAREHOLDERS
Company’s Proposals (Item 1 to Item 4)
Company’s Proposal
Item 1: Distribution of Surplus
The year-end dividends on shares of Common Stock for the 29th Business Term are proposed to be paidwith a consolidated dividend payout ratio at 40.8%, meeting the target of 40%, which was announced as atarget of the Business Plan 2013 at the beginning of the term, as follows.
(1) Type of assets to be paid as dividends:
Cash(2) Allotment of assets to be paid as dividends and their aggregate amount:¥50 per share of Common Stock of JT

Aggregate amount: ¥90,877,400,600

Together with the interim dividends of ¥46 per share paid in November 2013, the annual dividends forthe 29th Business Term will be ¥96 per share, a ¥28 increase year-on-year.
(3) Effective date for distribution of surplus:
June 25, 2014

Reference: JT’s basic view on allocation of management resources
The Company prioritizes business investments for sustainable future profit growth in the mid- to longterm, in line with these management principles, and seeks to improve the attractiveness of our shareholder
returns at the same time by benchmarking global FMCG (*1) companies in a variety of sectors.
In the Business Plan 2014, the Company set out targets for the adjusted operating profit (*2) growth rate
(at constant rates of exchange), the consolidated dividend payout ratio and the adjusted EPS (*3) growthrate (at constant rates of exchange) as follows.

Shareholders

Consumers

Society

Employees

Management Principle
We will balance the interests of consumers, shareholders, employees and wider
society, and fulfill our responsibilities towards them, aiming to exceed their
expectations.

-6-Group Profit Target
Adjusted Operating Profit
Growth Rate(at constant rates of exchange)

Mid to high single-digit (*4) annual average growth rate (*5)
over the mid- to long-term

Shareholder Return Target
Consolidated Dividend Payout
Ratio

In order to be on par with global players in the FMCG
business, aim for at least 50%. Aim for 50% in the fiscal year
ending December 31, 2015.

Adjusted EPS Growth Rate(at constant rates of exchange)

High single-digit (*6) annual average growth rate (*5) overthe mid- to long-term*1

FMCG: Fast Moving Consumer Goods (daily consumer goods)*2

Effective the fiscal year ending December 31, 2014, the profit target measurement has been changed toadjusted operating profit (at constant rates of exchange). Adjusted operating profit is calculated bydeducting amortization of intangible assets associated with acquisitions and adjustment items (income
and costs) from operating profit (loss). Adjustment items (income and costs) are impairment losses on
goodwill, and restructuring-related income and costs.
In addition, adjusted operating profit (at constant rates of exchange) growth rate in the consolidated
performance is a financial measurement that excludes foreign exchange effects by translating andcalculating adjusted operating profit for the current period in the international tobacco business using
the foreign exchange rates of the same period of the previous fiscal year.
Adjusted EPS = (Profit or loss attributable to owners of the parent company ± adjustment items (income
and costs)* ± tax and minority interests adjustments) / (weighted-average common shares + increased
number of ordinary shares under subscription rights to shares)*3*Adjustment items (income and costs): Impairment losses on goodwill ± restructuring income and costs± others*4

mid to high single-digit: mid to high single-digit-percentage*5

On a comparable basis under the assumption that the fiscal year is 12 months from January to
December*6

high single-digit: high single-digit-percentage-7-Company’s Proposal
Item 2: Partial Amendments to the Articles of Incorporation
1. Reasons for Amendments
While the fiscal year of the Company begins on April 1 every year and ends on March 31 of the following
year, the meeting of the Board of Directors held on January 30, 2014 decided to change it to cover the twelve
months from January 1 to December 31 from the fiscal year 2015 for the purpose of strengthening andenhancing the efficiency of the Company’s financial reporting and management systems across the Group. It
also ensures timely and appropriate disclosure of management information to further enhance transparencyof management by unifying the accounting period with its international consolidated subsidiaries.
Pursuant to this decision, necessary amendments are to be made to Articles 13 (Record Date), 15(Convocation), 32 (Business Year), 33 (Year-End Dividends), and 34 (Interim Dividends) of the Company's
current Articles of Incorporation.
In addition, as the 30th Business Term will cover the nine months from April 1, 2014 to December 31, 2014as a result of this change in the business year, supplementary provisions are also to be established as atransitional measure.
2. Proposed amendments
Proposed amendments are as follows.
Current Articles of Incorporation

Proposed Amendments(Record Date)
Article 13: The Company shall deem any
shareholder whose name appears in the
Shareholder Registry as of March 31st of ayear to be the shareholder who is entitled toexercise his/her rights in the Ordinary General
Meeting of Shareholders of each respective
business year.

(Record Date)
Article 13: The Company shall deem any
shareholder whose name appears in the
Shareholder Registry as of December 31st of ayear to be the shareholder who is entitled toexercise his/her rights in the Ordinary General
Meeting of Shareholders of each respective
business year.

(Convocation)
Article 15: The Ordinary General Meeting of
Shareholders of the Company shall be convened inJune of every year and the extraordinary General
Meeting of Shareholders may be convened at any
time when deemed necessary by the President
pursuant to the resolution of the Board of
Directors.

(Convocation)
Article 15: The Ordinary General Meeting of
Shareholders of the Company shall be convened in
March of every year and the extraordinary General
Meeting of Shareholders may be convened at any
time when deemed necessary by the President
pursuant to the resolution of the Board of
Directors.

(Business Year)
Article 32: The business year of the Company shallcommence on April 1st and end on March 31st of
the ensuing year

(Business Year)
Article 32: The business year of the Company shallcommence on January 1st and end on December
31st.

-8-

(Underlined parts denote amendments)
Current Articles of Incorporation

Proposed Amendments(Year-End Dividends)(Year-End Dividends)

Article 33: The Company shall, by the resolution of
Article 33: The Company shall, by the resolution of
the General Meeting of Shareholders, pay
the General Meeting of Shareholders, paymonetary dividends of its retained earnings
monetary dividends of its retained earnings(hereinafter referred to as “Year-End Dividends”)(hereinafter referred to as “Year-End Dividends”)
to the shareholders or registered pledgees of sharesto the shareholders or registered pledgees of shares
who are recorded in the Shareholder Registry as of
who are recorded in the Shareholder Registry as ofMarch 31st of every year.
December 31st of every year.
(Interim Dividends)(Interim Dividends)

Article 34: The Company may, by the resolution of
the Board of Directors, pay dividends of its
retained earnings as prescribed in Article 454,
Paragraph 5 of the Companies Act (hereinafterreferred to as “Interim Dividends”) to theshareholders or registered pledgees of shares who
are recorded in the Shareholder Registry as of
September 30th of every year.

Article 34: The Company may, by the resolution of
the Board of Directors, pay dividends of its
retained earnings as prescribed in Article 454,
Paragraph 5 of the Companies Act (hereinafterreferred to as “Interim Dividends”) to theshareholders or registered pledgees of shares who
are recorded in the Shareholder Registry as ofJune 30th of every year.

SUPPLEMENTARY PROVISIONSSUPPLEMENTARY PROVISIONS(Newly established)

Article 5: Notwithstanding the provision of Article
32 (Business Year), the Company’s 30th businessyear shall commence on April 1st, 2014 and end
on December 31st, 2014.

(Newly established)

Article 6: Notwithstanding the provision of Article
34 (Interim Dividends), the Company’s record
date for interim dividends of the Company’s 30th
business year shall be September 30th, 2014. This
article and the preceding article shall be deleted
after the 30th business year.

-9-Company’s Proposal

Item 3: Election of Eight (8) Directors
The terms of office of all nine (9) present Directors will expire at the conclusion of this ordinary general
meeting of shareholders. Accordingly, the election of eight (8) Directors is proposed.
The candidates for the office of Director are as follows:
Candidate Number

1

Yasutake Tango(Born March 21, 1951)

Number of the Company’s Shares Held0

Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent Positions
outside the Company

Newly appointed

April 1974

Entered Ministry of FinanceOctober 2006

Director-General of the Financial Bureau

July 2007

Deputy Vice Minister

July 2008

Director-General of the Budget Bureau

July 2009

Administrative Vice Minister

July 2010Retired from the office of Administrative Vice Minister

December 2010

Corporate Auditor, The Yomiuri Shimbun Holdings

December 2012

Special Advisor to the Cabinet

Candidate number

2

Mitsuomi Koizumi(Born April 15, 1957)

Number of the Company’s Shares Held

22,700Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent Positions
outside the Company

Reappointed

April 1981

Joined the Company (Japan Tobacco and Salt Public Corporation)

June 2001

Vice President of Corporate Planning Division

June 2003

Senior Vice President, and Head of Human Resources and Labor Relations Group

June 2004

Senior Vice President, and Vice President of Tobacco Business Planning Division, Tobacco
Business Headquarters

June 2006

Executive Vice President, and Vice President of Tobacco Business Planning Division, Tobacco
Business Headquarters

June 2007

Member of the Board, Executive Vice President, and Head of Marketing & Sales General
Division, Tobacco Business Headquarters

July 2007

Member of the Board, Executive Vice President, and Chief Marketing & Sales Officer,
Tobacco Business Headquarters

June 2009

Representative Director, Executive Deputy President, and President, Tobacco Business
Headquarters

June 2012

President, Chief Executive Officer and Representative Director(Current Position)- 10 -

Candidate Number

3

Yasushi Shingai(Born January 11, 1956)

Number of the Company’s Shares Held

22,400Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent Positions
outside the Company

Reappointed

April 1980

Joined the Company (Japan Tobacco and Salt Public Corporation)

July 2001

Vice President of Financial Planning Division

June 2004

Senior Vice President, Head of Finance Group

July 2004

Senior Vice President, Chief Financial Officer

June 2005

Member of the Board, Senior Vice President, and Chief Financial Officer

June 2006

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

June 2011

Executive Deputy President, Representative Director, Assistant to CEO in Strategy, HR, Legaland Food Business

June 2012

Executive Deputy President, Representative Director, Assistant to CEO in Compliance,
Strategy, HR, General Administration, Legal, and Operation Review & Business Assurance(Current Position)

Candidate Number

4

Noriaki Okubo(Born May 22, 1959)

Number of the Company’s Shares Held

9,600

Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent Positions
outside the Company

Reappointed

April 1983

Joined the Company (Japan Tobacco and Salt Public Corporation)

April 2000

Vice President of Business Development Dept., Pharmaceutical Division

June 2002

Vice President of Business Planning Dept., Pharmaceutical Division

June 2004

Member of the Board, Senior Vice President, and President, Pharmaceutical Business

June 2006

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

June 2009

Member of the Board, Senior Executive Vice President, and President, PharmaceuticalBusiness

June 2012

Executive Deputy President, Representative Director, Assistant to CEO in Pharmaceuticaland Food Business

June 2013

Executive Deputy President, Representative Director, Assistant to CEO in Pharmaceutical,
Beverage and Processed Food Business(Current Position)- 11 -

Candidate Number

5

Akira Saeki(Born August 25, 1960)

Number of the Company’s Shares Held

13,800Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent Positions
outside the Company

Reappointed

April 1985

Joined the Company

June 2005

Vice President of Corporate Strategy Division

June 2007

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

June 2008

Senior Vice President, Head of Tobacco Business Planning Division, Tobacco Business andChief External Affairs Planning Officer

June 2010

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

June 2012

Executive Deputy President, Representative Director, and President, Tobacco Business(Current Position)(Significant Concurrent Positions outside the Company)
Chairman, JT International Group Holding B.V.

Candidate Number

6

Hideki Miyazaki(Born January 22, 1958)

Number of the Company’s Shares Held

10,600Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent Positions
outside the Company

Reappointed

April 1980

Joined Nomura Securities Co., Ltd.

July 2005

Senior Manager of Accounting Division of the Company

January 2006

Deputy Chief Financial Officer

June 2008

Senior Vice President, and Chief Financial Officer

June 2010

Executive Vice President, and Chief Financial Officer

June 2012

Executive Deputy President, Representative Director, Assistant to CEO in CSR, Financeand Communications(Current Position)- 12 -

Candidate Number

7

Motoyuki Oka

Number of the Company’s Shares Held0

Number of years as director (at the conclusion of this ordinary
general meeting of shareholders)2(Born September 15, 1943) Attendance at meetings of the Board of Directors

Attended 13 out of 15
meetings held

Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent Positions
outside the Company

Reappointed
Candidate for
Outside Director
Independent
Director

April 1966

Joined Sumitomo Corporation

June 1994

Director, Sumitomo Corporation

Reasons for becoming a candidate

April 1998

Managing Director, Sumitomo Corporation

April 2001

Senior Managing Director, Sumitomo
Corporation

June 2001

President and CEO, Sumitomo Corporation

June 2007

Chairman of the Board of Directors,
Sumitomo Corporation

June 2012

Adviser, Sumitomo Corporation

The election of Motoyuki Oka is
proposed in anticipation that his
abundant experience in the
management of global firms and his
wide range of insight will bereflected into our company’s
management. We asked for his
participation in the election in hopesof independent and fair supervisionof business operations.

(Current Position)
June 2012

Outside Director of the Company(Current Position)(Significant Concurrent Positions outside the Company)
Outside Director, NEC Corporation- 13 -

Candidate Number

8

Main Kohda(Born April 25, 1951)

Number of the Company’s Shares Held0

Number of years as director (at the conclusion of this ordinary
general meeting of shareholders)2

Attendance at meetings of the Board of Directors

Attended 14 out of 15
meetings held

Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent Positions
outside the Company
September 1995

Started independently as Novelist
Reasons for becoming a candidate(Current Position)
January 2003

Member of Financial System Council, Ministry of
Finance Japan

Candidate for
Outside Director

April 2004

Visiting professor, Faculty of Economics, Shiga
University

Independent
Director

March 2005

Member of the Council for Transport Policy,
Ministry of Land, Infrastructure, Transport andTourism

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

Reappointed

The election of Main Kohda is
proposed in anticipation that her
abundant insight into international
finance, extensive experiences frombeing a university professor andmember of governmental advisory
bodies, etc. and deep insight andobjective standpoint she obtained
while being a novelist will be reflected
onto the management of the Company.
We asked for her participation in theelection in hopes of independent andfair supervision of business operations.

(Current Position)(Significant Concurrent Positions outside the Company)
Novelist
Outside Director, LIXIL Group Corporation(Notes) 1. No conflict of interest exists between the Company and the above candidates.
2. The Company has entered into agreements with both Motoyuki Oka and Main Kohda to limit their liabilities stipulated in Article 423,
Paragraph 1 of the Companies Act to the extent permitted by the laws and ordinances. Should their election be approved, theCompany intends to extend the respective agreements.
3. The Company has designated Motoyuki Oka and Main Kohda as independent directors as prescribed by the Tokyo Stock Exchange,
Inc. and intends to designate both of them as such again, should their election be approved.

- 14 -

Company’s Proposal
Item 4: Election of One (1) Substitute Audit & Supervisory Board Member
In preparation against a situation where the number of Outside Auditors falls below the statutory required number,the election of one (1) Substitute Audit & Supervisory Board Member is proposed.

The Audit & Supervisory Board has approved this proposition.
The candidate for the office of Substitute Audit & Supervisory Board Member is as follows:

Michio Masaki(Born February 20, 1961)

Number of the Company’s Shares Held0

Brief Personal History, Positions in the Company, and Significant Concurrent Positions outside the Company
April 1987

Judicial Apprentice

April 1989

Appointed as Public Prosecutor

July 2003

Head of Takasaki Branch, Maebashi District
Public Prosecutors Office

April 2004

Registered as Attorney at Law
City-Yuwa Partners

Reasons for candidacy as a SubstituteOutside Auditor and reasons why thecandidate is considered capable ofperforming the duties as an Outside
Auditor even if he lacks experience ofparticipation in corporate management
except as an outside director.
He is deemed able to perform the duties as
the Company’s Outside Auditor based on
his abundant experience and extensive
insight in the legal circles.

(Current Position)(Significant Concurrent Positions outside the Company)
Attorney at Law, City-Yuwa Partners
Outside Director, Hamai Co., Ltd.

(Notes)1. No conflict of interest exists between the Company and the above candidate.
2. Should Mr. Michio Masaki assume the position of Audit & Supervisory Board Member, the Company intends to enter into anagreement with him to limit his liabilities stipulated in Article 423, Paragraph 1 of the Companies Act to the extent permitted by thelaws and ordinances.
3. Mr. Michio Masaki satisfies the requirements of an independent auditor prescribed by the Tokyo Stock Exchange, Inc.

- 15 -

Shareholder’s Proposals (Item 5 to Item 9)
The proposals from Item 5 to Item 9 were made by a shareholder.
The Board of Directors’ general view on the shareholder’s proposals

The Board of Directors is opposed to all five proposals from the proposing shareholder.
The Board of Directors believes that it is in the best interests of all shareholders to achieve sustainableprofit growth in the mid- to long-term through business investments for future profit growth and to increase
the Company’s value thereby.
The proposing shareholder has made substantially the same proposals regarding the return to shareholders
and cancellation of treasury shares as those that were rejected at the General Meeting for Shareholders in
the last two years. In addition, the proposing shareholder has proposed an amendment to the Articles ofIncorporation for the purpose of the more active use of stock options.
The proposed cash return to shareholders is against the Company’s management principle, as the proposal
is based on the premise that a return to shareholders should be a priority. In addition, it is focused on the
short-term, as it significantly exceeds the amount of cash flow generated by the business and would require
the Company to engage in additional financial borrowing from a third party. Thus, in the event thatthese shareholder proposals were approved, it would become an obstacle to making business
investments for future profit growth and increasing the Company’s value through sustainable profit
growth in the mid- to long-term.
Furthermore, given a legal restriction on the issuance of new shares under the relevant provisions of
the Japan Tobacco, Inc. Act (“JT Act”), the Company believes that it is important to maintain flexibility to
use treasury shares as a substitute for the issuance of new shares and to ensure the flexibility of operations,rather than cancelling all of the treasury shares. Therefore, the Board of Directors believes that decisions
on capital strategy, including cancellation of treasury shares, should be entrusted to the Board of
Directors. This will ensure adaptability and flexibility to respond to a changing operating environment,
and will lead to an increase in the Company’s value through sustainable profit growth in the mid- to longterm.
In addition, the remuneration of the Company’s Directors and Executive Officers, including stock options
granted to them as remuneration, is determined through an appropriate process, and the Board of
Directors believes that the remuneration is set at an appropriate level. It is deliberated on by the
Remuneration Advisory Committee—which is comprised of the Chairman of the Board and four (4)independent Directors and Corporate Auditors— by benchmarking the remuneration level of a group ofmajor Japanese manufacturers of similar size and profit level conducting business overseas. As shown by
the Company‘s steady and continuous profit growth, the remuneration system for the Company‘s
Executives, including stock options, has worked well as an incentive for improving the Company’s value inthe mid- to long-term.
Further still, the proposal regarding the stock option plan is inappropriate since it may affect such capital
strategy as the issuance of new shares for the purpose of financing, beyond the directors’ remuneration.
Therefore, the Board of Directors believes that decisions on the remuneration policy for the Company‘s
Executives should be entrusted to the Board of Directors.
The Board of Directors recommends all shareholders of the Company to oppose all of the shareholder’s
proposals.

- 16 -

The five proposals made by the shareholder and reasons for such proposals which are stated as presented,
together with the Board of Directors’ view on each of them, are as follows.
Shareholder Proposal
Item 5: Dividend Proposal
1. Proposal
The year-end dividends on shares of Common Stock for the 29th fiscal year shall be paid in the amount of
JPY150 per share of Common Stock.
2. Reason for Proposal
The Company has sufficient cash and retained earnings to pay a higher dividend. The Company has on
average returned 31% of its earnings to shareholders as dividends in the last three years which is a
substantially lower dividend payout ratio compared to its international competitors. The Company’scompetitors, British American Tobacco and Philip Morris International, pay 65% of their earnings toshareholders while their net debt to EBITDA ratio is approximately 1.5x. The Company will havesufficient net cash this year to afford a dividend payout ratio which is HIGHER than its competitors.
The Board of Directors’ view on Item 5
The Board of Directors is opposed to this proposal.
The Board of Directors has prioritized business investments for sustainable profit growth in the mid- tolong-term, while at the same time pursuing a competitive level of return to shareholders in comparison to
global FMCG players. (*1)
The Company has achieved a compound annual EBITDA growth rate of 7.0% during the fiscal years
2000 to 2013 through business investments which include the acquisitions of RJR International andGallaher. In the International Tobacco Business that we have focused on in particular so far, theCompany has achieved a compound annual US dollar based EBITDA growth rate of 22.3% (*2) during theperiod.
In the Business Plan 2013 announced in April 2013, the Board of Directors set out a target rate for the
adjusted EBITDA growth rate (*3) (at constant FX) of 6.1% and a consolidated dividend payout ratio of
40% in the fiscal year 2013. The Company has achieved an adjusted EBITDA growth rate (at constantFX) of 7.5%, far exceeding the target rate. The Board of Directors considers it appropriate to continue
such profit growth through business investments.
Further, the Company has steadily enhanced the amount of return to shareholders with a compound
annual growth rate of 28.9% in dividend per share during the past five years through profit growth anda continuous increase in the dividend payout ratio.
The dividend per share at the end of the fiscal year 2013 is expected to be ¥50 according to the Company’s
proposal Item 1. As a result, a total dividend per share for the fiscal year is expected to be ¥96, and aconsolidated dividend payout ratio is expected to be 40.8%, which exceeds 40% as the target rate set forth in
the Business Plan announced in April 2013.
In the Business Plan 2014 announced on April 25, the Board of Directors expects the amount of dividend
per share for the fiscal year 2014 to be 100 yen, increasing the dividend per share from the fiscal year
2013, while the fiscal year 2014 is a transitional period covering only 9 months from April to December
2014. The target rate for the consolidated dividend payout ratio has been set out at 50% for the fiscal year
2015 (from January to December 2015), which is comparable to other global FMCG players in terms ofan annual consolidated dividend payout ratio. The Company continues to steadily enhance the amount ofreturn to shareholders.
In the meantime, in the event that the shareholder’s proposal for return were approved, the total amount of
the annual dividend per share in the fiscal year 2013 would be ¥196 (including the interim dividend),
which amounts to a total dividend of ¥356.2 billion, or a consolidated dividend payout ratio of 83.2%.
At the end of the fiscal year 2013, the amount of the Company’s net debt, which is calculated by subtracting- 17 -

cash and cash equivalents from debt with interest, was ¥122.7 billion. Taking the unstable circumstances ofcapital markets into consideration, the Board of Directors believes that the significantly high return as
stated in the proposal, which would require the Company to engage in additional financial borrowing from athird party, is short-term focused harming financial stability and flexibility, and would restrict business
investments for future profit growth, resulting in loss of business competitiveness and a decrease in the
Company’s value in the mid- to long-term.
*1 FMCG: Fast Moving Consumer Goods*2 2000-2009: Based on US-GAAP, 2010-2013: IFRS basis*3 Adjusted EBITDA = Operating profit + depreciation and amortization ± adjustment items (income and costs)
Adjustment items (income and costs): Impairment losses on goodwill ± restructuring income and costs ± others- 18 -

Reference: Adjusted EBITDA growth

Reference: Dividend payment per share and consolidated dividend payout ratio

(*5)
(*6)

*5

A 200 for 1 share split was effectuated as of July 1, 2012. The above numbers are calculated on the assumptionthat the share split was retroactively effective.

*6

Consolidated dividend payout ratio for FY2010 and prior fiscal years are calculated in JGAAP based on earning
before goodwill amortization. FY2011 and fiscal years thereafter are calculated in IFRS.

- 19 -

Shareholder Proposal
Item 6: Share Buy-back
1. Proposal
Pursuant to Article 156 .1 of the Companies Act, the Company will acquire its shares of Common
Stock in exchange for cash as follows:• Shares to be acquired: 200,000,000;• Maximum aggregate amount of consideration: JPY800,000,000,000 (the “Proposed Amount”);
provided that, if the aggregate amount for acquisition as permitted under the Companies Act (the“Distributable Amount” as set forth in Article 461 of the Companies Act) is less than the Proposed
Amount, it shall be reduced to such amount as permitted under the Companies Act; and• Period for the acquisition: Within 1 year from the end of this Ordinary General Meeting for
Shareholders
2. Reason for Proposal
The capital structure of the Company is underleveraged and the shares are undervalued. The Company
should use its cash resources to buy back shares and then to raise its dividend payout in line with its
international peers. This will ensure the Board delivers on its pledge to prioritize the return of profits toshareholders and to deliver a competitive shareholder return with balance sheet leverage closer to its
competitors.
The Board of Directors’ view on Item 6

The Board of Directors is opposed to this proposal.
The Board of Directors has prioritized business investments for sustainable profit growth in the mid- tolong-term, and is also pursuing a competitive level of return to shareholders in comparison to global FMCG
players.
Considering that the amount of the Company’s net debt at the end of the fiscal year 2013 was ¥122.7
billion, and the average amount of free cash flow per annum over the last three years was over ¥320.0
billion, the Company would be required to engage in additional financial borrowing of the same amountfrom a third party in order to implement the share buy-back of ¥800 billion as stated in the proposal.
The proposal, which far exceeds the amount of cash flow generated by the business, is short-term
focused harming financial stability and flexibility, and would become an obstacle to making business
investments for future profit growth, resulting in loss of business competitiveness and a decrease in the
Company’s value in the mid- to long-term.
Regarding possible future share repurchases, the Board of Directors will determine this in a timely andappropriate manner in accordance with the operating environment from the perspective of properly
managing the adjusted EPS (*7) growth rate that is set as the key performance indicator relating to return toshareholders.
*7 Adjusted EPS = (Profit or loss attributable to owners of the parent company ± adjustment items (income and costs) ±tax and minority interests adjustments) / (weighted-average common shares + increased number of ordinary shares
under subscription rights to shares) Adjustment items (income and costs): Impairment losses on goodwill ±restructuring income and costs ± others- 20 -

Shareholder Proposal
Item 7: Partial Amendment to the Articles of Incorporation
1. Proposal
The following new provision will be added as Article 19-2 in Chapter 3 “General Meeting for
Shareholders” of the Articles of Incorporation:
Article 19-2
The general meeting for shareholders can resolve the matters in respect ofcancellation of treasury shares including the class and the number of shares to be cancelled, in addition to
the matters set forth in the Companies Act.
2. Reason for Proposal
The Company has been holding treasury shares without using them properly or cancelling them. If thetreasury shares are to be allocated to the public or particular third parties, the interest of the existing
shareholders will be significantly damaged.
In order to protect the interest of the shareholders, the general meeting for shareholders should have theauthority to resolve matters in respect of cancellation of treasury shares by its resolution.
The Board of Directors’ view on Item 7

The Board of Directors is opposed to this proposal.
Under the JT Act, the Company has a legal restriction on the issuance of new shares pursuant to theprovision that requires the approval of the Minister of Finance and the provision that stipulates theobligation of the government to hold one-third or more of the total number of the issued shares of theCompany. (*8) (*9)
Treasury shares can be utilized in a capital strategy as a substitute for the issuance of new shares. The
Board of Directors believes that, considering the legal restriction on the Company as stated above, it isimportant to maintain flexibility to use treasury shares and to ensure the flexibility of operations, rather thancancelling all of the treasury shares.
The Board of Directors intends to use treasury shares if it determines that the Company can realize profit
growth in the mid- to long-term and it will be in the best interests of all shareholders. The Board of
Directors believes that decisions on capital strategy, including cancellation of treasury shares, should be
entrusted to the Board of Directors, and that this will facilitate flexible operations in accordance with achanging operating environment, leading to an increase of the Company’s value through sustainable profit
growth in the mid- to long-term.
*8 The total number of the issued shares is calculated without the number of shares for which it is provided that thevoting rights may not be exercised in connection with all matters to be resolved at the shareholder’s meeting.
*9 The percentage held by the Minister of Finance is 33.35% as of March 31, 2014.

- 21 -

Shareholder Proposal
Item 8: Cancellation of all existing Treasury Shares
1. Proposal
Based on the amendment of the Articles of Incorporation in Item 7, we propose the following:
All the treasury shares owned by the Company shall be cancelled.
2. Reason for Proposal
The Company has no need to hold shares in treasury. Cancelling shares also ensures that the benefits ofrepurchasing shares are fully obtained. If the treasury shares are to be allocated to the public or particular
third parties, the interest of the existing shareholders will be significantly damaged.
The Board of Directors’ view on Item 8

The Board of Directors is opposed to this proposal.
As stated in our view on Item 7 above, the Company has a legal restriction on the issuance of newshares under the relevant provisions of the JT Act. The Board of Directors believes that it is important tomaintain flexibility to use treasury shares as a substitute for the issuance of new shares and to ensure theflexibility of operations, rather than cancelling all of the treasury shares.
Therefore, at this time, the Board of Directors will not consider cancelling all of the treasury shares, since itwould limit the Company’s flexible capital strategy.
The figures concerning return to shareholders, such as the consolidated dividend payout ratio and EPS,
are calculated excluding the treasury shares in accordance with accounting standards, and cancellation of
the treasury shares will not affect these figures used as an index showing the level of return to shareholders.

- 22 -

Shareholder Proposal
Item 9: Partial Amendment to the Articles of Incorporation
1. Proposal
The following new provision will be added as Article 19-3 in Chapter 3 "Shareholders' Meeting" of the
Articles of Incorporation:
Article 19-3 The shareholders' meeting can resolve the matters in respect of share warrants including
issuance and allocation of the share warrants, in addition to the matters set forth in the Companies Act ofJapan.
2. Reason of Proposal
The Company should use the stock option plan more actively, in order to align the Directors and Executive
Officers with shareholders and to attract and retain key management talent and incentivize the attainmentof corporate targets medium and long term. At this point in time the Company's stock option plan is
insignificant compared to British American Tobacco and Philip Morris International. Stock options granted to
7 directors and 17 executive officers at the Company totaled less than JPY300mn last year which
compares poorly with BAT where the top 3 executive directors received around £5mn (approx. JPY 865
million) in performance related pay in 2012 and over $40mn (approx. JPY 4 billion) at PMI. In order tofacilitate the active use of the stock option plan, the Articles of Incorporation should be amended sothat the shareholders can resolve the matters, such as making awards of stock options under the existing
stock option scheme, adopting additional long term management incentive plans and making awards undersuch long term management incentive plans.

The Board of Directors’ view on Item 9

The Board of Directors is opposed to this proposal.
The remuneration of the Company's Directors and Executive Officers, including stock options granted tothem as remuneration, is determined through an appropriate process, and the Board of Directors believes
that the remuneration is set at an appropriate level. It is deliberated on by the Remuneration Advisory
Committee—which is comprised of the Chairman of the Board, two (2) independent outside Directors,
and two (2) independent outside Corporate Auditors—by benchmarking the remuneration level of a groupof major Japanese manufacturers of similar size and profit level conducting business overseas. In addition,
as shown by the results of the Company's steady and continuous profit growth, the remuneration system andits level for the Company's Executives, including stock options, has worked well to secure excellent
human resources, and as an incentive for improving the Company’s value in the mid- to long-term.
On the other hand, a plan involving such a significantly high amount of stock options as proposed islikely to encourage the pursuit of short-term profit, resulting in a loss of competitiveness in the mid- tolong-term.
The proposal is aimed at broadening the Company's stock option plan to a great extent by comparing it tothose of competitors in Europe and the United States. The content of the proposal itself will, however, also
affect such capital strategy as the issuance of new shares for the purpose of financing, beyond the issuanceof share warrants used as a stock option plan, and therefore it is inappropriate.
Therefore, the Board of Directors believes that decisions on the remuneration system for the Company's
Executives including stock options should be entrusted to the Board of Directors.

[Reference: Process of determining the remuneration for the Company's Executives]
The Company has established a Remuneration Advisory Committee consisting of five (5) members, theChairman of the Board, two (2) independent outside Directors, and two (2) independent outside Corporate
Auditors. It is a voluntary advisory committee for the Board of Directors in order to enhance the objectivity
and transparency of the remuneration system for the Company's Executives including the stock option plan.
- 23 -

With respect to the policy, system, and calculation method of the remuneration of Directors and Executive
Officers, the Remuneration Advisory Committee responds to requests for advice, deliberates and provides
recommendations, and monitors the status of remuneration for the Company's Executives.
Based on the recommendations of the Remuneration Advisory Committee, the basic concepts forremuneration for the Company's Executives are as follows:- It shall be at an adequate level to secure excellent human resources;- It shall be linked to performance as a motive to achieve targets;- It shall be linked to the corporate value in the mid- to long-term; and- It shall be objectively determined based on a quantitative framework resulting in transparency.
Based on these concepts, the remuneration for the Company's Executives is comprised of three (3)components: (i) monthly “base remuneration”; (ii) “executive bonus” reflecting the performance on a singleyear basis; and (iii) stock options as remuneration which are linked to the corporate value in the mid- to longterm.(*)
When setting the level of the remuneration for the Company's Executives, the Remuneration Advisory
Committee takes into account independent research concerning the remuneration of corporate management
and by benchmarking the remuneration level of a group of major Japanese manufacturers of similar sizeand profit level conducting business overseas. Based on the opinions of the Remuneration Advisory
Committee, to the extent of the upper limit of remuneration resolved at the 22nd General Shareholders
Meeting in June 2007 (the aggregate amount for all directors is limited to 870,000,000 JPY per year, andto 190,000,000 JPY per year for all auditors; the maximum amount of stock options as compensation islimited to 800 options and 200,000,000 JPY per year), the remuneration for Directors and Executive Officers
is determined by resolution of the Board of Directors, and that for Corporate Auditors is determined byconsultation with the Corporate Auditors.
*Stock options as remuneration of the Company provide share warrants which are linked to the share price as apart of the remuneration, instead of paying it all in cash. The stock option as remuneration is different from
simple stock options (the right to purchase shares at a pre-determined price), and works as an incentive toimprove the corporate value in the mid- to long-term.

- 24 -

[Attached Documents]

Business Report(For this fiscal year from April 1, 2013 to March 31, 2014)
I.

Matters Concerning Present State of the Corporate Group (the JT Group)1.

Overview and results of operations
General summary
Revenue
Revenue increased by ¥279.6 billion or 13.2%, from the previous fiscal year to ¥2,399.8 billion. This was
mainly the result of favorable pricing exceeding the decline in total shipment volume in the international
tobacco business and depreciation in the yen.

Operating profit, adjusted EBITDA and profit attributable to owners of the parent company
Operating profit rose by ¥116.0 billion, or 21.8%, from the previous fiscal year to ¥648.3 billion. Thiswas mainly the results of favorable pricing in the international tobacco business and depreciation in theyen. Adjusted EBITDA(Note 1) rose by ¥129.8 billion, or 20.9% from the previous fiscal year to ¥751.7
billion. Adjusted EBITDA (constant rates of exchange)(Note 2) grew by 7.5% from the previous fiscal year.
Profit attributable to owners of the parent company increased by ¥84.4 billion, or 24.6%, from theprevious fiscal year to ¥428.0 billion due to an increase in operating profit.
(Notes) 1. In order to provide useful comparative information on our performance, adjusted EBITDA
presented is operating profit (loss) less depreciation and amortization and adjustment items(income and costs). Adjustment items (income and costs) are impairment losses on goodwill,
and restructuring-related income and costs.
2. Adjusted EBITDA growth rate at constant rates of exchange in the consolidated performanceis also presented as additional information. This is a financial measurement that excludes
foreign exchange effects by translating and calculating adjusted EBITDA for the current
period in the international tobacco business using the foreign exchange rates of the same
period of the previous fiscal year.

Review of operations by business segment
Domestic Tobacco Business[Billions of yen]

Change [%]Revenue

710.3

3.4

Core revenue(Note 1)

676.2

3.4

Adjusted EBITDA

302.1

7.4

In the current fiscal year, JT worked to further enhance brand equity, particularly for Mevius and otherfocus brands. These efforts included launching three products in the “Mevius Premium Menthol Option”
lineup, which feature the “aroma-changing capsule.” Our total market share for the current fiscal year
was strong mainly as a result of vigorous sales promotions, rising to 61.0% from 59.6% for the previous
fiscal year.

- 25 -

Total sales volume for domestic cigarettes increased by 3.9 billion cigarettes from the previous fiscal
year to 120.1 billion cigarettes(Note 2), an increase of 3.3%, exceeding a 0.9% increase in total demand.
This partly reflected increased market share and the impact of a rush in demand ahead of a consumption
tax hike in April 2014.
Core revenue(Note 2) increased by ¥22.2 billion, or 3.4%, from the previous fiscal year to ¥676.2 billion asa result of increase in the sales volume. Domestic cigarette revenue per 1,000 cigarettes was ¥5,485.
Adjusted EBITDA increased by ¥20.8 billion, or 7.4%, from the previous fiscal year to ¥302.1 billion,
despite an increase in costs associated with the weaker yen.
(Notes) 1. Core revenue in the domestic tobacco business is calculated by deducting revenue pertaining
to imported tobacco delivery charges, among others, from the revenue.
2. In addition to the figure stated above, during the current fiscal year, 3.4 billion cigarettes
were sold at duty-free shops in Japan, as well as at markets in China, Hong Kong and Macauthat are under the control of JT’s China Division (this amount was 3.1 billion cigarettes in
the previous fiscal year).
International Tobacco Business

Revenue[Billions of yen]

Change [%]1,270.0

25.7(Note 1)

1,200.7

27.3

Adjusted EBITDA

451.6

31.6

Core revenue

Among GFBs(Note 2) in the current fiscal year, shipment volumes of Winston grew in Russia andCaucasus, while shipment volumes of LD increased in Kazakhstan and Hungary. Even so, as a result of adecrease in total demand, mainly in Russia and Europe, and negative effects from inventory adjustments
in several markets, overall shipment volume was at the same level as the previous fiscal year.
Furthermore, total shipment volume including GFBs decreased by 20.2 billion cigarettes, or 4.6%, fromthe previous fiscal year to 416.4 billion cigarettes, despite continued market share growth in key
markets excluding Russia and the effects of the acquisition of Gryson NV, a major RYO/MYO(Note 3)
tobacco company.
Because the decline in shipment volume was exceeded by favorable pricing, dollar-based core revenue
increased by $457 million, or 3.9%, from the previous fiscal year to $12,273 million. In addition,
adjusted EBITDA increased by $323 million, or 7.5%, from the previous fiscal year to $4,623 million,
even with factors such as increased investment in promotion.
As a result of the effects of a weaker yen when making conversions to that currency, yen-based core
revenue increased by ¥257.6 billion, or 27.3%, from the previous fiscal year to ¥1,200.7 billion, andadjusted EBITDA increased by ¥108.4 billion, or 31.6%, from the previous fiscal year to ¥451.6 billion.
(Notes) 1. Core revenue in the international tobacco business is calculated by deducting revenue
pertaining to distribution business and contract manufacturing, among others, from therevenue.
2. We have identified eight brands which serve as flagships of the JT Group’s brand portfolio,
Winston, Camel, Mevius, Benson & Hedges, Silk Cut, LD, Sobranie and Glamour, which wecollectively call the Global Flagship Brands (GFBs).
3. RYO, which is an abbreviation of Roll Your Own, signifies fine cut tobacco to be used by acustomer to roll a cigarette by hand, using rolling paper. MYO, which is an abbreviation ofMake Your Own, signifies fine cut tobacco to be used by a customer to make a cigarette,using a specialized tool and cigarette tubes.

- 26 -

* In the fiscal year ended March 31, 2014, the exchange rates of major currencies against the U.S. dollar were as follows.
Foreign exchange rate
per U.S. dollar

28th term
FY201229th term
FY2013

Yen

79.81 yen

97.73 yenRuble

31.07 rubles

31.84 rubles

0.63 pounds sterling

0.64 pounds sterling

0.78 euros

0.75 euros

Pounds sterlingEuro

Pharmaceutical Business[Billions of yen]

Change [%]Revenue

64.4

21.2

Adjusted EBITDA(5.4)

Negative ¥12.7
billion in theprevious fiscal year

In the pharmaceutical business, we strived to establish a stronger profit platform by having rapid andefficient market launches of compounds in late phases of clinical development and maximizing thevalue of each product. The number of compounds developed in-house that are under clinicaldevelopment is now 9 as a result of JTT-251, a type-2 diabetes drug, newly proceeding to the clinicalstage.
In the current fiscal year, anti-HIV drug “Stribild® Combination Tablets” was put on sale in Japan bysubsidiary Torii Pharmaceutical Co., Ltd. in May 2013. Riona® Tablets 250mg, a hyperphosphatemia
treatment, will also be put on sale by Torii Pharmaceutical in May following the acquisition in January
2014 of approval to manufacture and market the drug in Japan. Torii Pharmaceutical, also obtained
approval in January 2014 to manufacture and market CEDARTOLEN® SUBLINGUAL DROP Japanese Cedar Pollen, a sublingual immunotherapy drug for Japanese cedar pollinosis in Japan.
As for original JT compounds that have been out-licensed, in November 2013, Gilead Sciences, Inc.
obtained marketing approval from the European Medicines Agency (EMA) for anti-HIV drug VitektaTM(JTK-303). Gilead Sciences has also submitted marketing applications for the drug to the US Food andDrug Administration (FDA). In addition, marketing approval for an MEK inhibitor compound(trametinib) for melanoma was obtained by GlaxoSmithKline, the licensee, from the US FDA in May
2013. The compound was launched in the US as “Mekinist” in June. A marketing application for thecompound has also been submitted by the company to the EMA.
Revenue in the current fiscal year increased by ¥11.3 billion, or 21.2%, from the previous fiscal year to¥64.4 billion, mainly due to the increased sales of products of Torii Pharmaceutical Co., Ltd. including
REMITCH® CAPSULES, an oral antipruritus drug for hemodialysis patients, and Truvada® Tablets, ananti-HIV drug, which enjoyed temporarily heightened demand ahead of the consumption tax hike in
April 2014, as well as an increase in milestone revenue related to progress in development of an
original JT compound that has been out-licensed and an increase in royalty income accompanying sales
expansion. Adjusted EBITDA improved by ¥7.3 billion to negative ¥5.4 billion (compared to negative¥12.7 billion in the previous fiscal year) mainly due to the increase in revenue.
Beverage Business

Revenue
Adjusted EBITDA[Billions of yen]

Change [%]

184.5

(0.5)

8.7

(30.2)- 27 -

In the beverage business, we continued working to strengthen our flagship coffee brand “Roots” and togrow our sales network primarily through Japan Beverage Holdings Inc., a Group company that
operates vending machines. In conjunction with our efforts to steadily grow the business through these
initiatives, we are implementing initiatives to bolster its profitability.
In the current fiscal year, we launched “AROMA STAGE” based on the concepts of “aroma” and“strength,” and launched renewals of bottle can products including “Aroma Black” in our flagship coffee
brand “Roots,” and actively implemented product launches including renewing the long-selling“Momono Tennen Sui” series.
Revenue in the current fiscal year decreased by ¥1.0 billion, or 0.5%, from the previous fiscal year to¥184.5 billion, due to a decline in revenue from vending machines despite an increase in sales volumeof JT’s products. Adjusted EBITDA decreased by ¥3.7 billion, or 30.2%, from the previous fiscal yearto ¥8.7 billion. This was mainly due to increased investments for efforts to further strengthen highquality vending machine operations and enhance our brands, in addition to the decrease in revenue.
Processed Food Business

Revenue
Adjusted EBITDA[Billions of yen]

Change [%]

156.9

(7.0)

7.5

1.5

With Group company TableMark Co., Ltd. taking a central role, the processed food business is
primarily engaged in business concerning frozen and room temperature processed food, mainly staple
food products such as frozen noodles, frozen rice, packed rice and baked frozen bread, bakery chain
outlets in the Tokyo metropolitan area, and seasonings including yeast extracts and oyster sauce. In theprocessed food business, we make every effort to produce strong staple food products with establishedmarket shares and work to improve cost competitiveness, thus striving to improve profitability.
In the current fiscal year, we worked to expand product sales with an emphasis on staple food products.
Specifically, we implemented vigorous sales promotions mainly by launching 57 new products and 28
renewed products in the areas of frozen home-use products and room temperature home-use products.
These included “Tannen-jikomi Authentic Sanuki Udon Noodles,” for which the production method ofauthentic sanuki udon noodles is faithfully reproduced, the “Zeitaku Zanmai Series” of noodles withready-made sauce featuring plenty of premium ingredients, and the “Cool Noodles Series,” with whichchilled noodles can be prepared simply using the microwave oven.
Revenue in the current fiscal year decreased by ¥11.8 billion, or 7.0%, from the previous fiscal year to¥156.9 billion, despite sales growth in staple food products, mainly due to a decrease in the processedfishery products business, from which we withdrew in December 2012. If the impact of our withdrawal
from the processed fishery products business is excluded, revenue increased by ¥4.3 billion year on year.
There was a year-on-year increase in adjusted EBITDA of ¥0.1 billion, or 1.5%, to ¥7.5 billion, mainly
due to growth in sales of staple food products, despite the impact of a rise in cost prices in line with the
yen’s depreciation.

- 28 -

2.

Status of capital expenditures
In this fiscal year, we made capital expenditures totaling ¥156.2 billion.
In the domestic tobacco business, we spent ¥49.1 billion, mainly on measures to streamline
manufacturing processes; strengthen our ability to respond flexibly to supply and demand fluctuations
with regard to an increasingly diverse range of products; and develop new products. In the international
tobacco business, we invested ¥78.5 billion mainly for improvements in product specifications inaddition to improvement, maintenance and renewals of production capability. In the pharmaceuticalbusiness, we spent ¥3.9 billion on enhancing and strengthening research and development structures andthe like. In the beverage business, we invested ¥14.6 billion for maintenance and renewals of vending
machines. In the processed food business, we invested ¥4.9 billion in improvement, maintenance andrenewals of production capability.
Please note that our own capital was allocated for capital expenditures.
* Capital expenditures includes land; building and structures; machinery and vehicles; and otherproperty, plant and equipment, as well as goodwill, right of trademark, software and other intangible
assets, necessary for production improvements at factories and other facilities, strengthening
competitiveness and executing business in a variety of fields.

3.

Status of financing
The Company issued U.S. Dollar Denominated Senior Notes (with Statutory Preferential Right) valued
at US$ 500 million on July 23, 2013 for the purpose of appropriating it to refinance short-term debts.

4.

Business transfers, absorption-type company split or incorporation-type company split
No items to report.

5.

Business transfers from other companies
No items to report.

6.

Succession of rights and obligations relating to other entities’ business as a result of absorptiontype merger or company split
No items to report.

7.

Acquisition or disposal of shares, other equities or subscription rights to shares of other companies
No items to report.

- 29 -

8.

Trends in assets and operating results(1) Trends in assets and operating results of the JT Group
26th term
FY2010
Revenue(Millions of yen)

27th term
FY201128th term
FY201229th term
FY2013

2,059,365

2,033,825

2,120,196

2,399,841

385,242441,355

509,355

636,203

Profit attributable toowners of the parent
company(Millions of yen)

243,315

320,883

343,596

427,987

Basic earnings per
share
(Yen)

25,41433,701181.07235.48

Total assets(Millions of yen)

3,655,201

3,667,007

3,852,567

4,611,444

Total equity(Millions of yen)

1,601,311

1,714,626

1,892,431

2,596,091

Profit before income
taxes(Millions of yen)

(Notes) 1. Although the consolidated financial statements of the JT Group are prepared based on IFRS
effective from the 27th term, the figures for the 26th term are shown based on IFRS.
2. JT conducted a share split at a ratio of 200 to 1 with July 1, 2012 as effective date.
Consequently, basic earnings per share are calculated on the assumption that this share split
was conducted at the beginning of the 28th term.
3. Financial figures for the 28th term are retrospectively adjusted by applying IAS 19 (revisedin June, 2011) ― Employee Benefits ― in accordance with transitional provisions.

- 30 -

(2) Trends in assets and non-consolidated operating results of JT
26th term
FY2010Net sales(Millions of yen)

27th term
FY201128th term
FY201229th term
FY2013

749,252

734,902781,067

809,967

182,819

198,071

210,568

230,900

Net income(Millions of yen)

32,216

142,726

149,773

168,779

Net income per share
(Yen)

3,365

14,990

78.93

92.86

Total assets(Millions of yen)

2,879,354

3,016,651

2,784,914

2,732,637

Net assets(Millions of yen)

1,854,401

1,924,739

1,714,529

1,734,379

Ordinary income(Millions of yen)

(Notes) 1. The figures were prepared based on Japanese GAAP.
2. Effective from the 27th term, the JT Group changed its accounting policy to a method that
excludes the amount equivalent to tobacco excise taxes from net sales and cost of sales, inorder to disclose the actual conditions of the business more properly. As a result, thisaccounting policy change is retrospectively applied to the figures presented for the 26th term.
3. JT conducted a share split at a ratio of 200 to 1, with July 1, 2012 as effective date.
Consequently, net income per share is calculated on the assumption that this share split was
conducted at the beginning of the 28th term.
9.

Issues to be addressed(1) Basic management policy
Our management principles are based on the pursuit of the “4S” model (“S” is for satisfaction). The
model requires us to fulfill our responsibility towards four classes of stakeholders—consumers,
shareholders, employees and society, with a particular emphasis on consumers—in a well-balanced andhigh level manner ensuring satisfaction for all of them.
We created our vision and mission based on the “4S” model. Our vision is to become a company
committed to global growth by providing diversified value that is uniquely available from JT Group. Our
mission is to create, develop and nurture our unique brands to win consumer trust, while understanding
and respecting the environment and the diversity of societies and individuals.
In order to accomplish, we have set “The JT Group Way” as code of conduct which all of the JT Group
members should follow. The JT Group Way requires that we: fulfill the expectations of our consumers
and behave responsibly; strive for quality in everything we do through continuous improvement; andleverage diversity across the JT Group.
The JT Group has attained sustainable profit growth and will continue to do so through the pursuit of the“4S” model. Since attaining sustainable profit growth requires us to continue to provide new value andsatisfaction to consumers, we believe it is essential to steadily make business investments for future midto long-term profit growth.
We believe that the pursuit of the “4S” model will lead to a consistent increase in corporate value in the
mid to long term and therefore that it is the best approach to serve the interests of all stakeholders.

- 31 -

(2) Mid- to long-term management strategy and issues
The JT Group formulated its business plan, a three-year plan that is renewed each year on a rolling basis
in order to speed up the Group’s ability to respond appropriately to unexpected changes in accordancewith its recognition that strengthening its “adaptability to a changing environment” is an important theme.
Through the plan, the Group intends to carry on strategies that have hitherto been implemented for theGroup’s long-term vision of becoming a “Company committed to global growth that provides consumers
diversified value uniquely available from JT” while also taking them to a higher level.
In the “Business Plan 2013,” in accordance with the “4S” model concept, which constitutes the JT
Group’s management principles, the Group stated its intention to carry out mid- to long-term allocationof management resources with a high priority attached to business investment that contributes tosustainable mid- to long-term profit growth.
“Business Plan 2013” Targets•

Adjusted EBITDA growth rate (at constant rates of exchange): Mid to high single-digit annual
average growth rate over the mid to long term.

•

Consolidated dividend payout ratio(Note 1): In order to be on par with global players in the FMCG(Note2)
business, aim for 40% in the fiscal year ended March 31, 2014, and 50% in the fiscal year ending
December 31, 2015.

•

Adjusted EPS(Note 3) growth rate (at constant rates of exchange): High single-digit annual average
growth rate over the mid to long term.

In the fiscal year ended March 31, 2014, the adjusted EBITDA growth rate (at constant rates of
exchange) was 7.5% over the fiscal year ended March 31, 2013, reflecting strong momentum in theinternational tobacco business. The consolidated dividend payout ratio is forecast to be 40.8% for the
fiscal year ended March 31, 2014. The Group achieved an adjusted EPS growth rate (at constant rates of
exchange) of 15.7% over the fiscal year ended March 31, 2013.
In the “Business Plan 2014,” which has been formulated in accordance with the Group’s rolling businessplan schedule, the Group has maintained its commitment to achieving sustainable profit growth throughbusiness investment.
“Business Plan 2014” Targets(Note 4)•

Adjusted operating profit(Note 5) growth rate (at constant rates of exchange): Mid to high single-digit
annual average growth rate over the mid to long term.

•

Consolidated dividend payout ratio: In order to be on par with global players in the FMCG business,
aim for at least 50%. Aim for 50% in the fiscal year ending December 31, 2015.

•

Adjusted EPS growth rate (at constant rates of exchange): High single-digit annual average growthrate over the mid to long term.

The mid- to long-term targets and roles for each business are as follows.
• Tobacco Business: Grow adjusted EBITDA at mid to high single-digit rate per annum over the mid tolong term as the core business and profit growth engine of the JT Group• Domestic: Highly competitive platform of profitability• International: Strengthen its role as the Group’s profit growth engine• Pharmaceutical Business: Strive to establish stronger profit platform through value maximization ofeach product and promotion of R&D on next-generation strategic products• Beverage Business: Strengthen the business base for future growth in order to make profit contribution
to the JT Group- 32 -

• Processed Food Business: Strive to achieve operating profit margin on par with industry average andaim to make profit contribution to the JT GroupIn order to achieve the consolidated mid- to long-term profit targets, our strategic focus across all
businesses is to achieve quality top line growth by striving in accordance with each target and role. For
each business, our strategic focus is to improve cost competitiveness and business foundations that
support these efforts, thereby achieving sustainable profit growth.
We will work to strengthen our CSR initiatives further with an emphasis on the pursuit of high-level,well-balanced stakeholder satisfaction based on t he “4S” model, which constitutes JT’s management
principles.
We think that the business environment surrounding the JT Group will continue to change on the global
scale and at a faster rate. In order to respond to the various changes that may happen in the future, wewill continue to strive for sustained growth in the mid to long term and steadily actualizing shareholder
returns, based on the “4S” model and through consistent business investment and an “adaptability to achanging environment.”(Notes) 1. Consolidated dividend payout ratio is obtained by dividing annual dividend per share bybasic earnings per share.
2. Fast Moving Consumer Goods (daily consumer durables)
3. Adjusted EPS = (Profit or loss attributable to owners of the parent company ± adjustment
items (income and costs)* ± tax and minority interests adjustments) / (weighted-averagecommon shares + increased number of ordinary shares under subscription rights to shares)* Adjustment items (income and costs): Impairment losses on goodwill ± restructuringincome and costs ± others
4. The fiscal year ending December 31, 2014, is a 9-month period from April to December. The

business plan for this period is calculated on the assumption that it is a 12-month perdiod fromJanuary to December.

5. Profit target has been changed to adjusted operating profit (at constant rates of exchange) in2014. Operating profit (loss) less amortization of acquired intangible assets associated withacquisitions and adjusted items (income and costs) is disclosed as adjusted operating profit.
Adjustment items (income and costs) are impairment losses on goodwill, restructuringrelated income and costs.
Adjusted operating profit (at constant rates of exchange) growth rate in the consolidated
performance is a financial measurement that excludes foreign exchange effects bytranslating and calculating adjusted operating profit for the current period in the international
tobacco business using the foreign exchange rates of the same period of the previous fiscal
year.
10. Main business contents
Business segment
Domestic Tobacco Business
International Tobacco BusinessPharmaceutical Business

Main business
Manufacture and sale of tobacco products, mainly Mevius andSeven Star
Manufacture and sale of tobacco products, mainly Winston and
Camel
Research and development, manufacture and sale of prescription
drugs

Beverage Business

Manufacture and sale of beverages

Processed Food Business

Manufacture and sale of frozen and room temperature processed
foods, bakery products and seasonings- 33 -

11. Status of important subsidiaries

Company name(Millions of yen)

TS Network Co., Ltd.

460
(Millions of yen)Japan Filter Technology
Co., Ltd.
JT International S.A.

Equityownership(%)

Capital461(Thousand of CHF)

1,215,425(Thousand of GBP)

Gallaher Ltd.

172,495

Torii PharmaceuticalCo., Ltd.
JT Beverage Inc.

(Millions of yen)

5,190(Millions of yen)

90
(Millions of yen)Japan Beverage
Holdings Inc.

500

TableMark Co., Ltd.

(Millions of yen)

47,503Main business

74.5

Distribution of tobacco products

87.6

Manufacture and sale of filters for
tobacco products(100.0)

Manufacture and sale of tobacco
products(100.0)

Manufacture and sale of tobacco
products

53.5

Manufacture and sale ofprescription drugs

100.0

Sale of beverages

70.5

Sale of beverages by vending
machine

100.0

Manufacture and sale ofprocessed foods(Notes) 1. Figures in parentheses in the “Equity ownership” column indicate indirect holding rates.
2. There were 218 consolidated subsidiaries in this fiscal year, including 8 above-mentioned
important subsidiaries, as well as 13 affiliates accounted for by the equity method. In
addition, consolidated revenue for this fiscal year amounted to ¥2,399.8 billion (up 13.2%
year on year) with consolidated profit attributable to owners of the parent company at ¥428.0
billion (up 24.6% year on year).
3. With an effective date of April 1, 2014, TableMark Co., Ltd. conducted a company split inwhich TableMark Co., Ltd. is the company conducting business operations and TableMark
Holdings Co., Ltd. is a pure holding company.
12. Major lenders
Outstanding balance(Millions of yen)
33,967

LenderMizuho Bank, Ltd.
13. Major sales offices and factories(1) JT
Headquarters:

2-1, Toranomon 2-chome, Minato-ku, Tokyo, Japan

Sales Office:Hokkaido (Hokkaido), Sendai (Miyagi), Tokyo (Tokyo),
Nagoya (Aichi), Osaka (Osaka), Hiroshima (Hiroshima), Shikoku (Kagawa),
Fukuoka (Fukuoka), and other 17 sales offices

Factories:

Kita-Kanto (Tochigi), Tokai (Shizuoka), Kansai (Kyoto), Kyushu (Fukuoka),
and other 5 factories

Laboratories:

Leaf Tobacco Research Center (Tochigi),
Tobacco Science Research Center (Kanagawa),
and Central Pharmaceutical Research Institute (Osaka)- 34 -

(2) Subsidiaries
TS Network Co., Ltd. (Tokyo)
Japan Filter Technology Co., Ltd. (Tokyo)
JT International S.A. (Switzerland)
Gallaher Ltd. (U.K.)
Torii Pharmaceutical Co., Ltd. (Tokyo)
JT Beverage Inc. (Tokyo)
Japan Beverage Holdings Inc. (Tokyo)
TableMark Co., Ltd. (Tokyo)(Note) Text in parentheses shows the location of head office.
14. Status of employees(1) Employees of the JT Group
Number of employees(Person)Business segment
Domestic Tobacco Business

11,022

International Tobacco Business

26,731

Pharmaceutical Business

1,787

Beverage Business

5,035

Processed Food BusinessCommon company-wide services
within JT

6,096
892

Total

51,563(Notes) 1. The above number of employees indicates the number of working employees.
2. The number of employees in foreign subsidiaries in which the fiscal year end date falls on
December 31 is calculated using the number of employees as of December 31, 2013.
(2) Employees of JT

Male/Female
Male

Number ofYear on year
employees
increase (decrease)(Person)(Person)
7,693
(180)

44.6

Average years ofservice(Year)
23.0

Average age(Year old)

Female

1,081

29

38.3

16.2

Total or average

8,774

(151)

43.8

22.2

(Note)

The above number of employees indicates the number of working employees.

- 35 -

II.

Matters Concerning Shares of JT

1.

Total number of shares authorized:

8,000,000,000 shares

2.

Total number of shares issued:

2,000,000,000 shares(Including treasury stock3.

Number of shareholders:

4.

Major shareholders
Name of shareholders

182,451,988 shares)
134,059

Number of shares held
(Share)Equity ownership (%)

The Minister of Finance

666,930,000

36.69

Japan Trustee Services Bank, Ltd.
(Trust Account)
The Master Trust Bank of Japan, Ltd.
(Trust Account)

52,139,400

2.87

52,011,700

2.86State Street Bank and Trust Company

45,227,166

2.49

State Street Bank and Trust Company

34,629,271

1.91

33,800,000

1.86

26,179,000

1.44

JPMorgan Chase Bank 380072

23,623,035

1.30

State Street Bank and Trust Company
505223
CREDIT SUISSE SECURITIES (USA)LLC SPCL. FOR EXCL. BEN

21,446,146

1.18

19,041,903

1.05

Trust & Custody Services Bank, Ltd. as
trustee for Mizuho Bank, Ltd.
Retirement Benefit Trust Account reentrusted by Mizuho Trust and Banking
Co., Ltd.
HSBC BANK PLC A/C THE CHILDRENSINVESTMENT MASTER FUND

(Note)

Equity ownership is calculated after deducting treasury stock (182,451,988 shares).

- 36 -

III. Matters Concerning Subscription Rights to Shares

1.

Total number and others of subscription rights to shares as of March 31, 2014

(1) Total number of subscription rights to shares:
5,054 units(2) Class and number of shares to be delivered upon exercise of subscription rights to shares:
Ordinary shares 1,010,800 shares(200 share per subscription right to shares)
2.

Status of subscription rights to shares held by Directors and Auditors of JT as of March 31, 2014

(1) Class and number of shares to be delivered upon exercise of subscription rights to shares:
Ordinary shares 351,000 shares(200 share per subscription right to shares)(2) Value of property to be contributed when subscription 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/she loses
his/her all position as Director, Auditor and Executive Officer (sikkoyakuin).
(5) Status of ownership by Directors and Auditors of JT

Category

DirectorYear
grantedPayment due upon
allotment ofsubscription rights toshares

FY2007¥581,269 per unit

FY2008¥285,904 per unit

FY2009Exercise period of
subscription rights tosharesNumberof units

Number ofshareholders

80

5

127

6

¥197,517 per unit

From January 9, 2008
to January 8, 2038
From October 7, 2008
to October 6, 2038
From October 14, 2009
to October 13, 2039

326

6

FY2010¥198,386 per unit

From October 5, 2010
to October 4, 2040

278

6

FY2011¥277,947 per unit

390

7

FY2012¥320,000 per unit

344

7

FY2013¥513,400 per unit

210

7

From October 4, 2011
to October 3, 2041
From October 10, 2012
to October 9, 2042
From October 8, 2013
to October 7, 2043

(Note) Outside Directors are not included in the above category of “Director.”- 37 -

3.

Status of subscription rights to shares granted to employees of JT from April 1, 2013 to March 31,
2014(1) Class and number of shares to be delivered upon exercise of subscription rights to shares:
Ordinary shares 58,000 shares(200 share per subscription right to shares)(2) Payment due upon allotment of subscription rights to shares¥513,400 per share(3) Value of property to be contributed when subscription rights to shares are exercised¥1 per share(4) Exercise period of subscription rights to shares
From October 8, 2013 to October 7, 2043
(5) Assignment of subscription rights to shares
The approval of the Board of Directors is required for the assignment of subscription rights to shares.
(6) Conditions for exercising subscription rights to shares
Subscription rights to shares holder may exercise his/her subscription rights to shares only if he/she loses
his/her all position as Director, Auditor and Executive Officer (sikkoyakuin).

(7) Status of granting to employees of JT
290 subscription rights to shares were granted to 19 Executive Officers (sikkoyakuin) (excluding
persons serving as Directors) of JT.

- 38 -

IV. Matters Concerning Directors and Auditors of JT

1.

Directors and Auditors
Position

Name

Chairman of the
Board
President, Chief
Executive Officer andRepresentative
Director
Representative
Director andExecutive Deputy
President

Hiroshi Kimura

Representative
Director andExecutive Deputy
President

Noriaki Okubo

Representative
Director andExecutive Deputy
President
Member of the Board
and Executive Deputy
President
Member of theBoard*
Member of the
Board
Member of the
Board

Akira Saeki

Audit & Supervisory
Board Member
Audit & Supervisory
Board Member*

FutoshiNakamura
Tomotaka
KojimaAudit & Supervisory
Board Member

Koichi Ueda

Responsibility

Mitsuomi
KoizumiYasushi Shingai

Hideki Miyazaki
Masamichi
Terabatake
Motoyuki Oka

Assistant to CEO in
Compliance,
Strategy, HR,
GeneralAdministration,
Legal andOperational Review& Business
Assurance
Assistant to CEO inPharmaceuticalBusiness, Beverage
Business andProcessed FoodBusiness
President, Tobacco
Business
Assistant to CEO in
CSR, Finance andCommunications

Main Kohda

Significant concurrent positions
outside the Company
Asahi Glass Co., Ltd.
Independent Director

JT International Group Holding
B.V.
Chairman

JT International S.A.
Executive Vice President
NEC Corporation
Outside Director
Novelist
LIXIL Group Corporation
Outside Director

Koichi Ueda Law Office
Attorney at Law
Japan Racing Association
Member of the Board ofGovernors

Audit & Supervisory
Yoshinori Imai
Board Member(Notes) 1. Members of the Board Motoyuki Oka and Main Kohda are Outside Directors.
2. Auditors Koichi Ueda and Yoshinori Imai are Outside Auditors.

- 39 -

3. Members of the Board, Motoyuki Oka and Main Kohda, and Auditors, Koichi Ueda andYoshinori Imai, were designated as independent officers (directors and auditors) as
prescribed by the Tokyo Stock Exchange, Inc.
4. Auditor Futoshi Nakamura and Auditor Tomotaka Kojima have relevant knowledge about
financing and accounting as they were the Senior Manager of the Accounting Division of JT
and Deputy Head of Finance Group of JT, respectively.
5. The asterisk * denotes Members of the Board and Auditors who have assumed their offices
on June 21, 2013.
6. Members of the Board Mutsuo Iwai and Auditor Hisao Tateishi resigned on June 21, 2013.
2.

Remunerations for Directors and Auditors(1) Total remunerations for Directors and Auditors
Directors
Auditors
Total
Amount to
Amount to
Amount to
Number to
Number to
Number toCategorybe paidbe paidbe paidbe paidbe paidbe paid(Millions of(Millions of(Millions of(Person)(Person)(Person)
yen)
yen)
yen)
Basic remuneration
10
349
5
96
15
445
Directors’ bonus
5
111
5
111
Stock option grants
7
108
7
108
Total
568
96
664
(Notes) 1. For Directors’ bonuses, the amounts planned to be paid are shown.
2. For stock option grants, the total amounts granted during this fiscal year are shown.

(2) Policy concerning the remuneration amount for Directors and Auditors or the remuneration
calculation method thereof and the method of determining the policy
The Company has the Compensation Advisory Panel in place as a non-statutory advisory body to theBoard of Directors in order to increase objectivity and transparency regarding the remuneration of
Directors and Auditors. The Compensation Advisory Panel, which holds meetings several times a year,
holds deliberations and makes reports in accordance with its advice on such matters as the Company’s
policy, system and calculation method regarding remuneration for its Directors and Executive Officers(sikkoyakuin), and monitors the status of remuneration for Directors and Auditors at the Company. The
Compensation Advisory Panel currently consists of five members: the Chairman of the Board, who has
the role of the panel’s chairman, and two Outside Directors and two Outside Auditors.
Outside members of Compensation Advisory Panel
Outside Director
Outside Director
Outside Auditor
Outside Auditor

Motoyuki Oka
Main Kohda
Koichi Ueda
Yoshinori Imai

In light of reports by the Compensation Advisory Panel, JT’s basic concept of remuneration for Directors
and Auditors is as follows:•

Setting the remuneration at a level sufficient to secure personnel with superior capabilities•

Linking the remuneration to business performance so as to motivate Directors and Auditors toenhance performance•

Linking the remuneration to mid- and long-term corporate value•

Ensuring transparency based on an objective point of view and quantitative schemes

In accordance with the above concept, the remuneration for Directors and Auditors is made of threecomponents. In addition to the monthly “basic remuneration,” there is a “directors’ bonus,” whichreflects the Company’s business performance in the relevant fiscal year, and a “stock option,” which is
linked to the mid- and long- term corporate value of JT. The said “stock option” was introduced in 2007

- 40 -

as remuneration that is linked to the mid- and long-term corporate value, thereby providing an incentive
towards increasing shareholder value.
The composition of the remuneration for Directors is as follows:
For Directors who also serve as Executive Officers (sikkoyakuin), remuneration consists of the “basic
remuneration,” the “directors’ bonus,” and the “stock option” because they are required to achieve resultsby executing their duties on a daily basis. If the “directors’ bonus” is paid at the standard amount, thesum of this bonus and the “stock option” is set to be equivalent to slightly less than 80% of the “basic
remuneration” for President and Executive Deputy President, and approximately 70% for other Directors.
Directors (excluding Outside Directors) who do not serve as Executive Officers (sikkoyakuin) receive
remuneration that consists of the “basic remuneration” and the “stock option” since they are required tomake decisions on company-wide management strategies and fulfill supervisory functions to enhance
corporate value.
Remuneration for Outside Directors, which is not linked to business performance with the purpose ofmaintaining their independence, is composed of “basic remuneration” only.
In the light of the role of Auditors, which is primarily to conduct audits on legal compliance, theirremuneration consists solely of the “basic remuneration.”
The upper limit of remuneration for the Company’s Directors and Auditors, which was approved at the22nd Ordinary General Meeting of Shareholders (held in June 2007), is ¥870 million per year for all
Directors and ¥190 million per year for all Auditors. In addition, the upper limit of “stock option” that
may be granted to Directors separately to the remuneration mentioned above is 800 units and ¥200
million per year. This was also approved at the 22nd Ordinary General Meeting of Shareholders. The
number of units allocated for each term, including the number allocated to Executive Officers(sikkoyakuin) who are not also Directors, is decided by resolution of the Board of Directors.
The amounts of remunerations for Directors and Auditors are determined by resolution of the Board of
Directors in the case of remuneration for Directors, and through discussions among the Auditors in thecase of remunerations for Auditors, within the approved upper limits, in light of deliberations by theCompensation Advisory Panel. These processes are carried out after benchmarking of levels of
remuneration at major Japanese manufacturers that operate globally, and whose size and profits are atsimilar levels to those of the Company, is undertaken based on third-party research into remuneration forcorporate executives.
3.

Matters concerning Outside Directors and Outside Auditors(1) Significant concurrent positions outside the Company
Category
Director
Auditor

Name
Motoyuki Oka
Main Kohda
Koichi Ueda

Organizations whereconcurrent positions are held
NEC Corporation
Novelist
LIXIL Group Corporation
Koichi Ueda Law Office
Japan Racing Association

Position
Outside Director
Outside Director
Attorney at Law
Member of the Board ofGovernors(Note) There are no special relationships to be mentioned between the above organizations in which
concurrent positions are held and JT.

- 41 -

(2) Major activities during this fiscal year
Category

Name
Motoyuki Oka

Director
Main Kohda

Koichi Ueda
AuditorYoshinori Imai

Status of main activities
Attended 13 out of 15 meetings of the Board of Directors
held during this fiscal year. Mr. Oka asked questions andmade remarks where necessary at these meetings, as adirector.
Attended 14 out of 15 meetings of the Board of Directors
held during this fiscal year. Ms. Kohda asked questions
and made remarks where necessary at these meetings, asa director.
Attended all 15 meetings of the Board of Directors, aswell as all 16 meetings of the Audit Board held during
this fiscal year. Mr. Ueda asked questions and maderemarks where necessary at these meetings, as an auditor.
Attended 14 out of 15 meetings of the Board of Directors,
as well as all 16 meetings of the Audit Board held during
this fiscal year. Mr. Imai asked questions and maderemarks where necessary at these meetings, as an auditor.

(3) Outline of limited liability agreements
The Company has entered into agreements with each of its Outside Directors and Outside Auditors withrespect to the liability set forth in Article 423, paragraph 1 of the Companies Act, by which the liability
for damages of each of them is limited to the minimum amount set forth in Article 425, paragraph 1 ofthe same Act, provided they perform their duties without knowledge of such damages and without grossnegligence.

(4) Total amount of remunerations

Category
Basic remuneration

Outside Director
Outside Auditor
Total
Amount to
Amount to
Amount to
Number to
Number to
Number to
be paidbe paidbe paidbe paidbe paidbe paid(Millions of(Millions of(Millions of(Person)(Person)(Person)
yen)
yen)
yen)
2
30
3
33
5
63

- 42 -

V.

Matters Relating to Independent Auditor

1.

Name of Independent Auditor: Deloitte Touche Tohmatsu LLC

2.

Fees for Independent Auditor relating to this fiscal year

(1) Fees for Independent Auditor relating to this fiscal year of JTi)ii)

Fees for audit attestation based on Article 2, paragraph 1 of
the Certified Public Accountants Act:
Fees for tasks other than audit attestation based on Article
2, paragraph 1 of the Certified Public Accountants Act:

¥317 million¥12 million(2) Amount of cash and other financial benefits to be paid by JT and its subsidiaries:¥482 million(Notes) 1. Fees paid under the terms of the audit contract concluded between Deloitte Touche
Tohmatsu LLC and JT in relation to audit attestation based on the Companies Act and the
Financial Instruments and Exchange Act are not clearly classified and, since they cannot beeffectively classified, their total is indicated in the amount in “i)” above.
2. JT retain Deloitte Touche Tohmatsu LLC for tasks other than audit attestation based on
Article 2, Paragraph 1 of the Certified Public Accountants Act, which consist of the
preparation of comfort letters for bond issuing, and for which a consideration is paid to thesame.
3. Among the important subsidiaries of JT, JT International S.A. and Gallaher Ltd. are auditedby Deloitte & Touche LLP. None of these subsidiaries are audited by Deloitte Touche
Tohmatsu LLC, the Independent Auditor of JT.
3.

Policy on dismissal or non-reappointment of Independent Auditor
In the case that an Independent Auditor is adjudged to fall within any of the items listed in Article 340,
paragraph 1 of the Companies Act, the Board of Auditors, with the agreement of all of the Auditors,
shall dismiss the Independent Auditor. Additionally, apart from the above, should an incident occur
casting serious doubt on the ability of the Independent Auditor to continue to perform its duties, after
securing the agreement of the Board of Auditors, or in accordance with a request from the Board ofAuditors, the Board of Directors shall submit a proposal to the General Meeting of Shareholders that the
Independent Auditor should be dismissed or should not be reappointed.

- 43 -

VI. Overview of the Resolutions on the Development of Systems Necessary to Ensure the Properness of
Operations
The Board of Directors has resolved with regard to the development of systems necessary to ensure thatthe execution of the duties by the Directors complies with the laws and 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 Directors and employees perform their duties in accordance with laws,
regulations and JT’s Articles of Incorporationi)Compliance system
JT has established Code of Conduct based on regulations concerning the compliance system inorder to ensure that Directors and employees comply with laws and regulations, JT’s Articles ofIncorporation, the social norms, etc., and set up a JT Group Compliance Committee as anorganization responsible for ensuring thorough compliance. This committee, headed by JT’s
Chairman, includes outside experts among its members and reports directly to the Board of
Directors.
JT appoints an Executive Officer (sikkoyakuin) in charge of compliance with overseeing theCompliance Office in an effort to establish and promote a company-wide, cross-sectional systemand shed light on issues.
The Compliance Office distributes to all Directors and employees the “JT Group Code of Conduct”,
which explains the Code of Conduct and enhances the effectiveness of the compliance system byenlightening Directors and employees about compliance through various compliance education
programs.
(Internal reporting system)
JT establishes a counter where employees may report any conduct they have detected which issuspected to breach laws and regulations. The Compliance Office is charged with investigating
reported cases, establishing necessary measures and implementing company-wide precautions toprevent recurrences after holding consultations with the departments and divisions concerned.
Matters of particular importance shall be referred to the JT Group Compliance Committee fordeliberation.
(System for excluding anti-social elements)
JT is resolved to fight against, not to comply with, an unreasonable demand and not to have any
relations with anti-social elements.
With the General Administration Division at JT’s headquarters assuming the responsibility forsupervising efforts to exclude anti-social elements, JT cooperates with police, lawyers and otherrelevant organizations and parties to gather and share information in order to deal with suchelements in an organized way.
In addition, the “prohibition of involvement with anti-social elements” has been provided for in the“JT Group Code of Conduct” and fully communicated to all officers and employees. At the sametime, an awareness raising program for excluding antisocial elements is to be consistently
administered for all officers and employees, including those working for its affiliates, by providing
relevant training as necessary.

ii)

System to ensure the reliability of financial reporting
JT has in place and operates an internal control system relating to financial reporting in accordancewith the Financial Instruments and Exchange Act. JT strives to maintain and improve the reliabilityof its financial reporting by allocating a sufficient level of staff to the task of evaluating andreporting financial results.

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iii) Internal audit system
The Operational Review and Business Assurance Division oversees the internal audit system andexamines and evaluates systems for supervising and managing the overall operations and the statusof business execution from the viewpoints of legality and rationality, in order to protect JT’s assets
and improve management efficiency.
(2) Procedures and arrangements for storage and management of information on the performance of
duties by the Directorsi)Storage and management of minutes
JT makes sure to properly stores and manages the minutes of General Meetings of Shareholders andmeetings of the Board of Directors, in line with laws and regulations.
Moreover, concerning the minutes of meetings of the Executive Committee, JT makes sure toproperly stores and manages documents in accordance with internal rules on Executive Committee,
etc.

ii)

Storage and management of other information
Information on important matters relating to business execution and decision-making are stored andmanaged by the relevant departments and divisions as specified by the “Responsibilities/Authorities
Allocation Rules”, in accordance with rules on the supervision of the processes of decision-making,procurement and accounting.

(3) Rules on management of risk of loss and procedures/arrangements for other mattersi)

System to evaluate and manage risk of loss under normal circumstances
JT has established internal policies, rules and manuals for the management of risk of loss relating tomonetary and financial affairs, and ensures that relevant reports are made to the Executive
Committee on a quarterly basis via Chief Financial Officer.
With regard to identifying and reporting the risk of loss relating to other affairs, in accordance withauthority delegated to each department and division as per the Responsibilities/Authorities
Allocation Rules, responsible departments and divisions take on a supervisory role creating all typesof committees to conduct proper management and, depending on the level of importance, reportrisks to the Executive Committee or refer them to same for deliberation.
JT has assigned sufficient staff to the Operational Review and Business Assurance Division, whichfunctions as JT’s internal audit organization. This division examines and evaluates the internal
control systems of JT and the JT Group companies in light of the level of importance and the risks
involved from an objective viewpoint that is independent of the organizations responsible forbusiness execution, and reports its findings and presents proposals to the President, as well asreports to the Board of Directors.

ii)

Preparedness for possible emergencies
JT has produced 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 under the supervisionof the Corporate Strategy Division, and make prompt and proper responses under the leadership ofsenior management and through close cooperation between the relevant departments and divisions.
Events to which a response has been made and the details of such events shall be reported to theBoard of Directors on a quarterly basis.

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(4) System to ensure that Directors perform their duties efficientlyi)

Board of Directors
The Board of Directors meets once a month in principle and on more occasions as necessary, inorder to make decisions with regard to the matters specified by laws and regulations and otherimportant matters and to supervise business execution.
The Board of Directors receives reports from Directors on the status of business execution at least
once every three months.

ii)

Proper delegation of authority and system of responsibilities
The Executive Committee, comprising JT’s President and other members appointed by the
President, discusses important management issues, particularly management policy and basic plansregarding overall business operations of JT, in addition to matters to be referred to the Board of
Directors.
Executive Officers (sikkoyakuin) appointed by the Board of Directors execute business properly by
exercising the authority delegated to them in their respective areas in accordance with a companywide business strategy decided by the Board.
In order to manage business operations in ways that contribute to the business efficiency andflexibility of JT, basic matters concerning JT’s organization and allocation of duties are specified byinternal rules on and the roles of each department are specified.
In order to enable prompt decision-making, the departments and divisions responsible for businessexecution are specified by the “Responsibilities/Authorities Allocation Rules.”(5) Systems necessary to ensure the properness of operations in the business group which consists of astock company, its parent company and subsidiaries
i)

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 ofsocieties and individuals, and there is a group-wide consensus on the mission.

ii)

Group management
The JT Group has specified the functions and rules common for all group companies based on agroup management policy to effectuate group management that optimizes the operations of theentire JT Group as a whole.
JT has put in place systems for compliance (including the internal reporting system), internal audits,financial affairs management, etc. in cooperation with the JT Group companies.

(6) System for employees assisting Auditors in their duties in the event such employees were requested
by Auditorsi)

Establishment of Auditor’s Office
JT has created an Auditor’s Office as an organization supporting the Auditors in performing theirduties.

ii)

Allocation of staff
JT has allocated sufficient staff to the Auditor’s Office. In addition, JT makes sure to review andreform the staffing structure as necessary based on consultations with the Audit Board.

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(7) Matters relating to the independence of employees mentioned in “(6)” above from Directors
i)Management of employees affiliated with the Auditor’s Office
The evaluation of the Manager of the Auditor’s Office is made by the Audit Board and theevaluation of the other employees assigned to the Auditor’s Office is made by the Manager of the
Auditor’s Office based on the advice of the Audit Board. The transfer and discipline of employees
assigned to the Auditor’s Office is to be deliberated in advance with the Audit Board.

ii)

Prohibition of concurrent assignments
Employees assigned to the Auditor’s Office shall not be designated in other concurrent positions
relating to business execution of JT.

(8) System for reporting by Directors or employees to the Audit Board and Auditors and othersystems for reporting to the Audit Board and Auditorsi)

Reporting to the Audit Board
When Directors and Executive Officers (sikkoyakuin) detect any matter that may cause substantial
damage to JT, they are due to report it to the Audit Board. Moreover, when Directors andemployees detect any evidence of malfeasance in financial documents or serious breaches of laws or
regulations or JT’s Articles of Incorporation, they are due to report them to the Audit Board, alongwith other relevant matters that could affect JT’s management.

ii)

Attendance at important meetings
Auditors are allowed to attend not only meetings of the Board of Directors but also other important
meetings.
When Directors and employees are asked by Auditors to compile important documents for theirperusal, to accept field audits and to submit reports, they shall respond in a prompt and appropriatemanner.

(9) Other systems to ensure effective auditing by Auditorsi)

Cooperation with audits and auditing expenses
Directors are due to cooperate with audits effectuated by Auditors and establish a budget forcovering audit-related expenses so as to secure the effectiveness of audits.

ii)

Coordination between the Operational Review and Business Assurance Division andCompliance Office and the Auditors
The Operational Review and Business Assurance Division and the Compliance Office maintaincooperation with Auditors by exchanging information.

* All figures contained in this Business Report are rounded to the nearest unit.

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