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

Securities Code: 2914
March 2, 2018
To Our Shareholders
Mitsuomi Koizumi
Representative Director

Japan Tobacco Inc.
2-1, Toranomon 2-chome, Minato-ku, TokyoNOTICE OF CONVOCATION OF
THE 33RD ORDINARY GENERAL MEETING OF SHAREHOLDERS
You are cordially invited to attend the 33rd Ordinary General Meeting of Shareholders of Japan Tobacco Inc.
(“JT” or the “Company”) to be held as set forth below.
If you cannot attend the meeting, you may exercise your voting rights in written form or byelectromagnetic means including the Internet. Please see the “Reference Documents for the General
Meeting of Shareholders” hereinafter described and exercise your voting rights by 6:00 p.m., on Monday,
March 26, 2018, in accordance with “Instructions for Exercising Your Voting Rights” on pages 3 to 5.
Particulars
1. Date and Time of the Meeting: Tuesday, March 27, 2018 at 10:00 a.m.
2. Place of the Meeting:

The Prince Park Tower Tokyo
Second basement, Ball Room
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 33rd
Business Term (From January 1, 2017 to December 31, 2017)
2. Report on the Non-Consolidated Financial Statements for the 33rd
Business Term (From January 1, 2017 to December 31, 2017)

Matters to be Resolved:
Item 1:
Item 2:Item 3:Item 4:Item 5:

Appropriation of Surplus
Partial Amendment to the Articles of Incorporation
Election of Seven (7) Members of the Board
Election of One (1) Audit & Supervisory Board Member
Election of One (1) Substitute Audit & Supervisory Board Member-1-Information on Matters Posted on JT’s Web-site
1. Notes to Consolidated and Non-Consolidated Financial Statements are posted on our web-site(https://www.jti.co.jp/) in accordance with laws and regulations, and the provision in Article 17 of the Articles
of Incorporation. Therefore, they are not included in this Notice of Convocation of the 33rd Ordinary General
Meeting of Shareholders.
In addition to documents stated in the reference documents attached to the Notice of Convocation of the 33rd
Ordinary General Meeting of Shareholders, Notes to Consolidated and Non-Consolidated Financial
Statements posted on the Company’s web-site are included in Consolidated and Non-Consolidated Financial
Statements audited by Audit & Supervisory Board Members and the Accounting Auditors in the course of
preparing Audit Report and Accounting Auditors’ Report respectively.

2. If there is any amendment to the Reference Documents for the General Meeting of Shareholders, Business
Report (available in Japanese), or Non-Consolidated and Consolidated Financial Statements (available inJapanese), it will be published on our web-site (https://www.jti.co.jp/).

JT’s web-site

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

Guidance to our shareholders attending the General Meeting of Shareholders* For those attending, please bring this Notice of Convocation of the 33rd Ordinary General Meeting of
Shareholders with you.
* It is expected to be crowded immediately before the meeting begins. If meeting room No.1 becomes full, youwill be ushered to meeting room No.2 or No.3. We sincerely ask you to come to the meeting at your earliest
convenience.
* Please be aware in advance that we cannot accept questions from shareholders in meeting room No.3.
* 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 the 33rd Ordinary General
Meeting of Shareholders is supposed to be eligible to serve as your agent.
* Please note that the meeting will be conducted in Japanese only. An interpreter, including a sign language
interpreter, may accompany you. If you would like to have an interpreter accompany you, please tell so at 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 19 (Monday) (your letter of inquiry must reach usby this date).
* The Company plans to give gifts to the shareholders who attend on the day. Please note, however,shareholders will receive just one package, regardless of how many Voting Rights Exercise Forms are held.

-2-Instructions for Exercising Your Voting Rights
Exercise of voting rights at the Company’s General Meeting of Shareholders is shareholders’ important right.
Please by all means exercise your voting rights.
There are three methods to exercise your voting rights as indicated below.

A.

Attend the meeting

B.

Post the Voting
Exercise FormC.

Exercise the Voting Rights
via the Internet

RightsPlease present the Voting Rights Exercise Form at thereception desk on arrival at the meeting. (Not required toplace a seal.)
Date and time of the General Meeting of Shareholders:
10:00 a.m., on Tuesday, March 27, 2018
Please post the Voting Rights Exercise Form indicating
whether you are for or against each of the items.
Exercise due date:
To be returned to us no later than 6:00 p.m., on Monday,
March 26, 2018
Please access the Voting Rights Exercise Web-site(https://evote.tr.mufg.jp/) and indicate whether you arefor or against each of the items.
Exercise due date:No later than 6:00 p.m., on Monday, March 26, 2018

Guide to filling in the Voting Rights Exercise Form
Please indicate for or against about each item.
Items 1, 2, 4, and 5
When you are for the proposed item, mark ○ in the “for” box, and when you are against the item, mark○ in the “against” box.
Item 3
When you are for all of the proposed persons in the item, mark ○ in the “for” box, and when you areagainst all in the item, mark ○ in the “against” box.
If you are against certain candidates, mark ○ in the “for” box, and also write the candidate number foreach candidate you are against inside the parentheses.
* For those attending, procedures for posting the Voting Rights Exercise Form or exercising your voting rights
via the Internet are unnecessary.

-3-

When Exercise the Voting Rights via the Internet
The exercise of the voting rights via the Internet is available only by accessing the designated web-site forthe exercise of the voting rights (“Voting Rights Exercise Web-site”) from your computer or smartphone.
Please access the Voting Rights Exercise Web-site and indicate whether you are for or against each of theitems.

Exercise due dateVoting Rights Exercise Web-site
https://evote.tr.mufg.jp/

No later than 6:00 p.m., on Monday, March 26, 2018

If you use a smartphone with a function to read twodimensional barcode, you can access by having yoursmartphone read the two-dimensional barcode on theright.

When using a computer
1.
2.
3.
4.

Click the “Next” buttonEnter the “Log-in ID” and the “Temporary Password” described on the lower right-hand side of the
Voting Rights Exercise Form
Click the “Log-in” button
Then, please indicate whether you are for or against each of the items following the directions on the
web-site

When using a smartphone
1.
2.
3.
4.

Touch the “Procedures for General Meeting of Shareholders”
Enter the “Log-in ID” and the “Temporary Password” described on the lower right-hand side of the
Voting Rights Exercise Form
Touch the “Log-in” button
Then, please indicate whether you are for or against each of the items following the directions on the
web-site* Please refer to the following page for the Cautions Regarding Exercise of the Voting Rights via theInternet.

-4-

Cautions Regarding Exercise of the Voting Rights via the Internet
For the exercise of the voting rights via the Internet, please access the Voting Rights Exercise Web-site(https://evote.tr.mufg.jp/), and exercise your voting rights after confirming the items below.
For those attending, procedures for posting the Voting Rights Exercise Form or exercising your voting rights via
the Internet are unnecessary.

*

You will not be able to access the web-site from 2:00 a.m. to 5:00 a.m. each day during the exercise
period.

*If you use firewalls, etc. for the Internet connection, antivirus programs or a proxy server, you may not
be able to access the web-site depending on your Internet environment.

*

In order to prevent unauthorized access (web spoofing) or alteration of the voting by non-shareholders,
you will be asked to change your “Temporary Password” on the Voting Rights Exercise Web-site. Pleasetake care not to forget your new password.

*

JT will notify you of the new “Log-in ID” and “Temporary Password” at each convocation of theGeneral Meeting of Shareholders.

*

In the event voting rights are exercised more than once:(1) If the voting right is exercised both by posting the Voting Rights Exercise Form and via the Internet,
only the exercise of the voting right via the Internet shall be valid.
(2) If the voting right is exercised more than once via the Internet, only the last exercise of the voting
right shall be valid.

*

Each shareholder shall bear any fees for accessing the Voting Rights Exercise Web-site (Internet
connection fees, communications fees, etc.).

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.

-5-

REFERENCE DOCUMENTS
FOR THE GENERAL MEETING OF SHAREHOLDERS
Item 1: Appropriation of Surplus
The Company has adopted a management resources allocation policy, under which the Company will continue
to place a high priority on making business investments that contribute to sustainable mid- to long-term profit
growth as well as to value the balance between profit growth through business investments and shareholder
returns. In this context, the Company is pursuing enhanced shareholder returns in proportion to the mid- tolong-term profit growth, while maintaining a strong financial base(Note).
In accordance with these policies, year-end dividends for the 33rd Business Term will be paid as described
below.
(Note) As its financial policy, JT will maintain a strong financial base that secures stability in case of changes
in business environment such as economic crises and flexibility enabling expeditious responses tobusiness 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:¥70 per share of ordinary shares of JT

Aggregate amount: ¥125,373,038,770

Together with the interim dividends of ¥70 per share paid in September 2017, the annual dividends for the
33rd Business Term will be ¥140 per share, a ¥10 increase year on year.
(3) Effective date for distribution of surplus:
March 28, 2018
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

In accordance with the “Business Plan 2018,” the Group will continue to pursue mid to high single-digit(Noteannual average growth rate over the mid- to long-term in adjusted operating profit at constant rates of
exchange(Note 2). The Group’s management resources allocation policy and returns to shareholders policy are as
follows.
1)

Management resources allocation policy
Execute management resources
allocation, based on the 4S
model that underlies theGroup’s management
principles.

・Prioritize business investments that lead to sustained profit
growth over the mid- to long-term
・ Emphasize a balance between profit growth throughbusiness investments and returns to shareholders

Returns to shareholders policy
Improve returns to shareholders
in agreement with mid- to longterm profit growth, while
maintaining a firm financial
base・Work toward stable and consistent growth in dividend per
share
・ Consider whether to execute the acquisition of treasury
shares in view of factors including the medium-term outlook
on business environment and financial positions
・Continue to monitor a trend in shareholder returns of global
FMCG(Note 3) 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 rates of exchange is a financial measurement that excludes foreignexchange effects by translating and calculating adjusted operating profit for the fiscal year in the-7-International Tobacco Business using the foreign exchange rates of the previous fiscal year.
3. A Fast-Moving Consumer Goods (daily consumer goods) company is a company that achieves a highgrowth business by adopting a stakeholder model.

-8-

Item 2: Partial Amendment to the Articles of Incorporation
1. Reasons for the Proposed Amendment(1) JT has been striving hard to enhance corporate governance, adapting accelerated changes in businessenvironment. Although we have a provision in the Company’s Articles of Incorporation, there is no need
to appoint Counselors and Advisors, who report to the President on certain matters. Accordingly, we
would like to delete the provision of Counselors and Advisors (Article 25 of the Articles of Incorporation).
(2) Following the deletion of the text of the article, the article numbers will be shifted upward.

2. Details of the Proposed amendment
Proposed amendment is as follows.
Current[delete]Article 25. (Counselors and Advisors)
1. The Company, by the resolution of the Board of
Directors, may appoint a certain number ofCounselors and Advisors.
2. The Counselors shall report to the President on thegeneral business affairs of the Company, while theAdvisors shall report to the President on specificmatters.
Article 26 ~ Article 35[Provisions Omitted](Underline indicates amended portions)
Proposed Amendment

Article 25 ~ Article 34[Same as the current Article 26~35]-9-

Item 3: Election of Seven (7) Members of the Board
The terms of office of all seven (7) present Members of the Board will expire at the conclusion of this Ordinary
General Meeting of Shareholders. Accordingly, the election of seven (7) Members of the Board is proposed.
The candidates for the office of Member of the Board are as follows:

No.

Name

Current Positions andResponsibilities in the Company

Attendance atmeetings ofthe Board of
Directors

Number ofyears asdirector

17/17(100%)

3 years and9 months

1[Reappointed]

Yasutake Tango

Chairman of the Board

2[Newly appointed]

Masamichi Terabatake

President and Chief Executive
Officer--3[Reappointed]

Mutsuo Iwai

Representative Director andExecutive Vice President,
President, Tobacco Business

17/17(100%)

2 years

4[Newly appointed]

Naohiro Minami

-

-

5

[Newly appointed]

Kiyohide Hirowatari

-

-

6

[Reappointed]

17/17(100%)

5 years and9 months--

Executive Vice President,
Chief Finance Officer andCommunications
Executive Vice President,
Compliance, General Affairs, Legal,
Corporate Strategy, IT, CSR,
Human Resources and Operation
Review & Business Assurance

Main Kohda
Outside Director[Outside Director][Independent Director]

Koichiro Watanabe
7[Newly appointed][Outside Director][Independent Director](Notes)1.

Attendance at meetings of the Board of Directors held in the fiscal year 2017 is presented.

2.

The numbers of years as Member of the Board at the conclusion of this Ordinary General Meeting ofshareholders are presented.

- 10 -

Candidate Number

1

Yasutake Tango

Reappointed(Born March 21, 1951)

Number of the Company’s Shares Held

5,300

Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent
Positions outside the Company
Reasons for nomination as a
April 1974
Entered Ministry of Financecandidate for Director
October 2006
Director-General of the Financial Bureau
July 2007
Deputy Vice Minister
Yasutake Tango assumed the position ofJuly 2008
Director-General of the Budget Bureau
Chairman of the Board of the Company
July 2009
Administrative Vice Ministerin June 2014. In addition to a career
December 2010 Corporate Auditor, The Yomiuri Shimbun Holdings history that includes such important
December 2012 Special Advisor to the Cabinet
positions as Administrative Vice
June 2014
Chairman of the Board of the Company
Minister of the Ministry of Finance in(Current Position)
hislong-standing
experienceinJune 2015
Outside Director, The Ogaki Kyoritsu Bank, Ltd.
ministries and bureaus, he also
(Current Position)possesses abundant knowledge andexperience on topics that include
corporate governance, gained throughnetworking with diverse personalconnections not limited to the public or
private sectors. We therefore again
propose his election as we believe his
broad outlook and high standing, backed
by his experienced, will be essential tothe improvement of the governance of
the Group going forward.

(Significant Concurrent Positions outside the Company)
Outside Director, The Ogaki Kyoritsu Bank, Ltd.
(Notes)1. No conflict of interest exists between the Company and Yasutake Tango.
2. The Company has entered into agreements with Yasutake Tango to limit his liabilities stipulated in Article 423, Paragraph 1of the Companies Act to the extent permitted by the laws and regulations. Should his election be approved, the Company
intends to extend the agreements.

- 11 -

Candidate Number

2

Masamichi Terabatake

Newly
appointed(Born November 26, 1965)

Number of the Company’s Shares Held

5,800

Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent
Positions outside the Company
Reasons for nomination as a
April 1989
Joined the Company
candidate for Director
July 2005
Vice President, Secretary’s Office
July 2008
Vice President, Corporate Strategy Division
Masamichi Terabatake has, in addition
June 2011
Senior Vice President, Chief Strategy Officer and in to serving as Vice President of thecharge of Food Business, Vice President, Corporate Corporate Strategy Division, and as
Strategy Division
Senior Vice President and Chief
March 2012
Senior Vice President, Chief Strategy Officer and in Strategy Officer of the Company, showncharge of Food Businessleadership in business management
June 2012
Senior Vice President, Chief Strategy Officer
through drawing up and executing
June 2013
Member of the Board
corporate strategy both in Japan andExecutive Vice President, JT International S.A.
overseas, while in the International
January 2018
President and Chief Executive Officer
Tobacco Business he has, in his role as(Current Position)
Executive Vice President of JT
International S.A. , made a considerable
contribution to the growth of thebusiness as a driver for the Group as awhole. We judge that the extraordinary
insights and wide-ranging outlook hehas cultivated in a range of fields,
together with his powerful leadershipandreforming
capabilities,areindispensable for the management of theGroup going forward, and hence we
propose his appointment as a Member ofthe Board.

(Note)

No conflict of interest exists between the Company and Masamichi Terabatake.

- 12 -

Candidate Number

3

Mutsuo Iwai

Reappointed(Born October 29, 1960)

22,200Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent
Positions outside the Company
April 1983
Joined the Company (Japan Tobacco and Salt Reasons for nomination as a
candidate for Director
Public Corporation)
June 2003
Vice President, Corporate Planning Division
Mutsuo Iwai assumed the position ofJuly 2004
Vice President, Corporate Strategy Division
Representative Director and Executive
June 2005
Senior Vice President and Vice President, Food Vice President of the Company inBusiness Division, Food Business
March 2016. Despite unclear andJune 2006
Member of the Board and Executive Vice uncertain operating environments, his
President, President, Food Businessforceful execution of business, backed
June 2008
Executive Vice President, Chief Strategy Officer
by accurate decision-making, has been aJune 2010
Member of the Board and Senior Vice President, driver of the core International andChief Strategy Officer and Assistant to CEO in Domestic Tobacco Businesses. His
Food Businessleadership, and the broad and deep
June 2011
Member of the Board
knowledge he has cultivated throughExecutive Vice President, JT International S.A.
wide-ranging experience, make him anJune 2013
Senior Executive Vice President,
indispensable part of the Group’s
Chief Strategy Officer
management going forward, for which
January 2016
Senior Executive Vice President,
reason we again propose his election as
President, Tobacco Businessa Member of the Board.
March 2016
Representative Director and Executive Vice
President, President, Tobacco Business(Current Position)(Significant Concurrent Positions outside the Company)
Chairman, JT International Group Holding B.V.

(Note)

Number of the Company’s Shares Held

No conflict of interest exists between the Company and Mutsuo Iwai.

- 13 -

Candidate Number

4

Naohiro Minami(Born January 21, 1964)

Number of the Company’s Shares Held

11,300Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent
Positions outside the Company
Reasons for nomination as a
April 1986
Joined the Company
candidate for Director
December 2005 Controller
July 2010
Deputy Financial Officer and Controller
In his roles as Controller, and Senior
June 2012
Senior Vice President, Chief Finance Officer and Vice President, Chief Finance Officer,
Controller
Naohiro Minami has focused on
July 2012
Senior Vice President, Chief Finance Officer
maintaining and broadening theJanuary 2018
Executive Vice President, Chief Finance Officer financial base that provides the support
and Communications (Current Position)
for the expansion of the Group’sbusiness. We judge that the deep andextensive insights he has cultivated withregard to the whole of the accounting
and financial field, and his strategic
thinking and accurate decision-making,which is based on his diverse
experience, will be indispensable indriving the Group’s management
forward, for which reason we propose
his election as a Member of the Board.

Newly
appointed(Significant Concurrent Positions outside the Company)
Supervisory Director, JT International Holding B.V(Note)

No conflict of interest exists between the Company and Naohiro Minami.

- 14 -

Candidate Number

5

Kiyohide Hirowatari

Newly
appointed(Born November 11, 1965)

Number of the Company’s Shares Held

4,400

Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent
Positions outside the Company
Reasons for nomination as a
April 1989
Joined the Company
candidate for Director
July 2010
Vice President, Legal Division
June 2012
Senior Vice President, Chief Legal Officer and Vice
Kiyohide Hirowatari has, in his roles as
President, Legal Division
Vice President of Legal Division, Chief
July 2014
Senior Vice President, Chief Legal Officer
Legal Officer, Head of Tobacco
January 2015
Senior Vice President, Head of Tobacco Business Business Planning Division, Tobacco
Planning Division, Tobacco BusinessBusiness, and Senior Vice President,
January 2017
Senior Vice President, Human Resources
Human
Resources,
demonstrated
January 2018
Executive Vice President,
powerful leadership in maintaining aCompliance, General Affairs, Legal, Corporate foundation for sustainable growth in theStrategy, IT, CSR, Human Resources and Operation Tobacco Business, in strengthening the
Review & Business Assurance (Current Position)organization’s capabilities, and in HR
management. We judge that his keen
discernment and accurate decisionmaking, which is based on the deep andwide-ranging insights and experience hehas cultivated in a broad range of fields,
will prove indispensable in the Group’s
management going forward, for which
reason we propose his election as a
Member of the Board.

(Note)

No conflict of interest exists between the Company and Kiyohide Hirowatari.

- 15 -

Candidate Number

6

Main Kohda

Reappointed
OutsideDirector
Independent
Director(Born April 25, 1951)

Number of the Company’s Shares Held0

Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent
Positions outside the Company
Reasons for nomination as a
September 1995 Started independently as Novelist
candidate for Outside Director(Current Position)
January 2003
Member of Financial System Council, Ministry ofSince June 2012, Main Kohda has
Finance Japan
served as Outside Director of theApril 2004
Visiting professor, Faculty of Economics, Shiga
Company. We have benefited from her
University
abundant knowledge of international
March 2005
Member of the Council for Transport Policy, finance, her broad experience gained
Ministry of Land, Infrastructure, Transport and fromservingongovernment
Tourism
examination committees and similar
November 2006 Member of the Tax Commission, Cabinet Office, positions, and her deep insight andGovernment of Japan
objective point of view that she has
June 2010
Member of the Board of Governors, Japan demonstrated through her activities as a
Broadcasting Corporationnovelist being reflected in theJune 2012
Outside Director of the Company
management of the Company and she(Current Position)
has worked tirelessly to supervise
June 2013
Outside Director, LIXIL Group Corporation
business execution from an independent(Current Position)and fair standpoint. She has also
June 2016
Outside Director, Japan Exchange Group, Inc.
contributed to enormously improving(Current Position)
corporate governance in the Groupthrough actively providing proposals
and advice to the Board of Directors. We
therefore again propose her election as
we believe her experience andknowledge are essential for theCompany’s Group management going
forward.

(Significant Concurrent Positions outside the Company)
Novelist
Outside Director, LIXIL Group Corporation
Outside Director, Japan Exchange Group, Inc.
(Notes)1. No conflict of interest exists between the Company and Main Kohda.
2. The Company has entered into agreements with Main Kohda to limit her liabilities stipulated in Article 423, Paragraph 1 of
the Companies Act to the extent permitted by the laws and regulations. Should her election be approved, the Company
intends to extend the agreements.
3. Main Kohda 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.
4. The Company has designated Main Kohda as an independent director as prescribed by the Tokyo Stock Exchange, Inc. andintends to designate her as such again, should her election be approved.

- 16 -

Candidate Number

7

Koichiro Watanabe

Newlyappointed
OutsideDirector
Independent
Director(Born April 16, 1953)

Number of the Company’s Shares Held0

Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent
Positions outside the Company
April 1976
Joined The Dai-ichi Mutual Life Insurance Reasons for nomination as a
candidate for Outside Director
Company
July 2001
Director, The Dai-ichi Mutual Life Insurance
Koichiro Watanabe has outstanding
Company
experience in corporate management
April 2004
Managing Director, The Dai-ichi Mutual Life
with which, over the course of many
Insurance Company
years, he has used to drive business
July 2004
Managing Executive Officer, The Dai-ichi Mutual operations that successfully combinedLife Insurance Company
both healthy financials and highJuly 2007
Director and, Managing Executive Officer, The profitability.
He
hasabundant
Dai-ichi Mutual Life Insurance Company
experience in working to improve theApril 2008
Director and, Senior Managing Executive Officer, quality of management and actively
The Dai-ichi Mutual Life Insurance Company
strengthen the governance structure, he
April 2010
Representative Director and President, The Dai-ichi is deeply familiar with capital markets,
Life Insurance Company, Limited
and he has wide-ranging insight into the
October 2016
Representative Director and President, Dai-ichi perspective of investors. As we expect
Life Holdings, Inc.
that having all this reflected in theJuly 2017
Representative Director and Chairman of the management of the Company will
Board, Dai-ichi Life Holdings, Inc. (Current provide considerable value to the Group,
Position)
we consider him a suitable candidate for
Representative Director and Chairman of the Outside Director of the Company andBoard, The Dai-ichi Life Insurance Company, propose his election as such.
Limited(Current Position)(Significant Concurrent Positions outside the Company)
Representative Director and Chairman of the Board, Dai-ichi Life Holdings, Inc.
Representative Director and Chairman of the Board, The Dai-ichi Life Insurance Company, Limited(Notes)1. No conflict of interest exists between the Company and Koichiro Watanabe.
2. Should Koichiro Watanabe 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 the laws and regulations.
3. Koichiro Watanabe 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.
The Dai-ichi Life Insurance Company, Limited, of which he is Representative Director and Chairman of the Board, holds
shares of the Company, but this constitutes less than 1% of the total shares.
Although the Company has a business relationship with The Dai-ichi Life Insurance Company, Limited, of which he isRepresentative Director and Chairman of the Board, in relation to pension fund management etc., but the value of thebusiness in the fiscal 2017 was negligible, coming to less than 0.02% of ordinary revenues for The Dai-ichi Life Insurance
Company, Limited in the fiscal year ended March 2017, and less than 0.04% of the Company’s consolidated revenue in fiscal
2017.
We judge that this relationship has no impact on his independence.
4. The Company intends to designate Koichiro Watanabe as an independent director as prescribed by the Tokyo Stock Exchange,
Inc., should his election be approved.

- 17 -

Item 4: Election of One (1) Audit & Supervisory Board Member
Audit & Supervisory Board Member Futoshi Nakamura will resign as of the conclusion of this Ordinary General
Meeting of Shareholders. We therefore request the election of one Audit & Supervisory Board Member.
The Audit & Supervisory Board has approved this proposition.
The candidate for the office of Audit & Supervisory Board Member is as follows:

Ryoko Nagata

Newly
appointed(Born July 14, 1963)

Number of the Company’s Shares Held

12,000Brief Personal History, Positions in the Company, and Significant Concurrent Positions outside theCompany
April 1987
Joined the Company
Reasons for nomination as aVice President, Products Division, Food Business candidate for Audit & Supervisory
April 2001
Division, Food Business
Board Member
June 2008
Senior Vice President, Head of Beverage Business
Division and Vice President, Products Division, Ryoko Nagata has served as Senior Vice
President, Beverage Business Division
Food Business Division, Food Business
July 2008
Senior Vice President, Head of Beverage Business , and in charge of CSR etc., and hasabundant experience and wide-ranging
Food Businessinsights with regard to the Group’s
July 2010
Senior Vice President, Head of Beverage Businessbusiness
operations
fromtheJune 2013
Senior Vice President, CSR
perspective both of the business
January 2018
Senior Vice President, Assistant to President
operations and the internal department .
(Current Position)
We judge that we can expect her to use
her experience and knowledge to fulfill
her duty to audit the Group effectively
as a Member of the Audit &Supervisory Board, and therefore
propose her election as a Member of the
Audit & Supervisory Board.

(Notes)1. No conflict of interest exists between the Company and Ryoko Nagata.
2. Should Ryoko Nagata election be approved, the Company intends to enter into an agreement with her to limit her liabilities
stipulated in Article 423, Paragraph 1 of the Companies Act to the extent permitted by the laws and regulations.

- 18 -

Item 5: Election of One (1) Substitute Audit & Supervisory Board Member
In preparation against a situation where the number of Outside Audit & Supervisory Board Member falls below
the statutory required number, the election of one (1) Substitute Audit & Supervisory Board Member is
proposed.
The Audit & Supervisory Board has approved this proposition.
The candidate for the office of Substitute Audit & Supervisory Board Member is as follows:

Michio Masaki(Born February 20, 1961)

Number of the Company’s Shares Held0

Brief Personal History, Positions in the Company, and Significant Concurrent Positions outside theCompany
April 1987
Judicial Apprentice
Reasons for candidacy as a
April 1989
Appointed as Public Prosecutor
SubstituteOutside Audit &July 2003
Head of Takasaki Branch, Maebashi District
Supervisory Board Member
Public Prosecutors OfficeMichio Masaki possesses abundant
April 2004
Registered as Attorney at Law
experience in the legal circles and broad
City-Yuwa Partners (Current Position)
insight. Therefore, we judge he would
June 2013
Outside Director, Hamai Co., Ltd.
be able to appropriately execute his(Current Position)
duty as Outside Audit & Supervisory
Board Member of the Company.
While he has not been involved incorporate management except the roleof outside executive, we judged that hewould be able to appropriately execute
his duty as Outside Audit &Supervisory Board Member for theabove-mentioned reasons.

(Significant Concurrent Positions outside the Company)
Attorney at Law, City-Yuwa Partners
Outside Director, Hamai Co., Ltd.
(Notes)1. No conflict of interest exists between the Company and Michio Masaki.
2. The Company proposes Michio Masaki be elected as substitute Outside Audit & Supervisory Board Member.
3. Should Michio Masaki assume the position of Audit & Supervisory Board Member, the Company intends to enter into anagreement with him to limit his liabilities stipulated in Article 423, Paragraph 1 of the Companies Act to the extent permitted
by the laws and regulations.
4. Michio Masaki satisfies the Criteria for Evaluating the Independence of Outside Executives of the Company and therequirements of an independent auditor prescribed by the Tokyo Stock Exchange, Inc.

- 19 -

【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 otherform of 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 forlegal, financial and tax affairs or business consulting services (if the recipient of such fee is a company or any
other form 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

- 20 -

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

Business Report(From January 1, 2017 to December 31, 2017)

I.

Matters Concerning Present State of the Corporate Group1.

Overview and results of operations
General summary
Revenue
In terms of revenue, the increases in the International Tobacco Business and the Pharmaceutical Businesswere offset by the decrease in the Domestic Tobacco Business etc., leading to revenue of a similar level tothat of the previous fiscal year, at ¥2,139.7 billion (down 0.2% from the previous fiscal year).

Adjusted operating profit, operating profit and profit attributable to owners of the parent company
Adjusted operating profit at constant rates of exchange, which is one of the Group’s management
benchmarks, came in at approximately the same level as that of the previous fiscal year (down 0.6%), sinceincreases in profit etc. in the Pharmaceutical Business and the International Tobacco Business were offset
by the decrease in profit in the Domestic Tobacco Business and by a one-off loss caused by a distributor in
the United Kingdom filing for bankruptcy in accordance with UK insolvency laws. In addition, because theimpact of foreign exchange effects on the International Tobacco Business was insignificant, adjusted
operating profit was a similar level to that of the previous fiscal year, at ¥585.3 billion (down 0.3%).
Operating profit declined in comparison to the previous fiscal year, in which a significant gain on sales ofreal estate and the like was recorded, due to a fall in gain on sales of real estate etc., falling by ¥32.2 billion,
or 5.4%, from the previous fiscal year to ¥561.1 billion.
Profit attributable to owners of the parent company decreased by ¥29.3 billion, or 6.9%, from the previous
fiscal year to ¥392.4 billion, due mainly to decrease in operating profit.

Consolidated performance[Billions of yen]

Change [%]2,139.7(0.2)

Adjusted operating profit

585.3

(0.3)

Adjusted operating profit(at constant rates of
exchange)(Note 2)

583.2

(0.6)

Profit attributable to owners of
the parent company

392.4

(6.9)

Revenue(Note 1)

(Notes)1. 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, andother items.
2. Adjusted operating profit (at constant rates of exchange) is a value 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.
- 21 -

Revenue breakdown by business segment

Revenue

ProfitAdjusted operating profit(Attributable to owners of the parent company)- 22 -Domestic Tobacco BusinessIn the current fiscal year, sales volume of cigarettes(Note 1) was affected by a decline in cigarette industry
volume(Note 2) caused by the expansion of RRP(Note 3) market and the downtrend in total demand, among
others. As a result, sales volume fell by 13.3 billion cigarettes, or 12.5%, from the previous fiscal year to
92.9 billion cigarettes.
Market share was 61.3% (compared with a share of 61.1% for the previous fiscal year).
Core revenue from the tobacco business(Note 4) fell by ¥59.1 billion, or 9.1% from the previous fiscal year to¥590.6 billion, with the effects of the growing sales of Ploom TECH and retail price amendments
implemented in April 2016 for some brands such as Mevius, not offsetting the impact of lower cigarettesales volume.
Adjusted operating profit decreased by ¥27.9 billion, or 10.7% from the previous fiscal year to ¥232.3
billion, partly due to lower core revenue despite cost reductions.
(Notes) 1. Sales volume of cigarettes includes sales volume for the Company in the Japanese cigarettemarket, but it does not include sales volume for RRP and so on. In addition to the figure statedabove for sales volume, during the fiscal year ended December 31, 2017, 4.0 billion cigarettes
were sold at duty-free shops in Japan, as well as at markets in China, Hong Kong and Macauthat are under the control of the Company’s China Division (3.9 billion cigarettes in theprevious fiscal year).
2. Cigarette industry volume includes sales volume for the whole Japanese cigarette market, but it
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 (E-cigarettes) and T-Vapor (Tobacco Vapor). 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. T-Vapor products do use tobacco leaf, butinstead of burning it they use methods such as heating the leaf to generate vapor (which
includes compounds derived from thetobacco leaf) for the user to enjoy. Also,
Ploom TECH is a T-Vapor product.
4. Core revenue in the Domestic Tobacco
Business includes revenue from thedomestic duty-free market as well asfrom markets in China, Hong Kong and
Macau that are under the control of theCompany’s China Division, in addition
to revenue related to RRP, but it
excludes revenue related to imported
tobacco delivery charges, among others.

- 23 -

International Tobacco BusinessIn the current fiscal year, the effects of acquisitions in the Philippines etc. and growth in sales in Iran andother markets were offset by the effects of falling total demand in Russia etc., resulting in total shipment
volume(Note 1) of a similar level to that of the previous fiscal year, at 398.5 billion cigarettes (down 0.1%
from the previous fiscal year).
On the other hand, GFB(Note 2) shipment volume rose by 2.2 billion cigarettes, or 0.8% from the previous
year to 285.9 billion cigarettes, as a result of having gained market share.
Dollar-based core revenue(Note 3) was at a similar level to that of the previous fiscal year, at $10,498 million(up 0.1% from the previous fiscal year). Despite the recording of a one-off loss caused by a distributor in
the United Kingdom filing for bankruptcy in accordance with UK insolvency laws, as well as unfavorable
foreign exchange effects related to local currencies, including the pound, due to the emergence of effects
related to the optimization of manufacturing facilities and other cost reduction efforts, dollar-based
adjusted operating profit increased by $44 million, or 1.4%, from the previous fiscal year to $3,138 million.
Adjusted operating profit at constant rates of exchange increased by 4.0% from the previous fiscal year.
Yen-based core revenue and adjusted operating profit increased by ¥38.2 billion, or 3.4% from the previous
fiscal year to ¥1,177.0 billion and by ¥15.1 billion, or 4.5% from the previous fiscal year to ¥351.3 billion
respectively, as a result of the effects of the weaker yen when making conversions to that currency.
(Notes) 1. Includes fine cut tobacco, cigars, pipe tobacco, snus and kretek, except for contract
manufacturing products, waterpipe tobacco products and RRP.
2. GFBs (Global Flagship Brands) consist of nine brands, which serve as flagships of the Group’s
brand portfolio - Winston, Camel, Mevius, LD, Benson & Hedges, Glamour, Sobranie, Silk
Cut and Natural American Spirit.
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 andcontract manufacturing, among others.

- 24 -

Core revenue (USD basis)

Adjusted operating profit (USD basis)

Exchange rate per U.S. dollar
FY 2016

FY 2017108.78112.16

Ruble

67.07

58.35

Pounds sterling

0.74

0.78

Euro

0.90

0.89

Foreign exchange rate
per U.S. dollar
Yen

Main Market Shares (12-month rolling average)
2016 Dec

2017 Dec

Variance

Italy

23.3%

23.1%

(0.2ppt)

France

21.9%

22.0%

0.1ppt

Spain

22.8%

24.0%

1.3ppt

UK

41.7%

40.4%

(1.3ppt)

Russia(GFBs)
Turkey

32.8%
24.7%
29.4%

33.2%
25.6%
28.8%

0.4ppt0.9ppt(0.6ppt)

Taiwan

39.9%

41.7%

1.8pptSource: Internal estimates, Logista, IRI, Nielsen- 25 -

Pharmaceutical BusinessIn the Pharmaceutical Business, the Company has been striving to make a stable contribution to theGroup’s profits by promoting R&D on next-generation strategic products and by maximizing the value ofeach product.
In the area of product development, eight compounds are in clinical development.
During the fiscal year ended December 31, 2017, the Company obtained approval for domestic
manufacturing and distribution of anti-HIV drug “Descovy Combination Tablets LT” and “Descovy
Combination Tablets HT,” and Group Company Torii Pharmaceutical Co., Ltd. began sales of these inJanuary 2017.
In the current fiscal year, revenue increased by ¥17.5 billion, or 20.1%, from the previous fiscal year to¥104.7 billion, driven by higher royalty revenue of an original JT compound that has been out-licensed andstrong sales for the Group company Torii Pharmaceutical Co., Ltd. Adjusted operating profit increased by¥14.4 billion, or 148.0%, from the previous fiscal year to ¥24.1 billion, due to the increase in revenue.

- 26 -

【 Reference】
Japan Tobacco Inc. Clinical Development as of February 6, 2018

- 27 -

Processed Food BusinessIn the Processed Food Business, we concentrate on frozen and ambient processed foods, primarily staple
food products such as frozen noodles, frozen rice, packed rice and baked frozen bread, as well as bakery
and seasonings, while at the same time making efforts to strengthen cost competitiveness and working on
initiatives to improve profitability.
In the fiscal year ended December 31, 2017, we continued working to expand product sales with anemphasis on staple food products. Specifically, we launched 23 new and 44 renewed frozen and ambient
temperature home-use products, such as “Inaniwa-fu Udon Thin Noodles made with Hokkaido-Wheat 5
packs,” which uses the flavor and savoriness of carefully selected Hokkaido wheat to achieve a smooth yet
al dente mouth feel, and “Japanese-style Chicken and burdock root rice made with Japanese Koshihikari
rice,” in which a generous array of ingredients, including domestic chicken meat simmered in a sweet andsalty sauce and burdock root, is mixed with Japanese Koshihikari rice. In addition, the Group strove toactively promote sales, such as by developing consumer campaigns for frozen udon noodles.
Despite growth in sales of seasonings, revenue in the fiscal year ended December 31, 2017 decreased by¥0.9 billion, or 0.6%, from the previous fiscal year to ¥163.1 billion, due to a decline in sales of otherproducts. Adjusted operating profit rose by ¥0.4 billion, or 8.0%, from the previous fiscal year to ¥5.4
billion, due mainly to improvements in the sales product mix in frozen and ambient processed foods, aswell as declining raw material costs, and cost-reduction efforts.

- 28 -

2.

Status of capital expenditures
In this fiscal year, we made capital expenditures totaling ¥140.9 billion.
In the Domestic Tobacco Business, we spent ¥51.5 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 ¥68.4 billion mainly for optimization of manufacturing facilities in addition to improvements in
product specifications. In the Pharmaceutical Business, we spent ¥6.2 billion on enhancing andstrengthening research and development structures and the like. In the Processed Food Business, weinvested ¥10.4 billion in improvement, maintenance and renewals of production capability.
Please note that our own capital was allocated for capital expenditures.
(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 otherintangible assets, necessary for production improvements at factories and other facilities,
strengthening competitiveness and executing business in a variety of fields, excluding assets
acquired through business combinations.

3.

Status of financing
No items to report.

4.

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

5.

Business transfers from other companies
On September 7, 2017, the Group acquired the tobacco business, including assets and intellectual property
rights, of Mighty Corporation, which operates a tobacco business in the Philippines.

6.

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

7.

Acquisition or disposal of shares, other equities or subscription rights to shares of other companies
On October 31, 2017, the Group acquired all of the outstanding shares of PT. Karyadibya Mahardhika, akretek (Note) cigarette company in Indonesia, and its sales and distribution company, PT. Surya Mustika
Nusantara, making them subsidiaries.
In addition, on December 21, 2017, the Group acquired an additional 30.95% of the outstanding shares of
National Tobacco Enterprise Share Company (hereinafter “NTE”) in Ethiopia from the Ethiopian
government. As a result, the Group became the holder of 70.95% of NTE’s shares.
(Note) Kretek tobacco is a tobacco product in which cloves are mixed with the tobacco leaf as a flavoring.

- 29 -

8.

Trends in assets and operating results(1) Trends in assets and operating results of the JT Group [Consolidated]
30th term
From April 1,2014 toDecember 31,
2014(Reference)
From January 1,
2014 toDecember 31,
2014

31st term
From January 1,
2015 toDecember 31,
2015

32nd term
From January 1,
2016 toDecember 31,
2016

33rd term
From January 1,
2017 toDecember 31,
2017

Revenue(Millions of yen)

2,019,745

2,259,240

2,252,884

2,143,287

2,139,653

Profit before
income taxes(Millions of yen)

502,526

574,572

565,113578,237

538,532

Profit attributableto owners of theparent company(Millions of yen)

364,502391,431

398,454421,695

392,409

Basic earnings per
share
(Yen)

200.55215.36221.95235.47219.10Total assets(Millions of yen)

4,704,706

4,704,706

4,558,235

4,744,374

5,221,484

Total equity(Millions of yen)

2,622,503

2,622,503

2,521,524

2,528,041

2,842,027(Notes) 1. Effective from the 30th term, the Company and those of its consolidated subsidiaries withfiscal year ends other than December 31 have changed their fiscal year ends to December 31.
As a result of this change, the accounting period for the 30th term was the 9-month period from
April 1, 2014, through December 31, 2014. In addition, the fiscal year end date of JT
International Holding B.V. and its subsidiaries, which operate the Group’s International
Tobacco Business, was already December 31. Consequently, the accounting periods of thesecompanies for the 30th term were the 12-month period from January 1, 2014, throughDecember 31, 2014. For comparison and reference purposes, the results for the 12-month
period from January 1, 2014, through December 31, 2014 are presented.
2. Consolidated financial statements of the JT Group are prepared based on IFRS.
3. During the 31st term, the Group withdrew from the Beverages Business and this business was
categorized as discontinued operations, and revised figures for the 30th term are presented here.
Accordingly, revenue, profit before income taxes, profit attributable to owners of the parent
company, and basic earnings per share in “30th term,” “Reference,” and “31st term” are shownfor continuing operations.
4. Profit attributable to owners of the parent company including amounts for discontinued
operations for the 31st term, and basic earnings per share are ¥485,691 million and ¥270.54,
respectively.

- 30 -

(2) Trends in assets and non-consolidated operating results of JT [Non-consolidated]
30th term
From April 1,2014 toDecember 31,
2014

31st term
From January 1,
2015 toDecember 31,
2015

32nd term
From January 1,
2016 toDecember 31,
2016

33rd term
From January 1,
2017 toDecember 31,
2017

Net sales(Millions of yen)572,323

732,483

729,286

681,840

Ordinary income(Millions of yen)

159,746

371,989

203,242

199,336

Net income(Millions of yen)

108,656

345,009

173,607

160,120

Net income per share
(Yen)

59.78

192.18

96.94

89.40

Total assets(Millions of yen)

2,729,270

2,756,785

2,849,913

2,885,760

Net assets(Millions of yen)

1,649,151

1,713,068

1,663,675

1,592,966(Notes) 1. Effective from the 30th term, the Company has changed its fiscal year end to December 31. As
a result of this change, the accounting period for the 30th term was the 9-month period from
April 1, 2014, through December 31, 2014.
2. Non-consolidated financial statements of the Company are prepared based on Japanese GAAP.

- 31 -

Trends in assets and operating results of the JT Group [Consolidated](Note) As the 30th term (■April-December) was nine months (April 1, 2014 to December 31, 2014), a
reference bar (■January-December) for twelve months (January 1, 2014 to December 31, 2014) is alsopresented (except for total assets and total equity).

- 32 -

9.

Issues to be addressed(1) Basic management policy
Our management principles are based on the pursuit of the “4S” model (“S” is for satisfaction). The model
requires us to fulfill our 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 become a company committed
to global growth by providing diversified value that is uniquely available from JT Group. Our mission is tocreate, develop and nurture our unique brands to win consumer trust, while understanding and respecting
the environment 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 the JT Group.
The JT Group has attained sustainable profit growth and will continue to do so through the pursuit of the“4S” model. Since attaining sustainable profit growth requires us to continue to provide new value andsatisfaction to consumers, we believe it is essential to steadily make business investments for future mid- tolong-term profit growth.
We believe that the pursuit of the “4S” model will lead to a consistent increase in corporate value in themid- to 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 growththat provides consumers with diversified value available uniquely from JT,” the Group intends to carry on
strategies that have hitherto been implemented, and believes that in order to take them to a higher level it isnecessary to cultivate the ability to respond to change, and that the skill and speed with which the Group
responds to such changes will be a crucial factor in determining competitiveness going forward. In addition,
we believe that not merely responding passively, we should initiate transformation ourselves, acquiring theability to generate change and thus making possible sustainable growth in profits over the 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 unexpectedchanges.
In the “Business Plan 2018,” there is no change in the Group’s management resources allocation policy,
under which we will continue to place a high priority on making business investments that contribute tosustainable mid- to long-term profit growth as well as on valuing the balance between profit growththrough business investments and shareholder returns.
In accordance with the “Business Plan 2018,” the Group will continue to pursue mid to high single-digit(Note1) annual average growth rate over the mid- to long-term in adjusted operating profit at constant rates of
exchange(Note 2).
With regard to shareholder return policies, the Group will pursue enhanced shareholder returns inproportion to the mid- to long-term profit growth by continually making proactive business investments
while maintaining a strong financial base(Note 3) that enables response to any possible environmental changes.
Specifically, the Group will work toward stable and consistent growth in dividend per share.
Whether to execute the acquisition of treasury shares will be considered in view of factors including the
medium-term outlook on business environment and financial positions.
Adopting a stakeholder model, the Group will continue to monitor a trend in shareholder returns of global
FMCG(Note 4) companies which achieve a high-growth business.
The mid- to long-term targets and roles 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 JT Group

Domestic
InternationalCore business that serves as the highly competitive profit generator
Also a core business that serves as the profit growth engine

Pharmaceutical Business

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

Processed Food Business

Aim to contribute to the earnings of the JT Group through mid- tolong-term profit growth driven by high-quality expansion in the top
line- 34 -

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 and role. For
each business, our strategic focus is to improve cost competitiveness and business foundations that support
these efforts, thereby achieving sustainable profit growth.
We will work to strengthen our CSR initiatives further with an emphasis on the pursuit of high-level, wellbalanced stakeholder satisfaction based on the “4S” model, which constitutes JT’s management principles.
The Group recognizes that uncertainties in the business environment in which it operates remain high, due
to factors such as global economic trends, foreign exchange risks and international geopolitical risks. In
order to overcome this uncertain business environment and operate its global business appropriately theGroup will, based on the “4S” model, continue a policy of integrated business investment and adaptability
to change and, by changing itself and acquiring the ability to generate change, make possible sustainablegrowth in profits over the mid- to long term, as well as achieve steady returns to shareholders.
(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
and adjustment items (income and costs) from operating profit (loss). Adjustment items(income and costs) are impairment losses on goodwill, restructuring income and costs, andother items.
Adjusted operating profit growth rate at constant rates of exchange is a financial measurementthat 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.
3. As its financial policy, the Group will maintain a strong financial base that secures stability incase of changes in business environment such as economic crises and flexibility enabling
expeditious responses to business investment opportunities.
4. FMCG: Fast Moving Consumer Goods (daily consumer durables)- 35 -

10. Main business contents
Business segment

Main 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 of prescription
drugs
Manufacture and sale of frozen and ambient processed foods,
bakery products and seasonings

Domestic Tobacco Business
International Tobacco BusinessPharmaceutical Business
Processed Food Business11. Status of important subsidiaries

Company name

Equityownership(%)

CapitalMain business(Millions of yen)

TS Network Co., Ltd.
Japan Filter Technology
Co., Ltd.

460

74.5

Distribution of tobacco products

88.6

Manufacture and sale of filters for
tobacco products(100.0)

Manufacture and sale of tobacco
products(100.0)

Manufacture and sale of tobacco
products(Millions of yen)

461
(Thousands of CHF)

JT International S.A.

1,215,425(Thousands of GBP)

Gallaher Ltd.
Torii PharmaceuticalCo., Ltd.

172,495(Millions of yen)

5,190

53.5

Manufacture and sale ofprescription drugs(100.0)

Manufacture and sale ofprocessed foods(Millions of yen)

TableMark Co., Ltd.

22,500(Notes) 1. Figures in parentheses in the “Equity ownership” column indicate indirect holding rates.
2. There were 210 consolidated subsidiaries in this fiscal year, including 6 above-mentioned
important subsidiaries, as well as 13 affiliates accounted for by the equity method. In addition,
consolidated revenue for the fiscal year ended December 31, 2017 amounted to ¥2,139.7
billion with profit attributable to owners of the parent company at ¥392.4 billion.
3. On the last day of the fiscal year ended December 31, 2017, there were no specified wholly
owned subsidiaries as stipulated in Article 118, item 4 of the Ordinance for Enforcement of theCompanies Act.

- 36 -

12. Major lenders
LenderOutstanding balance(Millions of yen)

The Norinchukin Bank

40,000Shinkin Central Bank

30,00013. Major sales offices and factories(1) JT
Headquarters:

2-1, Toranomon 2-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)(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.

- 37 -

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

10,291

International Tobacco Business

39,281

Pharmaceutical Business

1,883

Processed Food BusinessCommon company-wide
within JT

5,489
services

1,019
57,963

Total(Notes) 1. The above number of employees indicates the number of working employees.
2. The number of employees has increased by 13,296 people compared to the end of the previous
fiscal year, but this is due mainly to include PT. Karyadibya Mahardhika and PT. Surya
Mustika Nusantara in the scope of consolidation.
(2) Employees of JT [Non-consolidated]

Male/Female
Male

Number ofYear-on-year
employees
increase (decrease)(Person)(Person)
6,241
25

43.4

Average years ofservice(Year)
19.6

Average age(Year old)

Female

1,095

13

36.7

12.0

Total or average

7,336

38

42.4

18.5

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

- 38 -

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

208,956,589 shares)
205,939

3. Number of shareholders:

4.

Major shareholders

Name of shareholders

Number of shares held
(Share)Minister of Finance

Equity ownership (%)

666,926,200

37.24

72,269,400

4.04

60,387,900

3.37

37,829,600

2.11

33,800,000

1.89

32,751,576

1.83

23,678,900

1.32State Street Bank and Trust Company

23,641,185

1.32State Street Bank West Client - Treaty
50523421,021,193

1.17

GIC Private Limited-H

20,314,500

1.13

Master Trust Bank of Japan, Ltd.
(Trust Account)
Japan Trustee Services Bank, Ltd.
(Trust Account)
GIC Private Limited-C
Trust & Custody Services Bank, Ltd. as
trustee for Mizuho Bank, Ltd.
Retirement Benefit Trust Account reentrusted by Mizuho Trust and Banking
Co., Ltd.
State Street Bank and Trust Company
505223
Japan Trustee Services Bank, Ltd.
(Trust Account 5)(Note)

Equity ownership is calculated after deducting treasury shares (208,956,589 shares).

- 39 -

III. Matters Concerning Subscription Rights to Shares

1.

Total number and others of subscription rights to shares as of December 31, 2017

(1) Total number of subscription rights to shares:
5,156 units(2) Class and number of shares to be delivered upon exercise of subscription rights to shares:
Ordinary shares 1,031,200 shares(200 shares per subscription right to shares)
2.

Status of subscription rights to shares held by Members of the Board and Audit & Supervisory
Board Members of JT as of December 31, 2017

(1) Class and number of shares to be delivered upon exercise of subscription rights to shares:
Ordinary shares 328,800 shares(200 shares per subscription right to shares)(2) Value of property to be contributed when subscription rights to shares are exercised¥1 per share(3) Assignment of subscription rights to shares
The approval of the Board of Directors is required for the assignment of subscription rights to shares.
(4) Conditions for exercising subscription rights to shares
Subscription rights to shares holder may exercise his/her subscription rights to shares only if he/she loses
his/her all position as Member of the Board, Audit & Supervisory Board Member and Executive Officer(sikkoyakuin).

- 40 -

(5) Status of ownership by Members of the Board and Audit & Supervisory Board Members of JT

Category

Memberof theBoard

YeargrantedPayment due upon
allotment ofsubscription rights toshares

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

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

NumberNumber ofof units

shareholders

35

3

60

4

159

4

144

4

175

4

171

4

126

4

139

5

199

5

171

5

265

5

(Note) Outside Directors are not included in the above category of “Member of the Board.”- 41 -

3.

Status of subscription rights to shares granted to employees of JT from January 1, 2017 to December
31, 2017(1) Class and number of shares to be delivered upon exercise of subscription rights to shares:
Ordinary shares 89,400 shares(200 shares per subscription right to shares)(2) Payment due upon allotment of subscription rights to shares¥482,200 per unit
(3) Value of property to be contributed when subscription rights to shares are exercised¥1 per share(4) Exercise period of subscription rights to shares
From July 4, 2017 to July 3, 2047
(5) Assignment of subscription rights to shares
The approval of the Board of Directors is required for the assignment of subscription rights to shares.
(6) Conditions for exercising subscription rights to shares
Subscription rights to shares holder may exercise his/her subscription rights to shares only if he/she loses
his/her all position as Member of the Board, Audit & Supervisory Board Member and Executive Officer(sikkoyakuin).
(7) Status of granting to employees of JT
447 subscription rights to shares were granted to 19 Executive Officers (sikkoyakuin) (excluding persons
serving as Members of the Board) of JT.

- 42 -

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

Chairman of the Board

Yasutake Tango

Representative Director
and President
Representative Directorand Executive Vice
President

Mitsuomi
KoizumiYasushi Shingai

Representative Directorand Executive Vice
President
Member of the Board
and Executive Vice
President
Member of the
Board
Member of theBoard

Mutsuo Iwai

Standing Audit &Supervisory Board
MemberStanding Audit &Supervisory Board
MemberAudit & Supervisory
Board Member

Audit & Supervisory
Board Member

Hideki Miyazaki

Responsibility

Chief Executive
Officer
Deputy Chief
Executive Officer,
Compliance, General
Administration,
Legal, Strategy, IT,
Business
Development, HR
and Operational
Review & Business
Assurance
President, Tobacco
Business

Significant concurrent positions
outside the Company
The Ogaki Kyoritsu Bank, Ltd.
Outside Director

Recruit Holdings Co., Ltd.
Outside Director

JT International Group Holding
B.V.
ChairmanFinance, CSR andCommunications

Motoyuki Oka

NEC Corporation
Outside Director
Novelist
LIXIL Group Corporation
Outside Director
Japan Exchange Group, Inc.
Outside Director

Main Kohda

FutoshiNakamura
Tomotaka
KojimaYoshinori Imai
Obayashi Law Office
Attorney at Law
Daiwa Securities Co., Ltd.
Outside Audit & Supervisory
Board Member
Mitsubishi Electric Corporation
Outside Director
NIPPON STEEL & SUMITOMOMETAL CORPORATION
Outside Audit & Supervisory
Board Member

Hiroshi Obayashi(Notes) 1. Members of the Board Motoyuki Oka and Main Kohda are Outside Directors.
2. Audit & Supervisory Board Members Yoshinori Imai and Hiroshi Obayashi are Outside Audit& Supervisory Board Members.

- 43 -

3. Members of the Board, Motoyuki Oka and Main Kohda, and Audit & Supervisory Board
Members, Yoshinori Imai and Hiroshi Obayashi, were designated as independent officers(directors and audit & supervisory board members) as prescribed by the Tokyo Stock
Exchange, Inc.
4. Audit & Supervisory Board Member Futoshi Nakamura and Audit & Supervisory Board
Member Tomotaka Kojima have relevant knowledge about financing and accounting as they
were Senior Manager of the Accounting Division of JT and Deputy Head of Finance Group ofJT, respectively.
5. The Company has entered into agreements with each of its Members of the Board (excluding
those are Executive Directors, etc.) and Audit & Supervisory Board Members with respect tothe liability set forth in Article 423, paragraph 1 of the Companies Act, by which the liability
for damages of each of them is limited to the minimum amount set forth in Article 425,
paragraph 1 of the same Act, provided they perform their duties without knowledge of suchdamages and without gross negligence.
6. Changes in the responsibilities etc. of Executives after the end of the fiscal year under review
Positions and responsibilities in the Company, and significant
concurrent positions outside the Company
Name
As of December 31, 2017
As of January 1, 2018
Mitsuomi Koizumi Representative Director andRepresentative Director
President
Chief Executive Officer
Yasushi Shingai
Representative Director andMember of the Board
Executive Vice President
Deputy Chief Executive Officer
Compliance, General
Administration, Legal, Strategy,
IT, Business Development, HR
and Operational Review &Business Assurance
Recruit Holdings Co., Ltd.
Recruit Holdings Co., Ltd.
Outside Director
Outside Director
Hideki Miyazaki
Member of the Board andMember of the Board
Executive Vice President
Finance, CSR andCommunications
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
Total
Board Members
Amount 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)
400
4
115
11
515
0
0
0
120
5
120
520
115
635

Members of the Board
Category

Basic remuneration
Officers’ bonus
Stock option grants
Total

Number to
be paid(Person)7
0
5-- 44 -

(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 ofdetermining the policy
The Company has the Compensation Advisory Panel in place as a non-statutory advisory body to the Boardof Directors in order to increase objectivity and transparency regarding the remuneration of Members of theBoard and Audit & Supervisory Board Members. The Compensation Advisory Panel, which holds meetings
several times a year, holds deliberations and makes reports in accordance with its advice on such matters as
the Company’s policy, system and calculation method regarding remuneration for its Members of the Board
and Executive Officers (sikkoyakuin), and monitors the status of remuneration for Members of the Board
and Audit & Supervisory Board Members at the Company. The Compensation Advisory Panel currently
consists of five members: the Chairman of the Board, who has the role of the panel’s chairman, and two
Outside Directors and two Outside Audit & Supervisory Board Members.
Outside members of Compensation Advisory Panel
Outside Director
Motoyuki Oka
Outside Director
Main Kohda
Outside Audit & Supervisory Board Member
Outside Audit & Supervisory Board Member- 45 -

Yoshinori Imai
Hiroshi Obayashi

In light of reports by the Compensation Advisory Panel, JT’s basic concept of remuneration for Membersof 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 schemes

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

- 46 -

3.

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

Category

Name
Motoyuki Oka

Member of the
Board

Audit &
Supervisory Board
MemberMain Kohda

Hiroshi Obayashi

Organizations whereconcurrent positions are held
NEC Corporation
Novelist
LIXIL Group Corporation
Japan Exchange Group, Inc.
Obayashi Law OfficeDaiwa Securities Co., Ltd.

Mitsubishi Electric
Corporation
NIPPON STEEL &SUMITOMO METALCORPORATION

Position
Outside Director
Outside Director
Outside Director
Attorney at Law
Outside Audit &Supervisory Board
MemberOutside Director
Outside Audit &Supervisory Board
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
Motoyuki Oka

Member of the
Board
Main Kohda

Yoshinori Imai
Audit &
Supervisory Board
MemberHiroshi Obayashi

Status of main activities
Attended all 17 Board of Directors meetings held during
this fiscal year. Mr. Oka asked questions and maderemarks where necessary at these meetings, as a Memberof the Board.
Attended all 17 Board of Directors meetings held during
this fiscal year. Ms. Kohda asked questions and maderemarks where necessary at these meetings, as a Memberof the Board.
Attended all 17 Board of Directors meetings, as well as
all 14 meetings of the Audit & Supervisory Board held
during this fiscal year. Mr. Imai asked questions andmade remarks where necessary at these meetings, as an
Audit & Supervisory Board Member.
Attended 16 out of 17 Board of Directors meetings, aswell as all 14 meetings of the Audit & Supervisory
Board, held during this fiscal year. Mr. Obayashi asked
questions and made remarks where necessary at thesemeetings, as an Audit & Supervisory Board Member.

(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)
38
2
29
4
67

Outside Director
Category

Basic remuneration

Number to
be paid(Person)2- 47 -

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¥330 million

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:¥37 million(2) Amount of cash and other financial benefits to be paid by JT and its subsidiaries:¥511 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 theaudit contract were appropriate.
Based upon this verification, the Audit & Supervisory Board checked and examined matters including thecontent of the Independent Auditor’s accounting plan, the status of the performance of the auditing duties, andthe basis for calculation of the remuneration estimate, and, as a result, determined that approval was fair andreasonable.

(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 CSR activities, 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.

- 48 -

VI. Overview of the Resolutions on the Development of Systems Necessary to Ensure the Properness of
Operations and the Operating Status of the Systems
The Board of Directors has resolved with regard to the development of systems necessary to ensure that theexecution of the duties by the Members of the Board complies with the laws and regulations and the
Articles of Incorporation, and other systems necessary to ensure the properness of operations of a stockcompany as follows:(1) Systems to ensure that the performance of duties by the Members of the Board and employees of theCompany, as well as by Directors, etc. (meaning “Directors, etc.” as provided for in Article 100,
Paragraph 1, Item 5 (i) of the Ordinance for Enforcement of the Companies Act) and employees(with Directors, etc. and employees hereafter collectively referred to as “directors and employees”) of
subsidiaries, conforms to laws, regulations, and the Articles of Incorporationi) Compliance system
The Company shall establish Code of Conduct based on regulations concerning the compliance system
in order to ensure that directors and employees of the Company and its subsidiaries comply with laws
and regulations, Company’s Articles of Incorporation, the social norms, etc., and set up a JT Group
Compliance Committee as an organization responsible for ensuring thorough compliance. This
committee, headed by Company’s Chairman of the Board, mainly consists of outside members andreports directly to the Board of Directors.
The Company appoints an Executive Officer (sikkoyakuin) in charge of compliance with overseeing
the Compliance Office in an effort to establish and promote a group-wide, cross-sectional system andshed light on issues.
The compliance promotion departments of the Company and its subsidiaries (meaning the Compliance
Office within the Company, and corresponding departments within subsidiaries) distribute materials
including the “JT Group Code of Conduct,” which explains the Code of Conduct, etc., to directors andemployees, and work to enhance the effectiveness of the compliance system by enlightening directors
and employees about compliance through training and other programs, etc.
(Internal reporting system)
In preparation for cases in which employees or other parties detect activities, etc. suspected ofviolating laws and regulations, the Company and its subsidiaries maintain consultation and reporting
desks as internal whistleblower systems. Compliance promotion departments that receive a report orrequest for consultation investigate the details and take necessary action, while working to prevent
recurrence of the issue.
The Company will bring matters of particular importance involving the JT Group to the JT Group
Compliance Committee, and will request deliberation or will report on the issue.
(System for excluding anti-social elements)
The Company and its subsidiaries are resolved to fight against, not to comply with, an unreasonable
demand and not to have any relations with anti-social elements.
The General Administration Division shall be the JT Group’s headquarters assuming the responsibility
for supervising efforts to exclude anti-social elements, the Company cooperates with police, lawyers
and other relevant organizations and parties to gather and share information in order to deal with suchelements in an organized way.
In addition, the Company and its subsidiaries shall prohibit involving with anti-social elements andfully communicate to all directors and employees of the Company and its subsidiaries. At the sametime, an awareness raising program for excluding anti-social elements is to be consistently
administered for all directors and employees, by providing relevant training, etc. as necessary.

- 49 -

ii)

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

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

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

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

ii)

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

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

of

the

Company

andits

subsidiaries,

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

- 50 -

ii)

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

(5) System to ensure that Members of the Board of the Company and Directors, etc. of its subsidiaries
can perform their duties efficientlyi)

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

ii)

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

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

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

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

ii)

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

- 51 -

(7) Matters for employees assisting Audit & Supervisory Board Members of the Company in their duties
in the event such employees were requested by Audit & Supervisory Board Membersi)Establishment of Audit & Supervisory Board Member’s Office
The Company has established an Audit & Supervisory Board Member’s Office as an organization toassist the duties of the Company’s Audit & Supervisory Board Members (hereinafter simply “Audit &Supervisory Board Members,” with the terms “Audit & Supervisory Board,” “Audit & Supervisory
Board Member’s Office,” and “Manager of the Audit & Supervisory Board Member’s Office” also
referring to those items within the Company).

ii)

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

(8) Matters relating to the independence of employees belonging to the Audit & Supervisory Board
Member’s Office from the Company’s Members of the Board, and matters relating to the assuranceof the effectiveness of instruction by Audit & Supervisory Board Members to those employeesi)Management of employees affiliated with the Audit & Supervisory Board Member’s Office
The evaluation of the Manager of the Audit & Supervisory Board Member’s Office is made by the
Audit & Supervisory Board and the evaluation of the other employees assigned to the Audit &Supervisory Board Member’s Office is made by the Manager of the Audit & Supervisory Board
Member’s Office based on the advice of the Audit & Supervisory Board. The transfer and discipline of
employees assigned to the Audit & Supervisory Board Member’s Office is to be deliberated inadvance with the Audit & Supervisory Board.

ii)

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

(9) System for reporting by directors and employees of the Company and its subsidiaries or persons
reported by directors and employees of its subsidiaries to the Audit & Supervisory Board and Audit& Supervisory Board Membersi)Reporting to the Audit & Supervisory Board
When directors and employees of the Company and its subsidiaries detect any evidence ofmalfeasance in financial documents or serious breaches of laws or regulations or the Company’s
Articles of Incorporation, they are due to report them to the Audit & Supervisory Board, along withother relevant matters that could affect the Company’s management.

ii)

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

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

- 52 -

(10) System to ensure that persons reporting to Audit & Supervisory Board Members are not subject todisadvantageous treatment due to having reported
The Company will thoroughly communicate within the JT Group that persons engaging in
consultation or whistleblowing are not to be subject to any disadvantageous treatment for reason of
those actions.

(11) Matters concerning policies for the prepayment of expenses involving the performance of duties by
Audit & Supervisory Board Members, procedures for reimbursement, and the handling of otherexpenses or debts involving the performance of those dutiesi) Handling of expenses or debts in accordance with Article 388 of the Companies Act
When an Audit & Supervisory Board Member has made claim to the Company for the prepayment ofexpenses, etc. in accordance with Article 388 of the Companies Act, the Company will promptly
handle the relevant expenses or debt, with the exception of cases in which the Company deems theclaimed expenses or debt to be unnecessary to the performance of the duties of the Audit &Supervisory Board Member.
ii)

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

(12) Other systems to ensure effective auditing by Audit & Supervisory Board Membersi)

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

ii)

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

The status of systems necessary to ensure the properness of operationsi)

Status of initiatives concerning compliance・ The JT Group has set itself the mission of creating, developing, and nurturing its unique brands to win
consumer trust, while understanding and respecting the environment and the diversity of societies andindividuals. The Company communicates this mission throughout the JT Group by means including its
inclusion in the “JT Group Code of Conduct” booklet, which is distributed to the directors andemployees of the Company and its subsidiaries.
・ In accordance with the JT Group Compliance Rules, the Company performs appropriate reporting to theBoard of Directors on the performance of the annual Compliance Plan, the occurrence of serious
compliance violations, actions taken in response to these, and other matters of importance.
・ In order to improve awareness of compliance and prevent improper actions, in addition to holding
seminars for top management such as directors, audit & supervisory board members and Executive
Officers (sikkoyakuin), the Company conducts regular training for the directors and employees of theCompany and its subsidiaries.

- 53 -

・ With regard to whistleblowing systems, the Company maintains consultation and reporting desks insideand outside the Company, and thoroughly communicates to employees of the Company and its
subsidiaries that persons who engage in consultation or whistleblowing are not to be subject to any
disadvantageous treatment for reason of those actions. In addition, the content of consultations andwhistleblowing are regularly reported within the JT Group Compliance Committee.
・ With regard to the handling of anti-social elements, the Company continues to collect related declarations
and pledges from suppliers, and conducts regular training and other programs for the directors andemployees of the Company and its subsidiaries.

ii)

Status of initiatives to manage the risk of loss
・ With regard to the monetary and financial risks, the Company makes quarterly reports to the President
and Chief Executive Officer and the Board of Directors in accordance with the Basic Rules on Financial
Work of the Group.
・ With regard to the evaluation and examination of internal management systems, the Operational Review
and Business Assurance Division provides reports and counsel to the President and Chief Executive
Officer and also reports to the Board of Directors, in accordance with the Rules for Internal Audits.
・ With regard to crises and disasters, the Company makes quarterly reports to the Board of Directors
concerning events to which responses were made and the details of the events, in accordance with the“Decision Concerning the Preparation of Basic Policies and Systems Concerning the Construction ofInternal Control Systems.”iii) Status of initiatives concerning the properness and efficiency of the execution of duties
・ Meetings of the Board of Directors are held every month and as appropriate, in accordance with theRegulations of the Board of Directors. The Members of the Board in charge of businesses makequarterly reports to the Board of Directors on the status of business execution within each business,
including within its subsidiaries.
・ With regard to decision-making, etc. on execution of important business, etc., the Company is converting
resolution procedures to electronic methods and is constructing a fast and efficient management system.
The Company also accurately records and creates minutes of meetings of the Board of Directors, andperforms appropriate storage and management of the information.

iv) Securing the effectiveness of audits by Audit & Supervisory Board Members
・ Audit & Supervisory Board Members receive reports as appropriate from directors and employees of theCompany and its subsidiaries, regarding necessary information for audits. In addition to attending
important conferences, Audit & Supervisory Board Members also perform appropriate checks of thecontent of electronic resolutions concerning decision-making on the execution of business. In addition,
Audit & Supervisory Board Members regularly exchange opinions and otherwise communicate witheach subsidiary’s own Audit & Supervisory Board Members to enhance audits performed by all Audit &Supervisory Board Members inside the JT Group.
・ The Operational Review and Business Assurance Division and the Compliance Office also coordinate on
conducting regular exchanges of information with Audit & Supervisory Board Members.
・ In order to assist the duties of Audit & Supervisory Board Members, the Company has established an
Audit & Supervisory Board Member’s Office that is independent of divisions responsible for execution,and has assigned necessary personnel to the Office. In addition, through consultation with Audit &Supervisory Board Members, the Company records a budget for expenses expected to be necessary forthe duties of the Audit & Supervisory Board Members.

- 54 -

【 Reference】＜Fundamental 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 ''4S
model''. 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 4 February, 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 corporate value, which will contribute to the development of our group’s
stakeholders and eventually the economic society as a whole.
''JT Corporate Governance Policies'' is posted on our web-site (https://www.jti.co.jp/).
＜JT's Corporate Governance System＞* All figures contained in this Business Report are rounded to the nearest unit.

- 55 -

Consolidated Statement of Financial Position(As of December 31, 2017)(Millions of yen)Account title

AmountAccount title

Current assets

AmountCurrent liabilities

Cash and cash equivalents

285,486

Trade and other payables

395,733

Trade and other receivables

431,199

Bonds and borrowings

398,182

Inventories

612,954

Income tax payables

46,452Other financial assets

14,016

Other financial liabilities

6,906

Other current assets

361,715

Provisions

13,028

1,705,370

Other current liabilities

618,322

2,396

Total current liabilities

1,478,623

Subtotal
Non-current assets held-for-sale
Total current assets

1,707,767

Non-current liabilities

Non-current assets
Property, plant and equipment
Goodwill

745,607

Bonds and borrowings

346,955

1,891,210

Other financial liabilities

11,013
330,762

Intangible assets

479,175

Retirement benefit liabilities

Investment property

16,700

Provisions

Retirement benefit assets

51,377

Other non-current liabilities

120,779

Investments accounted for using theequity method

81,253

Deferred tax liabilities

87,319Other financial assets

114,970

Total non-current liabilities

900,833

Deferred tax assets

133,425

Total non-current assets

3,513,717

Total liabilities

5,221,484

2,379,456

EquityShare capital

100,000

Capital surplus

736,400

Treasury shares(443,636)

Other components of equity(167,338)

Retained earnings

2,536,262

Equity attributable to owners of theparent company

2,761,687

Non-controlling interests

Total assets

4,005

80,340Total equity

2,842,027

Total liabilities and equity

5,221,484- 56 -

Consolidated Statement of Income(Year ended December 31, 2017)(Millions of yen)Account title

AmountRevenue

2,139,653

Cost of sales(843,558)

Gross profit

1,296,094

Other operating income

45,724

Share of profit in investments accounted for using the equity method

6,194

Selling, general and administrative expenses(786,911)

Operating profit

561,101

Financial income

4,780

Financial costs(27,349)

Profit before income taxes

538,532

Income taxes(141,783)

Profit for the period

396,749

Attributable to:
Owners of the parent company

392,409

Non-controlling interests

4,340- 57 -

Consolidated Statement of Changes in Equity(Year ended December 31, 2017)(Millions of yen)
Equity attributable to owners of the parent company
Other components of equity
Net gain (loss)

SharecapitalCapitalsurplusTreasuryshareson revaluation
Net gainExchangeof financial(loss) on
Subscription differences
derivatives assets measured
rights toon translation designated as at fair value
sharesof foreign
through othercash flow
operations
hedgescomprehensive
incomeAs of January 1, 2017

100,000

736,400(443,822)

1,794(335,642)

440

29,854

Profit for the period

－

－

－

－

－

－

－

Other comprehensive
income (loss)

－

－

－

－

127,758

(54)

9,276

Comprehensive income(loss) for the period

－

－

－

－

127,758

(54)

9,276

－

－

(1)

－

－

－

－

－

－

187

(166)

－

－

－

Share-based payments

－

－

－

336

－

－

－

Dividends

－

－

－

－

－

－

－

Changes in the scope of
consolidation

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

(461)

－

－

－

－

－

(475)

－

－

－

186

170

－

(475)

(461)

100,000

736,400(443,636)

1,964(207,884)(88)

38,670Acquisition of treasury
shares
Disposal of treasury
sharesChanges in theownership interest in a
subsidiary without aloss of control
Transfer from othercomponents of equity
to retained earnings
Other increase(decrease)
Total transactions withthe owners
As of December 31, 2017

- 58 -

(Millions of yen)
Equity attributable to owners of the parent company
Other components of equity
RemeasureRetained
ments of
Total
earnings
Total
definedbenefitplans

Noncontrollinginterests

Total equity

As of January 1, 2017－

(303,554)

2,367,067

2,456,091

71,9502,528,041

Profit for the period－－

392,409392,409

4,340

396,749

Other comprehensive
income (loss)

19,919156,900－

156,900550

157,449

Comprehensive income(loss) for the period

19,919156,900

392,409549,309

4,889

554,198

Acquisition of treasury
shares

－

－

－

(1)

－

(1)

Disposal of treasury
shares

－

(166)

(21)

0

－

0

Share-based payments

－

336

－

336

5

341

Dividends－－(243,572)(243,572)(1,547)(245,119)

－

－

－

－

4,884

4,884

－

－

(1)

(1)

159

158

(19,919)(20,380)

20,380

－

－

－

－

(475)

－

(475)

－

(475)

(19,919)(20,684)(223,214)(243,713)

3,501(240,212)－(167,338)

2,536,262

2,761,687

80,3402,842,027

Changes in the scope of
consolidation
Changes in theownership interest in a
subsidiary without aloss of control
Transfer from othercomponents of equity
to retained earnings
Other increase(decrease)
Total transactions withthe owners
As of December 31, 2017

- 59 -

Nonconsolidated Balance Sheet(As of December 31, 2017)
Account title

AmountAccount title

ASSETS
Current assets
Cash and deposits
Accounts receivable–trade
Securities
Merchandise and finished goods
Semi-finished goods
Work in process
Raw materials and supplies
Advance payments–trade
Prepaid expenses
Deferred tax assets
Short-term loans receivable from subsidiaries
and affiliates
Other
Allowance for doubtful accounts
Noncurrent assets(Millions of yen)

LIABILITIES
556,483
89,77547,33550,00033,448Current liabilities
Accounts payable–trade
Short-term loans payable
Current portion of bonds
Lease obligations

47,731
2,480
46,057
1,988
9,293
8,991
201,555
17,856(26)

2,329,277

Noncurrent liabilities
Bonds payable
Long-term loans payable

86,955
2,981

Provision for retirement benefits
Deferred tax liabilities

Machinery and equipment

54,829

Other

Vehicles

1,416

Tools, furniture and fixtures

18,262

Shareholders’ equity

Land
Construction in progress

73,177

Capital stock
Capital surplus
Legal capital surplus
Retained earnings
Legal retained earnings
Other retained earnings
Reserve for investment loss on developing
new businessReserve for reduction entry
Special account for reduction entry

Patent right
Right of trademark

132,508

Software

11,965

Goodwill
Other

286,168

301

7,447

Investments and other assets

1,643,220

Investment securities
Shares of subsidiaries and affiliates

1,546,411

65,693

16,552

3,059

21,336

Buildings
Structures

438,389

54,158

Income taxes payable
Accrued consumption taxes
Cash management system deposits received
Provision for bonuses
Other

Lease obligations

Intangible assets

7,957
159,330

Accounts payable–other
National tobacco excise taxes payable
National tobacco special excise taxes payable
Local tobacco excise taxes payable

247,668

10,047

793,635

47,608Property, plant and equipment

Long-term loans receivable from subsidiaries
and affiliates

Amount77,523
11,98989,814
24,677
283,4904,646
8,048
499,159
276,180
70,000
5,773
131,472
12,686
3,047

Total liabilities

1,292,794

NET ASSETS
1,555,760
100,000
736,400
736,400
1,162,996
18,776
1,144,220
169
42,987
8,356

Retained earnings brought forward

1,092,709

Treasury shares
Valuation and translation adjustments
Valuation difference on available-for-salesecurities(443,636)

33,579Long-term prepaid expenses
Other

7,483
7,337

Subscription rights to shares

Allowance for doubtful accounts(255)

Total net assets

1,592,966

Total liabilities and net assets

2,885,760

Total assets

2,885,760

Deferred gains or losses on hedges

35,242- 60 -

1,662
1,964

Nonconsolidated Statement of Income(Year ended December 31, 2017)(Millions of yen)Account title

AmountNet sales

681,840

Cost of sales

182,446

Gross profit

499,394

Selling, general and administrative expenses

330,951

Operating income

168,443

Non-operating income
Interest income

529

Dividends income

30,386

Other

6,564

37,479Non-operating expenses
Interest expenses

784

Interest on bonds

4,827

Other

975

6,586
199,336

Ordinary income
Extraordinary income
Gain on sales of noncurrent assets

20,826

Other

672

21,499Extraordinary losses
Loss on sales of noncurrent assets

352

Loss on retirement of noncurrent assets

3,274

Impairment loss

518

Other

1,695

5,839
214,996

Income before income taxes
Income taxes–current

46,309

Income taxes–deferred

8,567

54,875160,120

Net income- 61 -

Nonconsolidated Statement of Changes in Net Assets(Year ended December 31, 2017)(Millions of yen)
Shareholders’ equity
Capital surplus

Retained earnings
Other retained earnings

CapitalReserve forinvestment Reserve for
reduction
loss onentry
developing
new business

stock

Legal
capitalsurplusTotal
capitalsurplusLegalretainedearnings

Specialaccount for
reduction
entry

Generalreserve

Retainedearnings
brought
forwardTotal
retainedearnings

100,000

736,400

736,400

18,77628

43,687

3,057

955,300

225,620

1,246,469

Provision of reserve forinvestment loss ondeveloping new
business

－

－

－

－

169

－

－

－

(169)

－

Reversal of reserve forinvestment loss ondeveloping new
business

－

－

－

－

(28)

－

－

－

28

－

Provision of reserve for
reduction entry

－

－

－

－

－

4,440

－

－

(4,440)－

Reversal of reserve for
reduction entry

－

－

－

－

－

(5,141)

－

－

5,141

－

Provision of special
account for reduction
entry

－

－

－

－

－

－

8,356

－

(8,356)－

Reversal of special
account for reduction
entry

－

－

－

－

－

－

(3,057)

－

3,057

－

Reversal of generalreserve

－

－

－

－

－

－

－

(955,300)

955,300－

Dividends from surplus

－

－

－

－

－

－

－

－

(243,572)(243,572)
160,120

As of January 1, 2017
Changes of items during
the period

Net income

－

－

－

－

－

－

－

－

160,120

Purchase of treasury
shares

－

－

－

－

－

－

－

－

－

－

Disposal of treasury
shares

－

－

－

－

－

－

－

－

(21)

(21)

Net changes of items
other thanshareholders’ equity

－

－

－

－

－

－

－

－

－

－

Total changes of items
during the period

－

－

－

－

140

(700)

5,299

(955,300)

867,088(83,473)

100,000

736,400

736,400

18,776

169

42,987

8,356－

1,092,709

1,162,996

As of December 31, 2017

- 62 -

(Millions of yen)
Shareholders’ equity

Valuation and translation adjustments

Treasury shares

Total
shareholders’equityValuationdifference on
available-forsale securities

Deferred gains
or losses onhedgesTotal valuationand translation
adjustments

rights to shares(443,822)

1,639,047

26,207(3,373)

22,833

1,794

1,663,675

Provision of reserve forinvestment loss ondeveloping new
business

–

–

–

–

–

–

–

Reversal of reserve forinvestment loss ondeveloping new
business

–

–

–

–

–

–

–

Provision of reserve for
reduction entry

–

–

–

–

–

–

–

Reversal of reserve for
reduction entry

–

–

–

–

–

–

–

Provision of special
account for reduction
entry

–

–

–

–

–

–

–

Reversal of special
account for reduction
entry

–

–

–

–

–

–

–

Reversal of generalreserve

–

–

–

–

–

–

–

Dividends from surplus–(243,572)(243,572)

Net income–

160,120

160,120

Purchase of treasury
shares

(1)

(1)

–

–

–

–

(1)

Disposal of treasury
shares

187

166

–

–

–

–

166

Net changes of items
other thanshareholders’ equity

–

–

7,373

5,036

12,409170

12,579Total changes of items
during the period

186(83,287)

7,373

5,036

12,409170(70,708)(443,636)

1,555,760

33,5791,662

35,242

1,964

1,592,966

As of January 1, 2017

Subscription

Total net assets

Changes of items during
the period

As of December 31, 2017

- 63 -

(TRANSLATION)
INDEPENDENT AUDITOR'S REPORT
February 7, 2018
To the Board of Directors ofJapan Tobacco Inc.:
Deloitte Touche Tohmatsu LLC
Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:

Masahiko Tezuka(Seal)

Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:

Yasuhiko Haga

(Seal)

Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:

Takenao Ohashi(Seal)

Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:

Yoichi Matsushita(Seal)

Pursuant to the fourth paragraph of Article 444 of the Companies Act, we have audited the consolidated financial
statements, namely, the consolidated statement of financial position as of December 31, 2017 of Japan Tobacco Inc.
and its consolidated subsidiaries, and the related consolidated statements of income and changes in equity for the
fiscal year from January 1, 2017 to December 31, 2017 and the related notes of significant matters for preparing
consolidated financial statements and other related notes to consolidated financial statements.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements
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 a part of thedisclosures required under International Financial Reporting Standards ("IFRS"), and for such internal control as
management determines is necessary to enable the preparation of consolidated financial statements that are free frommaterial misstatement, whether due to fraud or error.

- 64 -

Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We
conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements arefree from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessmentof the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentationof the consolidated financial statements 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 entity's internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Audit Opinion
In our opinion, the consolidated financial statements referred to above, prepared with the omission of a part of thedisclosures required under IFRS pursuant to the provisions of the second sentence of the first paragraph of Article 120of the Ordinance on Company Accounting, present fairly, in all material respects, the financial position of Japan
Tobacco Inc. and its consolidated subsidiaries as of December 31, 2017, and the results of their operations for the year
then ended.
Interest
Our firm and the engagement partners do not have any interest in Japan Tobacco Inc. for which disclosure is required
under the provisions of the Certified Public Accountants Act.

The above represents a translation, for convenience only, of the original report issued in the Japanese language.

- 65 -

(TRANSLATION)
INDEPENDENT AUDITOR'S REPORT
February 7, 2018
To the Board of Directors ofJapan Tobacco Inc.:
Deloitte Touche Tohmatsu LLC
Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:

Masahiko Tezuka(Seal)

Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:

Yasuhiko Haga

(Seal)

Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:

Takenao Ohashi(Seal)

Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:

Yoichi Matsushita(Seal)

Pursuant to the first item, second paragraph of Article 436 of the Companies Act, we have audited thenonconsolidated financial statements, namely, the nonconsolidated balance sheet as of December 31, 2017 of Japan
Tobacco Inc. and the related nonconsolidated statements of income and changes in net assets for the 33rd fiscal year
from January 1, 2017 to December 31, 2017 and the related notes of significant accounting policies and other related
notes to nonconsolidated financial statements, and the accompanying supplemental schedules.
Management's Responsibility for the Nonconsolidated Financial Statements
Management is responsible for the preparation and fair presentation of these nonconsolidated financial statements andthe accompanying supplemental schedules in accordance with accounting principles generally accepted in Japan, andfor such internal control as management determines is necessary to enable the preparation of nonconsolidated
financial statements and the accompanying supplemental schedules that are free from material misstatement, whether
due to fraud or error.

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Auditor's Responsibility
Our responsibility is to express an opinion on these nonconsolidated financial statements and the accompanying
supplemental schedules based on our audit. We conducted our audit in accordance with auditing standards generally
accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the nonconsolidated financial statements and the accompanying supplemental schedules are free frommaterial misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thenonconsolidated financial statements and the accompanying supplemental schedules. The procedures selected dependon the auditor's judgment, including the assessment of the risks of material misstatement of the nonconsolidated
financial statements and the accompanying supplemental schedules, whether due to fraud or error. In making thoserisk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of thenonconsolidated financial statements and the accompanying supplemental schedules in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the nonconsolidated financial statements and the accompanying supplemental schedules.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Audit Opinion
In our opinion, the nonconsolidated financial statements and the accompanying supplemental schedules referred toabove present fairly, in all material respects, the nonconsolidated financial position of Japan Tobacco Inc. as ofDecember 31, 2017, and the results of its operations for the year then ended in accordance with accounting principles
generally accepted in Japan.
Interest
Our firm and the engagement partners do not have any interest in Japan Tobacco Inc. for which disclosure is required
under the provisions of the Certified Public Accountants Act.

The above represents a translation, for convenience only, of the original report issued in the Japanese language and"the accompanying supplemental schedules" referred to in this report are not included in the attached financial
documents.

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[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 33rd fiscal year from January 1,
2017 to December 31, 2017, the Audit & Supervisory Board hereby submits its audit report, which has been
prepared through 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 andresults thereof, as well as received reports from the Members of the Board, other relevant personnel, andIndependent 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 ofduties, and other relevant matters, communicated with the Members of the Board, and any other relevant
personnel, and made efforts to optimize the environment for information collection and audit, and conducted
his or her audits in the following 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 office and principal offices. With respect to subsidiaries, we communicated and exchanged
information with Members of the Board, Audit & Supervisory Board Members, and other relevant personnelof 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 100of the Ordinance for Enforcement of the Companies Act. We also monitored and verified the condition of thesystem (internal control system) put in place in accordance with the aforesaid resolution.
iii) We monitored and verified whether the Independent Auditors maintained their independence andimplemented appropriate audits, and we received reports from the Independent Auditors regarding theperformance of their duties 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 ineach item of Article 131 of the Ordinance on Accounting of Companies) is organized in accordance with the“Quality Management Standards Regarding Audits” (Business Accounting Council, October 28, 2005) andother relevant regulations, and sought explanations as necessary.
Based on the above methods, we examined the business report and the accompanying supplemental schedules,
the non-consolidated financial statements (non-consolidated balance sheet, non-consolidated statement of- 68 -

income, and non-consolidated statement of changes in net assets) and the accompanying supplemental
schedules, as well as consolidated financial statements (consolidated statement of financial position,
consolidated statement of income, and consolidated statement of changes in equity, which omit somedisclosure items required under International Financial Reporting Standards (IFRS) in accordance withthe provision of the second sentence of Article 120, paragraph 1 of the Ordinance on Accounting ofCompanies) 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 inaccordance with 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 noevidence of wrongful action or material violation of related laws and regulations, nor of any
violation with respect 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, 2018

The Audit & Supervisory Board, Japan Tobacco Inc.
Standing Audit & Supervisory Board Member

Futoshi Nakamura(seal)

Standing Audit & Supervisory Board Member

Tomotaka Kojima(seal)

Audit & Supervisory Board Member

Yoshinori Imai(seal)

Audit & Supervisory Board Member

Hiroshi Obayashi(seal)(Note) Audit & Supervisory Board Members Yoshinori Imai and Hiroshi Obayashi are Outside Audit &Supervisory Board Members provided for by Article 2, item 16 and Article 335, paragraph 3 of theCompanies Act.

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