[This is an English translation prepared for reference purpose only. Should there be any inconsistency between thetranslation and the original Japanese text, the latter shall prevail.]

Securities Code: 2914
March 2, 2021
To Our Shareholders
Masamichi Terabatake
Representative Director and President

Japan Tobacco Inc.
1-1, Toranomon 4-chome, Minato-ku, TokyoNOTICE OF CONVOCATION OF
THE 36TH ORDINARY GENERAL MEETING OF SHAREHOLDERS
We are pleased to announce the 36th Ordinary General Meeting of Shareholders of Japan Tobacco Inc. (“JT” or
the “Company”), which will be held as set forth below.
This year, in light of the impacts of the novel coronavirus disease (COVID-19), we are asking you toprioritize your safety and to refrain from attending the meeting. Please exercise your voting rights
beforehand via the Internet or by mail instead, by 6:00 p.m. on Tuesday, March 23, 2021.
Particulars
1. Date and Time of the Meeting: Wednesday, March 24, 2021 at 10:00 a.m.
2. Place of the Meeting:

The Prince Park Tower Tokyo
Second basement, Ballroom
8-1, Shibakoen 4-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 Independent Auditors’ Report and JT’s Audit & Supervisory
Board Report on the Consolidated Financial Statements for the 36th
Business Term (From January 1, 2020 to December 31, 2020)
2. Report on the Non-Consolidated Financial Statements for the 36th
Business Term (From January 1, 2020 to December 31, 2020)

Matters to be Resolved:
Item 1:
Item 2:

Appropriation of Surplus
Election of One (1) Member of the Board

1

Information on Matters Posted on JT’s Website
1. Among the documents to be provided upon release of this Notice of Convocation of this Ordinary General
Meeting of Shareholders, the items below are posted on our website (https://www.jti.co.jp/) in accordance withlaws and regulations, and the provision in Article 17 of the Articles of Incorporation. Therefore, they are notincluded in this Notice of Convocation of this Ordinary General Meeting of Shareholders.
 “Overview of the Resolutions on the Development of Systems Necessary to Ensure the Properness of
Operations and the Operating Status of the Systems” on the Business Report
 “Consolidated Statement of Changes in Equity” and “Notes to Consolidated Financial Statements” on
the Consolidated Financial Statements
 “Non-Consolidated Statement of Changes in Net Assets” and “Notes to Non-Consolidated Financial
Statements” on the Non-Consolidated Financial Statements
In addition, these items are included in the Consolidated and Non-Consolidated Financial Statements auditedby the Accounting Auditors in the course of preparing Accounting Auditors’ Report, and in the Business Report,
and Consolidated and Non-Consolidated Financial Statements audited by Audit & Supervisory Board Membersin the course of preparing Audit Report.
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 inJapanese), it will be published on our website (https://www.jti.co.jp/).

JT’s website

https://www.jti.co.jp/

Measures to Prevent the Spread of COVID-19 at the General Meeting of Shareholders
Requests to Shareholders* This year, in light of the impacts of COVID-19, we are asking you to prioritize your safety and to refrainfrom attending the meeting in person.
* Exercise of voting rights at the Company’s General Meeting of Shareholders is shareholders’ importantright. Please exercise your voting rights beforehand via the Internet or by mail. Note that the deadline forexercising your voting rights is 6:00 p.m. on Tuesday, March 23, 2021. Please see pages 4 to 5 for details.
<Measures to be implemented at the venue> We ask shareholders attending in person to use alcohol disinfectant and wear face masks. Please beadvised that persons who do not comply with these requests may not be allowed to enter the venue.
 We will check the body temperature of the shareholders using thermography at the reception desk. Those
who appear to be unwell may be approached by organizing staff members and asked to refrain from entering
the venue.
 Even after the General Meeting of Shareholders has started, persons who appear to be feeling unwell may beapproached by organizing staff members or may be asked to leave the venue.
Notethat the number of available seats will be limited in order to increase the space between the seats. Please
be aware that even shareholders who come to the venue may not be allowed to enter.
 To ensure that the proceedings of the General Meeting of Shareholders progress smoothly and efficiently,
the Company plans to shorten the time. The Company asks for your understanding and cooperation in thismatter.
 Exhibits, such as those introducing the Company’s businesses and products, have been cancelled.
 Although beverages (plastic bottles) are usually provided, they will not be provided at this General Meetingof Shareholders.
Measures by the Company* Organizing staff members will be at the venue after confirming their physical condition, which includes taking
their temperature.
* Organizing staff members will wear face masks when interacting with shareholders.
* Alcohol disinfectant will be placed at the reception desk and multiple areas within the venue.

2Operational Arrangements for the General Meeting of Shareholders* If you are attending in person, please present the Voting Rights Excise Form at the reception desk on arrival at
the venue. In addition, please bring this Notice of Convocation of this Ordinary General Meeting of
Shareholders.
* In case an agent attends the meeting, your agent must bring a letter of attorney along with the Voting Rights
Exercise Form. Only one other shareholder who can exercise the voting rights at this Ordinary General Meetingof 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 thereception desk. It is also possible for us to arrange a Japanese sign language interpreter for you. If you are inneed of this service, please inquire us in writing by March 17 (Wednesday) (your letter of inquiry must reach
us by this date).
* Please note that gifts will not be provided to those attending the General Meeting of Shareholders. We ask foryour understanding in this matter.
* The General Meeting of Shareholders will be streamed live over the Internet so that shareholders will beable to watch the proceedings from their homes or other locations (only available in Japanese).
In the case of material changes on the operation of the General Meeting of Shareholders, you will be informed via
the Company’s website (https://www.jti.co.jp/).

3

Instructions for Exercising Your Voting Rights via the Internet or by Mail
When Exercise the Voting Rights via the Internet
Access the Voting Rights Exercise Website from your computer or smartphone as follows and indicate whether
you are for or against each of the items.

Exercise due dateNo later than 6:00 p.m., on Tuesday, March 23, 2021

Log in from your smartphone1.

Scan the QR Code at the lower right-hand side of the Voting Rights Exercise Form.
 It is not necessary to fill in or mail the usual form.
 It is not necessary to turn on your computer or type the Voting Rights Exercise Website address.
 It is not necessary to type a burdensome ID or password.

* You can exercise your voting rights only one time by scanning the QR Code to log in.
If exercising voting rights more than once, use the instructions in “Log in from your computer, etc.”* Depending on the smartphone model being used, it may not be possible to log in using the QR Code.
* Depending on the app used to scan the QR Code, some additional operations may be necessary.
* QR Code is a registered trademark of DENSO WAVE INCORPORATED.
2. Then, please indicate whether you are for or against each of the items following the directions on thewebsite.
Log in from your computer, etc.
Voting Rights Exercise Website: https://evote.tr.mufg.jp/
1. Access the Voting Rights Exercise Website.
2. Fill in the “Log-in ID” and the “Temporary Password” described on the lower right-hand side of the
Voting Rights Exercise Form, and click the “Log-in” button.
3. Register a new password.
4. Then, please indicate whether you are for or against each of the items following the directions on thewebsite.
If you have any enquiries, please contact Help Desk shown below.
Mitsubishi UFJ Trust and Banking Corporation
Corporate Agency Division
Enquiries on systems, etc.

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

To institutional
investors

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

4

When Exercise the Voting Rights by Mail
Please indicate whether you are for or against each of the items on the Voting Rights Exercise Form and returnit to us. If there is no indication of for or against on each proposal, it shall be deemed that you have voted forthe proposal.

Exercise due date

To be returned to us no later than 6:00 p.m., on Tuesday,
March 23, 2021

Guide to filling in the Voting Rights Exercise Form
Please indicate for or against about each item.
Items 1 and 2
When you are for the proposed item, mark ○ in the “for” box, and when you are against the item, mark○ in the “against” box.
* In the event voting rights are exercised more than once:(1) If the voting right is exercised both via the Internet and by mail, 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.

5

REFERENCE DOCUMENTS
FOR THE GENERAL MEETING OF SHAREHOLDERS
Item 1: Appropriation of Surplus
The Company has adopted a resources allocation policy, under which the Company will continue to place ahigh priority on making business investments that contribute to sustainable mid- to long-term profit growth aswell as to value the balance between profit growth through business investments and shareholder returns. In
this context, the Company has been pursuing enhanced shareholder returns in proportion to the mid- to longterm profit growth, while maintaining a solid financial base(Note).
In accordance with these policies, year-end dividends for the 36th Business Term will be paid as described
below.
(Note) As its financial policy, JT will maintain a solid financial base that secures stability in case of changes inbusiness environment such as economic crises and flexibility enabling expeditious responses to business
investment opportunities.

Year-end dividends(1) Type of assets to be paid as dividends:
Cash(2) Allotment of assets to be paid as dividends and their aggregate amount:¥77 per share of ordinary shares of JT

Aggregate amount: ¥136,616,890,333

Together with the interim dividends of ¥77 per share paid in September 2020, the annual dividends for the36th Business Term will be ¥154 per share.
(3) Effective date for distribution of surplus:
March 25, 2021
Reference: Trends in dividend per share(Note) (yen)(Note) A 200 for 1 share split was effectuated as of July 1, 2012. The above numbers are calculated on theassumption that the share split was retroactively effective.

6【Reference】Resources allocation policy of the Business Plan 2020

In accordance with the “Business Plan 2020,” the Group has pursued a mid to high single digit(Note 1) annual
average growth rate over the mid- to long-term in adjusted operating profit at constant FX(Note 2), and adopted
the following resources allocation policy.
For the resources allocation policy of the Business Plan 2021, please refer to page 36.
Resources allocation policy
Allocate resources based on the “4S model” that underlies the Group’s management principles.
 Prioritize business investments for sustainable profit growth over the mid- to long term Strike a balance between profit growth through business investments and shareholder returns
Business investments- Aim for quality top-line growth by continuously providing new value and satisfaction to customers- Investment towards the growth of the tobacco business is of our highest priority
Shareholder returns- Aim to enhance shareholder returns in agreement with the Company’s mid- to long-term profit growth,
while maintaining a solid financial base Work toward stable and consistent growth in dividend per share(Note 3)
 Consider implementing acquisitions of treasury shares, mainly taking into account the mediumterm outlook on business environment and financial positions
 Continue to monitor a trend in shareholder returns of global FMCG(Note 4) companies(Notes) 1. mid to high single digit: mid to high single digit-percentage
2. Adjusted operating profit is calculated by deducting amortization cost of acquired intangibles andadjustment items (income and costs) from operating profit (loss). Adjustment items (income and costs)
are impairment losses on goodwill, restructuring income and costs, and other items. Adjusted operating
profit growth rate at constant FX is a financial measurement that excludes foreign exchange effects bytranslating and calculating adjusted operating profit for the current fiscal year in the International Tobacco
Business using the foreign exchange rates of the previous fiscal year.
3. Based on the mid- to long-term outlook of the growth rate of adjusted operating profit at constant FX, theGroup will also take into account the Group’s level of profit.
4. A Fast-Moving Consumer Goods (daily consumer goods) company is a company that achieves a highgrowth business by adopting a stakeholder model.

7

Item 2: Election of One (1) Member of the Board
Member of the Board Koichiro Watanabe will resign at the conclusion of this Ordinary General Meeting of
Shareholders. We therefore request the election of one (1) Member of the Board as his substitute. In addition, as
provided for in the Company’s Articles of Incorporation, the term of office of the Member of the Board elected asa substitute will be until the terms of office of the other currently serving Members of the Board expire.
The candidate for the office of Member of the Board is as follows.

Masato Kitera

Newly
appointed
OutsideDirector(Born October 10, 1952)

0

Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent
Positions outside the Company
April 1976
Joined the Ministry of Foreign Affairs
Reasons for nomination as a candidate
January 2008
Director-General for Sub-Saharan African Affairs, for Outside Director
Middle Eastern and African Affairs Bureau, and Masato Kitera has held important
Secretary-General, TICAD IV, Ministry of Foreign
positions in the service of the
Affairs
July 2008
Director-General, International Cooperation Bureau, government over many years, primarily
in the Ministry of Foreign Affairs, andMinistry of Foreign Affairspossesses
extensiveinternational
January 2010
Deputy Minister, Ministry of Foreign Affairs
September 2012 Assistant Chief Cabinet Secretary
experience cultivated in the course of his
November 2012 Ambassador of Japan to the People’s Republic of diplomatic and other activities, as well as
China
a high level of knowledge related toApril 2016
Ambassador of Japan to the Republic of Franceinternational affairs.
June 2016
Ambassador of Japan to the Republic of France,
In addition to anticipating that his highAndorra and Monaco
levelof international knowledge will
December 2019 Retired as Ambassador of Japan to the Republic ofinfluence
the management of the GroupFrance, Andorra and Monaco
as it expands its business outside Japan at
April 2020
Advisor, JT (to present)
June 2020
External Director, Marubeni Corporation
a time of increasing geopolitical risk
(to present)
globally, we expect his appropriate
OutsideDirector,
NIPPONSTEEL advice and supervision to contribute to a
CORPORATION
further enhancement of corporate(to present)
governance. Accordingly, we consider
him an appropriate candidate for Outside
Director of the Company, and propose hiselection as such.

Independent
Director(Notes)Number of the Company’s Shares Held

(Significant Concurrent Positions outside the Company)
External Director, Marubeni Corporation
Outside Director, NIPPON STEEL CORPORATION
1. No conflict of interest exists between the Company and Masato Kitera.
2. Should Masato Kitera’s election be approved, the Company intends to enter into an agreement with him to limit his liabilities
stipulated in Article 423, paragraph 1 of the Companies Act to the extent permitted by laws and regulations.
3. Should Masato Kitera’s election be approved, the Company intends to enter into a liability agreement with him as stipulated in
Article 430-2, paragraph 1 of the Companies Act, whereby the Company shall compensate him for expenses incurred underitem (i) of the same paragraph, and any losses incurred under item (ii) of the same paragraph, to the extent permitted by laws
and regulations.
4. The Company has entered into a liability insurance agreement for executive officers, etc. with an insurance company as
stipulated in Article 430-3, paragraph 1 of the Companies Act, and intends to renew this agreement in April 2021. Under theterms of this insurance agreement, litigation expenses and compensation for damages arising from legal action against thepolicyholders by third parties, shareholders or companies shall be supplemented. Should his election be approved, the Company
intends to include Masato Kitera in the policyholders of this agreement.
5. Masato Kitera satisfies the Criteria for Evaluating the Independence of Outside Executives of the Company and therequirements of an independent director prescribed by the Tokyo Stock Exchange, Inc.
Although the Company has a business relationship for materials procurement etc. with Marubeni Corporation, of which he is
an External Director, the value of this business in fiscal 2020 was negligible, coming to less than 0.001% of consolidated
revenue for Marubeni Corporation in the fiscal year ended March 2020, and less than 0.001% of the Company’s consolidated
revenue in fiscal 2020.
In addition, given that he might be appointed an Outside Director of the Company at some point in the future, in April 2020 the

8Company entered into a part-time advisory agreement with Masato Kitera, for the purpose of enabling him to gain anunderstanding of the state of management and of details of the operations beforehand, and benefiting from his opinions withregard to management and the business from an independent standpoint. Remuneration related to this agreement is paid asconsideration for this advice, and the consideration paid to Masato Kitera hitherto, and the consideration that is expected to be
paid to him this fiscal year, will be not more than ¥10 million prescribed in the Criteria for Evaluating the Independence ofOutside Executives established by the Company.
We judge that this relationship has no impact on his independence.
Furthermore, should Masato Kitera be elected, the Company intends to terminate the part-time advisory agreement with him.
6. The Company intends to designate Masato Kitera as an independent director as prescribed by the Tokyo Stock Exchange, Inc.,
should his election be approved.

9Reference: Composition of the Board of Directors after election (Plan)
Name

Positions and Responsibilities
in the Company

Attendance atmeetings ofthe Board of
Directors

Number ofyears asMember of the
Board

Number ofsignificant
concurrent
positions

Advisory
Panel onNomination andCompensation[Currently
appointed]

Yasutake Tango

Chairperson of the Board

13/13(100%)

6 years and9 months2[Currently
appointed]

Mutsuo Iwai

Deputy Chairperson of the Board

13/13(100%)

5 years

1-[Currently
appointed]

Masamichi Terabatake

Representative Director and President,
Chief Executive Officer

13/13(100%)

3 years

1

-

13/13
(100%)

3 years

1

-

13/13
(100%)

3 years--

Member of the Board andSenior Vice President, Chief Sustainability
Officer, Compliance and General Affairs

13/13(100%)

2 years--

Outside Director

13/13(100%)

8 years and9 months3Outside Director

13/13(100%)

2 years2

Outside Director

-

-

2



[Currently
appointed]

Naohiro Minami[Currently
appointed]

Kiyohide Hirowatari[Currently
appointed]

Kazuhito Yamashita[Currently
appointed][Currently
appointed][Newlyappointed](Notes)Representative Director and Executive Vice
President,
Chief Financial Officer andCommunications
Representative Director and Executive Vice
President,
Legal, Corporate Strategy, Digitalization,
Human Resources, Operation Review &Business Assurance, PharmaceuticalBusiness and Food Business

Main Kohda[Outside Director][Independent Director]
Yukiko Nagashima[Outside Director][Independent Director]
Masato Kitera[Outside Director][Independent Director]

1. Attendance at meetings of the Board of Directors held in fiscal 2020 is presented.
2. The numbers of years as Member of the Board at the conclusion of this Ordinary General Meeting of Shareholders are presented.
3. Representative Director and President, Chief Executive Officer Masamichi Terabatake also serves as President, Tobacco
Business.

10【Reference】Corporate GovernanceFundamental Policy Concerning Corporate Governance
We have enhanced our corporate governance, based on our belief that it is the means for conducting
transparent, fair, timely and decisive decision-making for pursuing JT’s management principle, the “4Smodel.” Specifically the “4S model” aims “to fulfill our responsibilities to our valued consumers,
shareholders, employees and the wider society, carefully considering the respective interests of these four
key stakeholder groups, and exceeding their expectations wherever we can.”We have set out the “JT Corporate Governance Policies” on February 4, 2016, and continuously strive
to make enhancements based on our belief that it will enable us to achieve mid- to long-term sustainableprofit growth and increase company value, which will contribute to the development of our group’s
stakeholders and eventually the economic society as a whole.
We will continue to strive to make the enhancement of corporate governance one of the key challenges
for our management.
JT’s Corporate Governance System (as of December 31, 2020)“JT Corporate Governance Policies” is posted on our website (https://www.jti.co.jp/).

11

(1) Board of Directors[Roles]The Board of Directors assumes responsibility in making decisions for important issues including the JT Groupmanagement strategies as well as supervising all the activities of the Group.
[Composition]
From the point of view that the Board of Directors determines company-wide management strategy andimportant issues and effectively assumes roles and responsibilities as the body exercising supervision over all
business activities, the concept concerning the composition of the Board of Directors shall be set forth asfollows.
 The number of Members of the Board in the Board of Directors shall be fifteen (15) or less, within necessary
and appropriate scope, composed of diverse people with a high-integrity sense of ethics as professionals,
knowledge, experience and skills.
 JT shall appoint two (2) or more Independent Outside Director with qualities that will contribute to its
sustainable profit growth and increase of company value in the mid- to long-term from the viewpoint ofstrengthening supervisory functions and transparency of business.
It is currently composed of nine (9) Members of the Board (including three (3) Independent Outside Directors).
Conditional on approval by this Ordinary General Meeting of Shareholders, it is planned that it be composed ofnine (9) Members of the Board (including three (3) Independent Outside Directors).
[Operation during the period under review]
In year ended December 31, 2020, we had 13 board meetings to discuss important issues including themanagement plan and nomination of Executive Officers.
(2) Audit & Supervisory Board[Roles]The Audit & Supervisory Board shall be composed of persons with proven experience in business, law, financial
affairs and accounting, etc. Audit & Supervisory Board Members, in addition to participating in the Board of
Directors meetings and other important meetings and making remarks as an independent body mandated by theshareholders, shall actively exercise his/her authority such as by proactively inspecting business bases, etc., aswell as appropriately conduct an audit from an objective position corresponding to the nature of duties of
independent outside Audit & Supervisory Board Members or standing Audit & Supervisory Board Members.
[Composition]
It is currently composed of five (5) Audit & Supervisory Board Members (including three (3) Outside Audit &Supervisory Board Members).
[Operation during the period under review]
In year ended December 31, 2020, we had 13 board meetings to discuss issues including the auditing policies
and preparing of Audit Report.
(3) Advisory Panel on Nomination and Compensation[Roles]The Advisory Panel on Nomination and Compensation was established as an optional advisory body to theBoard of Directors and integrates the functions of the previous Meeting for Talent Development andCompensation Advisory Panel. The purpose of establishing the panel is to further enhance the objectivity andtransparency of the Board of Directors’ decision making and to improve the supervisory functions of the Boardof Directors by having the panel support the development of a group of executive candidates, deliberate on thenomination of Member of the Board and Audit & Supervisory Board Member candidates, deliberate on
dismissal of Executive Directors and Members of the Board who execute the business, and deliberate on mattersregarding remuneration for Members of the Board and Executive Officers, then report to the Board of Directors.
[Composition]
It is currently composed of four (4) members and is chaired by the Chairperson of the Board, who does not serveas an Executive Officer, with the other places being taken by three (3) Independent Outside Directors.
[Operation during the period under review]
In year ended December 31, 2020, we had four (4) meetings to confirm the resolution tabled at the Ordinary
General Meeting of Shareholders in relation to the revision of the executive remuneration plan, to confirm thelevel of remuneration, to confirm the pool of executive candidates, and to deliberate the nomination of Memberof the Board candidates, amongst other matters.
(4) JT Group Compliance Committee[Roles]The JT Group Compliance Committee was established as part of the Company’s efforts to ensure thatcompliance is practiced fairly and effectively.
[Composition]
It is headed by the Chairperson of the Board, with the majority of the members consisting of external members.
12[Operation during the period under review]
In year ended December 31, 2020, we had three (3) meetings to discuss initiatives, etc. to further promotecompliance. Its conclusions have been reflected in the Compliance Action Plan for FY2021.

13

【Reference】Nomination of Member of the Board Candidates
In “JT Corporate Governance Policy,” the Company prescribes the following.
Nomination of Member of the Board candidates and Audit & Supervisory Board Member candidates, dismissal of
Executive Directors and Members of the Board who also serve as Executive Officers and related matters shall be
conducted under the appropriate supervision of the Board of Directors, according to the following policies andprocedures.
 JT shall work on expanding, in terms of quality and quantity, the group of executive candidates with qualities
for assuming sustainable profit growth and increase of company value in the mid- to long-term by pursuingthe “4S model.”Specifically, JT aspires to enhance the development of a group of executive candidates and improve thesubstance of succession plans, along with the process for formulating such plans, while referring to opinionsfrom outside at the Advisory Panel on Nomination and Compensation comprised mainly of Independent
Outside Director.
 Member of the Board candidates shall be nominated by resolution of the Board of Directors. The resolution
shall be made after securing opportunities for receiving appropriate advice from Independent Outside Director
by having the Advisory Panel on Nomination and Compensation deliberate on a candidate proposal formed by
the President and report the content and results of its deliberations to the Board of Directors.
Audit & Supervisory Board Member candidates shall be nominated by resolution of the Board of Directors as
persons who is expected to perform their duties appropriately from a position independent of the Board of
Directors. The resolution shall be made after securing opportunities for receiving appropriate advice fromIndependent Outside Director by having the Advisory Panel on Nomination and Compensation deliberate on a
candidate proposal formed by the President and report the content and results of its deliberations to the Boardof Directors, and receiving prior consent from the Audit & Supervisory Board.
 Dismissal of Executive Directors and Members of the Board who also serve as Executive Officers in the cases
where they do not meet the required qualifications or have become unable to perform their duties shall be madeby resolution of the Board of Directors after securing opportunities for receiving appropriate advice fromIndependent Outside Director by having those Members of the Board who are not subject to dismissal request
the Advisory Panel on Nomination and Compensation to deliberate on the proposal for dismissal and thenhaving the panel report the content and results of its deliberations to the Board of Directors.
Further, when bringing up the agenda item on the appointment of Member of the Board candidates and Audit &Supervisory Board Member candidates at the shareholders’ meeting, and when the Board of Directors has resolved
to dismiss a Member of the Board who execute the business, JT shall disclose the reasons for the appointment of
individual candidates and for the dismissal.

14

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

A company or any other form of organization of which JT is a major shareholder
A company or any other form of organization, in which JT holds more than 10% of all shares issued•

A major shareholder of JT, or a company or any other form of organization which is a major shareholder ofJT
A person, or a company or any other form of organization, that holds more than 10% of all shares of JT
issued•A major supplier or customer of JT
A person whose business with JT accounts for more than 2% of the consolidated revenue of JT, or a person
whose business with JT accounts for more than 2% of the consolidated revenue of the person•

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

A person who receives a large amount of fees from JT in exchange for providing professional services forlegal, financial and tax affairs or business consulting services
A person who receives fees of more than ¥10 million in a fiscal year from JT in exchange for providing
professional services for legal, financial and tax affairs or business consulting services. For a company or
any other form of organization, this shall be 2% or more of total income in a fiscal year. However, even if
the fees do not exceed 2%, in cases where consideration for services in which such professionals are directly
involved exceeds ¥10 million, it shall be considered a large amount.
15

•

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

•

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

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

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

Notwithstanding the above mentioned notes, as a result of investigations into the past and present state of
employment of a candidate, it is judged that the person is in effect independent, that person may become an Outside
Member of the Board or an Outside Audit & Supervisory Board Member after receiving the approval of the Boardof Directors. In such cases, the grounds for the decision shall be disclosed publicly.

16【Reference】Evaluation of Effectiveness of the Board of Directors of the Company
With regard to the effectiveness of the Board of Directors, in addition to annual questionnaire-based selfevaluations by Members of the Board and Audit & Supervisory Board Members from the standpoint of suchthemes as business operation systems and supervisory functions of the Board of Directors, and dialogue withshareholders and investors, before compiling the results the Board of Directors Secretariat also conducts individualinterviews with the aim of supplementing the results of the evaluations. The results of the self-evaluations areassessed and analyzed at the Board of Directors, leading to further improvements in its effectiveness. Furthermore,
we take advice from external institutions when creating the questionnaire and analyzing the results, in order toensure objectivity and further improve the evaluation of effectiveness.
The major items evaluated were as follows.
Composition (internal/external ratio, diversity); status of operations (frequency ofholding meetings, appropriateness of topics of discussion, advance explanations);
Business operation
systems for support and cooperation (cooperation between Members of the Board
systems of the Board ofand Audit & Supervisory Board Members / the internal auditing division, etc.,
Directors
utilization of committees, sharing of information outside the Board of Directors);
status of discussions (fair and prompt decision-making that follows the management
principles of the Company, free and open-minded discussion), etc.
Systems for reporting the status of business execution, risk management systems,
Supervisory functions ofpenetration of compliance awareness, decision-making process for executive
the Board of Directors
remuneration, succession planning, etc.
Dialogue with
Sharing of shareholder and investor views, status of development of system forshareholders and investors engaging in dialogue, etc.
In the evaluation of effectiveness conducted for fiscal 2019, the items undergoing evaluation obtained good resultson the whole, allowing the Company to confirm that the effectiveness of the Board of Directors is improving and
the Board of Directors is functioning effectively.
Conversely, in addition to identifying issues related to the operation of the Board of Directors aimed at further
improving its effectiveness, and issues related to better sharing of information that could contribute to further
enhancements in the quality of decision-making by the Board of Directors, the following measures for
improvement, which also took into account the impacts of COVID-19, were implemented throughout 2020.
 Effective and efficient operation of the Board of Directors aimed at further enhancements in its capabilities- More detailed advance explanations for critical matters, and more substantial deliberation and discussion- Remote hosting of some meetings of the Board of Directors, and the use of digital versions of proposalmaterials and minutes
 Better sharing of information that could contribute to further enhancements in the quality of decision-making- Enhanced sharing of information in relation to the following matters• Details and status of investigations into important policies related to mid- to long-term strategy• Status of operations in important countries or regions• Status of dialogue with shareholders/investors• Sustainability strategy for the Company as a whole and individual businesses, progress towards the same,and results of external evaluation, etc.
• The impacts of COVID-19 on employees and individual businesses, measures taken in response, andstatus of the same
The fiscal 2020 effectiveness evaluation recognized that there had been improvements in the main initiatives forthe year (effective and efficient operation of the Board of Directors / better sharing of information), in addition towhich the items undergoing evaluation again achieved good results, on the whole.
On the other hand, in order to make an ongoing contribution to enhanced effectiveness, the Company will target
continuous improvements from 2021 onwards, focusing on the following newly identified issues.

17

Main issues
Policy for improvements going forward
Measures to maintain and improve the quality and Further enhancement of discussions, exchanges ofamount of communication between Members of the opinions, and information sharing under themes, such
Board (in light of reduced opportunities for face-to-face as the progress of key policies in the mid- to long-term
meetings due to the impacts of COVID-19)
strategy, status of each stakeholder who contributes to
Discussions that delve deeper into topics related to the further pursuit of the 4S model, and corporate
governancecorporate governance
The Company will continue to implement improvements required to further enhance effectiveness, including theabove-mentioned activities.

18

[For your reference, we have included various graphs and photographs.][Attached Documents]

Business Report(From January 1, 2020 to December 31, 2020)
I.

Matters Concerning Present State of the Corporate Group1.

Overview and Results of Operations
General summary
 Revenue
The negative foreign currency impacts were offset by the positive momentum from the favorable price/mix
contributions in the International Tobacco Business, but due to a revenue decline in the Japanese Domestic
Tobacco Business, Processed Food Business and Pharmaceutical Business, revenue fell by 3.8% from theprevious fiscal year to ¥2,092.6 billion. Moreover, the negative effects on consolidated revenue of the spreadof infection caused by the novel coronavirus that appeared in 2020 are estimated to have been about ¥61.0
billion, equivalent to 3% of the total.
 Adjusted operating profit, operating profit and profit attributable to owners of the parent company
Adjusted operating profit at constant FX, which is one of the Group’s management benchmarks, increased
by 5.5% from the previous fiscal year driven by an increase in the Pharmaceutical Business, as well as growthin the International Tobacco Business, partially offset by decreases in the Japanese Domestic Tobacco
Business and Processed Food Business. Adjusted operating profit decreased by 5.6% from the previous fiscal
year to ¥487.0 billion, due to declines in the Japanese Domestic Tobacco Business and the Processed FoodBusiness in addition to the negative foreign currency impacts in the International Tobacco Business.
Operating profit decreased by 6.6% from the previous fiscal year to ¥469.1 billion, due to factors including
an unfavorable comparison from the one-time compensation gains in the Pharmaceutical Business in 2019.
This was in spite of the increase in proceeds from sales of real estate, due mainly to the sale of the former JT
head office building, and a favorable comparison from transformation-related restructuring costs in theInternational Tobacco Business in 2019.
Profit attributable to owners of the parent company declined by 10.9% from the previous fiscal year to ¥310.3
billion, mainly due to the decline in operating profit and increase in financing costs.
The Group makes accounting adjustments to the financial statements of subsidiaries that operate in
hyperinflationary economies according to the requirements stipulated in IAS 29 “Financial Reporting inHyperinflationary Economies” (hereinafter referred to as “IAS 29”). However, the impact of IAS 29 is notincluded in each indicator at constant FX.
JT Group Management Benchmarks
Adjusted operating profit(at constant FX)(Note 1)+5.5% year on year

19Consolidated performance

Revenue[Billions of yen]

Year-On-Year
Change [%]2,092.6(3.8)(Note 2)Adjusted operating profit

487.0

(5.6)

Profit attributable to owners of
the parent company

310.3(10.9)(Notes)1. Adjusted operating profit (at constant FX) is a financial measurement that excludes foreignexchange effects by translating and calculating adjusted operating profit for the current fiscal
year in the International Tobacco Business using the foreign exchange rates of the previous fiscal
year.
2. Adjusted operating profit is calculated by deducting amortization cost of acquired intangibles
arising from business acquisitions and adjustment items (income and costs) from operating profit(loss). Adjustment items (income and costs) are impairment losses on goodwill, restructuringincome and costs, and other items.

20

Revenue breakdown by business segment

Revenue

Adjusted operating profit

Profit(Attributable to owners of the parent company)

21

Japanese Domestic Tobacco BusinessIn the current fiscal year, sales volume of cigarettes(Note 1) was negatively impacted by a decline in cigarette
industry volume(Note 2) caused by the impacts of COVID-19, price revisions and regulatory changes, andgrowth in the RRP(Note 3) category in addition to a natural decline trend, as well as cigarette market sharelosses. As a result, sales volume fell by 9.0%, from the previous fiscal year to 68.7 billion cigarettes. The
Company’s RRP sales volume(Note 4) increased by 0.7 billion to 3.9 billion cigarette equivalent units.
Core revenue from the tobacco business(Note 5) fell by 9.3% from the previous fiscal year to ¥515.7 billion,
mainly due to an unfavorable cigarette sales volume variance, a decrease in RRP-related revenue, and lower
sales in domestic Duty-Free and China businesses despite a positive cigarette price/mix variance. RRP-related
revenue benefited from an increase in RRP sales volume, but the decline in device sales and the unfavorable
cigarette price/mix variance for refills attributed to the tax absorption following price revisions in October
2019 led to a decrease of ¥5.0 billion over the previous fiscal year, to ¥55.9 billion. Furthermore, COVID-19
is estimated to have negatively impacted revenue by about ¥30.0 billion, of which slightly more than half is
attributed to domestic Duty-Free and China businesses.
Adjusted operating profit benefited from the effects of a positive cigarette price/mix variance, the nonrecurrence of an impairment loss recorded in the previous fiscal year in relation to capsule manufacturingmachines for tobacco-infused vapor product using low-temperature heating technology, a significant decline
in indirect costs due to protracted COVID-19 disruptions, and efficient cost management and investments inpriority activities. However, the impact of an unfavorable cigarette sales volume variance, a decrease in RRPrelated revenue, lower sales in domestic Duty-Free and China businesses, and strengthened investment
centered on RRP and digital marketing resulted in a decline of 10.2% over the previous fiscal year, to ¥168.1
billion.
(Notes)1. Sales volume of cigarettes includes the Company’s sales volume for cigarettes and little cigars
in the Japanese market, but it does not include sales volume for RRP and so on. In addition to
the figure stated above for sales volume, during the fiscal year ended December 31, 2020, 1.8
billion cigarettes were sold at duty-free shops in Japan, as well as at markets in China, Hong
Kong and Macau that are under the control of the Company’s China Division (4.0 billion
cigarettes in the previous fiscal year).
2. Cigarette industry volume includes sales volume for cigarettes in the whole Japanese market.
The figure stated above for cigarette industry volume includes little cigars but does not include
sales volume for RRP and so on.
3. Reduced-Risk Products (RRP) are products with potential to reduce the risks associated withsmoking such as E-Vapor products and T-Vapor products. E-Vapor products do not use tobacco
leaf, instead using electrical heating of a liquid inside a device or specialized cartridge to generate
vapor for the user to enjoy. Conversely, T-Vapor products do use tobacco leaf, but instead ofburning the leaf, they use methods such as heating the leaf to generate vapor (which includes
compounds derived from the tobacco leaf) for the user to enjoy.
4. RRP sales volume is converted at the equivalent of 20 cigarettes per pack. The figure statedabove does not include sales volume sold at duty-free shops in Japan. Also, RRP-related revenue
includes revenue from duty-free shops in Japan and revenue from devices and associatedaccessories, etc.
22

5. Core revenue in the Japanese Domestic Tobacco Business includes revenue from the domestic
duty-free market as well as from markets in China, Hong Kong and Macau that are under thecontrol of the Company’s China Division, in addition to revenue related to RRP, little cigars andso on, but it excludes revenue related to imported tobacco delivery charges, among others.

23International Tobacco BusinessIn the current fiscal year, amid the prolonged impacts of COVID-19, the impact of the decline in the numberof travelers on duty-free sales, as well as industry volume contraction in several markets, notably Russia,
resulted in total shipment volume(Note 1) decreasing by 2.3% from the previous fiscal year to 435.7 billion
cigarettes. GFB(Note 2) shipment volume rose by 1.8% from the previous year to 282.0 billion cigarettes, driven
by Winston and LD.
On a JPY basis, core revenue from the tobacco business(Note 3) was almost unchanged from the previous fiscal
year at ¥1,250.8 billion, with a favorable price/mix variance and volume contribution offsetting currency
headwinds. Adjusted operating profit on a JPY basis was also unchanged from the previous fiscal year, at¥340.9 billion. Furthermore, COVID-19 is estimated to have negatively impacted core revenue from thetobacco business by about ¥20.0 billion.
On a USD basis, a favorable price/mix variance and a positive volume contribution from a favorable market
mix resulted in core revenue from the tobacco business rising by 2.0% from the previous fiscal year, to$11,724 million (up 7.0% from the previous fiscal year at constant FX). In addition, due to a positive
price/mix variance and volume contribution, adjusted operating profit on a USD basis rose by 1.8% from theprevious fiscal year to $3,181 million (up 16.8% from the previous fiscal year at constant FX).
(Notes)

1. Includes fine cut tobacco, cigars, pipe tobacco, snus, kretek and T-Vapor products, except forcontract manufacturing products, waterpipe tobacco products and E-Vapor products.
2. GFBs (Global Flagship Brands) consist of four brands, which serve as flagships of the Group’s
brand portfolio - Winston, Camel, MEVIUS, and LD.
3. Core revenue in the International Tobacco Business includes revenue related to waterpipe
tobacco products and RRP, but excludes revenue related to the distribution business and contract
manufacturing, among others.

24Core revenue (USD basis)

Adjusted operating profit (USD basis)

Exchange rate per US dollar
Foreign exchange rate
per US dollar

FY2019FY2020Japanese yen

109.03106.76

Russian ruble

64.74

72.07

British pound

0.78

0.78

Euro

0.89

0.88

Swiss franc

0.99

0.94

Taiwanese dollar

30.90

29.47

Turkish lira

5.67

7.01

-(Note)(Note) In accordance with IAS 29, the closing currency rates for the month ended December 2020 have been
applied when converting financial statements of subsidiaries located in hyperinflationary economies tothe US dollar. When converting US dollars to Japanese yen, the rate applied is derived by the same
method (US dollars to Iranian rial: 258,747; US dollars to Japanese yen: 103.50). For other rates, theaverage rate during the fiscal year is applied.
Iranian rial

104,046

Main market shares (12-month rolling average)
December 2019(Note 1)

December 2020

France

24.2%

27.1%

2.9 percentage points

Italy

24.5%

25.6%

1.2 percentage points

Russia

39.1%

38.4%

(0.7) percentage points

Spain

25.6%

(Note 2)

1.0 percentage points

Taiwan

45.3%

47.7%

2.4 percentage points

Turkey

27.4%

26.6%

(0.8) percentage points

U.K.

43.6%

45.0%

1.4 percentage points

26.6%

Variance

Source: IRI, Nielsen and Logista(Notes) 1. Market shares for 2019 have also been updated based on data from the end of December 2020.
2. The market share for Spain for 2020 uses the 12-month rolling average from December 2019 toNovember 2020.

25

Pharmaceutical BusinessIn the Pharmaceutical Business, the Company has been striving to make a contribution to the Group’s profitsby promoting R&D on next-generation strategic products and by maximizing the value of each product.
In the area of product development, seven compounds are in clinical development. The Company received
domestic manufacturing and marketing approval of CORECTIM® Ointment 0.5% for treatment of atopic
dermatitis and ENAROY® Tablets 2 mg･4 mg for treatment of anemia associated with chronic kidney disease,which Torii Pharmaceutical Co., Ltd. began to sell in June 2020 and December 2020, respectively.
In January 2020, we concluded a license agreement with Dermavant Sciences GmbH in relation to exclusive
development and commercialization in Japan, in the field of dermatological diseases and conditions, for“tapinarof, a topical, therapeutic aryl hydrocarbon receptor modulating agent,” following which an agreement
was concluded with Torii Pharmaceutical Co., Ltd. in relation to domestic co-development andcommercialization.
In the current fiscal year, revenue decreased by 10.8% from the previous fiscal year to ¥79.0 billion, mainly
due to lower overseas royalty income and a decrease in one-time compensation gains from licensed
compounds.
Adjusted operating profit increased by 7.6% from the previous fiscal year to ¥17.2 billion, despite the decline
in overseas royalty income, due to lower R&D expenditures marked by the completion of trials for the clinicaldevelopment of the product for which an application has been filed for manufacturing and marketing approval,
as well as earnings growth in our subsidiary Torii Pharmaceutical Co., Ltd.
The business has not experienced any material impact on the top line from COVID-19.

26

【Reference】
Pharmaceutical Business
Clinical Development as of February 9, 2021
＜In-house development＞
Code(Generic Name)

Potential
Indication/Dosage form

Mechanism

Atopic dermatitis(pediatric)/Topical
JTE-052(delgocitinib)

Atopic dermatitis(infant)/TopicalPhase (Region)

JAK inhibitor

Suppresses overactive immune
response via inhibition of Janus
kinase (JAK) related to immune
signal.

Phase3 (Japan)

Note・Co-development withTorii

NDA filed (Japan)

Autoimmune/allergic
diseases/Oral, Topical

In-house

・Co-development with
Torii

Phase1 (Japan)
Suppresses overactive immune
response via inhibition of thesignal to activate T cells related
to immune response.

JTE-051

Autoimmune/allergic
diseases/Oral

Interleukin-2
inducible T cellkinase inhibitor

JTE-451

Autoimmune/allergic
diseases/TopicalSuppresses overactive immune
RORγ antagonist response via inhibition of ROR γ
related to Th 17 activation.

JTT-251

Type 2 diabetes mellitus
PDHK inhibitor/Oral

JTT-662

Type 2 diabetes mellitus
SGLT1 inhibitor/Oral

JTE-761

Autoimmune/allergic
diseases/Oral

JTT-751
Iron-deficiency(ferric citrate hydrate) anemia/Oral

OriginPhase2 (Overseas)

In-house

Phase1 (Japan)

In-house

Decreases blood glucose by
activation of pyruvate
dehydrogenase (PDH) related tocarbohydrate metabolism.

Phase1 (Overseas)

In-house

Suppresses postprandial
hyperglycemia and normalizes
blood glucose level via
inhibition of SGLT1.

Phase1 (Overseas)

In-house

Suppresses overactive immune
RORγ antagonist response via inhibition of ROR γ Phase1 (Overseas)
related to Th 17 activation.

In-house

Oral ironreplacement

Corrects iron-deficiency anemia
by using absorbed iron forsynthesis of hemoglobin.

NDA filed (Japan)

In-license

・Licensed from Keryx
Biopharmaceuticals
・Co-development with
Torii
・Additional indication

Clinical trial phase presented above is based on the first dose.
We are also conducting additional studies to examine the potential for use in additional dosage forms.

＜Licensed compounds＞
Compound(JT’s code)

trametinib

LicenseeNovartis

Anti-ICOS monoclonal
AstraZeneca
antibody

Mechanism

MEK inhibitor

ICOS antagonist

delgocitinib

LEO Pharma
ROHTO Pharmaceutical

JAK inhibitor

enarodustat

JW Pharmaceutical
Salubris

HIF-PHinhibitor

Note

Inhibits cellular growth by
specifically inhibiting the activityof MAPK/ERK pathway.
Suppresses overactive immune
response via inhibition of ICOS
which regulates activation of T
cells.
Suppresses overactive
immune response via
inhibition of Janus kinase(JAK) related to immune
signal.
Increases red blood cells bystimulating production oferythropoietin, an erythropoiesisstimulating hormone, via
inhibition of HIF-PH.

Updates since the previous announcement on October 30, 2020:
・ JTE-451 (Autoimmune/allergic diseases/Oral): terminated・ JTZ-951: listing on the Japanese National Health Insurance drug price list and launch of ENAROY® Tablets 2 mg･4 mg for the Treatment of Anemia Associatedwith CKD in Japan・ JTZ-951 (Anemia associated with chronic kidney disease/Oral): terminated (Overseas)27

Processed Food BusinessIn the Processed Food Business, we concentrate on frozen and ambient foods, seasonings, and bakery, whileat the same time making efforts to strengthen cost competitiveness and working on initiatives to improve
profitability.
In the frozen and ambient foods business in the current fiscal year, we maintained high market shares in thedomestic market for our focus areas of frozen noodles, packed rice and okonomiyaki, while also launching
23 new products, such as the “No Plate Required” series designed to meet demand for simplified meals, andrenewing a further 41 products.
In addition, the time spent consuming all kinds of media has trended upwards during the coronavirus
pandemic. In reaction to this, we actively developed and strengthened advertising centered on the Internet,
such as on YouTube and social media, and worked to raise customer awareness of our products further.
Revenue in the current fiscal year continued to be impacted by COVID-19, resulting in higher sales generated
by increased demand for household products within frozen and ambient foods. However, significant declines
in demand for food-service products within the frozen and ambient foods as well as the seasonings businesses,
and the bakery business, led to lower sales and resulted in revenue falling 5.8% from the previous fiscal yearto ¥149.3 billion.
Adjusted operating profit decreased by ¥6.2 billion from the previous fiscal year, due to the decline in revenue,
rising logistics costs in the frozen and ambient foods, and an impairment loss of assets such as factories andshops in the bakery business, partially offset by improvements in product mix.
Furthermore, COVID-19 is estimated to have negatively impacted the top line by about ¥11.0 billion.

28

2.

Status of Capital Expenditures
In this fiscal year, we made capital expenditures totaling ¥112.9 billion.
In the Japanese Domestic Tobacco Business, we spent ¥21.1 billion, mainly on investments accompanying
maintenance and upgrade of manufacturing processes, productivity improvements, adaptation to new
products, improvements in product specifications, and others. In the International Tobacco Business, weinvested ¥66.6 billion mainly for compliance with regulations in addition to improvements in productspecifications. In the Pharmaceutical Business, we spent ¥9.1 billion on enhancing and strengthening
research and development structures and the like. In the Processed Food Business, we invested ¥8.0 billion
in improvement, maintenance and renewals of production capability.
(Note) 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, excluding assets acquired throughbusiness combinations.

3.

Status of Financing
With the aim of allocating funds for the repayment of short-term borrowings and the like, the Company
obtained subordinated loans totaling ¥100.0 billion on January 31, 2020, and for the overseas subsidiary JT
International Financial Services B.V., we issued foreign currency denominated subordinated bonds totaling€1,000 million (approximately ¥126.8 billion) on October 7, 2020.

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 [Consolidated]
33rd term
From January 1,
2017 toDecember 31,
2017

34th term
From January 1,
2018 toDecember 31,
2018

35th term
From January 1,
2019 toDecember 31,
2019

36th term
From January 1,
2020 toDecember 31,
2020

Revenue(Millions of yen)

2,139,653

2,215,962

2,175,626

2,092,561

Profit before income
taxes(Millions of yen)

538,532

531,486

465,232

420,063

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

392,409385,677

348,190

310,253

Basic earnings per
share
(Yen)

219.10215.31

195.97174.88

Total assets(Millions of yen)

5,221,484

5,461,400

5,553,071

5,381,382

Total equity(Millions of yen)

2,842,027

2,700,445

2,743,611

2,599,495(Note) Consolidated financial statements of the JT Group are prepared based on IFRS.

30

(2) Trends in assets and non-consolidated operating results of JT [Non-consolidated]
33rd term
From January 1,
2017 toDecember 31,
2017

34th term
From January 1,
2018 toDecember 31,
2018

35th term
From January 1,
2019 toDecember 31,
2019

36th term
From January 1,
2020 toDecember 31,
2020

Net sales(Millions of yen)

681,840696,250

660,805

596,887

Ordinary income(Millions of yen)

199,336

190,343

278,968

240,491

Net income(Millions of yen)

160,120

164,595

262,469

241,752

Net income per share
(Yen)

89.40

91.89

147.72

136.27

Total assets(Millions of yen)

2,885,760

2,670,883

2,614,357

2,597,930

Net assets(Millions of yen)

1,592,966

1,493,562

1,417,365

1,390,011(Notes)1. Non-consolidated financial statements of the Company are prepared based on Japanese GAAP.
2. The Company has applied the “Partial Amendments to Accounting Standard for Tax EffectAccounting” (ASBJ Statement No. 28, February 16, 2018) and relevant Guidances effectivefrom the 35th term.
As a result of this change, amounts presented for the 34th term are those after retrospective
application.

31

Trends in assets and operating results of the JT Group [Consolidated]

32

9.

Issues to Be Addressed(1) Basic management policy
Our management principles are based on the pursuit of the “4S model.” The model requires us to fulfill our
responsibilities to our valued consumers, shareholders, employees and the wider society, carefully
considering the respective interests of these four key stakeholder groups, and exceeding their expectations
wherever we can.
We created our vision and mission based on the “4S model.” Our vision is to continue to be a growing global
company 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 theenvironment and the diversity of societies and individuals.
We have also adopted “The JT Group Way” as a code of conduct which all members of the Group 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, and leverage diversity across theGroup.
The Group has attained sustainable profit growth and will continue to do so through the pursuit of the “4Smodel.” 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 mid- tolong-term profit growth.
We believe that the pursuit of the “4S model” will lead to a consistent increase in corporate value in the midto long-term and therefore that it is the best approach to serve the interests of all stakeholders.

33(2) Mid- to long-term management strategy and issues
In view of realizing the Group’s long-term vision of becoming a “Company committed to global growth thatprovides consumers with diversified value available uniquely from JT,” we intend to carry on strategies thathave hitherto been implemented, and believe that in order to take them to a higher level it is necessary to not
merely respond passively to change, but to initiate transformation ourselves in order to accelerate our
evolution into an organization that will lead this revolution, thus enabling sustainable growth in profits overthe mid- to long term.
Based on this thinking, the Group formulates its three-year business plan with the aim of renewing it eachyear on a rolling basis in order to speed up the Group’s ability to respond appropriately to unexpected changes.
In the “Business Plan 2021,” there is no change in the Group’s resources allocation policy, under which wewill continue to place a high priority on making business investments that contribute to sustainable mid- tolong-term profit growth(Note 1) as well as on valuing the balance between profit growth through business
investments and shareholder returns based on the “4S model.”In accordance with the “Business Plan 2021,” the Group will continue to pursue mid to high single digit(Note2)
annual average growth rate over the mid- to long term in adjusted operating profit at constant FX(Note 3).
With regard to shareholder returns, from the perspective of the concepts of “prioritizing business investments”
and “striking a balance between profit growth and shareholder returns” mentioned in the resources allocation
policy, we have revised this policy in Business Plan 2021. Specifically, while maintaining a solid financialbase(Note 4), we had previously worked toward stable and consistent growth in dividend per share(Note 5) as partof our efforts to enhance shareholder returns by realizing the Company’s mid- to long-term profit growth,
but we have changed this to targeting a dividend payout ratio of 75%(Note 6) as a competitive level in thecapital markets(Note 7).
Additionally, we will consider implementing acquisitions of treasury shares, mainly taking into account theCompany’s financial outlook of the respective year and the mid-term capital needs.
The mid- to long-term targets for each business are as follows.
Tobacco Business

Grow adjusted operating profit at mid to high single digit rate perannum over the mid- to long term as the core business and profit
growth engine of the Group

Pharmaceutical Business

Strive to make profit contribution to the Group through promotionof R&D on next-generation strategic products and value
maximization of each product

Processed Food Business

Aim to achieve mid- to long-term sustainable profit growth centered
on top-line growth34

In 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. For each business, ourstrategic focus is to improve cost competitiveness and business foundations that support these efforts, thereby
achieving sustainable profit growth.
As announced on February 9, 2021, the Group will implement a new operating model for the tobacco
business by unifying the organization structure of the domestic and international tobacco businesses, boosting
competitiveness by reforming the domestic sales organization structure, consolidating manufacturing andleaf procurement locations, and optimizing the workforce.
The business environment in which the Group operates is characterized by a high degree of uncertainty, suchas changes in the international political situation, and foreign exchange risks associated with declines in value
for the currencies of emerging countries. In particular, global economic conditions have deteriorated as aresult of the lockdowns and restrictions on cross-border travel caused by the COVID-19 pandemic, whichhave given rise to significant changes in consumer behavior and corporate activity, and we recognize that theoutlook going forward is even more uncertain.
In view of not only this very difficult business environment, but also the size and swiftness of global trends
such as the advance of digital technology, changes in the consciousness and behavior of consumers, and theshift towards greater awareness of sustainability, the Group will not merely respond passively to change, butwill instead work to initiate transformation itself, allocating resources based on the “4S model” with the aimof achieving sustainable profit growth over the mid- to long term, and generating steady returns forshareholders.
(Notes)1. Growth of adjusted operating profit at constant FX through quality top-line growth
2. mid to high single digit: mid to high single digit-percentage
3. Adjusted operating profit is calculated by deducting amortization cost of acquired intangibles
and adjustment items (income and costs) from operating profit (loss). Adjustment items (income
and costs) are impairment losses on goodwill, restructuring income and costs, and other items.
Adjusted operating profit growth rate at constant FX is a financial measurement that excludes
foreign exchange effects by translating and calculating adjusted operating profit for the current
fiscal year in the International Tobacco Business using the foreign exchange rates of the previous
fiscal year.
4. The Company will maintain a solid financial base that secures stability in case of changes inbusiness environment such as economic crises and flexibility enabling expeditious responses tobusiness investment opportunities.
5. Based on the mid- to long-term outlook of the growth rate of adjusted operating profit at constantFX, the Group will also take into account the Group’s level of profit going forward.
6. To be in the range of approximately ±5%.
7. Monitor the shareholder return trends of global Fast-Moving Consumer Goods (FMCG)
companies which have a stakeholder model similar to our “4S model” and have realized strong
business growth.

35

【Reference】Resources Allocation Policy of the Business Plan 2021
Resources allocation policy
Allocate resources based on the “4S model” that underlies the Group’s management principles.
• Prioritize business investments for sustainable profit growth(Note 1) over the mid- to long term
• Strike a balance between profit growth through business investments and shareholder returns
Business investments- Aim for quality top-line growth by continuously providing new value and satisfaction to customers- Investment towards the growth of the tobacco business is of our highest priority
Shareholder returns- Aim to enhance shareholder returns by realizing the Company’s mid- to long-term profit growth, while
maintaining a solid financial base(Note 2)- Target a dividend payout ratio of about 75%(Note 3) as a competitive level in the capital markets(Note 4)- Consider implementing acquisitions of treasury shares, mainly taking into account the Company’s
financial outlook of the respective year and the mid-term capital needs(Notes)

1. Pursue growth of adjusted operating profit at constant FX through quality top-line growth.
2. The Company will maintain a solid financial base that secures stability in case of changes in businessenvironment such as economic crises and flexibility enabling expeditious responses to business
investment opportunities.
3. To be in the range of approximately ±5%.
4. Monitor the shareholder return trends of global Fast-Moving Consumer Goods (FMCG) companies whichhave a stakeholder model similar to our “4S model” and have realized strong business growth.

36

【Reference】Our Approach to Sustainability
In order for the Group to achieve sustainable growth, it is essential for our business to contribute to the sustainable
development of our society. Sustainability is at the heart of managing our business. Our sustainability strategy isformulated based on the 4S model, our management principles, and encompasses our materiality analyses.
Taking an active approach to ESG (Environmental, Social and Governance) issues is an essential part of thesustainability of our business. We have set out three absolute requirements for sustainability that apply acrossthe Group. Each business has also set out its own focus areas. We work continuously on a variety of sustainability
issues to fulfill our responsibilities.
JT Group’s Sustainability Strategy
3 Absolute Requirements
Respect for
Human Rights

Good Governance andBusiness Standards

An Improved Social andEnvironmental Impact
Focus Areas for Each BusinessTobaccoProducts andServices

PeopleSupply Chain

Regulatory
Environment andIllegal Trade

Pharmaceutical

Products and Services

PeopleProduct Safety andResponsibility

Processed Food

Products and Services

PeopleSupply Chain

In each business, we have specific targets in the above focus areas. In the tobacco business, we have been reportingon progress since 2019. Regarding the Pharmaceutical Business and Processed Food Business, we set specifictargets in 2020, and will report the progress for the first time in the Integrated Report scheduled to be publishedin late March 2021. Please refer to the JT website for more details.
The Group supports the Sustainable Development Goals (SDGs) adopted by the United Nations, and we will
mainly contribute to the following related goals through our business activities and initiatives.

37

Reducing Our Environmental Impacts (Case study)
Taking into account the dramatic changes in both the social and business environment in recent years, theGroup set out the JT Group Environment Plan 2030, with three focus areas; “Energy and Emissions,”“Natural Resources,” and “Waste.” We will work on the transition to renewable energy, reductions ingreenhouse gas emissions, addressing water-related risks or sustainable forest management, and reducing theimpact on the environment of waste, including plastics.
We recognized that climate change remains a key environmental challenge for us, as
it can have a direct impact on our value chain and the society at large. We have beenstrengthening our approach towards reducing our environmental impact. In 2019, theGroup’s long-term Greenhouse Gas (GHG) emission reduction target was approved
as a Science Based Target (SBT) by the Science Based Target initiative (SBTi).
In 2020, the Group has endorsed the recommendations of the “Task Force on
Climate-related Financial Disclosures (TCFD).” We have been doing scenario
analyses on climate change, and in accordance with these recommendations, wewill further seek to understand and disclosure of the risks and opportunities thatclimate change impacts on its business. In addition, in order to further promote thecircular economy, we set a new target relating to the appropriate use and responsible
disposal of materials, including plastics, used in our products and packaging, in the JT
Group Environmental Plan 2030.
Our continued efforts to reduce our environmental footprint and our transparency indisclosing information have been highly evaluated, and we were recognized as a global
leader in tackling climate change and water security by CDP, which is the leadinginternational non-profit organization that assesses environmental disclosure. As a result, wewere listed on the CDP’s “Climate A List” and “Water A List” for the second consecutive
year. JT is one of approximately 60 companies in the world and 16 companies in Japan that
achieved “Climate A List” and “Water A List,” out of more than 5,800 companies
participating in the CDP environmental disclosure program in 2020.

- Please visit “Sustainability” on the Company’s website (https://www.jt.com/sustainability/) to find out more
about our approach to sustainability.
- Beginning in FY2019, an Integrated Report was published instead of the Annual Report and the Sustainability
Report. The FY2020 Integrated Report will be made available on the Company website in late March 2021.
- Details of the sustainability initiatives implemented by the Group that were previously disclosed in the
Sustainability Report will continue to be made available as online content in the Company’s website (updates
are expected towards the end of June 2021).
- With regard to the Company’s corporate governance, please refer to “【Reference】Fundamental Policy
Concerning Corporate Governance” at the end of the Reference Documents for the General Meeting of
Shareholders.

3810. Main Business Contents

Business segment

Main businessJapanese Domestic Tobacco Business
International Tobacco BusinessPharmaceutical Business
Processed Food Business

Manufacture and sale of tobacco products, mainly MEVIUS andSeven Stars
Manufacture and sale of tobacco products, mainly Winston and
Camel
Research and development, manufacture and sale ofprescription drugs
Manufacture and sale of frozen and ambient foods, seasonings,
bakery products, etc.

11. Status of Important Subsidiaries

Company name
TS Network Co., Ltd.
Japan Filter Technology
Co., Ltd.
JT International S.A.
Gallaher Ltd.
Torii PharmaceuticalCo., Ltd.
TableMark Co., Ltd.
(Notes)Equityownership(%)

Capital(Millions of yen)

460
(Millions of yen)

461
(Thousands of CHF)

923,723(Thousands of GBP)

172,495(Millions of yen)

5,190(Millions of yen)

22,500Main business

74.5

Distribution of tobacco products

100.0

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
andprescription drugs

sale

of

100.0

Manufacture and sale of processedfoods

1. Figures in parentheses in the “Equity ownership” column indicate indirect holding rates.
2. On the last day of the fiscal year ended December 31, 2020, there were 235 consolidated
subsidiaries, including 6 above-mentioned important subsidiaries, as well as 13 affiliates
accounted for by the equity method.
3. On the last day of the fiscal year ended December 31, 2020, there were no specified wholly
owned subsidiaries as stipulated in Article 118, item 4 of the Regulation for Enforcement of theCompanies Act.

39

12. Major Lenders
LenderOutstanding balance(Millions of yen)

Subordinated syndicated loan

100,000

The Norinchukin Bank

40,00034,230(EUR 270 million)

Syndicated loan
Shinkin Central Bank
(Notes)

30,0001. The subordinated syndicated loan was financed jointly by four banks, with Mizuho Bank, Ltd.
acting as the arranger and agent.
2. The syndicated loan to the Company’s overseas subsidiary JT International Holding B.V., aborrower, was financed jointly by four banks, with UNICREDIT BANK AG acting as thearranger and agent.

13. Major Sales Offices and Factories(1) JT
Headquarters:

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

Regional sales headquarters:
Hokkaido (Hokkaido), Tohoku (Miyagi), Joshinetsu (Gunma), Kita-Kanto (Saitama),
Higashi-Kanto (Chiba), Tokyo (Tokyo), Kanagawa (Kanagawa), Hokuriku (Ishikawa),
Tokai (Aichi), Kita-Kansai (Osaka), Osaka (Osaka), Chugoku (Hiroshima),
Shikoku (Kagawa), Kyushu (Fukuoka), and Minami-Kyushu (Kagoshima)
Factories:

Kita-Kanto (Tochigi), Tokai (Shizuoka), Kansai (Kyoto), Kyushu (Fukuoka),
and Tomobe (Ibaraki)

Laboratories:

Tobacco Science Research Center (Kanagawa),
Leaf Tobacco Research Center (Tochigi),
and Central Pharmaceutical Research Institute (Osaka)(Note) The headquarters was relocated to the above address on October 5, 2020.
(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)
TableMark Co., Ltd. (Tokyo)(Note) Text in parentheses shows the location of head office.

40

14. Status of Employees(1) Employees of the JT Group [Consolidated]
Number of employees(Person)Business segment
Japanese Domestic Tobacco Business

10,354

International Tobacco Business

40,576

Pharmaceutical Business

1,379

Processed Food BusinessCommon company-wide services
within JT

5,021

Total

58,300970(Note) The above number of employees indicates the number of working employees.
(2) Employees of JT [Non-consolidated]

Male/Female
Male

Number ofYear-on-year
employees
increase (decrease)(Person)(Person)
6,141
(132)

44.4

Average years ofservice(Year)
19.3

Average age(Year old)

Female

1,225

34

37.3

12.0

Total or average

7,366

(98)

43.2

18.1

(Note) The above number of employees indicates the number of working employees.

41

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 shares

225,754,671 shares)

3. Number of shareholders:

4.

638,716

Major shareholders
Name of shareholders

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

Minister of Finance

666,925,200

37.59

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

77,183,500

4.35

SMBC Nikko Securities Inc.

58,303,600

3.29

48,009,500

2.71

23,660,000

1.33

19,974,941

1.13

18,432,844

1.04

17,079,000

0.96

15,416,800

0.87

14,114,400

0.80

Custody Bank of Japan, Ltd.
(Trust Account)
Custody Bank of Japan, Ltd. as trustee forMizuho Bank, Ltd. Retirement Benefit
Trust Account re-entrusted by
Mizuho Trust & Banking Co., Ltd.
State Street Bank West Client - Treaty
505234
Barclays Securities Japan Limited
Custody Bank of Japan, Ltd.
(Trust Account 5)
Custody Bank of Japan, Ltd.
(Trust Account 6)
JAPAN SECURITIES FINANCE CO.,LTD.

(Note) Equity ownership is calculated after deducting treasury shares (225,754,671 shares).
5.

Other significant matters concerning shares
The Company disposed of 239,200 treasury shares on May 26, 2020, for the allotment of restricted stock
remuneration to four Members of the Board who also serve as Executive Officers, and to 20 Executive
Officers.

42

III. Matters Concerning Subscription Rights to Shares
1.

2.

Total number and others of subscription rights to shares as of December 31, 2020
(1) Total number of subscription rights to shares

3,858 units(2) Class and number of shares to be delivered
upon exercise of subscription rights to shares

Ordinary shares 771,600 shares(200 shares per subscription right to shares)

Status of subscription rights to shares held by Members of the Board and Audit & Supervisory Board
Members of JT as of December 31, 2020
(1) Class and number of shares to be delivered
upon exercise of subscription rights to shares

Ordinary shares 402,800 shares(200 shares per subscription right to shares)(2) Value of property to be contributed whensubscription rights to shares are exercised¥1 per share(3) Assignment of subscription rights to shares

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

(4) Conditions for exercising subscription rights
to shares

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

43

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

FY2007¥581,269 per unit

FY2008¥285,904 per unit

FY2009¥197,517 per unit

FY2010¥198,386 per unit

FY2011¥277,947 per unit

FY2012¥320,000 per unit

FY2013¥513,400 per unit

FY2014¥483,200 per unit

FY2015¥711,200 per unit

FY2016¥572,600 per unit

FY2017¥482,200 per unit

FY2018¥300,000 per unit

FY2019¥188,000 per unit

(Notes)1.
2.
3.

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

Members of the Board

Audit & Supervisory
Board Members

Numberof units

Number ofshareholders

Numberof units

Number ofshareholders

16

1

-

-

18

1

15

1

40

1

36

1

72

2

30

1

41

2

32

1

72

4

23

1

63

4

14

1

71

5

8

1

127

5

17

1

113

5

13

1

168

5

21

1

374

6

-

-

630

6

-

-

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

44

IV. Matters Concerning Members of the Board and Audit & Supervisory Board Members of JT
1.

Members of the Board and Audit & Supervisory Board Members
Position

Name

Chairperson of the
Board

Yasutake Tango

Deputy Chairperson of
the Board

Mutsuo Iwai

Representative
Director and President

Masamichi
Terabatake

Representative
Director and Executive
Vice President

Naohiro Minami

Representative
Director and Executive
Vice President

Kiyohide Hirowatari

Member of the Board
and Senior Vice
President

Kazuhito Yamashita

Member of the Board

Main Kohda

Member of the Board

Koichiro Watanabe

Member of the Board

Yukiko Nagashima

Standing Audit &Supervisory Board
MemberStanding Audit &Supervisory Board
MemberResponsibility

Chief Executive
Officer
Chief Financial
Officer andCommunications
Legal, Corporate
Strategy,
Digitalization,
Human Resources,
Operation Review &Business Assurance,
PharmaceuticalBusiness and FoodBusiness
Chief Sustainability
Officer, Complianceand General Affairs

Significant concurrent positions
outside the Company
Outside Director, The Ogaki
Kyoritsu Bank, Ltd.
Outside Director, Audit andSupervisory Committee
Member, Mitsubishi UFJ Trustand Banking Corporation
Outside Director, Benesse
Holdings, Inc.
Chairman and Managing
Director, JT International Group
Holding B.V.
Supervisory Board member, JT
International Holding B.V.

Novelist
Outside Director, Japan
Exchange Group, Inc.
Outside Director, MITSUBISHI
MOTORS CORPORATION
Director and Chairman of theBoard, Dai-ichi Life Holdings,
Inc.
Director and Chairman of theBoard, The Dai-ichi Life
Insurance Company, Limited
Vice Chair, Director,
KEIDANREN (Japan Business
Federation)
Standing Audit and Supervisory
Board Member, Recruit
Holdings Co., Ltd.
Standing Audit and Supervisory
Board Member, Recruit Co.,Ltd.

Ryoko Nagata
Hiroshi Yamamoto
45

Position
Standing Audit &Supervisory Board
MemberName

Responsibility

Significant concurrent positions
outside the Company

Toru Mimura

Attorney at Law, Shiba
International Law Offices

Audit & Supervisory
Board Member

Hiroshi Obayashi

Attorney at Law, Obayashi Law
OfficeOutside Audit & Supervisory
Board Member, Daiwa
Securities Co., Ltd.
Outside Director, Mitsubishi
Electric Corporation
Outside Director, Audit &Supervisory Committee
Member, NIPPON STEELCORPORATION

Audit & Supervisory
Board Member

Koji Yoshikuni(Notes)1. Members of the Board Main Kohda, Koichiro Watanabe and Yukiko Nagashima are Outside
Directors.
2. Audit & Supervisory Board Members Toru Mimura, Hiroshi Obayashi and Koji Yoshikuni are
Outside Audit & Supervisory Board Members.
3. Members of the Board, Main Kohda, Koichiro Watanabe and Yukiko Nagashima, and Audit &Supervisory Board Members, Hiroshi Obayashi and Koji Yoshikuni, were designated as
independent officers (directors and auditors) as prescribed by the Tokyo Stock Exchange, Inc.
4. Audit & Supervisory Board Members Hiroshi Yamamoto and Koji Yoshikuni have relevant
knowledge about financing and accounting as they were Vice President of the Operational
Review and Business Assurance Division of the Company and Auditor of Hosei University,
respectively.
5. The Company has entered into agreements with each of its Members of the Board (excluding
Members of the Board who also serve as Executive Officers) and Audit & Supervisory Board
Members with respect 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 forthin Article 425, paragraph 1 of the same Act, provided they perform their duties without
knowledge of such damages and without gross negligence.
6. The Company has entered into liability agreements with each of its Members of the Board andAudit & Supervisory Board Members as stipulated in Article 430-2, paragraph 1 of theCompanies Act, whereby the Company shall compensate them for expenses incurred under item(i) of the same paragraph, and any losses incurred under item (ii) of the same paragraph, to theextent permitted by laws and regulations.
7. The Company has entered into a liability insurance agreement for executive officers, etc. withan insurance company as stipulated in Article 430-3, paragraph 1 of the Companies Act, underwhich all Members of the Board and Audit & Supervisory Board Members are policyholders.
Under the terms of this insurance, litigation expenses and compensation for damages arisingfrom legal action against the policyholders by third parties, shareholders or companies shall be
supplemented.

46

2.

Remunerations for Members of the Board and Audit & Supervisory Board Members(1) Total remunerations for Members of the Board and Audit & Supervisory Board Members
Audit & Supervisory
Board Members
Amount to
Amount to
NumberNumber to
be paidbe paid
to be paid
be paid(Millions of(Millions(Person)(Person)yen)of yen)
9
561
5
166
4
438
6
30
4
188
Members of the Board

Category

Base salary
Executive bonus
Stock option grants
Restricted stock
remuneration
Performance share
units
Total
(Notes)Total
Amount to
Numberbe paid
to be paid
(Millions of(Person)
yen)
14
727
4
438
6
30
4
188

4

33

-

-

4

33

-

1,251

-

166

-

1,416

1. For executive bonuses, the amounts planned to be paid are shown.
2. For stock option grants, the recorded amount of stock option expenses for the period underreview is shown (following a resolution of the 35th Ordinary General Meeting of Shareholders
held on March 19, 2020, the previous stock option plan was abolished and the Restricted StockRemuneration Plan and Performance Share Unit Plan were adopted).
3. For performance share units, the recorded amount of expenses is shown.

(2) Policy concerning the remuneration amount for Members of the Board and Audit & Supervisory
Board Members or the remuneration calculation method thereof and the method of determining thepolicy1. Executive Remuneration Policy
In order to achieve sustainable profit growth and increase of corporate value over the mid- to long-term by
pursuing the Group’s management principles of “4S model,” the Advisory Panel on Nomination andCompensation reviews and provides advice on the policy, framework and calculation method for
remuneration of the Company’s Members of the Board and Executive Officers in response to inquiries fromthe Board of Directors. It also monitors whether our executive remuneration level is reasonable.
In light of reports by the Advisory Panel on Nomination and Compensation, JT’s basic concept of
remuneration for Members of the Board and Audit & Supervisory Board Members 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 Members of the Board and Audit& Supervisory Board Members to enhance performance
Linking
the remuneration to mid- to long-term corporate value Ensuring transparency based on an objective point of view and quantitative schemes47

2. Executive Remuneration Composition
 Members of the Board who also serve as Executive Officers
Remuneration for the Members of the Board who also serve as Executive Officers comprises “base salary,”“executive bonus,” “restricted stock remuneration” and “performance share unit remuneration” as they
are required to achieve results by executing their duties on a daily basis.
If the “executive bonus” and “performance share unit remuneration” are paid at the standard amount, thecomposition ratio for each type of remuneration is as follows.

(Notes)1. The composition ratios vary depending on the duties of Members of the Board and the ranges
are indicated in the illustration.
2. The ratio of restricted stock remuneration and performance share units is about 3 to 1.
3. Under performance share unit, 50% is paid as cash towards tax payment.
4. The above illustration is based on certain assumptions of the Company’s performance and theshare price. The above ratios could fluctuate depending on the company performance and theshare price.
 Members of the Board (excluding Outside Directors) who do not serve as Executive Officers
For Members of the Board (excluding Outside Directors) who do not serve as Executive Officers,
remuneration is not linked to business performance but is composed of “base salary” only, as they are
required to make decisions on the JT Group management strategies aimed at enhancing corporate value
and to fulfill supervisory functions including monitoring the implementation of mid- to long-term growthstrategies, etc.
 Outside Directors
Remuneration for Outside Directors, which is not linked to business performance with the purpose ofmaintaining their independence, is composed of “base salary” only.
 Audit & Supervisory Board Members
In the light of the role of Audit & Supervisory Board Members, which is primarily to conduct audits on
legal compliance, their remuneration is composed of “base salary” only.

<Remuneration structure for Members of the Board and Audit & Supervisory Board Members>
Base salary

Executive bonus

Restricted stock
remuneration /Performance shareunits

Applicable

Applicable

Applicable

ApplicableNot applicableNot applicable

Outside Directors

ApplicableNot applicableNot applicable

Audit & Supervisory Board Members

ApplicableNot applicableNot applicable

Members of the
Executive Officer
Board(excluding
Not an Executive
OutsideOfficer
Directors)

3. Ceiling of the Total Executive Remuneration and Approval Process
The ceiling of the total amount of the annual aggregate remuneration for all Members of the Board (ninepersons as of December 31, 2020) was approved at our 35th Ordinary General Meeting of Shareholders heldon March 19, 2020 and shall be ¥1.1 billion (including ¥80 million for Outside Directors). In addition, theceiling of the total amount of remuneration for granting restricted stock and performance share units to48

Members of the Board who also serve as Executive Officers (four persons as of December 31, 2020) shallbe ¥210 million (or 115,200 shares) and ¥130 million (or 76,800 shares), respectively.
Further, the maximum amount of the annual aggregate remuneration for all Audit & Supervisory Board
Members (five persons as of December 31, 2020) was approved at our 34th Ordinary General Meeting of
Shareholders held on March 20, 2019 and shall not exceed ¥240 million.
The amount of remuneration for Members of the Board is benchmarked based on a survey of remunerationof directors conducted by third parties, based on the remuneration levels of major domestic manufacturersthat are expanding overseas with the similar size and profits. Specifically, after benchmarking the level ofbase salary of directors and the percentage of variable remuneration for annual bonuses and mid- and longterm incentives, the amount of remuneration for each Member of the Board is decided by a resolution of theCompany’s Board of Directors, based on the deliberations of the Advisory Panel on Nomination andCompensation and within the maximum remuneration approved at the General Meeting of Shareholders.
The remuneration of Audit & Supervisory Board Members is also benchmarked in the same way, and isdetermined by deliberation among the Audit & Supervisory Board Members within the maximum
remuneration approved at the General Meeting of Shareholders.
4. Executive Remuneration Details
 Base salary
Executives will be remunerated with monthly base salary as per their responsibilities. Members of the Board
who also serve as Executive Officers will be individually evaluated for achievement of their performancetargets through execution of their duties that will lead to the Company’s sustainable profit growth.
Performance targets are set through interviews with the Company’s President and Chief Executive Officer atthe beginning of the fiscal year and evaluated at the end of year. The base salary for the following fiscal year
will be set within certain range reflecting the individual performance evaluations. However, an individual
performance evaluation will not be applicable for the Company’s President and Chief Executive Officer.
 Executive bonus
Executive bonus for Members of the Board who also serve as Executive Officers will be paid as monetary
remuneration reflecting the performance of a fiscal year. Adjusted operating profit at constant FX and profit
for the year will be the performance indicators (KPI) to measure the performance of the business itself, whichis the foundation for sustainable growth, as well as the achievement rate of profit growth, from the viewpointof providing shared value with the shareholders. Executive bonus will be comprised of adjusted operating
profit at constant FX and profit in the ratio of 75% and 25%, respectively. Performance-linked payout will
be based on the KPI achievement in the range of 0% - 200%. In a case where a Member of the Board who isa recipient of executive bonus has carried out certain wrongful behavior, the officer involved will be required
to refund a part of the executive bonus already paid.
 Restricted stock remuneration
The Restricted Stock Remuneration Plan is designed to strengthen the shared value with shareholders and toenhance the corporate value over the mid- to long- term. Members of the Board who also serve as Executive
Officers are eligible to receive monetary remuneration claims every fiscal year towards restricted stock andthe eligible Directors will receive the allocation of Company’s ordinary shares by paying all of the monetary
remuneration claims in kind in accordance with the resolution of the Board of Directors (the allotment ismade by means of disposal of treasury shares). The restriction period will be 30 years, but even during thisperiod, the transfer restrictions on the allotted shares will be removed upon resignation of such eligible
Director from a position as Member of the Board or any other positions separately specified by theCompany’s Board of Directors.
 Performance share units
The Performance Share Unit Plan is a performance-linked stock compensation system that aims to strengthen
the shared value with shareholders, to enhance the corporate value over the mid- to long- term and to commit
to achieving business results over the mid-term.
49

Members of the Board who also serve as Executive Officers are eligible to receive monetary remuneration
claims and cash towards the acquisition of ordinary shares after the performance evaluation period, which iscomprised of three fiscal years starting from the fiscal year subject to provision, in accordance with the rateof achievement of performance and other multi-year performance targets during the performance evaluation
period. The Advisory Panel on Nomination and Compensation deliberates and decides on the achievement
rate of such targets for performance and other items during the performance evaluation period. The
remuneration for the performance share units will be disbursed after the performance evaluation period
expires, in principle, as monetary remuneration claims and cash towards the acquisition of ordinary shares.
Each of the eligible Directors will receive the allocation of Company’s ordinary shares by paying all of themonetary remuneration claims in kind (the allotment is made by means of disposal of treasury shares). In
performance evaluation, indicators linked to the Company’s mid-term growth have been set. In the plan
starting from 2020, profit for the following three years will be set as a KPI with the aim of providing sharedvalue with shareholders. Performance-linked payout will be based on the KPI achievement in the range of
0% - 200%.

50

3.

Matters concerning Outside Directors and Outside Audit & Supervisory Board Members(1) Significant concurrent positions outside the Company
Category

Name
Main Kohda

Organizations whereconcurrent positions are held
Novelist
Japan Exchange Group, Inc.
MITSUBISHI MOTORSCORPORATION
Dai-ichi Life Holdings, Inc.

Member of the
Board

Koichiro
Watanabe

YukikoNagashima
Toru Mimura
Audit &
Supervisory
Board Member

The Dai-ichi Life Insurance
Company, Limited
KEIDANREN (Japan
Business Federation)
Recruit Holdings Co., Ltd.
Recruit Co., Ltd.
Shiba International Law
Offices
Obayashi Law OfficeDaiwa Securities Co., Ltd.

Hiroshi Obayashi

Position
Outside Director
Outside Director
Director and Chairman of the
Board
Director and Chairman of the
Board
Vice Chair, Director
Standing Audit andSupervisory Board Member
Standing Audit andSupervisory Board Member
Attorney at Law
Attorney at Law
Outside Audit & Supervisory
Board Member

Mitsubishi Electric
Corporation

Outside Director

NIPPON STEELCORPORATION

Outside Director, Audit &Supervisory Committee
Member(Note) There are no special relationships to be mentioned between the above organizations in which
concurrent positions are held and JT.
(2) Major activities during this fiscal year
Category

Name

Main Kohda

Member of the
Board

Koichiro Watanabe

Yukiko Nagashima

Status of main activities
Attended all 13 Board of Directors meetings held during
this fiscal year. Based on her extensive experience inserving on governmental advisory bodies, etc., and herhigh insight into international finance, she has fulfilled
her duties as a Member of the Board, providing advice
and recommendations on the Company’s finances and IR,
etc.
Attended all 13 Board of Directors meetings held during
this fiscal year. Based on his wealth of experience incorporate management and governance and high insightfrom an investor’s perspective, he has fulfilled his duties
as a Member of the Board, providing advice andrecommendations on the Company’s governance systemand finance, etc.
Attended all 13 Board of Directors meetings held during
this fiscal year. Based on her experience acquired throughher deep involvement in emerging businesses andcorporate management, as well as her wide-ranging
insights from the perspectives of both management andaudit, she has fulfilled her duties as a Member of theBoard, providing advice and recommendations on the
Company’s business strategy and organizational reform,
etc.
51Toru Mimura

Audit &
Supervisory Board
MemberHiroshi Obayashi

Koji Yoshikuni

Attended all 13 Board of Directors meetings, as well as
all 13 meetings of the Audit & Supervisory Board, held
during this fiscal year. Based on his deep insight into
finance, global risk management, geopolitics, company
law, etc., he has fulfilled his duties as an Audit &Supervisory Board Member, providing advice andrecommendations on the Company’s governance systemand operational efficiency, etc.
Attended all 13 Board of Directors meetings, as well as
all 13 meetings of the Audit & Supervisory Board, held
during this fiscal year. Based on his extensive experienceand broad insight in the judicial world, he has fulfilled his
duties as an Audit & Supervisory Board Member,providing advice and recommendations on the
Company’s governance system and appropriate
information disclosure, etc.
Attended all 13 Board of Directors meetings, as well as
all 13 meetings of the Audit & Supervisory Board, held
during this fiscal year. Based on his extensive experienceand broad insight in management across all operational
businesses and internal departments, he has fulfilled his
duties as an Audit & Supervisory Board Member,providing advice and recommendations on the
Company’s governance system and corporate culture, etc.

(3) Total amount of remunerations
Outside Audit &Supervisory Board
Total
MemberAmount to
Amount to
Amount to
Number to
Number to
be paidbe paidbe paidbe paidbe paid(Millions of(Millions of(Millions of(Person)(Person)
yen)
yen)
yen)
58
3
78
6
135

Outside Director
Category

Base salary

Number to
be paid(Person)
3

52

V.

Matters Relating to Independent Auditor

1.

Name of Independent Auditor:

2.

Fees for Independent Auditor relating to this fiscal year

Deloitte Touche Tohmatsu LLC(1) Fees for Independent Auditor relating to this fiscal year of JTi)

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

ii)

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

¥330 million¥85 million(2) Amount of cash and other financial benefits to be paid by JT and its subsidiaries:¥573 million(3) Reasons for approval of the Independent Auditor’s remuneration by the Audit & Supervisory Board:
When the Company concluded an audit contract with Independent Auditor, the Audit & Supervisory Board
Members obtained necessary materials and received reports from the Members of the Board, relevant internal
departments, and the Independent Auditor, and performed verification to confirm that the amount of remuneration
to be paid to the Independent Auditor, the persons in charge of the audits, and other details of the audit contract
were appropriate.
Based upon this verification, the Audit & Supervisory Board checked and examined matters including the content
of the Independent Auditor’s accounting plan, the status of the performance of the auditing duties, and the basis
for calculation of the remuneration estimate, and, as a result, determined that approval was fair and reasonable.
(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 be effectively
classified, their total is indicated in the amount in “i)” above.
2. JT retains 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 advisory services
relating to sustainability management and the issuance of the comfort letter in relation to thebond issuing, and for which a consideration is paid to the same.
3. Among the important subsidiaries of JT, JT International S.A. and Gallaher Ltd. are audited by
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, with the agreement of all of the Audit & Supervisory Board Members,
the Company 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, theAudit & Supervisory Board shall decide the content of proposal and submit such proposal to the General
Meeting of Shareholders that the Independent Auditor should be dismissed or should not be reappointed.

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

53Consolidated Statement of Financial Position(As of December 31, 2020)(Millions of yen)Account title

AmountAccount title

Current assets

AmountCurrent liabilities

Cash and cash equivalents

538,844 Trade and other payables

436,540

Trade and other receivables

412,144 Bonds and borrowings

141,469

Inventories

539,762 Income tax payables

46,462Other financial assets

18,828 Other financial liabilities

27,588Other current assets

493,992 Provisions

19,420Subtotal
Non-current assets held for sale
Total current assets

2,003,570 Other current liabilities

652,314348 Total current liabilities

1,323,793

2,003,919

Non-current assets
Property, plant and equipment
Goodwill
Intangible assets

Non-current liabilities
759,290 Bonds and borrowings

817,412

1,909,392 Other financial liabilities

50,164

363,604 Retirement benefit liabilities

331,752

Investment property

4,744 Provisions

31,338Retirement benefit assets

70,528 Other non-current liabilities

162,982

Investments accounted for using the equity
method40,230 Deferred tax liabilities

64,447

Other financial assets

107,143 Total non-current liabilities

1,458,095

Deferred tax assets

122,534 Total liabilities

2,781,888

Total non-current assets

3,377,464 Equity
Share capital

100,000

Capital surplus

736,400

Treasury shares(491,507)

Other components of equity(605,776)

Retained earnings

2,783,718

Equity attributable to owners of the parent
company

2,522,834

Non-controlling interests

Total assets

76,660Total equity

2,599,495

5,381,382 Total liabilities and equity

5,381,382

54

Consolidated Statement of Income(Year ended December 31, 2020)(Millions of yen)Account title

AmountRevenue

2,092,561

Cost of sales(898,001)

Gross profit

1,194,560

Other operating income

54,924

Share of profit in investments accounted for using the equity method

4,042

Selling, general and administrative expenses(784,472)

Operating profit

469,054

Financial income

12,353Financial costs(61,344)

Profit before income taxes

420,063

Income taxes(108,034)

Profit for the period

312,029

Attributable to:
Owners of the parent company

310,253

Non-controlling interests

1,775

55

Nonconsolidated Balance Sheet(As of December 31, 2020)(Millions of yen)Account title

AmountAccount title

ASSETS

AmountLIABILITIESCurrent assets

561,777 Current liabilities

693,867

Cash and deposits

299,366 Accounts payable–trade

7,069

Accounts receivable–trade34,815 Current portion of bonds

77,624

Securities

20,000 Lease obligations

2,450

Merchandise and finished goods

27,142 Accounts payable–other51,780Semi-finished goods

76,402 National tobacco excise taxes payable

65,605Work in process

2,247 National tobacco special excise taxes payable

8,536

Raw materials and supplies

32,234 Local tobacco excise taxes payable

74,707

Advance payments–trade

1,886 Income taxes payable

29,527

Prepaid expenses

4,850 Accrued consumption taxes

37,973

Short-term loans receivable from subsidiaries andaffiliates
Other
Allowance for doubtful accounts
Noncurrent assets

Cash management system deposits received
43,406 Provision for bonuses
Other
19,455 Noncurrent liabilities(25) Bonds payable
2,036,153 Long-term loans payable

Buildings

80,030 Provision for retirement benefits

Structures

2,375 Other

Machinery and equipment

51,567 Total liabilities

Vehicles

1,307

Tools, furniture and fixtures

14,221 Shareholders’ equity

Land

48,909 Capital stock

170,000
4,529
128,333
4,472
1,207,918

NET ASSETS

445 Capital surplus
282,089

514,051
206,717

Property, plant and equipment

Intangible assets

6,330
5,914

198,854 Lease obligations

Construction in progress

326,353

1,372,501
100,000
736,400

Legal capital surplus

736,400

Retained earnings

1,027,608

154 Legal retained earnings

18,776

Right of trademark

82,120 Other retained earnings

1,008,832

Software

18,299Goodwill

178,855 Reserve for reduction entry

Patent right

Other
Investments and other assets
Investment securities
Shares of subsidiaries and affiliates
Long-term loans receivable from subsidiaries andaffiliates

Reserve for investment loss on developing new
business

41,7112,662 Special account for reduction entry

327

1,555,210 Retained earnings brought forward

966,416

16,862 Treasury shares
1,487,617 Valuation and translation adjustments
17,792

Valuation difference on available-for-salesecurities

Long-term prepaid expenses

9,090 Deferred gains or losses on hedges

Deferred tax assets

13,514Other

14,118

Allowance for doubtful accounts(3,783) Total net assets

Total assets

377

Subscription rights to shares

2,597,930 Total liabilities and net assets

56(491,507)
16,2594,069
12,1891,252
1,390,011
2,597,930

Nonconsolidated Statement of Income(Year ended December 31, 2020)(Millions of yen)Account title

AmountNet sales

596,887

Cost of sales

166,144

Gross profit

430,742

Selling, general and administrative expenses

329,792

Operating income

100,950

Non-operating income
Interest income

1,224

Dividends income

142,558

Other

7,548

151,329

Non-operating expenses
Interest expenses

1,634Interest on bonds

3,895

Other

6,260

11,789240,491

Ordinary income
Extraordinary income
Gain on sales of noncurrent assets

4,861

Gain on sale of the former JT building

45,806

Other

2,426

53,094Extraordinary losses
Loss on sales of noncurrent assets

289

Loss on retirement of noncurrent assets

5,551

Impairment loss

999

Other

2,051

8,889
284,695

Income before income taxes
Income taxes-current

44,675

Income taxes-deferred(1,732)

42,943
241,752

Net income

57

(TRANSLATION)

INDEPENDENT AUDITOR'S REPORT
February 10, 2021
To the Board of Directors ofJapan Tobacco Inc.:
Deloitte Touche Tohmatsu LLC
Tokyo office
Designated Engagement Partner,
Certified Public Accountant:

Yukitaka Maruchi (Seal)

Designated Engagement Partner,
Certified Public Accountant:

Yasuhiko Haga

(Seal)

Designated Engagement Partner,
Certified Public Accountant:
Yoichi Matsushita (Seal)
OpinionPursuant to the fourth paragraph of Article 444 of the Companies Act, we have audited the consolidated
financial statements of Japan Tobacco Inc. and its consolidated subsidiaries (the "Group"), namely, theconsolidated statement of financial position as of December 31, 2020, and the consolidated statement ofincome and consolidated statement of changes in equity for the fiscal year from January 1, 2020 to
December 31, 2020, and the related notes of significant matters for preparing consolidated financial
statements and other related notes to consolidated financial statements.
In our opinion, the accompanying consolidated financial statements, prepared with the omission of a part ofthe disclosures required under International Financial Reporting Standards pursuant to the provisions of thesecond sentence of the first paragraph of Article 120 of the Ordinance on Company Accounting, present
fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2020,
and its consolidated financial performance for the year then ended.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our
responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of
the Consolidated Financial Statements section of our report. We are independent of the Group inaccordance with the provisions of the Code of Professional Ethics in Japan, and we have fulfilled our otherethical responsibilities as auditors. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our opinion.
Responsibilities of Management and Audit & Supervisory Board Members and the Audit &Supervisory Board for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements pursuant to the provisions of the second sentence of the first paragraph of Article 120 of theOrdinance on Company Accounting which allows companies to prepare consolidated financial statementswith the omission of a part of the disclosures required under International Financial Reporting Standards,
and for such internal control as management determines is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to fraud or error.

58

In preparing the consolidated financial statements, management is responsible for assessing the Group's
ability to continue as a going concern, disclosing, as applicable, matters related to going concern pursuant
to the provisions of the second sentence of the first paragraph of Article 120 of the Ordinance on Company
Accounting which allows companies to prepare consolidated financial statements with the omission of apart of the disclosures required under International Financial Reporting Standards.
Audit & Supervisory Board members and the Audit & Supervisory Board are responsible for overseeing the
Directors' execution of duties relating to the design and operating effectiveness of the controls over theGroup's financial reporting process.
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's reportthat includes our opinion. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions ofusers taken on the basis of these consolidated financial statements.
As part of an audit in accordance with auditing standards generally accepted in Japan, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:• Identify and assess the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error, design and perform audit procedures responsive to those risks. The procedures
selected depend on the auditor's judgment. In addition, we obtain audit evidence that is sufficient andappropriate to provide a basis for our opinion.
• Obtain, when performing risk assessment procedures, an understanding of internal control relevant tothe audit in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Group's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and,based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the Group's ability to continue as a going concern. If weconclude that a material uncertainty exists, we are required to draw attention in our auditor's report to therelated disclosures in the consolidated financial statements or, if such disclosures are inadequate, tomodify our opinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor's report. However, future events or conditions may cause the Group to cease to continue as agoing concern.
• Evaluate whether the overall presentation and disclosures of the consolidated financial statements are
pursuant to the provisions of the second sentence of the first paragraph of Article 120 of the Ordinanceon Company Accounting which allows companies to prepare consolidated financial statements with theomission of a part of the disclosures required under International Financial Reporting Standards, as wellas the overall presentation, structure and content of the consolidated financial statements, including thedisclosures, and whether the consolidated financial statements represent the underlying transactions andevents in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or businessactivities within the Group to express an opinion on the consolidated financial statements. We areresponsible for the direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.
We communicate with Audit & Supervisory Board members and the Audit & Supervisory Board regarding,among other matters, the planned scope and timing of the audit and significant audit findings, including any
significant deficiencies in internal control that we identify during our audit.

59

We also provide Audit & Supervisory Board members and the Audit & Supervisory Board with a statementthat we have complied with relevant ethical requirements regarding independence, and communicate withthem all relationships and other matters that may reasonably be thought to bear on our independence, andwhere applicable, related safeguards.
Interest Required to Be Disclosed by the Certified Public Accountants Act of Japan
Our firm and its designated engagement partners do not have any interest in the Group which is required tobe disclosed pursuant to the provisions of the Certified Public Accountants Act of Japan.

Notes to the Readers of Independent Auditor's Report
This is an English translation of the independent auditor's report as required by the Companies Act ofJapan for the conveniences of the reader.

60

(TRANSLATION)

INDEPENDENT AUDITOR'S REPORT
February 10, 2021
To the Board of Directors ofJapan Tobacco Inc.:
Deloitte Touche Tohmatsu LLC
Tokyo office
Designated Engagement Partner,
Certified Public Accountant:

Yukitaka Maruchi (Seal)

Designated Engagement Partner,
Certified Public Accountant:

Yasuhiko Haga

(Seal)

Designated Engagement Partner,
Certified Public Accountant:
Yoichi Matsushita (Seal)
OpinionPursuant to the first item, second paragraph of Article 436 of the Companies Act, we have audited thenonconsolidated financial statements of Japan Tobacco Inc. (the "Company"), namely, the nonconsolidatedbalance sheet as of December 31, 2020, and the nonconsolidated statement of income andnonconsolidated statement of changes in net assets for the 36th fiscal year from January 1, 2020 to
December 31, 2020, and the related notes of significant accounting policies and other related notes tononconsolidated financial statements, and the accompanying supplemental schedules.
In our opinion, the accompanying nonconsolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2020, and its financial performance forthe year then ended in accordance with accounting principles generally accepted in Japan.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our
responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of
the Nonconsolidated Financial Statements section of our report. We are independent of the Company inaccordance with the provisions of the Code of Professional Ethics in Japan, and we have fulfilled our otherethical responsibilities as auditors. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our opinion.
Responsibilities of Management and Audit & Supervisory Board Members and the Audit &Supervisory Board for the Nonconsolidated Financial Statements
Management is responsible for the preparation and fair presentation of the nonconsolidated financial
statements in accordance with accounting principles generally accepted in Japan, and for such internal
control as management determines is necessary to enable the preparation of nonconsolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the nonconsolidated financial statements, management is responsible for assessing theCompany's ability to continue as a going concern, disclosing, as applicable, matters related to going
concern in accordance with accounting principles generally accepted in Japan.

61

Audit & Supervisory Board members and the Audit & Supervisory Board are responsible for overseeing the
Directors' execution of duties relating to the design and operating effectiveness of the controls over theCompany's financial reporting process.
Auditor's Responsibilities for the Audit of the Nonconsolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the nonconsolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor'sreport that includes our opinion. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions ofusers taken on the basis of these nonconsolidated financial statements.
As part of an audit in accordance with auditing standards generally accepted in Japan, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:• Identify and assess the risks of material misstatement of the nonconsolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks. The
procedures selected depend on the auditor's judgment. In addition, we obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion.
• Obtain, when performing risk assessment procedures, an understanding of internal control relevant tothe audit in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and,based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the Company's ability to continue as a going concern. If weconclude that a material uncertainty exists, we are required to draw attention in our auditor's report to therelated disclosures in the nonconsolidated financial statements or, if such disclosures are inadequate, tomodify our opinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor's report. However, future events or conditions may cause the Company to cease to continue as agoing concern.
• Evaluate whether the overall presentation and disclosures of the nonconsolidated financial statements
are in accordance with accounting principles generally accepted in Japan, as well as the overall
presentation, structure and content of the nonconsolidated financial statements, including thedisclosures, and whether the nonconsolidated financial statements represent the underlying transactions
and events in a manner that achieves fair presentation.
We communicate with Audit & Supervisory Board members and the Audit & Supervisory Board regarding,among other matters, the planned scope and timing of the audit and significant audit findings, including any
significant deficiencies in internal control that we identify during our audit.
We also provide Audit & Supervisory Board members and the Audit & Supervisory Board with a statementthat we have complied with relevant ethical requirements regarding independence, and communicate withthem all relationships and other matters that may reasonably be thought to bear on our independence, andwhere applicable, related safeguards.

62Interest Required to Be Disclosed by the Certified Public Accountants Act of Japan
Our firm and its designated engagement partners do not have any interest in the Company which is
required to be disclosed pursuant to the provisions of the Certified Public Accountants Act of Japan.

Notes to the Readers of Independent Auditor's Report
This is an English translation of the independent auditor's report as required by the Companies Act ofJapan for the conveniences of the reader. "The accompanying supplemental schedules" referred to in thisreport are not included in the attached financial documents.

63

[The following represents a translation, for convenience only, of the original report issued in the Japanese
language.]
Audit Report of the Audit & Supervisory Board

AUDIT REPORTRegarding the performance of duties by the Members of the Board for the 36th fiscal year from January 1, 2020
to December 31, 2020, the Audit & Supervisory Board hereby submits its audit report, which has been preparedthrough discussions based on the audit report prepared by each Audit & Supervisory Board Member.
1. Auditing Methods Employed by Audit & Supervisory Board Members and the Audit & Supervisory Board
and Details of Such Methods(1) The Audit & Supervisory Board established auditing policies, allocation of duties, and other relevant matters,
and received reports from each Audit & Supervisory Board Member regarding his or her audits and results thereof,
as well as received reports from the Members of the Board, other relevant personnel, and Independent Auditors
regarding performance of their duties, and sought explanations as necessary.
(2) Each Audit & Supervisory Board Member complied with the auditing standards of Audit & Supervisory Board
Members established by the Audit & Supervisory Board, followed the auditing policies, allocation of duties, andother relevant matters, communicated with the Members of the Board, and any other relevant personnel, and madeefforts to optimize the environment for information collection and audit, and conducted his or her audits in thefollowing methods:i) We participated in the Board of Directors’ meetings and other important meetings, received reports from theMembers of the Board, and other relevant personnel regarding performance of their duties, sought explanations
as necessary, examined important documents, and studied the operations and financial positions at the head officeand principal offices. With respect to subsidiaries, we communicated and exchanged information with Membersof the Board, Audit & Supervisory Board Members, and other relevant personnel of the subsidiaries, and received
business reports from subsidiaries as necessary.
ii) We monitored and verified the details of the resolution of the Board of Directors related to the system that
ensures Members of the Boards are carrying out their duties in compliance with laws and regulations and the
Articles of Incorporation, and other systems that ensure the propriety of the operations of the corporate group
comprised of a stock company and its subsidiaries, which are described in paragraphs 1 and 3 of Article 100 of
the Regulation for Enforcement of the Companies Act. We also monitored and verified the condition of the system(internal control system) put in place in accordance with the aforesaid resolution.
iii) We monitored and verified whether the Independent Auditors maintained their independence and implemented
appropriate audits, and we received reports from the Independent Auditors regarding the performance of theirduties and sought explanations as necessary. In addition, we received notice from the Independent Auditors that“the system for ensuring that duties are performed properly” (matters set forth in each item of Article 131 of theRegulation on Corporate Accounting) is organized in accordance with the “Quality Management Standards
Regarding Audits” (Business Accounting Council, October 28, 2005) and other relevant regulations, and sought
explanations as necessary.
Based on the above methods, we examined the business report and the accompanying supplemental schedules, thenon-consolidated financial statements (non-consolidated balance sheet, non-consolidated statement of income,and non-consolidated statement of changes in net assets) and the accompanying supplemental schedules, as well64

as consolidated financial statements (consolidated statement of financial position, consolidated statement ofincome, and consolidated statement of changes in equity, which omit some disclosure items required underInternational Financial Reporting Standards (IFRS) in accordance with the provision of the second sentence ofArticle 120, paragraph 1 of the Regulation on Corporate Accounting) related to the relevant business year.
2. Audit Results(1) Results of Audit of Business Report and Other Relevant Documents
1.

In our opinion, the business report and the accompanying supplemental schedules are in accordancewith the related laws and regulations and Articles of Incorporation, and fairly represent JT’s
condition.

2.

With regard to the performance of duties by the Members of the Board, we have found no evidenceof wrongful action or material violation of related laws and regulations, nor of any violation withrespect to the Articles of Incorporation.

3.

In our opinion, the contents of the resolutions of the Board of Directors regarding the internal
controls system are fair and reasonable, and, furthermore, the development, implementation andmaintenance of the internal controls system are appropriate.

(2) Results of Audit of Non-Consolidated Financial Statements and the accompanying supplemental schedules
In our opinion, the methods and results employed and rendered by the Independent Auditors, Deloitte Touche
Tohmatsu LLC, are fair and reasonable.
(3) Results of Audit of Consolidated Financial Statements
In our opinion, the methods and results employed and rendered by the Independent Auditors, Deloitte Touche
Tohmatsu LLC, are fair and reasonable.

February 15, 2021
The Audit & Supervisory Board, Japan Tobacco Inc.

Standing Audit & Supervisory Board Member

Ryoko Nagata(seal)

Standing Audit & Supervisory Board Member

Hiroshi Yamamoto(seal)

Standing Audit & Supervisory Board Member

Toru Mimura(seal)

Audit & Supervisory Board Member

Hiroshi Obayashi(seal)

Audit & Supervisory Board Member

Koji Yoshikuni(seal)(Note) Standing Audit & Supervisory Board Member Toru Mimura and Audit & Supervisory Board Members
Hiroshi Obayashi and Koji Yoshikuni are Outside Audit & Supervisory Board Members provided for by
Article 2, item 16 and Article 335, paragraph 3 of the Companies Act.

65