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

Securities Code: 2914
February 28, 2020

To Our Shareholders

Masamichi Terabatake
Representative Director and President

Japan Tobacco Inc.

2-1, Toranomon 2-chome, Minato-ku, TokyoNOTICE OF CONVOCATION OF
THE 35TH ORDINARY GENERAL MEETING OF SHAREHOLDERS
You are cordially invited to attend the 35th 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 by electromagnetic
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 Wednesday, March
18, 2020, in accordance with “Instructions for Exercising Your Voting Rights If You Are Unable to Attend
the Meeting in Person” on pages 3 to 4.
Particulars
1. Date and Time of the Meeting: Thursday, March 19, 2020 at 10:00 a.m.
2. Place of the Meeting:

The Prince Park Tower Tokyo
Second basement, Ballroom
8-1, Shibakoen 4-chome, Minato-ku, Tokyo

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

1. Report on the Business Report, the Consolidated Financial Statements,
and the Independent Auditors’ Report and JT’s Audit & Supervisory
Board Report on the Consolidated Financial Statements for the 35th
Business Term (From January 1, 2019 to December 31, 2019)
2. Report on the Non-Consolidated Financial Statements for the 35th
Business Term (From January 1, 2019 to December 31, 2019)

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

Appropriation of Surplus
Partial Amendment to the Articles of Incorporation
Election of Nine (9) Members of the Board
Determination of Remuneration for Granting Restricted Stock andPerformance Share Units to Members of the Board Who Also Serve as
Executive Officers, and Revision of Remuneration Amount for Members of
the Board

1

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

JT’s website

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

Guidance to our shareholders attending the General Meeting of Shareholders* If you are attending in person, please present the Voting Rights Excise Form at the reception desk on arrival at
the venue. In addition, please bring this Notice of Convocation of this Ordinary General Meeting of
Shareholders.
* 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. We sincerely ask you to come to the meeting at your earliest convenience.
* In case an agent attends the meeting, your agent must bring a letter of attorney along with the Voting Rights
Exercise Form. Only one other shareholder who can exercise the voting rights at this Ordinary General Meetingof Shareholders is supposed to be eligible to serve as your agent.
* Please note that the meeting will be conducted in Japanese only. An interpreter, including a sign language
interpreter, may accompany you. If you would like to have an interpreter accompany you, please tell so at thereception desk. It is also possible for us to arrange a Japanese sign language interpreter for you. If you are inneed of this service, please inquire us in writing by March 12 (Thursday) (your letter of inquiry must reach usby this date).
* Please note that gifts will not be provided to those attending the General Meeting of Shareholders. We ask foryour understanding in this matter.

2

Instructions for Exercising Your Voting Rights When You Cannot Attend the General Meeting of
Shareholders
When Exercise the Voting Rights via the Internet
Access the Voting Rights Exercise Website from your computer or smartphone as follows and indicate whether
you are for or against each of the items.

Exercise due dateNo later than 6:00 p.m., on Wednesday, March 18, 2020

Log in from your smartphone1.

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

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

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

To institutional
investors

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

3

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

Exercise due date

To be returned to us no later than 6:00 p.m., on
Wednesday, March 18, 2020

Guide to filling in the Voting Rights Exercise Form
Please indicate for or against about each item.
Items 1, 2 and 4
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.
* In the event voting rights are exercised more than once:(1) If the voting right is exercised both by mailing the Voting Rights Exercise Form and via the Internet,
only the exercise of the voting right via the Internet shall be valid.
(2) If the voting right is exercised more than once via the Internet, only the last exercise of the voting rightshall be valid.

4

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- to longterm profit growth, while maintaining a solid balance sheet(Note).
In accordance with these policies, year-end dividends for the 35th 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:¥77 per share of ordinary shares of JT

Aggregate amount: ¥136,582,864,418

Together with the interim dividends of ¥77 per share paid in September 2019, the annual dividends for the
35th Business Term will be ¥154 per share, a ¥4 increase year on year.
(3) Effective date for distribution of surplus:
March 23, 2020
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.

5

Reference

In accordance with the “Business Plan 2020,” 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 is as follows.
1)

Management resources allocation policy
Execute management resources allocation, based on the “4S model” that underlies the Group’s management
principles.
 Prioritize business investments that lead to sustained profit growth over the mid- to long-term
 Emphasize a balance between profit growth through business investments and returns to shareholders
Business investments- Aim for high-quality expansion in the top line by continuously providing new value and satisfaction tocustomers- Prioritize investment in tobacco business
Returns to shareholders- Improve returns to shareholders in agreement with mid- to long-term profit growth, while maintaining
a solid balance sheet Work toward stable and consistent growth in dividend per share(Note 3)
 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 4) companies(Notes) 1. mid to high single digit: mid to high single digit-percentage
2. Adjusted operating profit is calculated by deducting amortization cost of acquired intangibles andadjustment items (income and costs) from operating profit (loss). Adjustment items (income and costs)
are impairment losses on goodwill, restructuring income and costs, and other items. Adjusted operating
profit growth rate at constant rates of exchange is a financial measurement that excludes foreign exchange
effects by translating and calculating adjusted operating profit for the current fiscal year in theInternational Tobacco Business using the foreign exchange rates of the previous fiscal year.
3. Based on the mid- to long-term outlook of the growth rate of adjusted operating profit at constant rates of
exchange, the Group will also take into account the Group’s level of profit.
4. A Fast-Moving Consumer Goods (daily consumer goods) company is a company that achieves a highgrowth business by adopting a stakeholder model.

6

Item 2: Partial Amendment to the Articles of Incorporation
1. Purpose of the Amendment
The JT Group’s business environment is changing at an unprecedented scale and speed and becoming ever morechallenging. Under such circumstances, for sustainable profit growth over the mid- to long-term and maximizationof the Group’s company value, it has become essential to further enhance its management foundation, including
corporate governance. Thus, the Company will amend the Article relating to Executive Director.

2. Details of the Amendment
The contents of the amendment are as follows.
(Underline indicates amended portions)
Current
Proposed Amendment
Article 23. (Representative Director, Executive Article 23. (Representative Director, Executive
Director, Etc.)
Director, Etc.)
2. The Company shall elect, as the needs arise, one 2. The Company shall elect, as the needs arise, one
Chairman of the Board from among the Members
Chairman and a number of Deputy Chairmen of theof the Board by the resolution of the Board of
Board from among the Members of the Board by
Directors.
the resolution of the Board of Directors.

7

Item 3: Election of Nine (9) Members of the Board
The terms of office of all nine (9) present Members of the Board will expire at the conclusion of this Ordinary
General Meeting of Shareholders. Accordingly, the election of nine (9) Members of the Board is proposed.
The candidates for the office of Member of the Board are as follows.
Candidate Number

1

Yasutake Tango(Born March 21, 1951)

Number of the Company’s Shares Held

Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent
Positions outside the Company
April 1974
Entered Ministry of FinanceReasons for nomination as a candidate
October 2006
Director-General of the Financial Bureau
for Director
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
July 2010Retired from the office of Administrative Vice
history that includes such important
MinisterDecember 2010 Corporate Auditor, The Yomiuri Shimbun Holdings positions as Administrative Vice Ministerof the Ministry of Finance in his long(Resigned in December 2012)
December 2012 Special Advisor to the Cabinet (Resigned in April standing experience in ministries and2014)
bureaus, he also possesses abundantJune 2014
Chairman of the Board of the Company
knowledge and experience on topics that(Current Position)
include corporate governance, gained
June 2015
Outside Director, The Ogaki Kyoritsu Bank, Ltd.
through diverse networking not limited(Current Position)

Reappointed(Significant Concurrent Positions outside the Company)
Outside Director, The Ogaki Kyoritsu Bank, Ltd.
(Notes)13,800to the public or private sectors. We
therefore propose his reelection as hecurrently serves as Chairman of theBoard, chairman of the Advisory Panelon Nomination and Compensation andchairman of the Compliance Committeeof the Company and we believe his broad
outlook and high standing in his field willbe essential to the improvement of thegovernance of the Group going forward.

1. No conflict of interest exists between the Company and Yasutake Tango.
2. The Company has entered into an agreement 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 agreement.

8

Candidate Number

Mutsuo Iwai

2

Reappointed(Notes)(Born October 29, 1960)

Number of the Company’s Shares Held

27,000Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent
Positions outside the Company
April 1983
Joined the Company (Japan Tobacco and Salt Public Reasons for nomination as a candidate
Corporation)
for Director
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, FoodVice President of the Company in MarchBusiness Division, Food Business
June 2006
Member of the Board and Executive Vice President, 2016. Despite unclear and uncertain
operating environments, his forceful
President, Food Business
June 2008
Executive Vice President, Chief Strategy Officer
execution of business, backed byJune 2010
Member of the Board and Senior Vice President, accurate decision-making, has been a
Chief Strategy Officer and Assistant to CEO in Food driver of the core Tobacco Businesses.
Business
The broad and deep knowledge andJune 2011
Member of the Board
insights he has cultivated through wideExecutive Vice President, JT International S.A.
ranging experience both in Japan andJune 2013
Senior Executive Vice President,
overseas, in areas such as the Tobacco
Chief Strategy Officer
Business, the Food Business, andJanuary 2016
Executive Vice President,
President, Tobacco BusinessCorporate Strategy, will be essential to
March 2016
Representative Director and Executive Vice the improvement of the governance andPresident, President, Tobacco Businessthe strengthening of relationships with
January 2020
Member of the Board
stakeholders, which are needed for the(Current Position)

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

promotion of the business of the Group,
for which reason we propose hisreelection as a Member of the Board.

2. Mutsuo Iwai took office as Member of the Board without Representative rights from January 1, 2020.
3. The Company has entered into an agreement with Mutsuo Iwai to limit his liabilities stipulated in Article 423, paragraph 1 of
the Companies Act to the extent permitted by the laws and regulations. Should his election be approved, the Company intends
to extend the agreement.

9

Candidate Number

3

Masamichi Terabatake(Born November 26, 1965)

Number of the Company’s Shares Held

Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent
Positions outside the Company
April 1989
Joined the Company
Reasons for nomination as a candidate
July 2005
Vice President, Secretary’s Officefor Director
July 2008
Vice President, Corporate Strategy Division
Masamichi Terabatake was appointed
June 2011
Senior Vice President, Chief Strategy Officer and in
President and Chief Executive Officer ofcharge of Food Business
the Company in January 2018, and thenJune 2012
Senior Vice President, Chief Strategy Officer
Representative Director and President inJune 2013
Member of the Board
March of the same year. He has used the
Executive Vice President, JT International S.A.
extensive experience and his knowledge
January 2018
President and Chief Executive Officer
March 2018
Representative Director and President, Chief and powerful leadership in relation to
Executive Officer
globalbusinessmanagement,(Current Position)
accumulated in a range of duties such as

Reappointed(Significant Concurrent Positions outside the Company)
Managing Director, JT International Group Holding B.V.
(Notes)21,400the drawing up and execution ofmanagement strategy both in Japan andoverseas, and the execution of thebusiness of the International Tobacco
Business in his role as Executive Vice
President of JT International S.A., and indoing so has been a driver of the growthof the Group. We judge that his
extraordinary insights and wide-ranging
outlook, together with his enhanced
reforming capabilities, are indispensablefor the management of the Group going
forward, and hence we propose hisreelection as a Member of the Board.

1. No conflict of interest exists between the Company and Masamichi Terabatake.
2. Masamichi Terabatake has served concurrently as President, Tobacco Business since January 1, 2020.
3. Masamichi Terabatake is expected to become Chairman and Managing Director of JT International Group Holding B.V.,
following a meeting of the Managing Board of that company scheduled for May 2020.

10

Candidate Number

4

Naohiro Minami(Born January 21, 1964)

Number of the Company’s Shares Held

Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent
Positions outside the Company
April 1986
Joined the Company
Reasons for nomination as a candidate
December 2005 Controller
for Director
July 2010
Deputy Financial Officer and Controller
Naohiro Minami was appointed
June 2012
Senior Vice President, Chief Financial Officer andExecutive Vice President of theController
Company in January 2018, and thenJuly 2012
Senior Vice President, Chief Financial Officer
January 2018
Executive Vice President, Chief Financial Officer Representative Director and Executive
Vice President in March of the same year.
and Communications
March 2018
Representative Director and Executive Vice He has fully leveraged the wide-ranging
President,
Chief
Financial
Officer
and and deep knowledge that he cultivated
Communications
during his service as Controller, and(Current Position)

Senior Vice President, Chief Financial
Officer, particularly in the field of
accounting and finance, to play a key rolein the management of the Company andcontribute to its growth. We judge that his
accurate decision-making and strategic
thinking, and the diverse experience on
which they are based, make acontribution to maintaining andbroadening the management base thatprovides the support for the expansion of
the Group’s business, and will be
indispensable in driving the Group’s
management further forward, for which
reason we propose his reelection as a
Member of the Board.

Reappointed(Significant Concurrent Positions outside the Company)
Supervisory Board member, JT International Holding B.V.
(Note)

14,800No conflict of interest exists between the Company and Naohiro Minami.

11

Candidate Number

5

Kiyohide Hirowatari

Reappointed(Born November 11, 1965)

Number of the Company’s Shares Held

9,200

Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent
Positions outside the Company
April 1989
Joined the Company
Reasons for nomination as a candidate
July 2010
Vice President, Legal Division
for Director
June 2012
Senior Vice President, Chief Legal Officer and Vice Kiyohide Hirowatari was appointed
President, Legal Division
Executive Vice President of theJuly 2014
Senior Vice President, Chief Legal Officer
January 2015
Senior Vice President, Head of Tobacco Business Company in January 2018, and thenRepresentative Director and Executive
Planning Division, Tobacco Business
Vice President in March of the same year.
January 2017
Senior Vice President, Human Resources
He has acquired leadership and wideJanuary 2018
Executive Vice President,
Compliance, General Affairs, Legal, Corporate ranging knowledge in such areas ofStrategy, IT, CSR, Human Resources and Operation company law, business management andReview & Business Assurance
HR during his time serving in diverse andMarch 2018
Representative Director and Executive Vice
important roles, including Senior Vice
President,
Compliance, General Affairs, Legal, Corporate President, Chief Legal Officer, Head of
Strategy, IT, CSR, Human Resources and Operation Tobacco Business Planning Division,
Review & Business Assurance
Tobacco Business, and Senior Vice
January 2019
Representative Director and Executive Vice President, Human Resources, and has
President,
utilized them to maintain a foundation for
Legal, Corporate Strategy, Digitalization, Human
the Company’s sustainable growth and to
Resources, Operation Review & Business
Assurance, Pharmaceutical Business and Food draw up strategy. We judge that his keen
discernment and accurate decisionBusinessmaking, which is based on the(Current Position)knowledge and experience he has
cultivated in a broad range of fields, will
prove indispensable in the Group’s
management going forward, for which
reason we propose his reelection as a
Member of the Board.

(Note)

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

12Candidate Number

6

Kazuhito Yamashita(Born February 4, 1963)

Number of the Company’s Shares Held

7,200

Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent
Positions outside the Company
Reasons for nomination as a candidate
April 1986
Joined the Company
May 2007
Vice President, Corporate, Scientific & Regulatory for Director
Affairs Division, Tobacco Business Headquarters
Kazuhito Yamashita assumed theVice President, Corporate Affairs Division, Tobacco
July 2009
position of Member of the Board andBusiness Headquarters
Senior Vice President of the Company inSenior Vice President, Chief Corporate, Scientific & March 2019. He has served in such roles
June 2010
Regulatory Affairs Officer, Tobacco Businessas Senior Vice President, Chief
Senior Vice President, Head of China Division, Corporate, Scientific & Regulatory
January 2015
Tobacco Business
Affairs Officer, and Head of China
Senior Vice President, Chief Sustainability Officer, Division, focusing on promoting social
January 2019
Compliance and General Affairs
and environmental issues and on theMember of the Board and Senior Vice President, expansion of the overseas business, andMarch 2019
Chief Sustainability Officer, Compliance and he has leveraged the wide-ranging
General Affairs
experience and knowledge thus acquired(Current Position)
to contribute to establishing anenvironment
conducivetotheCompany’s business. His leadership, andthe broad knowledge he has cultivated,
are indispensable to the sustainability
management that will form thefoundation of the Group’s sustainablegrowth going forward, for which reason
we propose his reelection as a Member ofthe Board.

Reappointed(Note)

No conflict of interest exists between the Company and Kazuhito Yamashita.

13

Candidate Number

Main Kohda

7

Reappointed

Number of years as Outside Director(at the conclusion of this Ordinary General Meeting of Shareholders)Number of the Company’s Shares Held0
(Born April 25, 1951)
Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent
Positions outside the Company
September 1995 Started independently as Novelist
Reasons for nomination as a candidate(Current Position)
for Outside Director
January 2003
Member of Financial System Council, Ministry of Main Kohda assumed the position of
Finance Japan
Outside Director of the Company in June
April 2004
Visiting professor, Faculty of Economics, Shiga
2012. We have benefited from her inUniversity
March 2005
Member of the Council for Transport Policy, depth knowledge of international
Ministry of Land, Infrastructure, Transport and finance, her broad experience gained
Tourismfrom serving on government examination
November 2006 Member of the Tax Commission, Cabinet Office, committees and similar positions, and her
Government of Japan
deep insight and objective point of view
June 2010
Member of the Board of Governors, Japanthat she has demonstrated through her
Broadcasting Corporation (Resigned in June 2013)activities as a novelist being reflected inJune 2012
Outside Director of the Company
the management of the Company and she(Current Position)
June 2013
Outside Director, LIXIL Group Corporation has worked tirelessly to supervise(Resigned in June 2019)business execution from a fair andJune 2016
Outside Director, Japan Exchange Group, Inc.
independent standpoint. She has also
(Current Position)
contributed enormously to improving
June 2018
Outside Director, MITSUBISHI MOTORS corporate governance in the GroupCORPORATION
through actively providing proposals and(Current Position)

advice to the Board of Directors and theAdvisory Panel on Nomination andCompensation of the Company. We
therefore propose her reelection as
Outside Director of the Company as we
believe her wide-ranging experience andbroad knowledge are essential for theCompany’s Group management going
forward.

OutsideDirector
Independent
Director(Notes)7 years and9 months(Significant Concurrent Positions outside the Company)
Novelist
Outside Director, Japan Exchange Group, Inc.
Outside Director, MITSUBISHI MOTORS CORPORATION
1. No conflict of interest exists between the Company and Main Kohda.
2. The Company has entered into an agreement 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 agreement.
3. Main Kohda satisfies the Criteria for Evaluating the Independence of Outside Executives of the Company and the requirementsof an independent director prescribed by the Tokyo Stock Exchange, Inc.
The Company pays a certain level of receiving fees to Japan Broadcasting Corporation (“NHK”) under a broadcast receiving
contract concluded, pursuant to the Broadcast Act, with NHK, where Main Kohda was assigned as a Member of the Board ofGovernors until June 2013, but the amount paid in receiving fees in fiscal 2019 came to less than 0.001% of NHK’s consolidated
total operating income in the fiscal year ended March 2019, and less than 0.001% of the Company’s consolidated revenue infiscal 2019, and was therefore negligible. Payment of the receiving fees is based on the Broadcast Act, and are non-negotiable,
and are not therefore categorized as business transactions. Excluding payment of the receiving fees, the Company has notransactional business relationship with NHK.
In addition, the Company pays listing-related fees, etc. to Tokyo Stock Exchange, Inc., a subsidiary of Japan Exchange Group,
Inc., where Main Kohda serves as an Outside Director. However, in fiscal 2019 the amount paid in listing-related fees, etc.
came to less than 0.005% of consolidated operating revenue for Japan Exchange Group, Inc. in the fiscal year ended March
2019, and less than 0.001% of the Company’s consolidated revenue in fiscal 2019, and was therefore negligible.
We judge that this relationship has no impact on her independence.
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.

14

Candidate Number

8

Koichiro Watanabe

Reappointed
OutsideDirector

Number of years as Outside Director(at the conclusion of this Ordinary General Meeting of Shareholders)

2 years0
Number of the Company’s Shares Held
(Born April 16, 1953)
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
Company
for Outside Director
July 2001
Director, The Dai-ichi Mutual Life Insurance Koichiro Watanabe assumed the position
Companyof Outside Director of the Company inApril 2004
Managing Director, The Dai-ichi Mutual Life
March 2018. We have benefited from his
Insurance Company
July 2004
Managing Executive Officer, The Dai-ichi Mutual high degree of knowledge andoutstanding experience in corporate
Life Insurance Company
July 2007
Director and, Managing Executive Officer, The Dai- management which, over the course ofichi Mutual Life Insurance Company
many years, he has used to drive business
April 2008
Director and, Senior Managing Executive Officer, operations that successfully combined
The Dai-ichi Mutual Life Insurance Company
both healthy financials and highApril 2010
Representative Director and President, The Dai-ichi
profitability, being reflected in theLife Insurance Company, Limited
October 2016
Representative Director and President, Dai-ichi Life management of the Company, and he has
worked tirelessly to supervise businessHoldings, Inc.
April 2017
Representative Director and Chairman of the Board, execution from a fair and independentDai-ichi Life Holdings, Inc. (Current Position)
standpoint. He has also contributed
Representative Director and Chairman of the Board, enormously to improving corporate
The Dai-ichi Life Insurance Company, Limited
governance in the Group through(Current Position)
actively providing proposals and advice
March 2018
Outside Director of the Company
to the Board of Directors and the(Current Position)
May 2019
Vice Chair, Director, KEIDANREN (Japan Business Advisory Panel on Nomination andFederation)
Compensation of the Company. He has(Current Position)
abundant experience in working tostrengthen the governance structure, isdeeply familiar with capital markets, andhas objective, wide-ranging insight froman investor’s perspective. These
attributes are expected to remain
indispensable for the Group going
forward, for which reason we propose hisreelection as Outside Director of theCompany.

Independent
Director(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
Vice Chair, Director, KEIDANREN (Japan Business Federation)(Notes)1. No conflict of interest exists between the Company and Koichiro Watanabe.
2. The Company has entered into an agreement with Koichiro Watanabe to limit his liabilities stipulated in Article 423, paragraph
1 of the Companies Act to the extent permitted by the laws and regulations. Should his election be approved, the Company
intends to extend the agreement.
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 sharesof 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 the businessin fiscal 2019 was negligible, coming to less than 0.001% of ordinary revenues for The Dai-ichi Life Insurance Company,
Limited in the fiscal year ended March 2019, and less than 0.002% of the Company’s consolidated revenue in fiscal 2019.
The Company pays membership fees etc. to the Keidanren (Japan Business Federation), where Koichiro Watanabe serves asVice Chair, Director, but the amount paid in membership fees, etc. in fiscal 2019 came to less than 0.4% of the ordinary incomeof the Keidanren in the fiscal year ended March 2019, and less than 0.001% of the Company’s consolidated revenue in fiscal
2019, and was therefore negligible.
We judge that this relationship has no impact on his independence.

15

4. At Dai-ichi Life Holdings, Inc., where Koichiro Watanabe serves as Representative Director and Chairman of the Board,
Yasushi Shingai, who was a Member of the Board of the Company until March 2018 and who had also served in the past as aperson who executes business, assumed the role of Outside Director of Dai-ichi Life Holdings, Inc. in June 2019, but Koichiro
Watanabe fulfills the Criteria for Evaluating the Independence of Outside Executives established by the Company, as well as
the requirements for independence prescribed by the Tokyo Stock Exchange, Inc. Moreover, Yasushi Shingai resigned as a
Director of the Company at the conclusion of the Ordinary General Meeting of Shareholders held on March 27, 2018, since
which time he has had no involvement in the management or execution of business of the Company.
5. The Company has designated Koichiro Watanabe as an independent director as prescribed by the Tokyo Stock Exchange, Inc.
and intends to designate him as such again, should his election be approved.

16

Candidate Number

9

Yukiko Nagashima

Number of years as Outside Director(at the conclusion of this Ordinary General Meeting of Shareholders)(Born April 4, 1961)

Number of the Company’s Shares Held

1 year0

Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent
Positions outside the Company
April 1985
Joined Recruit Co., Ltd. (Current Recruit Holdings Reasons for nomination as a candidate
for Outside Director
Co., Ltd.)
April 2006
Corporate Executive Officer, Recruit Co., Ltd.
Yukiko Nagashima assumed the position
January 2008
President and Representative Director, Recruitof Outside Director of the Company inStaffing Co., Ltd. (Resigned in March 2016)
March 2019. We have benefited from her
October 2012
Corporate Executive Officer, Recruit Holdings Co., experience in corporate management andLtd.
execution of business in a wide range ofJune 2016
Standing Audit and Supervisory Board Member, fields, such as emerging businesses andRecruit Holdings Co., Ltd.
temporary staffing and objective point of(Current Position)
view based on her experience as a
April 2018
Standing Audit and Supervisory Board Member,
Member of the Audit and Supervisory
Recruit Co., Ltd.
Boards being reflected in the(Current Position)
management of the Company and she has
March 2019
Outside Director of the Company
worked tirelessly to supervise business(Current Position)
execution from a fair and independent
standpoint. She has also contributed
enormously to improving corporate
governance in the Group throughactively providing proposals and advice
to the Board of Directors and theAdvisory Panel on Nomination andCompensation of the Company. We
judge that her experience from theperspectives of both management andaudit, and the high degree of knowledge
she has cultivated thereby will be
indispensable
intheGroup’smanagement going forward, for which
reason we propose her reelection as
Outside Director of the Company.

Reappointed
OutsideDirector
Independent
Director(Significant Concurrent Positions outside the Company)
Standing Audit and Supervisory Board Member, Recruit Holdings Co., Ltd.
Standing Audit and Supervisory Board Member, Recruit Co., Ltd.
(Notes)1. No conflict of interest exists between the Company and Yukiko Nagashima.
2. The Company has entered into an agreement with Yukiko Nagashima 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 agreement.
3. Yukiko Nagashima satisfies the Criteria for Evaluating the Independence of Outside Executives of the Company and therequirements of an independent director prescribed by the Tokyo Stock Exchange, Inc.
Although the Company has business relationships with both Recruit Holdings Co., Ltd. and Recruit Co., Ltd., of which she isStanding Audit and Supervisory Board Member, in relation to recruitment etc., the value of the business in fiscal 2019 was
negligible, coming to less than 0.01% of consolidated revenue for Recruit Holdings Co., Ltd. in the fiscal year ended March
2019, and less than 0.02% of the Company’s consolidated revenue in fiscal 2019.
We judge that this relationship has no impact on her independence.
4. The Company has designated Yukiko Nagashima as an independent director as prescribed by the Tokyo Stock Exchange, Inc.
and intends to designate her as such again, should her election be approved.
5. Recruit Holdings Co., Ltd. and Recruit Co., Ltd., where Yukiko Nagashima serves as a standing Audit and Supervisory Board
Member, have received a recommendation in May 2019 from the Japan Fair Trade Commission for actions alleged to infringe
the Act Concerning Special Measures for Correcting Practices Impeding Consumption Tax Pass-on, etc. with the Aim to Ensure
Smooth and Proper Pass-on of Consumption Tax, in relation to payment of consignment fees to the consignee company. In
addition, at Recruit Career Co., Ltd., a subsidiary of Recruit Co., Ltd. where she serves as a standing Audit and Supervisory

17

Board Member, and which had concluded a business outsourcing contract with Recruit Co., Ltd., a service called “Rikunabi
DMP Follow,” which indicated the possibility of students withdrawing from their selections or provisional agreement to joincompanies, was the subject of a recommendation and directive in December 2019 from the Personal Information Protection
Commission for alleged infringements of the Act on the Protection of Personal Information, etc., while in December 2019 theTokyo Labour Bureau issued an administrative directive on the basis that there had been an infringement of the Employment
Security Act and the guidelines of said Act. In both cases Yukiko Nagashima was unaware of the circumstances in question
until the above events came to light, but at meetings of the Board of Directors she has frequently shared her opinions from theviewpoint of legal compliance. After the above events came to light, in both cases she worked to gather information from theinternal audit division, and to offer opinions and confirmation in relation to measures to prevent the recurrence.

18

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

Positions and Responsibilities
in the Company

Attendance atmeetings ofthe Board of
Directors

Number ofyears asMember of the
Board

Number ofsignificant
concurrent
positions

Advisory
Panel onNomination andCompensation[Reappointed]

Yasutake Tango

Chairman of the Board

14/14(100%)

5 years and9 months1

[Reappointed]

Mutsuo Iwai

Deputy Chairman of the Board

14/14(100%)

4 years--[Reappointed]

Masamichi Terabatake

Representative Director and President,
Chief Executive Officer

14/14(100%)

2 years

1

-

14/14
(100%)

2 years

1

-

14/14
(100%)

2 years--

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

10/10(100%)

1 year--Outside Director

14/14(100%)

7 years and9 months3Outside Director

14/14(100%)

2 years3Outside Director

10/10(100%)

1 year2

[Reappointed]

Naohiro Minami[Reappointed]

Kiyohide Hirowatari[Reappointed]

Kazuhito Yamashita

Representative Director and Executive Vice
President,
Chief Financial Officer andCommunications
Representative Director and Executive Vice
President,
Legal, Corporate Strategy, Digitalization,
Human Resources, Operation Review &Business Assurance, PharmaceuticalBusiness and Food Business

Main Kohda[Reappointed][Outside Director][Independent Director]
Koichiro Watanabe[Reappointed][Outside Director][Independent Director]
Yukiko Nagashima[Reappointed](Notes)[Outside Director][Independent Director]

1. Attendance at meetings of the Board of Directors held in fiscal 2019 is presented.
2. The numbers of years as Member of the Board at the conclusion of this Ordinary General Meeting of Shareholders are presented.
3. Representative Director and President, Chief Executive Officer Masamichi Terabatake also serves as President, Tobacco
Business.

19【Reference】Evaluation of Effectiveness of the Board of Directors of the Company
With regard to the effectiveness of the Board of Directors, in addition to annual questionnaire-based selfevaluations by Members of the Board and Audit & Supervisory Board Members from the standpoint of suchthemes as business operation systems and supervisory functions of the Board of Directors, and dialogue withshareholders and investors, before compiling the results the Board of Directors Secretariat also conducts individualinterviews with the aim of supplementing the results of the evaluations.
The results of the self-evaluations are assessed and analyzed at the Board of Directors, leading to further
improvements in its effectiveness.
In the evaluation of effectiveness conducted for fiscal 2018, the items undergoing evaluation obtained good resultson the whole, allowing the Company to confirm that the effectiveness of the Board of Directors is improving and
the Board of Directors is functioning effectively. Conversely, because issues were identified with regard to thefurther strengthening of cooperation between Outside Directors and Audit & Supervisory Board Members, andbetter sharing of information that could contribute to further enhancements in the quality of decision-making at
the Board of Directors, various improvements were undertaken in fiscal 2019, such as increasing the number of
meetings to exchange opinions between the Outside Directors and the Audit & Supervisory Board Members, andproviding more and better information sharing / advance explanation in relation to items on the Board of Directors
agenda.
Also, in fiscal 2020 and beyond, the Company will give priority to the initiatives of planning opportunities for
information sharing that will further enhance the supervisory functions of the Board of Directors, selecting thematters to be shared and the level of detail and depth of that information, which were specific issues identified in
the fiscal 2019 effectiveness evaluation.
The Company will continue to implement improvements required to further enhance effectiveness, including theabove-mentioned activities.

20【Reference】Criteria for Evaluating the Independence of Outside Executives
The Company has established a Criteria for Evaluating the Independence of Outside Executives and Independent
Directors/Audit & Supervisory Board Members must not fall under any of the following categories.
1 A person who belongs or belonged to JT or an affiliate or sister company of JT
2 A person who belongs to a company or any other form of organization of which JT is a major shareholder
3 A person who is a major shareholder of JT or who belongs to a company or any other form of organization
which is a major shareholder of JT
4 A person who is a major supplier or customer of JT (if the supplier or customer is a company or any other formof organization, a person who belongs thereto)
5 A major creditor of JT including a major loan lender (if the creditor is a company or any other form oforganization, a person who belongs thereto)
6 A certified public accountant who serves as an accounting auditor or an audit advisor of JT, or a person who
belongs to an auditing firm which serves as an accounting auditor or an audit advisor of JT
7 A person who receives a large amount of fees from JT in exchange for providing professional services for legal,financial and tax affairs or business consulting services (if the recipient of such fee is a company or any otherform of organization, a person who belongs thereto)
8 A person who receives a large amount of donation from JT (if the recipient of such donation is a company or
any other form of organization, a person who belongs thereto)
9 A person who has fit any of the descriptions in 2 to 8 above in the recent past
10 A close relative of a person who fits any of the following descriptions:(1) A person who fits any of the descriptions in 2 to 8 above (if such descriptions apply to a company or any
other form of organization, a person who performs important duties thereof)(2) A member of the board, audit & supervisory board member, audit advisor, executive officer or employee
of JT or an affiliate or sister company of JT(3) A person who has fit the descriptions in (1) or (2) in the recent past21

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

22

Item 4: Determination of Remuneration for Granting Restricted Stock and Performance Share Units to Membersof the Board Who Also Serve as Executive Officers, and Revision of Remuneration Amount for Membersof the Board
The remuneration amount for Members of the Board of the Company was approved at an annual level not
exceeding ¥1.2 billion annually (including ¥80 million annually for Outside Directors) at the 34th Ordinary
General Meeting of Shareholders held on March 20, 2019 and stock option grants were approved at an annual
level not exceeding ¥240 million annually and with the total number of subscription rights to shares not exceeding
960 annually at the same General Meeting of Shareholders. Said amounts and number have remained unchanged
since.
In order to strengthen the efforts to enhance the mid- to long-term company value and to further promote theshared value with the shareholders, the Company has revised the executive remuneration plan and proposes toabolish the existing stock option plan and introduce the restricted stock remuneration plan (the “Plan I”) and theperformance share unit plan (performance-linked stock compensation plan; the “Plan II,” and the Plan I and thePlan II are collectively referred to as the “Plan”) for the Company’s Members of the Board who also serve as
Executive Officers (“Eligible Directors”) as follows.
Accordingly, the Company wishes to newly pay the Eligible Directors, under the Plan I, “restricted stock
remuneration” that is monetary remuneration claims for the purpose of distributing the Company’s ordinary shareswith provisions attached such as lifting a transfer restriction on condition of serving as Member of the Board, etc.
of the Company continually for a certain period, and under the Plan II, “performance share units” that are monetary
remuneration claims and cash for the purpose of distributing the Company’s ordinary shares as payment
corresponding to the rate of achievement, etc. of the targets of operating results, etc. over multiple fiscal years.
The amount of monetary remuneration claims or cash to be delivered to the Eligible Directors under the Plan shallnot exceed ¥210 million per year for “the restricted stock remuneration” and shall not exceed ¥130 million peryear for “the performance share units.”
Specific timing of provision and allocation to each Eligible Director shall be determined by the Company’s Boardof Directors. In the event that this proposition is approved, the existing stock option plan will be abolished andnew subscription rights to shares will not be allotted as stock options in the future. (Stock options that were alreadygranted will remain in force.)
In order to ensure appropriateness of the remuneration for Members of the Board and transparency of decisionmaking process, deliberations of the Advisory Panel on Nomination and Compensation of the Company, which iscomprised mainly of Independent Outside Director, were conducted on the introduction of the Plan. A
recommendation on this plan revision was made based on its view that the Plan has a structure that further enhances
the shared value with the shareholders and promotes commitment to sustainable growth over the mid- to longterm and the content is adequate.
In conjunction with the increase of the total amount of remuneration due to the abolition of the current stock option
plan and the introduction of the Plan, the Company would like to revise the total amount of remuneration for all
Members of the Board, which comprises base salary and executive bonus, from ¥1.2 billion per year (including
total remuneration for Outside Directors up to ¥80 million per year) to up to ¥1.1 billion per year (including total
remuneration for Outside Directors up to ¥80 million per year). However, subject to the approval of this
proposition, the total amount of remuneration (which includes base salary, executive bonus, restricted stock andperformance share unit) for all Members of the Board will not exceed ¥1.44 billion. There is no change from thetotal amount of current remuneration for Members of the Board that also includes stock options.
If Item 3 is approved, there will be nine (9) Members of the Board (including three (3) Outside Directors), which
include four (4) Eligible Directors for the Plan.

23

(Illustration of remuneration for Members of the Board, etc.)

Original
Members of the Board(excl. Outside Directors)
Remuneration amount

Executive
Officer

Not anExecutive
Officer

OutsideDirectors

Base salary

up to ¥1.2 billion

Applicable

Applicable

Applicable

Executive bonus(incl. ¥80 million for Outside
Directors)

ApplicableNot applicableNot
applicable

Applicable

ApplicableNot
applicable

up to ¥240 million
Stock option grants

Subscription rights to shares
up to 960 units(192,000 shares equivalent)

Total remuneration
amountup to ¥1.44 billion

New
Members of the Board(excl. Outside Directors)
Remuneration amount

Executive
Officer

Not anExecutive
Officer

OutsideDirectors

Base salary

up to ¥1.1 billion

Applicable

Applicable

Applicable

Executive bonus(incl. ¥80 million for Outside
Directors)

ApplicableNot applicableNot
applicable

ApplicableNot applicableNot
applicable

ApplicableNot applicableNot
applicable

Restricted stock
remuneration
Performance shareunits
Total remuneration
amount(Notes)up to ¥210 million(up to 115,200 shares)
up to ¥130 million(up to 76,800 shares)
up to ¥1.44 billion

1. Items indicated in red are those to be approved in this proposition.
2. Since Members of the Board who do not serve as Executive Officers have a role in fulfilling supervisory functions
including monitoring the execution of mid- to long-term growth strategy and focus on governance with moreemphasis on objectivity and neutrality, effective from January 1, 2020, they shall not be eligible for the stock option
plan as a mid- to long-term incentive and the remuneration for them shall be composed of base salary alone and paid
at a fixed amount monthly.
3. For the Outside Directors, the remuneration shall also be composed of base salary alone and paid at a fixed amountmonthly in light of independence and the role to be assumed in the duties.
24

Overview of the Plan I (Restricted Stock Remuneration Plan)
The Plan I is a plan under which monetary remuneration claims are provided to each Eligible Director as
remuneration associated with restricted stocks in each fiscal year based on resolution of the Company’s Board of
Directors, and each Eligible Director receives allotment of ordinary shares of the Company by providing all themonetary remuneration claims by means of contribution in kind (the allotment is made by means of disposal oftreasury stock). In disposal of ordinary shares of the Company due to the Plan I, a restricted stock allotment
agreement shall be concluded between the Company and each Eligible Director. The monetary compensation
towards the purchase of the Company’s restricted stock will be decided based on the closing price of theCompany’s share at the Tokyo Stock Exchange as of the previous day of the resolution by the Board of Directors.
However, if the Company share does not trade at the Tokyo Stock Exchange on the day prior to the resolution of
the Company’s Board of Directors, the closing price of the immediately preceding trading day will be used. This
price of share will be decided by the Company’s Board of Directors within a scope that is not particularly
advantageous to the Eligible Directors who will receive the restricted stock.
In addition, the allocation of monetary remuneration claims to the Eligible Directors, assumes that such director
accepts the compensation as contribution in kind and enters into the restricted stock allotment agreement.
Details of the Plan I are as follows. Any other matters regarding the Plan I shall be determined by the Company’s Boardof Directors.

Eligible persons

Members of the Board of the Company also serving as
Executive Officers *1

Class of shares to be allotted

Ordinary shares (those to which transfer restriction isapplied under the allotment agreement)

Amount of monetary remuneration claims to be granted¥210 million per year(the upper limit)
Upper limit of the number of shares to be allotted

115,200 shares per year in total to all the Eligible
Directors *2

Restriction period

30 years from the allotment date

Removal of transfer restrictions

Removed at the time of retirement due to expiration of
the term or resignation due to other reasonable reasons

Shares to be distributed under the Plan I as a percentage
0.006% *3of the total number of shares issued*1 Members of the Board who do not serve as Executive Officers and Outside Directors are not eligible.
*2 The total number of shares (upper limit) to be allotted under the Plan I and the Plan II is the same as thenumber of shares (192,000 shares) corresponding to the upper limit (960 units) of the subscription rights toshares set under the current stock option plan.
*3 This is the percentage of the total number of shares issued as of December 31, 2019 (excluding treasury stock).
(1) The total amount of monetary remuneration claims and number of shares under the Plan I
The total amount of monetary remuneration claims for all Eligible Directors together shall not exceed ¥210
million per year or the total number of ordinary shares allotted by the Company shall not exceed 115,200
shares per year. If there is a stock split, stock consolidation, or any other event requiring adjustment to thetotal number of ordinary shares of the Company to be allocated as restricted stocks after this proposition has
been approved, the relevant total number shall be adjusted accordingly within a reasonable range.

25

(2) Transfer restriction period and details
The restriction period will be 30 years (“Restriction Period”). During this period restrictions will be appliedon the allotted shares (“Allotted Shares”), so that each Eligible Director is prohibited to transfer the Allotted
Shares, pledge them, mortgage them, or use any arrangement to dispose them.
(3) Removal of transfer restrictions
In case any Eligible Director retires due to expiration of the term or resigns due to reasons deemed reasonable
by the Company’s Board of Directors, from a position as Member of the Board or any other positions
separately specified by the Company’s Board of Directors during the Restriction Period, the transfer
restrictions will be removed on all the Allotted Shares.
(4) Revocation of Allotted Shares without any compensation
Allotted Shares will be revoked by the Company if an Eligible Director violates any laws and regulations orfalls under any other event specified by the Company’s Board of Directors during the Restriction Period, theCompany retains the right to acquire all or part of the Allotted Shares without any compensation.
(5) Handling in the case of reorganization
During the Restriction Period, if the Company becomes defunct due to merger or organization restructuring,
the transfer restrictions for Allotted Shares will be removed following the resolution of the Company’s Boardof Directors before the effective date of such reorganization.
Overview of the Plan II (Performance Share Unit Remuneration)
The Plan II offers monetary remuneration claims and cash to deliver the Company’s ordinary shares, to the Eligible
Directors as a performance-linked stock compensation. The monetary remuneration claims and cash are calculated
after the performance evaluation period that is aligned with the duration of the Company’s three-year Business
Plan that starts from the fiscal year subject to provision (the “Performance Evaluation Period”) (*) in accordancewith the rate of achievement of performance and other targets during the Performance Evaluation Period, which
are determined through deliberations of the Advisory Panel on Nomination and Compensation of the Company.
Thus, the monetary remuneration claims to deliver ordinary shares of the Company and cash are provided to
Eligible Directors after the Performance Evaluation Period expires, in principle. Each Eligible Director receives
allotment of ordinary shares of the Company by providing all the monetary remuneration claims by means ofcontribution in kind (the allotment is made by means of disposal of treasury stock). The monetary compensation
towards the purchase of the Company’s ordinary shares will be decided based on the closing price of theCompany’s share at the Tokyo Stock Exchange as of the previous day of the resolution by the Board of Directors.
However, if the Company share does not trade at the Tokyo Stock Exchange on the day prior to the resolution of
the Company’s Board of Directors, the closing price of the immediately preceding trading day will be used. This
price of share will be decided by the Company’s Board of Directors within a scope that is not particularly
advantageous to the Eligible Directors who will receive the performance share units. In addition, since monetary
remuneration claims and cash to deliver the Company’s ordinary shares are granted according to the above
achievement rate of performance and other targets, the allocation of the monetary remuneration claims and cash
to the Eligible Directors, the amount of the claims and cash to deliver the Company’s ordinary shares, and thenumber of shares delivered are not decided at the time of the introduction of the Plan II.
*

The first fiscal year that will be subject to provision by the performance share unit plan will be 2020, and thefirst Performance Share Unit Plan will be effective for a three-year evaluation period starting from the fiscal
year of 2020 and ending in 2022. This performance share unit plan will be effective beyond 2021 and new
evaluation period will start every year, further the remuneration will be decided with the limits approved inthis Ordinary General Meeting of Shareholders.

26

Details of the Plan II are as follows. Any other matters regarding the Plan II shall be determined by the Company’s
Board of Directors.

Eligible persons

Members of the Board of the Company also serving as
Executive Officers *1

Class of shares to be allotted

Ordinary shares

Amount of monetary remuneration claims and cash to¥130 million per year
be granted (the upper limit)
Upper limit of the number of shares to be allotted

76,800 shares per year in total to all the Eligible
Directors *2

Performance Evaluation Period

3 years

Shares to be distributed under the Plan II as a
0.004% *3
percentage of the total number of shares issued*1 Members of the Board who do not serve as Executive Officers and Outside Directors are not eligible.
*2 The total number of shares (upper limit) to be allotted under the Plan I and the Plan II is the same as thenumber of shares (192,000 shares) corresponding to the upper limit (960 units) of the subscription rights toshares set under the current stock option plan.
*3 This is the percentage of the total number of shares issued as of December 31, 2019 (excluding treasury stock).
(1) The upper limit on total amount of monetary remuneration claims and cash and number of shares under thePlan II
The total amount of monetary remuneration claims and cash for all Eligible Directors together shall not
exceed ¥130 million per year or the total number of ordinary shares allotted by the Company shall not exceed
76,800 shares per year. If there is a stock split, stock consolidation, or any other event requiring adjustment
to the total number of ordinary shares of the Company to be allocated after this proposition has been approved,
the relevant total number shall be adjusted accordingly within a reasonable range.
(2) Share allotment and cash calculation methodology
The Company determines performance indicators (in the initial Performance Evaluation Period, theCompany plans to use the profit as performance indicator which is one of the key indicators of Business Plan
2020) and others such as performance-linked figures for the Plan II which are necessary to specificallycalculate the number of shares to be distributed, reviewed by the Advisory Panel on Nomination andCompensation of the Company. In the specific calculation, the number of shares of the Company to be
distributed to each Eligible Director is calculated based on the formula in i) below (however, any fraction ofless than one share shall be rounded down), and the amount of cash to be paid as funds for tax payment toeach Eligible Director is calculated based on the formula in ii) below. In the case of retirement or new
appointment or alike during the Performance Evaluation Period, the number of shares of the Company or theamount of cash to be delivered to the Eligible Director, or his or her heir, may be adjusted reasonably as
stipulated by the Company’s Board of Directors. In case that the above total number of Company sharesallotted to the Eligible Directors is exceeded by allotting the number of shares of the Company calculated
based on the formula in i) to each Eligible Director, the number of shares to be allotted to each Eligible
Director shall be reduced by a reasonable method specified by the Company’s Board of Directors, including
a pro-rata basis, within a range not exceeding the maximum number of shares.
i)

Number of Company shares to be distributed to each Eligible Director
Basic number of share units (*1) X ratio of provision (*2) X 50%

27

ii)

Amount of monetary benefits to be paid to each Eligible Director(Basic number of share units (*1) X ratio of provision (*2) – number of shares of the Company
calculated in i) above) X share price at the time of delivery (*3)

*1 The number is determined by the Company’s Board of Directors in accordance with duties of each Eligible
Director and other factors.
*2 Payment ratio for the KPI is set in the range of 0 - 200% according to the achievement rate of each numericaltarget during the Performance Evaluation Period.
*3 The share price will be set as the closing price of the Company’s share at the Tokyo Stock Exchange as of theprevious day of the resolution by the Board of Directors for the allotment of shares of the Company on thebasis of the Plan II after the Performance Evaluation Period expires. However, if the Company share does nottrade at the Tokyo Stock Exchange on the day prior to the resolution of the Company’s Board of Directors,
the closing price of the immediately preceding trading day will be used. This price of share will be decided
by the Company’s Board of Directors within a scope that is not particularly advantageous to the Eligible
Directors.
(3) Pre-requisites for distribution
The Company shall provide the monetary remuneration claims and cash to Eligible Directors, and Eligible
Directors are required to purchase the Company’s ordinary shares with all the monetary remuneration claims
received as contribution in kind, after the Performance Evaluation Period expires and the following
conditions for distribution of Company’s ordinary shares are met.
i)Remaining in his or her term of office as Member of the Board or any other positions separately
specified by the Board of Directors during the fiscal year subject to provisionii)

Non-existence of certain illegal actsiii) Other requirements considered necessary, which are stipulated by the Board of Directors(4) Handling in the case of reorganization
During the Performance Evaluation Period, if the Company becomes defunct due to merger or organization
restructuring, the Company’s Board of Directors may, prior to the effective date of the said organizational
restructuring, decide to pay towards performance share units in accordance with the duration from thecommencement date of the Performance Evaluation Period to the date of approval for the said organizational
restructuring. However, in lieu of the aforementioned allocation of the Company’s ordinary shares, cash will
be reasonably calculated by the Company’s Board of Directors as the amount equivalent to the said ordinary
shares, within the limit of the remuneration for the performance share unit plan.

*

Reference

The Plan will be introduced as part of the new remuneration plan for the Company’s Members of the Board who
also serve as Executive Officers, which is linked to the management strategy and boosts sustainable growth, withthe objective to enhance the mid- to long-term company value of the Group. Please refer to page 29 to 31 forOverview of the Company’s New Executive Remuneration Plan in the event that Item 4 is approved in its original
form.

28

【Reference】 Overview of the Company’s New Executive Remuneration Plan
If Item 4 for this Ordinary General Meeting of Shareholders is approved and adopted in its original form, theoverview of the Company’s new executive remuneration plan will be as follows.
1.

Executive Remuneration Policy

In order to achieve sustainable profit growth and increase of company value over the mid- to long-term by pursuing
the management principles of “4S model,” the Advisory Panel on Nomination and Compensation reviews andprovides advice on the policy, framework and calculation method for remuneration of the Company’s Membersof the Board and Executive Officers in response to inquiries. It also monitors whether our executive remunerationlevel is reasonable.
Based on the recommendation of the Advisory Panel on Nomination and Compensation, the key policy for theCompany’s executive remuneration is as follows:

Set the remuneration at an adequate level to retain personnel with superior capabilities.



Link the remuneration to company performance so as to motivate executives to achieve their performancetargets.



Link the remuneration to company value in the mid- to long-term.

Ensure transparency by implementing an objective and quantitative framework.

2.

Executive Remuneration Structure

Remuneration for the Members of the Board also serving as Executive Officers

Remuneration for the Members of the Board also serving as Executive Officers (“Eligible Directors”) comprises‘base salary,’ ‘executive bonus,’ ‘restricted stock remuneration’ and ‘performance share unit remuneration’ as they
are responsible for the achievement of assigned annual targets through their day-to-day management. On a 100%
grant basis, the composition of executive bonus and performance share unit remuneration will be as per thefollowing illustration.

*1

The composition ratios vary depending on the duties of Members of the Board and the ranges are indicated in the illustration.

*2

The ratio of restricted stock remuneration and performance share units is about 3 to 1.

*3

Under performance share unit 50% is paid as cash towards tax payment.

*4

The above illustration is based on certain assumptions of the Company’s performance and the share price. The above ratios
could fluctuate depending on the company performance and the share price.

29

Remuneration for the Members of the Board who do not serve as Executive Officers (excluding Outside
Directors)

Effective January 1, 2020, remuneration for the Members of the Board who don’t serve as Executive Officers is
composed of “base salary” alone, as they are responsible for monitoring the execution of mid- to long-term growthstrategy in addition to supervision of business and corporate activities.


Remuneration for the Outside Directors

Remuneration for the Outside Directors is composed of “base salary” alone and does not include performancelinked compensation to ensure their independence.


Remuneration for the Audit & Supervisory Board Members

Remuneration for the Audit & Supervisory Board Members is composed of “base salary” alone in light of their
key responsibility to conduct audits.
<Remuneration structure for the Members of the Board and Audit & Supervisory Board Members>
Base salary

Executive bonus

Plan

Applicable

Applicable

Applicable

ApplicableNot applicableNot applicable

Outside Directors

ApplicableNot applicableNot applicable

Audit & Supervisory Board Members

ApplicableNot applicableNot applicable

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

3.

Ceiling of the Total Executive Remuneration and Approval Process

If Item 4 for this Ordinary General Meeting of Shareholders is approved and adopted in its original form, theceiling of the total amount of the annual aggregate remuneration towards all Members of the Board shall be ¥1.1
billion (including ¥80 million for Outside Directors), in addition the ceiling of the total amount of remuneration
towards restricted stock and performance share unit applicable for the Eligible Directors shall be ¥210 million (or115,200 shares) and ¥130 million (or 76,800 shares) respectively.
Further, maximum amount of the annual aggregate remuneration towards all Audit & Supervisory Board Members
was approved at our 34th Ordinary General Meeting of Shareholders and will not exceed ¥240 million.
The amount of remuneration for Members of the Board is benchmarked based on a survey of remuneration of
directors conducted by third parties, based on the remuneration levels of major domestic manufacturers that are
expanding overseas with the similar size and profits. Specifically, after benchmarking the level of base salary ofthe directors of peer companies and the percentage of variable remuneration for annual bonuses and mid- andlong-term incentives, the amount of remuneration for each Member of the Board is decided by a resolution of theCompany’s Board of Directors, based on the deliberations of the Advisory Panel on Nomination andCompensation and within the maximum remuneration approved at the General Meeting of Shareholders.
The remuneration of Audit & Supervisory Board Members is also benchmarked in the same way, and is determinedby deliberation among the Audit & Supervisory Board Members within the maximum remuneration approved at
the General Meeting of Shareholder.

30

4.

Executive Remuneration Details

Base salary

Executives will be remunerated with monthly base salary as per their responsibilities. From January 1, 2020, theEligible Directors will be individually evaluated for achievement of their performance targets through executionof their duties that will lead to the Company’s sustainable profit growth. Performance targets are set throughinterviews with the Company’s President and Chief Executive Officer at the beginning of the fiscal year andevaluated at the end of year. The base salary for the following fiscal year will be set within certain range reflecting
the individual performance evaluations. However, an individual performance evaluation will not be applicable for
the Company’s President and Chief Executive Officer.


Executive bonus

Executive bonus for Eligible Directors will be paid as monetary remuneration reflecting the performance of a
fiscal year. Adjusted operating profit at constant rates of exchange and profit for the year will be the performanceindicators (KPI) to measure the performance of the business itself, which is the foundation for sustainable growth,
as well as the achievement rate of profit growth, from the viewpoint of providing shared value with theshareholders. Executive bonus will be comprised of adjusted operating profit at constant rates of exchange andprofit in the ratio of 75% and 25% respectively. Performance-linked payout will be based on the KPI achievementin the range of 0% - 200%.


Restricted Stock Remuneration Plan

Restricted Stock Remuneration Plan is designed to strengthen the shared value with shareholders and to enhance
the company value over the mid- to long- term. Eligible Directors receive monetary remuneration claims every
fiscal year towards restricted stock and the Eligible Directors will receive the allocation of Company’s ordinary
share by paying all of the monetary remuneration claims in kind in accordance with the resolution of the Board of
Directors (the allotment is made by means of disposal of treasury stock). The transfer restrictions on the allottedshares will be removed upon resignation of such Eligible Director from a position as Member of the Board or any
other positions separately specified by the Company’s Board of Directors.


Performance Share Unit Plan

The performance share unit plan is a performance-linked stock compensation system that aims to strengthen theshared value with shareholders, to enhance the company value over the mid- to long- term and to commit toachieving business results over the mid-term.
The Eligible Directors receive monetary remuneration claims and cash towards the acquisition of ordinary shares
after the Performance Evaluation Period, which is comprised of three fiscal years starting from the fiscal year
subject to provision, in accordance with the rate of achievement of performance and other multi-year performancetargets during the Performance Evaluation Period. The Advisory Panel on Nomination and Compensation
deliberates and decides on the achievement rate of such targets for performance and other items during the
Performance Evaluation Period. The remuneration for the performance share units will be disbursed after the
Performance Evaluation Period expires, in principle, as monetary remuneration claims and cash towards theacquisition of ordinary shares. Each of the Eligible Directors will receive the allocation of Company’s ordinary
shares by paying all of the monetary remuneration claims in kind in accordance with the resolution of the Boardof Directors (the allotment is made by means of disposal of treasury stock). In performance evaluation, indicators
linked to the Company’s mid-term growth have been set. In the plan starting from 2020, profit for the following
three years will be set as a KPI with the aim of providing shared value with shareholders. Performance-linked
payout will be based on the KPI achievement in the range of 0% - 200%.
*

At this Ordinary General Meeting of Shareholders, we also plan to introduce the Plan for the Company’s Executive Officers,
subject to the approval and adoption in its original form.

31

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

Business Report(From January 1, 2019 to December 31, 2019)
I.

Matters Concerning Present State of the Corporate Group1.

Overview and Results of Operations
General summary
 Revenue
In the International Tobacco Business, unfavorable foreign exchange effects were generally offset by theeffects of favorable pricing, but due to a revenue decline in the Japanese Domestic Tobacco Business,
Pharmaceutical Business and Processed Food Business, revenue fell by 1.8% from the previous fiscal yearto ¥2,175.6 billion.
 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,
grew by 0.9% from the previous fiscal year, with declines in the Japanese Domestic Tobacco Business andthe Pharmaceutical Business being offset by increases in the International Tobacco Business and theProcessed Food Business. In addition, adjusted operating profit decreased by 13.4% from the previous fiscal
year to ¥515.9 billion, due to the unfavorable foreign exchange effects in the International Tobacco Business.
Operating profit decreased by 11.1% from the previous fiscal year to ¥502.4 billion due to a decrease inadjusted operating profit, a decline in proceeds from sales of real estate assets, a higher trademark
amortization arising from business acquisitions, and recognition of restructuring costs related to thetransformation in the International Tobacco Business. This was in spite of one-time compensation gains
related to the termination of license agreements for six anti-HIV drugs in Japan in the PharmaceuticalBusiness.
Profit attributable to owners of the parent declined by 9.7% from the previous fiscal year to ¥348.2 billion,
due to the decline in operating profit and increase in financing costs. This was partially offset by favorable
contributions from one-time factors leading to a lower effective tax rate.
Consolidated performance[Billions of yen]

Change [%]2,175.6(1.8)

Adjusted operating profit

515.9(13.4)

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

600.8

0.9

Profit attributable to owners of
the parent company

348.2

(9.7)

Revenue(Note 1)

(Notes)1. Adjusted operating profit is calculated by deducting amortization cost of acquired intangibles
arising from business acquisitions and adjustment items (income and costs) from operating profit(loss). Adjustment items (income and costs) are impairment losses on goodwill, restructuringincome and costs, and other items.

32

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.

33

Revenue breakdown by business segment

Revenue

Adjusted operating profit

Profit(Attributable to owners of the parent company)

34

Japanese Domestic Tobacco BusinessIn the current fiscal year, sales volume of cigarettes(Note 1) was negatively impacted by a decline in cigarette
industry volume(Note 2) caused by a natural decline trend, RRP(Note 3) category expansion and the impact ofprice revisions in 2018 and 2019 led by tax increases as well as our market share losses. As a result, sales
volume fell by 7.9%, from the previous fiscal year to 75.5 billion cigarettes. The Company’s RRP sales
volume increased by 0.5 billion to 3.3 billion cigarette equivalent units.
Core revenue from the tobacco business(Note 4) fell by 2.3% from the previous fiscal year to ¥568.9 billion,
with the effects of favorable cigarette pricing, not offsetting the impact of lower cigarette sales volume and adecrease of RRP related revenue. Core revenue from the tobacco business includes RRP related revenue of¥60.9 billion.
Adjusted operating profit decreased by 10.4% from the previous fiscal year to ¥187.2 billion, due to theimpact of lower core revenue from the tobacco business and an impairment of capsule manufacturingmachines for tobacco infused vapor product with law-temperature hearing technology.
(Notes)1. Sales volume of cigarettes includes the Company’s sales volume for cigarettes and little cigars
in the Japanese market, but it does not include sales volume for RRP and so on. In addition to
the figure stated above for sales volume, during the fiscal year ended December 31, 2019, 4.0
billion cigarettes were sold at duty-free shops in Japan, as well as at markets in China, Hong
Kong and Macau that are under the control of the Company’s China Division (4.0 billion
cigarettes in the previous fiscal year).
2. Cigarette industry volume includes sales volume for cigarettes and little cigars, which areclassified as cigars as per the Tobacco Business Act in Japan, in the whole Japanese 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 products and T-Vapor products. E-Vapor products do not use tobacco
leaf, instead using electrical heating of a liquid inside a device or specialized cartridge to generate
vapor for the user to enjoy. Conversely, T-Vapor products do use tobacco leaf, but instead ofburning the leaf, they use methods such as heating the leaf to generate vapor (which includes
compounds derived from the tobacco leaf) for the user to enjoy.
4. Core revenue in the Japanese Domestic Tobacco Business includes revenue from the domestic
duty-free market as well as from markets in China, Hong Kong and Macau that are under thecontrol of the Company’s China Division, in addition to revenue related to RRP, little cigars andso on, but it excludes revenue related to imported tobacco delivery charges, among others.

35International Tobacco BusinessIn the current fiscal year, the effects of acquisitions in Bangladesh, Greece and Russia resulted in total
shipment volume(Note 1) rising by 4.3% from the previous fiscal year to ¥445.8 billion. In addition, GFB(Note 2)
shipment volume rose by 4.0% from the previous year to 277.0 billion cigarettes with rising sales volume
across all four brands.
Yen-based core revenue(Note 3) increased by 0.2% from the previous fiscal year to ¥1,253.0 billion, driven by
the effects of favorable pricing and by rising sales volume from acquisitions, mostly offset by the unfavorable
exchange effects. Yen-based adjusted operating profit fell by 11.4% from the previous fiscal year to ¥340.8
billion due to the unfavorable foreign exchange effects.
Dollar-based core revenue increased by 1.5% from the previous fiscal year, to $11,496 million (up 9.3% fromthe previous fiscal year at constant rates of exchange) due to the effects of favorable pricing and rising sales
volume. Meanwhile, dollar-based adjusted operating profit decreased by 10.5% from the previous fiscal year,
to $3,126 million (up 10.7% from the previous fiscal year at constant rates of exchange) due to theunfavorable foreign exchange effects.
(Notes)

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

36Core revenue (USD basis)

Adjusted operating profit (USD basis)

Exchange rate per U.S. dollar
FY 2018

FY 2019110.44109.03

Ruble

62.68

64.74

Pounds sterling

0.75

0.78

Euro

0.85

0.89

Swiss franc

0.98

0.99

Taiwanese dollar

30.14

30.90

Turkish lira

4.82

5.67

Iranian rial

61,649104,046

Foreign exchange rate
per U.S. dollar
Yen

Main Market Shares (12-month rolling average)
2018 Dec

2019 Dec

Variance

Italy

23.9%

24.5%

0.6pptFrance

23.2%

24.5%

1.3ppt

Spain

24.8%

25.6%

0.8ppt

U.K.

41.4%

43.6%

2.2pptRussia(GFBs)
Turkey

35.6%
24.8%
27.7%

39.0%
25.1%
28.3%

3.5ppt0.3ppt0.6pptTaiwan

42.4%

45.2%

2.8pptSource: IRI, Logista and Nielsen

37Pharmaceutical BusinessIn the Pharmaceutical Business, the Company has been striving to make a stable contribution to the Group’s
profits by promoting R&D on next-generation strategic products and by maximizing the value of each product.
In the area of product development, eight compounds are in clinical development. In January 2019 we applied
for approval for domestic manufacturing and marketing of the JAK inhibitor “JTE-052” (generic name:delgocitinib) as an indication for atopic dermatitis. In addition, in November 2019 we applied for approvalfor domestic manufacturing and marketing of the HIF-PH inhibitor “JTZ-951” (generic name: enarodustat)as an indication for anemia associated with chronic kidney disease, while in December 2019 we concluded alicense agreement with Shenzhen Salubris Pharmaceuticals Co., Ltd. for exclusive development andcommercialization in China, Hong Kong, Macau and Taiwan.
Most recently, in January 2020 we concluded a license agreement with Dermavant Sciences GmbH in relation
to exclusive development and commercialization in Japan, in the field of dermatological diseases andconditions, for “tapinarof, a topical, therapeutic aryl hydrocarbon receptor modulating agent”, following
which an agreement was concluded with Group company Torii Pharmaceutical Co., Ltd. in relation todomestic co-development and commercialization. In addition, we received manufacturing and marketing
approval in January 2020 for “JTE-052” (product name: “CORECTIM® Ointment 0.5%”), the application
for which had been submitted in January 2019.
In the current fiscal year, revenue decreased by 22.3%, from the previous fiscal year to ¥88.5 billion, mainly
due to the termination of license agreements for six anti-HIV drugs in Japan as well as lower overseas royalty
revenue. Adjusted operating profit decreased by 43.9%, from the previous fiscal year to ¥15.9 billion due tothe revenue decline.
The Company’s agreements with Gilead Sciences, Inc. and Torii Pharmaceutical Co., Ltd. for an exclusive
license to develop and commercialize six anti-HIV drugs in Japan were terminated in January 1, 2019, andthe transfer of manufacturing and marketing approvals to Gilead Sciences, Inc.’s Japanese subsidiary, Gilead
Sciences, K.K., was completed on December 1, 2019.

38

【Reference】
Pharmaceutical Business Clinical Development as of February 6, 2020
＜In-house development＞
Code(Generic Name)

Potential
Indication/Dosage form

Mechanism
HIF-PHinhibitor

JTE-052(delgocitinib)

Atopic dermatitis(pediatric)/TopicalAutoimmune/allergic
diseases/Oral, Topical

Increases red blood cells bystimulating production oferythropoietin, an erythropoiesisstimulating hormone, via
inhibition of HIF-PH.

JAK inhibitor

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

JTE-051

Autoimmune/allergic
diseases/Oral

Interleukin-2
inducible T cellkinase inhibitor

JTE-451

Autoimmune/allergic
diseases/Oral

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

JTT-251

Type 2 diabetes mellitus/Oral

PDHK inhibitor

JTT-662

Type 2 diabetes mellitus/Oral

JTE-761

Autoimmune/allergic
diseases/Oral

JTT-751(ferric citrate hydrate)

Iron-deficiency anemia/Oral

JTZ-951(enarodustat)

Anemia associated withchronic kidney disease
/Oral

Note

NDA filed (Japan)
Phase1 (Overseas)

In-house
Co-development with Torii

Phase 3 (Japan)

In-house
Co-development with Torii(In-house)

Phase1 (Japan)

In-house

Suppresses overactive immune
response via inhibition of the signal
Phase2 (Overseas)to activate T cells related toimmune response.

Decreases blood glucose by
activation of pyruvate
dehydrogenase (PDH) related tocarbohydrate metabolism.
Suppresses postprandial
hyperglycemia and
SGLT1 inhibitor normalizes blood glucose
level via inhibition of
SGLT1.
Suppresses overactive
immune response via
RORγ antagonist
inhibition of ROR γ related toTh 17 activation.
Oral ironreplacement

Phase(Region)

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

Clinical trial phase presented above is based on the first dose.

In-house

Phase2 (Overseas)

In-house

Phase1 (Overseas)

In-house

Phase1 (Overseas)

In-house

Phase1 (Overseas)

In-house

Phase3 (Japan)

In-license(KeryxBiopharmaceuticals)
Co-development with
Torii Additional indication＜Licensed compounds＞
Compound(JT's code)
trametinib

LicenseeNovartis

Anti-ICOS monoclonal
AstraZeneca
antibody

Mechanism

MEK inhibitor

ICOS antagonist

delgocitinib

LEO Pharma
ROHTO Pharmaceutical

JAK inhibitor

enarodustat

JW Pharmaceutical
Salubris

HIF-PHinhibitor

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

39

Note

Processed Food BusinessIn the Processed Food Business, we concentrate on frozen and ambient foods, seasonings, and bakery, whileat the same time making efforts to strengthen cost competitiveness and working on initiatives to improve
profitability.
In the frozen and ambient foods business in the current fiscal year, we worked to expand product sales with
an emphasis on frozen noodles, frozen rice, packed rice and baked frozen bread, and launched 27 new and
43 renewed products. Also, in order to raise awareness of the “gottsu-umai” series of frozen home-use
products, which has marked the 20th anniversary of its launch, we established May 2 as the “Gottsu Day”
anniversary date, and worked on media activities such as setting up a website especially for this purpose, anddistributing video for a limited time only.
Despite growth in sales of the main staple food products, revenue in the current fiscal year decreased by 1.7%,
from the previous fiscal year to ¥158.6 billion, due to a decline in sales of other products. Adjusted operating
profit increased by 31.8%, from the previous fiscal year to ¥5.4 billion, driven by the positive contribution
from price revisions, the improvements in product mix as well as cost reduction initiatives, which werepartially offset by lower revenue and increases in raw material and distribution costs.
In addition, a Processed Food Business Planning Division was established within the Company withresponsibility for corporate governance and drawing up strategy for the Processed Food Business as a whole,which began operations under this new structure in January 2019. There has been no change to the business
content of business companies such as TableMark Co., Ltd., Fuji Foods Corporation and Saint-Germain Co.,
Ltd.

40

2.

Status of Capital Expenditures
In this fiscal year, we made capital expenditures totaling ¥131.4 billion.
In the Japanese Domestic Tobacco Business, we spent ¥34.8 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 ¥78.3 billion mainly for compliance with regulations in addition to improvements in productspecifications. In the Pharmaceutical Business, we spent ¥7.0 billion on enhancing and strengthening
research and development structures and the like. In the Processed Food Business, we invested ¥6.1 billion
in improvement, maintenance and renewals of production capability.
(Note) Capital expenditures includes land; building and structures; machinery and vehicles; and otherproperty, plant and equipment, as well as goodwill, right of trademark, software and other intangible
assets, necessary for production improvements at factories and other facilities, strengthening
competitiveness and executing business in a variety of fields, excluding assets acquired throughbusiness combinations.

3.

Status of Financing
With the aim of allocating funds for the repayment of short-term borrowings by overseas subsidiary JT
International Financial Services B.V., on November 26, 2019, we issued foreign currency denominatedstraight bonds totaling €500 million (approximately ¥61.3 billion).

4.

Business Transfers, Absorption-Type Company Split or Incorporation-Type Company Split
No items to report.

5.

Business Transfers From Other Companies
No items to report.

6.

Succession of Rights and Obligations Relating to Other Entities’ Business as a Result of AbsorptionType Merger or Company Split
No items to report.

7.

Acquisition or Disposal of Shares, Other Equities or Subscription Rights to Shares of Other Companies
No items to report.

41

8.

Trends in Assets and Operating Results(1) Trends in assets and operating results of the JT Group [Consolidated]
32nd term
From January 1,
2016 toDecember 31,
2016

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

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

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

Revenue(Millions of yen)

2,143,287

2,139,653

2,215,962

2,175,626

Profit before income
taxes(Millions of yen)

578,237

538,532

531,486

465,232

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

421,695

392,409385,677

348,190

Basic
share

235.47219.10215.31

195.97

Total assets(Millions of yen)

4,744,374

5,221,484

5,461,400

5,553,071

Total equity(Millions of yen)

2,528,041

2,842,027

2,700,445

2,743,611

earnings per(Yen)(Note) Consolidated financial statements of the JT Group are prepared based on IFRS.

42

(2) Trends in assets and non-consolidated operating results of JT [Non-consolidated]
32nd term
From January 1,
2016 toDecember 31,
2016

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

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

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

Net sales(Millions of yen)729,286

681,840696,250

660,805

Ordinary income(Millions of yen)

203,242

199,336

190,343

278,968

Net income(Millions of yen)

173,607

160,120

164,595

262,469

96.94

89.40

91.89

147.72

Total assets(Millions of yen)

2,849,913

2,885,760

2,670,883

2,614,357

Net assets(Millions of yen)

1,663,675

1,592,966

1,493,562

1,417,365

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

43

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

44

9.

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

45(2) Mid- to long-term management strategy and issues
In view of realizing the Group’s long-term vision of becoming a “Company committed to global growth thatprovides consumers with diversified value available uniquely from JT,” 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, accelerating
evolution to an organization that will lead this revolution and thus making possible sustainable growth inprofits 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 unexpected changes.
In the “Business Plan 2020,” 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 growth throughbusiness investments and shareholder returns.
In accordance with the “Business Plan 2020,” 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, the Group will pursue enhanced shareholder returns in proportion to themid- to long-term profit growth by continually making proactive business investments while maintaining asolid balance sheet(Note 3) that enables response to any possible environmental changes.
Specifically, the Group will work toward stable and consistent growth(Note 4) 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 5) companies which achieve a high-growth business.
The mid- to long-term targets and roles for each business are as follows.
Tobacco BusinessJapanese Domestic
International

Grow adjusted operating profit at mid to high single digit rate perannum over the mid- to long-term as the core business and profit
growth engine of the Group
Core 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 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 Group through mid- to longterm profit growth driven by high-quality expansion in the top line46

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.
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 orderto overcome this uncertain business environment and operate its global business appropriately the Groupwill, 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 sustainable growth inprofits 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, and other 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 ratesof the previous fiscal year.
3. As its financial policy, the Group will maintain a solid balance sheet that secures stability in caseof changes in business environment such as economic crises and flexibility enabling expeditious
responses to business investment opportunities.
4. Based on the mid- to long-term outlook of the growth rate of adjusted operating profit at constantrates of exchange, the Group will also take into account the Group’s level of profit.
5. FMCG: Fast Moving Consumer Goods (daily consumer durables)47

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

Good Governance andBusiness Standards

An Improved Social andEnvironmental Impact
Focus Areas for Each BusinessTobaccoProducts andServices

PeopleSupply Chain

Regulatory
Environment andIllegal Trade

Pharmaceutical

Products and Services

PeopleProduct Safety andResponsibility

Processed Food

Products and Services

PeopleSupply Chain

Tobacco business has established specific targets for the four focus areas. Please refer to the JT website for moredetails. Specific targets for the pharmaceutical business and processed food business will be announced in the
Integrated Report, which is scheduled to be published in late March 2020. The Group supports the Sustainable
Development Goals (SDGs) adopted by the United Nations, and we will contribute to the following related goals
through our business activities and initiatives.

48

Reducing Our Environmental Impacts
Environmental issues are of increasing societal concerns, bringing
many challenges to our society. For instance, climate change driven by
global warming is having a significant impact on our daily lives in theform of abnormal weather patterns. It is a serious problem both for thesociety and for the business of the Group.

Taking into account the dramatic changes in both the social andbusiness environment in recent years, the Group set out the JT
Group Environment Plan 2030, with three focus areas; “Energy
and Emissions,” “Natural Resources,” and “Waste.” We will
work on the transition to renewable energy, reductions ingreenhouse gas emissions, addressing water-related risks orsustainable forest management, and reducing the impact on theenvironment of waste, including plastics. In addition, the Group willseek to understand the impact on its business of climate change, andimplement scenario analyses in order to form appropriate responses.

Solar electricity generation at the Batangas factoryin the Philippines

The Group has set a Science Based Target (SBT) to ensure that we
fulfill our commitment to reduce Greenhouse Gas (GHG)
emissions and contribute to mitigating climate change. We havecommitted to reduce GHG emissions from our own operations by
32% across the Group between 2015 and 2030. Our target was
validated by the Science Based Targets initiative (SBTi) in 2019.
In 2020, the Company was recognized as a global leader in tacklingclimate change and was listed on CDP’s “A List”. CDP is the leadinginternational non-profit organization that assesses environmental
disclosure. We were also selected as a global leader for engaging with
our supply chain in addressing climate change.

Furthermore, the Company was selected as a global leader insustainable water management and were listed on CDP’s “A List”
for water security. This is the first time that we were listed on CDP’s“A List” in two categories.

- Please visit the Company’s website (https://www.jt.com/sustainability/) to find out more about our approach tosustainability.
- Beginning in FY2019, an Integrated Report will be published instead of the Annual Report and the Sustainability
Report. The FY2019 Integrated Report will be made available on the Company website in late March 2020.
- Details of the sustainability initiatives implemented by the Group that were previously disclosed in the
Sustainability Report will continue to be made available as online content in the Company’s website (updates
are expected towards the end of May 2020).
- With regard to the Company’s corporate governance, please refer to “【Reference】Fundamental Policy
Concerning Corporate Governance” at the end of the Business Report.

49

10. Main Business Contents

Business segment

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

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

11. Status of Important Subsidiaries

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

Capital(Millions of yen)

460
(Millions of yen)

461
(Thousands of CHF)

923,723(Thousands of GBP)

172,495(Millions of yen)

5,190(Millions of yen)

22,500Main business

74.5

Distribution of tobacco products

88.9

Manufacture and sale of filters for
tobacco products(100.0)

Manufacture and sale of tobacco
products(100.0)

Manufacture and sale of tobacco
products

53.5

Manufacture
andprescription drugs

sale

of

100.0

Manufacture and sale of processedfoods

1. Figures in parentheses in the “Equity ownership” column indicate indirect holding rates.
2. There were 231 consolidated subsidiaries in this fiscal year, including 6 above-mentioned
important subsidiaries, as well as 13 affiliates accounted for by the equity method.
3. On the last day of the fiscal year ended December 31, 2019, there were no specified wholly
owned subsidiaries as stipulated in Article 118, item 4 of the Regulation for Enforcement of theCompanies Act.

50

12. Major Lenders
Outstanding balance(Millions of yen)

Lender44,114(EUR 360 million)

Syndicated loan
The Norinchukin Bank

40,000Shinkin Central Bank

30,000(Note) The syndicated loan to the Company’s overseas subsidiary JT International Holding B.V., a borrower,
was financed jointly by four banks, with UNICREDIT BANK AG acting as the arranger and agent.
13. 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.

51

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

10,508International Tobacco Business

43,868

Pharmaceutical Business

1,485

Processed Food BusinessCommon company-wide services
within JT

5,169
945
61,975

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

Male/Female

Number of
employees(Person)Year-on-yearincrease (decrease)(Person)Average age(Year old)

Average years ofservice(Year)

Male

6,273

(39)

44.1

19.5

Female

1,191

46

37.0

11.9

Total or average

7,464

7

43.0

18.3

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

52

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

226,196,566 shares)

3. Number of shareholders:

4.

515,211

Major shareholders
Number of shares held
(Share)Name of shareholders
Minister of Finance

Equity ownership (%)

666,926,200

37.60

88,722,600

5.00

54,377,600

3.07

29,357,000

1.66

23,660,000

1.33

23,508,500

1.33

JPMorgan Chase Bank 385151

22,262,535

1.26

JPMorgan Chase Bank 380055

21,612,342

1.22

21,561,341

1.22

18,737,300

1.06

The Master Trust Bank of Japan, Ltd.
(Trust Account)
Japan Trustee Services Bank, Ltd.
(Trust Account)
SMBC Nikko Securities Inc.
Trust & Custody Services Bank, Ltd. as
trustee for Mizuho Bank, Ltd.
Retirement Benefit Trust Account reentrusted by Mizuho Trust & Banking Co.,
Ltd.
Japan Trustee Services Bank, Ltd.
(Trust Account 5)

State Street Bank West Client - Treaty
505234
Japan Trustee Services Bank, Ltd.
(Trust Account 9)(Note) Equity ownership is calculated after deducting treasury shares (226,196,566 shares).
5.

Other significant matters concerning shares
As part of the Shareholder Return Policy, the Company acquired treasury shares in accordance with aresolution of the Board of Directors meeting held on February 7, 2019.
Class and number of acquired shares

Ordinary shares

Acquisition cost
Period17,787,600 shares¥49,999,903,350

From February 8, 2019 to March 18, 2019 (contract basis)

Acquisition method

Market purchase via a trust bank53III. Matters Concerning Subscription Rights to Shares
1.

2.

Total number and others of subscription rights to shares as of December 31, 2019(1) Total number of subscription rights to shares

4,873 units(2) Class and number of shares to be delivered
upon exercise of subscription rights to shares

Ordinary shares 974,600 shares(200 shares per subscription right to shares)

Status of subscription rights to shares held by Members of the Board and Audit & Supervisory Board
Members of JT as of December 31, 2019(1) Class and number of shares to be delivered
upon exercise of subscription rights to shares

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

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

(4) Conditions for exercising subscription rights
to shares

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

54

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

FY2007¥581,269 per unit

FY2008¥285,904 per unit

FY2009¥197,517 per unit

FY2010¥198,386 per unit

FY2011¥277,947 per unit

FY2012¥320,000 per unit

FY2013¥513,400 per unit

FY2014¥483,200 per unit

FY2015¥711,200 per unit

FY2016¥572,600 per unit

FY2017¥482,200 per unit

FY2018¥300,000 per unit

FY2019¥188,000 per unit

(Notes)1.
2.

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

Members of the Board

Audit & Supervisory
Board Members

Numberof units

Number ofshareholders

Numberof units

Number ofshareholders

16

1

-

-

18

1

15

1

40

1

36

1

72

2

30

1

41

2

32

1

72

4

23

1

63

4

14

1

71

5

8

1

127

5

17

1

113

5

13

1

168

5

21

1

374

6

-

-

630

6

-

-

Outside Directors are not included in the above category of “Members of the Board.”
The subscription rights to shares owned by an Audit & Supervisory Board Member are thosethat were granted to the individual while he/she was serving as an Executive Officer.

55

3.

Status of subscription rights to shares granted to employees of JT from January 1, 2019 to December
31, 2019(1) Class and number of shares to be delivered
upon exercise of subscription rights to shares

Ordinary shares 187,200 shares(200 shares per subscription right to shares)(2) Payment due upon allotment of subscription
rights to shares¥188,000 per unit

(3) Value of property to be contributed whensubscription rights to shares are exercised(4) Exercise period of subscription rights toshares¥1 per share
From July 2, 2019 to July 1, 2049

(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/sheloses his/her all position as Member of the Board,
Audit & Supervisory Board Member andExecutive Officer.

(7) Status of granting to employees of JT

936 subscription rights to shares were granted to
20 Executive Officers (excluding persons serving
as Members of the Board) of JT.

56

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

Responsibility

Chairman of the Board

Yasutake Tango

Representative
Director and President
Representative
Director and Executive
Vice President
Representative
Director and Executive
Vice President

Masamichi
Terabatake

Chief Executive
Officer

Mutsuo Iwai

President, Tobacco
Business

Representative
Director and Executive
Vice President

Kiyohide Hirowatari*Member of the Board
and Senior Vice
President

Kazuhito Yamashita

Member of the Board

Main Kohda

Member of the Board

Koichiro Watanabe*Member of the Board

Yukiko Nagashima

Standing Audit &Supervisory Board
Member*Standing Audit &Supervisory Board
Member*Standing Audit &Supervisory Board
MemberChief Financial
Officer andCommunications
Legal, Corporate
Strategy,
Digitalization,
Human Resources,
Operation Review &Business Assurance,
PharmaceuticalBusiness and FoodBusiness
Chief Sustainability
Officer, Complianceand General Affairs

Naohiro Minami

Significant concurrent positions
outside the Company
Outside Director, The Ogaki
Kyoritsu Bank, Ltd.
Chairman and Managing
Director, JT International Group
Holding B.V.
Supervisory Board member, JT
International Holding B.V.

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

Ryoko Nagata
Hiroshi Yamamoto
Attorney at Law, Shiba
International Law Offices

Toru Mimura

57

Position

Name

Audit & Supervisory
Board Member

Hiroshi Obayashi*Audit & Supervisory
Board Member

Koji Yoshikuni(Notes)Responsibility

Significant concurrent positions
outside the Company
Attorney at Law, Obayashi Law
OfficeOutside Audit & Supervisory
Board Member, Daiwa
Securities Co., Ltd.
Outside Director, Mitsubishi
Electric Corporation
Outside Audit & Supervisory
Board Member, NIPPONSTEEL CORPORATION

1. Members of the Board Main Kohda, Koichiro Watanabe and Yukiko Nagashima are Outside
Directors.
2. Audit & Supervisory Board Members Toru Mimura, Hiroshi Obayashi and Koji Yoshikuni are
Outside Audit & Supervisory Board Members.
3. Members of the Board, Main Kohda, Koichiro Watanabe and Yukiko Nagashima, and Audit &Supervisory Board Members, Hiroshi Obayashi and Koji Yoshikuni, were designated as
independent officers (directors and auditors) as prescribed by the Tokyo Stock Exchange, Inc.
4. Audit & Supervisory Board Members Hiroshi Yamamoto and Koji Yoshikuni have relevant
knowledge about financing and accounting as they were Vice President of the Operational
Review and Business Assurance Division of the Company and Auditor of Hosei University,
respectively.
5. The Members of the Board and Audit & Supervisory Board Members denoted with the asterisk* assumed their office on March 20, 2019.
6. Standing Audit & Supervisory Board Member Tomotaka Kojima, and Audit & Supervisory
Board Member Yoshinori Imai resigned on March 20, 2019.
7. 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 to theliability set forth in Article 423, paragraph 1 of the Companies Act, by which the liability fordamages of each of them is limited to the minimum amount set forth in Article 425, paragraph 1of the same Act, provided they perform their duties without knowledge of such damages andwithout gross negligence.
8. Changes in the responsibilities etc. of Officers after the end of the current fiscal year
Positions and responsibilities in the Company, and significant
concurrent positions outside the Company
Name
As of December 31, 2019
As of January 1, 2020
Representative Director andRepresentative Director andPresident
Masamichi
President
Chief Executive Officer
Terabatake
Chief Executive Officer
Managing Director, JT
International Group Holding B.V.
Representative Director andExecutive Vice President
President, Tobacco Business
Mutsuo Iwai
Member of the Board
Chairman and Managing Director,
JT International Group Holding
B.V.
* Masamichi Terabatake has served concurrently as President, Tobacco Business since January
1, 2020.
58

2.

Remunerations for Members of the Board and Audit & Supervisory Board Members(1) Total remunerations for Members of the Board and Audit & Supervisory Board Members
Audit & Supervisory
Board Members
Amount to
Amount to
NumberNumber to
be paidbe paid
to be paid
be paid(Millions of(Millions of(Person)(Person)
yen)
yen)
9
508
7
160
5
77
6
115
700
160
Members of the Board

Category

Base salary
Executive bonus
Stock option grants
Total

Total
Numberto be paid
(Person)16
5
6-

Amount to
be paid(Millions of
yen)
668
77
115
860

(2) Policy concerning the remuneration amount for Members of the Board and Audit & Supervisory
Board Members or the remuneration calculation method thereof and the method of determining thepolicyThe Company has the Advisory Panel on Nomination and Compensation in place as a non-statutory advisory
body to the Board of Directors in order to increase objectivity and transparency regarding the remunerationof Members of the Board and Audit & Supervisory Board Members. Regarding human resource-related
matters, the Advisory Panel on Nomination and Compensation supports the development of a group of
executive candidates, deliberates on the nomination of Member of the Board candidates and Audit &Supervisory Board Member candidates and deliberates on dismissal of Executive Directors and Members of
the Board who execute the business. On matters regarding remuneration, the panel holds deliberations andmakes reports in accordance with its advice on such matters as the policy, plan and calculation method
regarding remuneration for the Members of the Board and Executive Officers, and monitors the status of
remuneration for Members of the Board and Audit & Supervisory Board Members at the Company. The
Advisory Panel on Nomination and Compensation currently comprises the Chairman of the Board and three
Independent Outside Director, and is chaired by the Chairman of the Board. The Advisory Panel on
Nomination and Compensation is held once a year or more.
Outside members of Advisory Panel on Nomination and Compensation
Outside Director
Main Kohda
Outside Director
Koichiro Watanabe
Outside Director
Yukiko Nagashima59

In light of reports by the Advisory Panel on Nomination and Compensation, JT’s basic concept of
remuneration for Members of the Board and Audit & Supervisory Board Members is as follows: Setting the remuneration at a level sufficient to secure personnel with superior capabilities
 Linking the remuneration to business performance so as to motivate Members of the Board and Audit &Supervisory Board Members to enhance performance Linking the remuneration to mid- to long-term corporate value Ensuring transparency based on an objective point of view and quantitative 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 “base salary,” there is an “executive
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 composition of the remuneration for Members of the Board and Audit & Supervisory Board Members
is as follows:
1. Members of the Board who also serve as Executive Officers
For Members of the Board who also serve as Executive Officers, remuneration consists of the“base salary,” the “executive bonus,” and the “stock option” because they are required to achieve results byexecuting their duties on a daily basis. If the “executive bonus” is paid at the standard amount, thecomposition ratio for each type of remuneration is as follows.
Base salary
Executive bonus
Stock option
Approximately 55%
Approximately 27%
Approximately 18%
2. Members of the Board (excluding Outside Directors) who do not serve as Executive Officers
Members of the Board (excluding Outside Directors) who do not serve as Executive Officers receive
remuneration that consists of the “base salary” and the “stock option” since they are required to makedecisions on company-wide management strategies and fulfill supervisory functions to enhance corporate
value. Beginning in fiscal 2020, in order to place a greater emphasis on objectivity and neutrality and further
focus on the supervisory functions, including monitoring the implementation of mid- to long-term growthstrategies, etc., remuneration is composed of “base salary” only.
3. Outside Directors
Remuneration for Outside Directors, which is not linked to business performance with the purpose ofmaintaining their independence, is composed of “base salary” only.
4. Audit & Supervisory Board Members
In the light of the role of Audit & Supervisory Board Members, which is primarily to conduct audits on legal
compliance, their remuneration consists solely of the “base salary.”
The upper limit of remuneration for the Company’s Members of the Board and Audit & Supervisory Board
Members, which was approved at the 34th Ordinary General Meeting of Shareholders (held in March 2019),
is ¥1.2 billion per year for all Members of the Board (including ¥80 million per year for the Outside Directors)and ¥240 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 (excluding Outside Directors) separately to the
remuneration mentioned above is 960 units and ¥240 million per year. This was also approved at the 34th
Ordinary General Meeting of Shareholders. The number of units allocated for each term, including thenumber allocated to Executive Officers who are not also Members of the Board, is decided by resolution of
the Board of Directors.
The amounts of remunerations for Members of the Board are determined by resolution of the Board of
Directors within the approved upper limits, in light of deliberations by the Advisory Panel on Nomination
and Compensation. These processes are carried out after benchmarking of levels of remuneration at major
Japanese manufacturers that operate globally, whose size and profits are at similar levels to those of theCompany, are undertaken based on third-party research into remuneration for corporate executives. The
amounts of remunerations for Audit & Supervisory Board Members are benchmarked in the same way, anddetermined through discussions among Audit & Supervisory Board Members, within the approved upper
limits.
* For this Ordinary General Meeting of Shareholders (35th Ordinary General Meeting of Shareholders), we have proposed
Item 4, “Determination of Remuneration for Granting Restricted Stock and Performance Share Units to Members of theBoard Who Also Serve as Executive Officers, and Revision of Remuneration Amount for Members of the Board,” regarding
revisions to the new share-based remuneration plan as mid- to long-term incentives and the associated revision of the
remuneration amount for Members of the Board. For an overview of the related revisions, please refer to pages 23 to 28.
60

3.

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

Name
Main Kohda

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

Member of the
Board

Koichiro
Watanabe

YukikoNagashima
Toru Mimura
Audit &
Supervisory
Board Member

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

Hiroshi Obayashi

Mitsubishi Electric
Corporation
NIPPON STEELCORPORATION

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

Main Kohda

Member of the
Board

Koichiro Watanabe

Yukiko Nagashima

Status of main activities
Attended all 14 Board of Directors meetings held during
this fiscal year. Based on her extensive experience inserving on governmental advisory bodies, etc., and herhigh insight into international finance, she has fulfilled
her duties as a Member of the Board, offering advice andrecommendations on the Company’s finances and IR, etc.
Attended all 14 Board of Directors meetings held during
this fiscal year. Based on his wealth of experience incorporate management and governance and high insightfrom an investor’s perspective, he has fulfilled his duties
as a Member of the Board, providing advice andrecommendations on the Company’s governance systemand finance, etc.
Attended all 10 Board of Directors meetings held during
this fiscal year since she assumed office on March 20,
2019. Based on her experience acquired through her deep
involvement in emerging businesses and corporate
management, as well as her wide-ranging insights fromthe perspectives of both management and audit, she has
fulfilled her duties as a Member of the Board, providing
advice and recommendations on the Company’s businessstrategy and organizational reform, etc.

61

Toru Mimura

Audit &
Supervisory Board
MemberHiroshi Obayashi

Koji Yoshikuni

Attended all 10 Board of Directors meetings, as well as
all 10 meetings of the Audit & Supervisory Board, held
during this fiscal year since he assumed office on March
20, 2019. Based on his deep insight into finance, global
risk management, geopolitics, company law, etc., he has
fulfilled his duties as an Audit & Supervisory Board
Member, providing advice and recommendations on the
Company’s governance system and operational
efficiency, etc.
Attended all 14 Board of Directors meetings, as well as
all 14 meetings of the Audit & Supervisory Board, held
during this fiscal year. Based on his extensive experienceand broad insight in the judicial world, he has fulfilled his
duties as an Audit & Supervisory Board Member,providing advice and recommendations on the
Company’s governance system and appropriate
information disclosure, etc.
Attended all 10 Board of Directors meetings, as well as
all 10 meetings of the Audit & Supervisory Board, held
during this fiscal year since he assumed office on March
20, 2019. Based on his extensive experience and broad
insight in management across all operational businesses
and internal departments, he has fulfilled his duties as an
Audit & Supervisory Board Member, providing advice
and recommendations on the Company’s governancesystem and corporate culture, etc.

(3) Total amount of remunerations
Outside Audit &Supervisory Board
Total
MemberAmount to
Amount to
Amount to
Number to
Number to
be paidbe paidbe paidbe paidbe paid(Millions of(Millions of(Millions of(Person)(Person)
yen)
yen)
yen)
53
4
66
7
119

Outside Director
Category

Base salary

Number to
be paid(Person)
3

62

V.

Matters Relating to Independent Auditor

1.

Name of Independent Auditor:

2.

Fees for Independent Auditor relating to this fiscal year

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

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

ii)

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

¥325 million¥95 million(2) Amount of cash and other financial benefits to be paid by JT and its subsidiaries:¥567 million(3) Reasons for approval of the Independent Auditor’s remuneration by the Audit & Supervisory Board:
When the Company concluded an audit contract with Independent Auditor, the Audit & Supervisory Board
Members obtained necessary materials and received reports from the Members of the Board, relevant internal
departments, and the Independent Auditor, and performed verification to confirm that the amount of remuneration
to be paid to the Independent Auditor, the persons in charge of the audits, and other details of the audit contract
were appropriate.
Based upon this verification, the Audit & Supervisory Board checked and examined matters including the content
of the Independent Auditor’s accounting plan, the status of the performance of the auditing duties, and the basis
for calculation of the remuneration estimate, and, as a result, determined that approval was fair and reasonable.
(Notes)

1. Fees paid under the terms of the audit contract concluded between Deloitte Touche Tohmatsu
LLC and JT in relation to audit attestation based on the Companies Act and the Financial
Instruments and Exchange Act are not clearly classified, and since they cannot be effectively
classified, their total is indicated in the amount in “i)” above.
2. JT retains Deloitte Touche Tohmatsu LLC for tasks other than audit attestation based on Article
2, paragraph 1 of the Certified Public Accountants Act, which consist of advisory services
relating to sustainability management and the issuance of the comfort letter in relation to thebond issuing, and for which a consideration is paid to the same.
3. Among the important subsidiaries of JT, JT International S.A. and Gallaher Ltd. are audited by
Deloitte & Touche LLP. None of these subsidiaries are audited by Deloitte Touche Tohmatsu
LLC, the Independent Auditor of JT.

3.

Policy on dismissal or non-reappointment of Independent Auditor
In the case that an Independent Auditor is adjudged to fall within any of the items listed in Article 340,
paragraph 1 of the Companies Act, with the agreement of all of the Audit & Supervisory Board Members,
the Company shall dismiss the Independent Auditor. Additionally, apart from the above, should an incident
occur casting serious doubt on the ability of the Independent Auditor to continue to perform its duties, theAudit & Supervisory Board shall decide the content of proposal and submit such proposal to the General
Meeting of Shareholders that the Independent Auditor should be dismissed or should not be reappointed.

63

【Reference】Corporate GovernanceFundamental Policy Concerning Corporate Governance
We have enhanced our corporate governance, based on our belief that it is the means for conducting
transparent, fair, timely and decisive decision-making for pursuing JT’s management principle, the “4Smodel.” Specifically the “4S model” aims “to fulfill our responsibilities to our valued consumers,
shareholders, employees and the wider society, carefully considering the respective interests of these four
key stakeholder groups, and exceeding their expectations wherever we can.”We have set out the “JT Corporate Governance Policies” on 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 website (https://www.jti.co.jp/).
JT’s Corporate Governance System (as of December 31, 2019)64

Overview of the Board of Directors, Audit & Supervisory Board, and Committees■ The Board of Directors
The Board of Directors assumes responsibility in making decisions for important issues including the Groupstrategy as well as supervising all the activities of the Group. In view of the point that the Board of Directors
determines company-wide management strategy and important matters and effectively assumes roles andresponsibilities as the body exercising supervision over all business activities, the concept concerning thecomposition of the Board of Directors shall be set forth as follows.
 The number of Members of the Board in the Board of Directors shall be fifteen (15) or less, within necessary
and appropriate scope, composed of diverse people with a high-integrity sense of ethics as professionals,
knowledge, experience and skills.
 JT shall appoint two (2) or more Independent Outside Director with qualities that will contribute to its
sustainable profit growth and increase of corporate value in the mid- to long-term from the viewpoint ofstrengthening supervisory functions and transparency of business.
It is currently composed of nine (9) Members of the Board (including three (3) Outside Directors). Conditional
on approval by this Ordinary General Meeting of Shareholders, it is planned that it be composed of nine (9)Members of the Board (including three (3) Outside Directors).
In year ended December 31, 2019, we had 14 board meetings to discuss important issues including themanagement plan and nomination of Executive Officers.
* For an evaluation of effectiveness of the Board of Directors of the Company, please refer to page 20.
■ The Audit & Supervisory Board
The Audit & Supervisory Board shall be composed of persons with proven experience in business, law, financial
affairs and accounting, etc. Audit & Supervisory Board Members, in addition to participating in the Board of
Directors meetings and other important meetings and making remarks as an independent body mandated by theshareholders, shall actively exercise his/her authority such as by proactively inspecting business bases, etc., aswell as appropriately conduct an audit from an objective position corresponding to the nature of duties of
independent outside Audit & Supervisory Board Members or standing Audit & Supervisory Board Members.
It is currently composed of five (5) Audit & Supervisory Board Members (including three (3) Outside Audit &Supervisory Board Members).
In year ended December 31, 2019, we had 14 board meetings to discuss issues including the auditing policies
and preparing of Audit Report.
■ Advisory Panel on Nomination and Compensation
The Advisory Panel on Nomination and Compensation was established as an optional advisory body to theBoard of Directors on March 20, 2019, and integrates the functions of the previous Meeting for Talent
Development and Compensation Advisory Panel. The establishment of the panel is intended to further enhancethe objectivity and transparency of the Board of Directors’ decision making and to improve the supervisory
functions of the Board of Directors by having the panel support the development of a group of executive
candidates, deliberate on the nomination of Member of the Board and Audit & Supervisory Board Member
candidates, deliberate on dismissal of Executive Directors and Members of the Board who execute the business,and deliberate on matters regarding remuneration for Members of the Board and Executive Officers, then reportto the Board of Directors.
It is currently composed of four (4) members, comprising the Chairman of the Board and three (3) Independent
Outside Director, and is chaired by the Chairman of the Board.
In year ended December 31, 2019, we had six (6) meetings to confirm and discuss issues, including a review ofthe existing executive remuneration plan, a proposal to revise the remuneration plan, the level of remuneration,
processes for developing the group of executive candidates, and nomination of Member of the Board candidates.
■ JT Group Compliance Committee
As part of the Company’s efforts to ensure that compliance is practiced fairly and effectively, it has establishedthe JT Group Compliance Committee. The JT Group Compliance Committee is headed by the Chairman of theBoard, with the majority of the members consisting of external members.
In year ended December 31, 2019, we met 3 times to discuss initiatives, etc. to further promote compliance. Its
conclusions have been reflected in the Compliance Action Plan for FY2020.
* All figures contained in this Business Report are rounded to the nearest unit.

65Consolidated Statement of Financial Position(As of December 31, 2019)(Millions of yen)Account title

AmountAccount title

Current assets

AmountCurrent liabilities

Cash and cash equivalents

357,158

Trade and other payables

408,597

Trade and other receivables

458,513

Bonds and borrowings

284,135

Inventories

677,586

Income tax payables

69,543

Other financial assets

21,943

Other financial liabilities

21,862Other current assets

410,443

Provisions

16,5701,925,643

Other current liabilities

701,05030

Total current liabilities

1,501,757

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

1,925,673

Non-current assets
Property, plant and equipment
Goodwill

Non-current liabilities
803,239

Bonds and borrowings

690,367

2,002,595

Other financial liabilities

41,062Intangible assets

440,434

Retirement benefit liabilities

320,614

Investment property

16,588Provisions

19,463Retirement benefit assets

67,377

Other non-current liabilities

155,768

Investments accounted for using theequity method

52,903

Deferred tax liabilities

80,430

Other financial assets

109,568

Total non-current liabilities

Deferred tax assets

134,696

Total non-current assets

Total liabilities

3,627,397

2,809,459

EquityShare capital

100,000

Capital surplus

736,400

Treasury shares(492,469)

Other components of equity(431,741)

Retained earnings

2,750,506

Equity attributable to owners of theparent company

2,662,696

Non-controlling interests

Total assets

1,307,702

5,553,071

66

80,916

Total equity

2,743,611

Total liabilities and equity

5,553,071

Consolidated Statement of Income(Year ended December 31, 2019)(Millions of yen)Account title

AmountRevenue

2,175,626

Cost of sales(942,299)

Gross profit

1,233,326

Other operating income

95,725

Share of profit in investments accounted for using the equity method

5,011

Selling, general and administrative expenses(831,707)

Operating profit

502,355

Financial income

8,402

Financial costs(45,526)

Profit before income taxes

465,232

Income taxes(103,609)

Profit for the period

361,622

Attributable to:
Owners of the parent company

348,190

Non-controlling interests

13,43267

Nonconsolidated Balance Sheet(As of December 31, 2019)(Millions of yen)Account title

AmountAccount title

ASSETS
Current assets

AmountLIABILITIES
477,597

Current liabilities

696,054

Cash and deposits

80,282

Accounts payable–trade

10,304

Accounts receivable–trade43,174Current portion of bonds

80,000

Securities

40,000

Lease obligations

2,769

Merchandise and finished goods

32,756

Accounts payable–other

60,869Semi-finished goods

68,416

National tobacco excise taxes payable

71,178Work in process

2,262

National tobacco special excise taxes payable

10,060Raw materials and supplies

40,120Local tobacco excise taxes payable

81,718Advance payments–trade

2,093

Income taxes payable

10,555Prepaid expenses

9,893

Accrued consumption taxes

32,758Cash management system deposits received

323,313

Short-term loans receivable from subsidiaries
and affiliates
Other
Allowance for doubtful accounts

99,53659,091
(26)

4,726

Other

7,806

Noncurrent liabilities

500,937

Bonds payable

291,904

Long-term loans payable

70,000Property, plant and equipment

246,540

Lease obligations

6,113

Buildings

92,396

Provision for retirement benefits

Structures

2,686

Other

Machinery and equipment

59,262

Noncurrent assets

2,136,759

Provision for bonuses

129,3223,598
1,196,991

Total liabilities

Vehicles

1,827

Tools, furniture and fixtures

16,586

Shareholders’ equity

Land

71,279

Capital stock

100,000

Construction in progress

2,503

Capital surplus

736,400

Legal capital surplus

736,400

Intangible assets
Patent right

NET ASSETS

336,031

Retained earnings

1,403,136

1,059,205

224

Legal retained earnings

18,776

Right of trademark

98,896

Other retained earnings

1,040,429

Software

19,581

Goodwill

214,626

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

new business

378

Reserve for reduction entry

45,373

2,705

Special account for reduction entry

1,747

1,554,189

Retained earnings brought forward

992,930

22,566

Treasury shares

1,482,083

Valuation and translation adjustments
Valuation difference on available-for-sale

17,040Long-term prepaid expenses

9,268

Deferred tax assets

13,053

Other

11,841

Allowance for doubtful accounts(1,663)

Total assets

Reserve for investment loss on developing

securities
Deferred gains or losses on hedges
Subscription rights to shares

2,614,357

68(492,469)
12,673
7,283
5,390
1,556

Total net assets

1,417,365

Total liabilities and net assets

2,614,357

Nonconsolidated Statement of Income(Year ended December 31, 2019)(Millions of yen)Account title

AmountNet sales

660,805

Cost of sales

195,933

Gross profit

464,872

Selling, general and administrative expenses

335,858

Operating income

129,014

Non-operating income
Interest income

210

Dividends income

148,354

Other

7,812

156,376

Non-operating expenses
Interest expenses

519

Interest on bonds

4,084

Other

1,819

6,422
278,968

Ordinary income
Extraordinary income
Gain on sales of noncurrent assets

14,202Gain on sales of investment securities

22,912Gain on transfer of licenses

18,381

Other

1,000

56,495Extraordinary losses
Loss on sales of noncurrent assets

52

Loss on retirement of noncurrent assets

7,025

Impairment loss

8,521

Loss on liquidation of subsidiaries

20,524

Other

3,461

39,584
295,879

Income before income taxes
Income taxes-current

37,329

Income taxes-deferred(3,920)33,409262,469

Net income

69

(TRANSLATION)

INDEPENDENT AUDITOR'S REPORT

February 7, 2020

To the Board of Directors ofJapan Tobacco Inc.:

Deloitte Touche Tohmatsu LLC

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

Yukitaka Maruchi (Seal)

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

Yasuhiko Haga

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

Yoichi Matsushita (Seal)(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, 2019 ofJapan Tobacco Inc. and its consolidated subsidiaries, and the related consolidated statements of income
and changes in equity for the fiscal year from January 1, 2019 to December 31, 2019, and the related notesof significant matters for preparing consolidated financial statements and other related notes toconsolidated 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 theOrdinance on Company Accounting which allows companies to prepare consolidated financial statementswith the omission of a part of the disclosures required under International Financial Reporting Standards("IFRS"), and for such internal control as management determines is necessary to enable the preparationof consolidated financial statements that are free from material misstatement, whether due to fraud or error.
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. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free 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 assessment of 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 theentity's preparation and fair presentation of 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 ofaccounting policies used and the reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements.

70

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 partof the disclosures required under IFRS pursuant to the provisions of the second sentence of the firstparagraph of Article 120 of 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, 2019,
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.

71

(TRANSLATION)

INDEPENDENT AUDITOR'S REPORT

February 7, 2020

To the Board of Directors ofJapan Tobacco Inc.:

Deloitte Touche Tohmatsu LLC

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

Yukitaka Maruchi (Seal)

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

Yasuhiko Haga

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

Yoichi Matsushita (Seal)(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,
2019 of Japan Tobacco Inc. and the related nonconsolidated statements of income and changes in net
assets for the 35th fiscal year from January 1, 2019 to December 31, 2019, and the related notes ofsignificant accounting policies and other related notes to nonconsolidated financial statements, and theaccompanying supplemental schedules.
Management's Responsibility for the Nonconsolidated Financial Statements
Management is responsible for the preparation and fair presentation of these nonconsolidated financial
statements and the accompanying supplemental schedules in accordance with accounting principles
generally accepted in Japan, and for such internal control as management determines is necessary toenable the preparation of nonconsolidated financial statements and the accompanying supplemental
schedules that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these nonconsolidated financial statements and theaccompanying supplemental schedules based on our audit. We conducted our audit in accordance withauditing standards generally accepted in Japan. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the nonconsolidated financial statements and theaccompanying supplemental schedules are free from material misstatement.

72

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 depend on the auditor's judgment, including the assessment of the risks of material misstatementof the nonconsolidated financial statements and the accompanying supplemental schedules, whether due
to fraud or error. In making those risk assessments, the auditor considers internal control relevant to theentity's preparation and fair presentation of the nonconsolidated financial statements and theaccompanying supplemental schedules in order to design audit procedures that are appropriate in thecircumstances, 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 thereasonableness 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 to above present fairly, in all material respects, the nonconsolidated financial position of Japan
Tobacco Inc. as of December 31, 2019, and the results of its operations for the year then ended inaccordance 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 theattached financial documents.

73

[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 35th fiscal year from January 1, 2019
to December 31, 2019, the Audit & Supervisory Board hereby submits its audit report, which has been preparedthrough discussions based on the audit report prepared by each Audit & Supervisory Board Member.
1. Auditing Methods Employed by Audit & Supervisory Board Members and the Audit & Supervisory Board
and Details of Such Methods(1) The Audit & Supervisory Board established auditing policies, allocation of duties, and other relevant matters,
and received reports from each Audit & Supervisory Board Member regarding his or her audits and results
thereof, as well as received reports from the Members of the Board, other relevant personnel, and Independent
Auditors regarding performance of their duties, and sought explanations as necessary.
(2) Each Audit & Supervisory Board Member complied with the auditing standards of Audit & Supervisory
Board Members established by the Audit & Supervisory Board, followed the auditing policies, allocation 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 withMembers of the Board, Audit & Supervisory Board Members, and other relevant personnel of the subsidiaries,
and received business reports from subsidiaries as necessary.
ii) We monitored and verified the details of the resolution of the Board of Directors related to the system that
ensures Members of the Boards are carrying out their duties in compliance with laws and regulations and the
Articles of Incorporation, and other systems that ensure the propriety of the operations of the corporate group
comprised of a stock company and its subsidiaries, which are described in paragraphs 1 and 3 of Article 100 of
the Regulation for Enforcement of the Companies Act. We also monitored and verified the condition of 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 Regulation on Corporate Accounting) 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 ofincome, and non-consolidated statement of changes in net assets) and the accompanying supplemental schedules,74

as well as consolidated financial statements (consolidated statement of financial position, consolidated
statement of income, and consolidated statement of changes in equity, which omit some disclosure items
required under International Financial Reporting Standards (IFRS) in accordance with the provision of thesecond sentence of Article 120, paragraph 1 of the Regulation on Corporate Accounting) related to the relevantbusiness 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 13, 2020
The Audit & Supervisory Board, Japan Tobacco Inc.

Standing Audit & Supervisory Board Member

Ryoko Nagata(seal)

Standing Audit & Supervisory Board Member

Hiroshi Yamamoto(seal)

Standing Audit & Supervisory Board Member

Toru Mimura(seal)

Audit & Supervisory Board Member

Hiroshi Obayashi(seal)

Audit & Supervisory Board Member

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

75