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

Securities Code: 2914
February 27, 2015
To Our Shareholders
Mitsuomi Koizumi
President, Chief Executive Officer andRepresentative Director

Japan Tobacco Inc.
2-1, Toranomon 2-chome, Minato-ku, TokyoNOTICE OF CONVOCATION OF
THE 30TH ORDINARY GENERAL MEETING OF SHAREHOLDERS
You are cordially invited to attend the 30th ordinary general meeting of shareholders of Japan Tobacco Inc.
(“JT” or the “Company”) to be held as set forth below.
If you cannot attend the meeting, you may exercise your voting rights in written form or byelectromagnetic means including the Internet. Please see the “Reference Documents for the General
Meeting of Shareholders” hereinafter described and exercise your voting rights by 6:00 p.m., on
Thursday, March 19, 2015, by returning to us by that time the Voting Rights Exercise Form enclosed
herewith indicating whether you are for or against each of the items, or by accessing the web-site
designated by us for the exercise of voting rights (http://www.evote.jp/).
Particulars
1. Date and Time of the Meeting: Friday, March 20, 2015 at 10:00 a.m.
The reason the date of the meeting is at a different time of the year fromthe date of the 29th Ordinary General Meeting of Shareholders is that theclosing date of the Company’s business term has been changed fromMarch 31 to December 31.
2. Place of the Meeting:

The Prince Park Tower Tokyo
Second basement, Ball Room
8-1, Shibakoen 4-chome, Minato-ku, Tokyo(The place of the meeting is different from that of last year’s meeting.)

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

1. Report on the Business Report, the Consolidated Financial Statements,
and the Accounting Auditors’ Report and JT’s Audit & Supervisory
Board Report on the Consolidated Financial Statements for the 30th
Business Term (From April 1, 2014 to December 31, 2014)
2. Report on the Non-Consolidated Financial Statements for the 30th
Business Term (From April 1, 2014 to December 31, 2014)

Matters to be Resolved:
Company’s Proposals (Item 1 to Item 3)
Distribution of Surplus
Item 1:
Election of Four (4) Audit & Supervisory Board Members
Item 2:
Election of One (1) Substitute Audit & Supervisory Board Member
Item 3:-1-

Shareholder’s Proposals (Item 4 and Item 5)
Dividend Proposal
Item 4:
Share Buy-backItem 5:
4. Other Decisions on the Convocation of the Meeting(1) If the voting right is exercised both by return of the Voting Rights Exercise Form and via the Internet,
only the exercise of the voting right via the Internet shall be valid.
(2) If the voting right is exercised more than once via the Internet, only the last exercise of the voting rightshall be valid.

Information on Matters Posted on JT’s Web-site
1. Notes to Consolidated and Non-Consolidated Financial Statements are posted on our web-site(http://www.jti.co.jp/) in accordance with laws and regulations, and the provision in Article 17 of the
Articles of Incorporation. Therefore, they are not included in this Notice of Convocation of the 30th
Ordinary General Meeting of Shareholders.
In addition to documents stated in the reference documents attached to the Notice of Convocation of the
30th Ordinary General Meeting of Shareholders, Notes to Consolidated and Non-Consolidated Financial
Statements posted on the Company’s web-site are included in Consolidated and Non-Consolidated
Financial Statements audited by Audit & Supervisory Board Members and the Accounting Auditors in thecourse of preparing Audit Report and Accounting Auditors’ Report respectively.

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

JT’s web-site

http://www.jti.co.jp/

Guidance to our shareholders attending the General Meeting of Shareholders* The place of the meeting on this occasion (30th Ordinary General Meeting of Shareholders) will be “ThePrince Park Tower Tokyo.” Please note that this place is different from the “Tokyo Prince Hotel,” which
was the place on the previous occasion (29th Ordinary General Meeting of Shareholders).
* For those attending, please bring this Notice of Convocation of the 30th Ordinary General Meeting of
Shareholders with you.
* It is expected to be crowded immediately before the meeting begins. If meeting room No.1 becomes full,
you will be ushered to meeting room No.2. We ask that you 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 the 30th Ordinary General
Meeting of Shareholders is supposed to be eligible to serve as your agent.
* Please note that the meeting will be conducted in Japanese only. An interpreter, including a sign language
interpreter, may accompany you. If you would like to have an interpreter accompany you, please tell so at
the reception desk. It is also possible for us to arrange a Japanese sign language interpreter for you. If you
are in need of this service, please inquire us in writing by March 13 (your letter of inquiry must reach us by
this date).
* The Company plans to give gifts to the shareholders who attend on the day. Please note, however,shareholders will receive just one package, regardless of how many Voting Rights Exercise Forms are held.

-2-Instructions for Exercising Your Voting Rights
Exercise of voting rights at the Company’s General Meeting of Shareholders is shareholders’ important right.
Please by all means exercise your voting rights.

Relation between Item 1, company’s proposal, and Item 4, shareholder’s proposal:
Item 4 “Dividend Proposal,” which is a shareholder’s proposal, is a counter proposal against Item
1 “Distribution of Surplus,” which is the Company’s proposal. Therefore, Item 1 and Item 4 areincompatible. In addition, if there is no indication of “for” or “against” on each proposal, it shallbe deemed that you have voted “for” the Company’s proposal and “against” the shareholder’s
proposal. Accordingly, please note that, in cases where you exercise your voting rights to vote “for”
both Item 1 and Item 4 in written form or by electromagnetic means, or to vote neither “for” nor“against” Item 1 and to vote “for” Item 4 in written form, the exercise of the voting rights
concerning Item 1 and Item 4 will be invalid.
There are three methods to exercise your voting rights as indicated below.
In case of attending themeeting

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

In case of exercising the
Voting Rights by post

Please post the Voting Rights Exercise Form indicating
whether you are for or against each of the items so as tobe returned to us by 6:00 p.m., on Thursday, March 19,
2015.

C．

In case of exercising the
Voting Rights via theInternet

See the next page.

A．

To institutional
investors

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

-3-

Instructions for Exercise of the Voting Rights via the Internet

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

Particulars
1. Voting Rights Exercise Web-site
Voting Rights Exercise
Web-site

http://www.evote.jp/(1) The exercise of the voting rights via the Internet is available only by accessing the Voting Rights
Exercise Web-site from your computer or smartphone. (However, you will not be able to access theweb-site from 2:00 a.m. to 5:00 a.m. each day during the exercise period.)(2) If you use firewalls, etc. for the Internet connection, antivirus programs or a proxy server, you may not
be able to access the web-site depending on your Internet environment.
(3) The exercise of the voting rights via the Internet is only available until 6:00 p.m. on Thursday, March
19, 2015. We appreciate it if you exercise your voting rights at your earliest convenience.

2. Exercise of the Voting Rights via the Internet(1) On the Voting Rights Exercise Web-site, please indicate whether you are for or against each of theitems following the directions on the web-site using the “Log-in ID” and “Temporary Password”
described in the Voting Rights Exercise Form.
(2) In order to prevent unauthorized access (web spoofing) or alteration of the voting by non-shareholders,
you will be asked to change your “Temporary Password” on the Voting Rights Exercise Web-site.
(3) JT will notify you of the new “Log-in ID” and “Temporary Password” at each convocation of theGeneral Meeting of Shareholders.

3. In the Event Voting Rights Are Exercised More than Once
(1) If the voting right is exercised both by return of the Voting Rights Exercise Form and via the Internet,
only the exercise of the voting right via the Internet shall be valid.
(2) If the voting right is exercised more than once via the Internet, only the last exercise of the voting rightshall be valid.

4. Fees Incurred When Accessing the Voting Rights Exercise Web-site
Each shareholder shall bear any fees for accessing the Voting Rights Exercise Web-site (Internet provider
connection fees, communications fees, etc.).

-4-

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

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

REFERENCE DOCUMENTS
FOR THE GENERAL MEETING OF SHAREHOLDERS
Company’s Proposals (Item 1 to Item 3)
Company’s Proposal
Item 1: Distribution of Surplus
The Company prioritizes business investments for sustainable future profit growth in the mid- to long-term,in line with its management principles, and seeks to improve the attractiveness of our shareholder returns at
the same time by benchmarking global FMCG* companies in a variety of sectors.
In accordance with this policy, year-end dividends for the 30th Business Term will be paid as described
below.
(1) Type of assets to be paid as dividends:
Cash(2) Allotment of assets to be paid as dividends and their aggregate amount:¥50 per share of Common Stock of JT

Aggregate amount: ¥90,877,830,600

Together with the interim dividends of ¥50 per share paid in December 2014, the annual dividends forthe 30th Business Term will be ¥100 per share, a ¥4 increase year-on-year.
(3) Effective date for distribution of surplus:
March 23, 2015
*FMCG: Fast Moving Consumer Goods (daily consumer goods)

Reference

Shareholders

Consumers

Society

Employees

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

In the Business Plan 2015, the Company set out targets for the adjusted operating profit (*1) growth rate
(at constant rates of exchange), the consolidated dividend payout ratio and the adjusted EPS (*2) growthrate (at constant rates of exchange) as follows.

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

Mid to high single-digit annual average growth rate over themid- to long-term-6-

Shareholder Return Target
Consolidated Dividend Payout
Ratio

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

Adjusted EPS Growth Rate(at constant rates of exchange)

High single-digit annual average growth rate over the mid- tolong-term*1*2

Effective from the fiscal year ended December 31, 2014, the profit target measurement has been changed
to adjusted operating profit (at constant rates of exchange). Adjusted operating profit is calculated bydeducting amortization of intangible assets associated with acquisitions and adjustment items (income
and costs) from operating profit (loss). Adjustment items (income and costs) are impairment losses on
goodwill, restructuring-related income and costs, and others.
In addition, adjusted operating profit (at constant rates of exchange) growth rate in the consolidated
performance is a financial measurement that excludes foreign exchange effects by translating andcalculating adjusted operating profit for the current period in the international tobacco business using theforeign exchange rates of the same period of the previous fiscal year.
Adjusted EPS = (Profit or loss attributable to owners of the parent company ± adjustment items (income
and costs)* ± tax and minority interests relevant to adjustment items) / (weighted-average commonshares + increased number of common shares under subscription rights to shares)* Adjustment items (income and costs): Impairment losses on goodwill ± restructuring income and costs± others-7-Company’s Proposal
Item 2: Election of Four (4) Audit & Supervisory Board Members
The terms of office of all four (4) present Audit & Supervisory Board Members will expire at the conclusionof this ordinary general meeting of shareholders. Accordingly, the election of four (4) Audit & Supervisory
Board Members is proposed.
The Audit & Supervisory Board has approved this proposition.
The candidates for the office of Audit & Supervisory Board Member are as follows:
Candidate Number

1

Futoshi Nakamura(Born November 23, 1957)

Number of the Company’s Shares Held

4,800

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

Reappointed

April 1981

Joined the Company (Japan Tobacco and Salt Public Corporation)

July 2004

Head of Procurement Planning Division

September 2005

Senior Manager of Operational Review and Business Assurance Division
Vice President, JT International Holding B.V.

July 2009

Senior Manager of Accounting Division

July 2010

Head of Operational Review and Business Assurance Division

June 2012

Standing Audit & Supervisory Board Member(Current position)

Candidate Number

2

Tomotaka Kojima(Born December 19, 1953)

Number of the Company’s Shares Held0

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

Reappointed

April 1976

Entered Ministry of FinanceJuly 2000

Director-General of the Fukuoka Local Finance Branch Bureau

July 2002

Deputy Head of Finance Group of the Company

July 2004

Deputy Director-General of Employee Welfare Bureau, General Secretariat, National
Personnel Authority

April 2007

Deputy Director-General of General Secretariat, National Personnel Authority

January 2008

Director-General of Equity and Investigation Bureau, General Secretariat, National Personnel
Authority

August 2009

Commissioner, National Hospital Organization

November 2010

Executive Secretary, Japan Association of Corporate Directors

June 2013

Standing Audit & Supervisory Board Member(Current position)-8-

Candidate Number

Number of the Company’s Shares Held700

Number of years as Audit & Supervisory Board
Member (at the conclusion of this ordinary general
meeting of shareholders)3

Yoshinori Imai

(Born December 3, 1944)

3 years and9 months

Attendance at meetings of the Board of
Directors

Attended 11 out of 11
meetings held

Attendance at meetings of Audit &Supervisory Board

Attended 10 out of 10
meetings held

Brief Personal History, Positions in the Company, and Significant Concurrent Positions outside the Company
April 1968

Joined Japan Broadcasting Corporation

June 1995

Bureau Chief of General Bureau for Europe,
Japan Broadcasting Corporation

Reappointed
Candidate for
Outside Audit &Supervisory Board
MemberIndependent
AuditorMay 2000

Director General, Planning & Broadcasting
Department, Japan Broadcasting Corporation

June 2003

Executive Editor and Programme Host, Japan
Broadcasting Corporation

January 2008

Executive Vice President, Japan Broadcasting
Corporation

January 2011Retired from Executive Vice President, Japan
Broadcasting Corporation

April 2011

Visiting Professor, Ritsumeikan University(Current position)

June 2011

Outside Audit & Supervisory Board Member(Current position)-9-

Reasons for nomination as a
candidate for Outside Audit &Supervisory Board Member
We comprehensively judged that he issuitable to be an Outside Audit &Supervisory Board Member considering
his abundant experiences and broad
insights into global politics andeconomics gained from performing
responsibilities as Executive Vice
President of Japan Broadcasting
Corporation (NHK). While he has notbeen involved in corporate management,
it is judged that he would be able toappropriately execute his duty as
Outside Audit & Supervisory Board
Member for the above-mentioned
reasons and based on the fact that he has
sufficiently performed his duty as theCompany’s Audit & Supervisory Board
Member.

Candidate Number

4

Hiroshi Obayashi(Born June 17, 1947)

Number of the Company’s Shares Held0

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

Newlyappointed

April 1970

Judicial Apprentice

April 1972

Appointed as Public Prosecutor

May 2001

Director-General of the Rehabilitation
Bureau, Ministry of Justice

Candidate for
Outside Audit &Supervisory Board
MemberIndependent
AuditorJanuary 2002

Deputy Vice-Minister of Justice, Ministry ofJustice

June 2004

Director-General of the Criminal Affairs
Bureau, Ministry of Justice

June 2006

Vice-Minister of Justice, Ministry of Justice

July 2007

Superintending Prosecutor, Sapporo High
Public Prosecutors’ Office

July 2008

Reasons for nomination as a candidate
for Outside Audit & Supervisory
Board Member
We comprehensively judged that he issuitable to be an Outside Audit &Supervisory Board Member considering
his abundant experiences and broad
insights in the legal circles.
While he has not been involved incorporate management, it is judged that
he would be able to appropriately
execute his duty as Outside Audit &Supervisory Board Member for theSuperintending Prosecutor,
Tokyo High Public Prosecutors Office

June 2010

Prosecutor-General

December 2010Retired from the office of Prosecutor-General

March 2011

Registered as Attorney at Law(Current position)(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, NIPPON STEEL & SUMITOMO METAL CORPORATION(Notes) 1. No conflict of interest exists between the Company and the above candidates.
2. The Company has entered into an agreement with Yoshinori Imai to limit his liabilities stipulated in Article 423, Paragraph 1 of theCompanies Act to the extent permitted by the laws and ordinances. Should his election be approved, the Company intends to extend theagreement. The Company intends to enter into an agreement with Hiroshi Obayashi to limit his liabilities stipulated in Article 423,
Paragraph 1 of the Companies Act to the extent permitted by the laws and ordinances, should his election be approved.
3. The Company has designated Yoshinori Imai as an independent director as prescribed by the Tokyo Stock Exchange, Inc. and intends todesignate him as such again, should his election be approved. The Company intends to designate Hiroshi Obayashi as an independent
director as prescribed by the Tokyo Stock Exchange, Inc., should his election be approved.

- 10 -

Company’s Proposal
Item 3: Election of One (1) Substitute Audit & Supervisory Board Member
In preparation against a situation where the number of Outside Audit & Supervisory Board Member falls
below the statutory required number, the election of one (1) Substitute Audit & Supervisory Board Member is
proposed.
The Audit & Supervisory Board has approved this proposition.
The candidate for the office of Substitute Audit & Supervisory Board Member is as follows:

Michio Masaki(Born February 20, 1961)

Number of the Company’s Shares Held

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

Judicial Apprentice

April 1989

Appointed as Public Prosecutor

July 2003

Head of Takasaki Branch, Maebashi District
Public Prosecutors Office

April 2004

Registered as Attorney at Law
City-Yuwa Partners(Current Position)(Significant Concurrent Positions outside the Company)

Reasons for nomination as a candidate
for Substitute Outside Audit &Supervisory Board Member
He is deemed able to perform the duties
as the Company’s Outside Audit &Supervisory Board Member based on his
abundant experience and extensive insightin the legal circles. While he has not been
involved in corporate management, it isjudged that he would be able toappropriately execute his duty as Outside
Audit & Supervisory Board Member forthe above-mentioned reasons.

Attorney at Law, City-Yuwa Partners
Outside Director, Hamai Co., Ltd.

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

- 11 -

0Shareholder’s Proposals (Item 4 and Item 5)

The proposals of Item 4 and Item 5 were made by a shareholder.

The Board of Directors’ general view on the shareholder’s proposals

The Board of Directors is opposed to both two proposals from the proposing shareholder.
The Board of Directors believes that it is in the best interests of all shareholders to achieve sustainable profit
growth in the mid- to long-term through business investments for future profit growth and to increase theCompany’s value thereby.
As well as the proposals that were rejected each time at the General Meeting for Shareholders in the last
three years from June 2012, the proposals from the proposing shareholder are based upon the premise that a
return to shareholders should be the Company’s top priority. However, the proposals are against theCompany’s management principle, the “4S model”—which balances the interests of consumers,
shareholders, employees and wider society, and fulfills the Company’s responsibilities towards them, aiming
to exceed their expectations.
Further, the proposals from the proposing shareholder are based upon a short-term view that is focused on
the premise that the Company should return all free cash flow as of December 31, 2014 to shareholders,
without taking into account changes in the business environment in the future and the necessities for futurebusiness investments. If the proposals were approved, they would restrict business investments which haveled our profit growth so far and become an obstacle to increasing corporate value.
The Board of Directors recommends all shareholders of the Company to oppose all of the shareholder’s
proposals.

- 12 -

The agenda and reasons for the proposals made by the shareholder which are stated as presented, together
with the Board of Directors’ view on each of them, are as follows.

Shareholder Proposal
Item 4: Dividend Proposal
1. Proposal
The year-end dividends on shares of Common Stock for the 30th fiscal year shall be paid in the amount of
JPY150 per share of Common Stock.

2. Reason for Proposal
As long term shareholders we believe that the Company would create more long term value for all
shareholders if they would return all Free Cash Flow to shareholders through a higher dividend payout andshare buy backs. We estimate that the Company’s Free Cash Flow for the year ending 31 December 2014 to
be JPY425bn, close to JPY230 per share, which is more than sufficient to pay JPY150 per share. The
Company generates insignificant returns on any excess cash that it holds. The Company has no net debt anddoes not need to invest in new capacity as cigarette volumes are shrinking. Future acquisitions andparticipation in dilution of the Government’s stake can be financed by raising debt as the company has
sufficient room to increase its leverage.

The Board of Directors’ view on Item 4

The Board of Directors is opposed to this proposal.
The Board of Directors has prioritized business investments for sustainable profit growth in the mid- to longterm, while at the same time pursuing a competitive level of return to shareholders in comparison to global
FMCG players. (*1)
The Company has achieved a compound average profit growth rate of 11.7% (*2) (*3) during the fiscal
years 2000 to 2014 through business investments which include the acquisitions of RJR International andGallaher. In the international tobacco business that we have focused on in particular so far, the Company has
achieved a compound average US dollar based EBITDA (*4) growth rate of 20.1% during the period of2000 to 2014.
Further, the Company has steadily enhanced the amount of return to shareholders with a compound average
growth rate of 24.4% in dividend per share (*5) during the past six years through profit growth and acontinuous increase in the dividend payout ratio (*6).
The dividend per share at the end of the fiscal year 2014 (a transitional period covering April to December) is
expected to be ¥50 according to the Company’s proposal Item 1. As a result, the total dividend per share forthe fiscal year is expected to be ¥100, which increases the dividend per share from the fiscal year 2013, while
the fiscal year 2014 is a transitional period covering only nine months from April to December 2014.
In the Business Plan 2015 announced on February 5, 2015, the Board of Directors expects that dividend pershare for the fiscal year 2015 (from January to December 2015) to be ¥108 (consolidated dividend payout
ratio: 50.7%), while setting out a target rate for the consolidated dividend payout ratio of 50%, which iscomparable to global FMCG players. The Company will continue to provide a steady return to shareholders.

- 13 -

In the meantime, the proposing shareholder argues that “the Company does not need to invest in new
capacity as cigarette volumes are shrinking.” However, for the development of more compelling productsthat suit the tastes of consumers in each market, the Board of Directors considers it appropriate to maintaininvestments in the tobacco business, which is the Company’s core business, for the following purposes:- Enhancement of the brand equity, for instance, quality enhancement or the packaging improvementof the Company’s products centered on GFB (*7);- Expansion of geographic footprint and product portfolio including not only conventional cigarettes
but also emerging tobacco products.
If the proposing shareholder’s proposal for return were approved, the total amount of annual dividend pershare in the fiscal year 2014 would be ¥200 (including interim dividend), which amounts to a consolidated
dividend payout ratio of 100.2% and total dividend amount of ¥363.5 billion. The Board of Directors
believes that the proposal, which is based upon the premise that the Company should return all free cash flow
to shareholders, is focused on the short-term and if approved, it would restrict business investments for futuresustainable profit growth and become an obstacle to the improvement of corporate value.

*1 FMCG: Fast Moving Consumer Goods*2 FY2000-FY2009: Operating profit based on J-GAAP, FY2010-FY2012: Operating profit based on IFRS,FY2013-FY2014: Adjusted operating profit based on IFRS(The Company refers to FY2014 as a full calendar year from January 1 to December 31 due to a change in
the accounting period. Also, the Company has come to use Adjusted operating profit as one of its key
performance indicators since FY2014.)*3 Adjusted operating profit = Operating profit + Amortization of acquired intangibles ± Adjusted items(income and costs)
Adjusted items (income and costs) = Impairment losses on goodwill ± Restructuring income and costs ±Others*4 EBITDA = Operating profit + Depreciation and amortization(2000-2009: EBITDA based on US-GAPP, 2010: EBITDA based on IFRS, 2011-2014: Adjusted EBITDA
based on IFRS)*5 A 200 for 1 share split was effectuated as of July 1, 2012. The above numbers are calculated on theassumption that the share split was retroactively effective.
*6 Consolidated dividend payout ratio for FY2010 and prior fiscal years are calculated in J-GAAP based on
earning before goodwill amortization. FY2011 and fiscal years thereafter are calculated in IFRS.
(Consolidated dividend payout ratio for FY2014, a transitional period, is based on the nine month period
from April 1 to December 31)*7 GFB: The eight brands that play the central role in the brand portfolio of the Company’s group—“Winston,”“Camel,” “Mevius,” “Benson and Hedges,” “Silk Cut,” “LD,” “Sobranie,” and “Glamour”- 14 -

Reference: JT Group’s profit growth

Reference: Dividend payment per share and consolidated dividend payout ratio- 15 -

Shareholder Proposal
Item 5: Share Buy-back
1. Proposal
Pursuant to Article 156.1 of the Companies Act, the Company will acquire its shares of Common Stock in
exchange for cash as follows:- Shares to be acquired: 40,000,000;- Total aggregate amount for acquisition: JPY150,000,000,000 (the "Proposed Amount"); provided that,
if the total aggregate amount for acquisition as permitted under the Companies Act (the "Distributable
Amount" as set forth in Article 461 of the Companies Act) is less than the Proposed Amount, it shall be
reduced to such amount as permitted under the Companies Act; and- Period for the acquisition: Within 1 year from the end of this general shareholders meeting.
2. Reason for Proposal
The capital structure of the Company is underleveraged and the Shares are undervalued. The Company
should use its excess cash resources to buy back shares and to raise its dividend payout. This will ensure theBoard delivers on its pledge to prioritize the return of profits to shareholders and to deliver a competitive
shareholder return with balance sheet leverage closer to its competitors. We propose that the Company
returns all Free Cash Flow to shareholders in the form of dividends and share buy backs. The Company’s
measure of Free Cash Flow should be earnings before depreciation, amortization, interest payments and tax,
less capital expenditure, less net interest payments and less tax.

The Board of Directors’ view on Item 5
The Board of Directors is opposed to this proposal.
The Board of Directors has prioritized business investments for sustainable profit growth in the mid- tolong-term, and is also pursuing a competitive level of return to shareholders in comparison to global FMCG
players.
The Board of Directors aims for high single digit growth of adjusted EPS (*8) (at constant rates of
exchange), which we set as the key performance indicator regarding return to shareholders, in the mid- tolong-term and will consider the share buy-back as a supplemental measure for EPS growth.
The Board of Directors believes that it is the best that it will determine the share buy-back, including
authorizing a share buy-back and its timing, upon its own responsibility and discretion so that the Company
can buy back its shares in a timely and appropriate manner in accordance with necessities for business
investments, financial conditions, or others, based upon the Company’s business principles and capital
strategy. The Company has determined the share buy-back of 36,000,000 shares at a total amount of¥100,000,000,000 at a maximum as of February 5, 2015.
In the meantime, the proposing shareholder argues in its proposal that “share buy-back will ensure the Board
delivers on its pledge to prioritize the return of profits to shareholders and to deliver a competitive
shareholder return with balance sheet leverage closer to its competitors.” The Company, however, hasannounced its strategy to pursue a competitive return to shareholders in comparison to global FMCG players
based upon the business principles of the “4S model,” aiming at balancing business investments and returns
to shareholders.
The proposal is based upon the premise that the Company should return all free cash flow to shareholders,and is short-term focused. If the proposal were approved, it would restrict business investments for futuresustainable profit growth and become an obstacle to the improvement of corporate value.
*8 Adjusted EPS = (Profit or loss attributable to owners of the parent company ± Adjusted items (income andcosts) ± Tax and minority interests adjustments) / (Weighted-average common shares + Increased number ofcommon shares under subscription rights to shares)*Adjusted items (income and costs): Impairment losses on goodwill ± Restructuring income and costs ±Others- 16 -

[Attached Documents]

Business Report(From April 1, 2014 to December 31, 2014)

Effective from the current fiscal year, the Company and those of its consolidated subsidiaries with fiscal year
ends other than December 31 have changed their fiscal year ends to December 31.
As a result of this change, the consolidated fiscal year end date has been changed from March 31 to December
31, and the current fiscal year is the 9-month period from April 1, 2014, through December 31, 2014.
In addition, the fiscal year end date of JT International Holding B.V. and its subsidiaries, which operate theGroup’s International Tobacco Business, is already December 31. Consequently, the financial results of thesecompanies for the 12-month period from January 1, 2014, through December 31, 2014, have been
consolidated into the Group’s consolidated financial results for the current fiscal year.
As a result of the above, year-on-year comparisons of results other than those of the International Tobacco
Business have been omitted from the Business Report for the current fiscal year.
Figures calculated on the assumption that the Group’s accounting periods for both the previous fiscal year andthe fiscal year ended December 31, 2014, were the periods from January 1 to December 31 are provided as
reference figures for the purpose of making comparisons.

I.

Matters Concerning Present State of the Corporate Group1.

Overview and results of operations
General summary
Revenue
Revenue for the fiscal year ended December 31, 2014 (from April 1 to December 31) was ¥2,154.0
billion. This was mainly the result of favorable pricing in the International Tobacco Business anddepreciation in the yen.

Operating profit, adjusted operating profit and profit attributable to owners of the parent
company
Adjusted operating profit (Note) for the fiscal year ended December 31, 2014 (from April 1 to December31) was ¥588.6 billion. This was mainly the result of favorable pricing in the International Tobacco
Business and depreciation in the yen. Operating profit was ¥499.8 billion, mainly due to recording ofcosts associated with measures to strengthen the competitiveness of the Domestic Tobacco Business andrestructuring of manufacturing facilities in Europe in the International Tobacco Business.
Profit attributable to owners of the parent company was ¥362.9 billion.
(Note)

Adjusted operating profit is calculated by deducting amortization of intangible assets
associated with acquisitions and adjustment items (income and costs) from operating profit(loss). Adjustment items (income and costs) are impairment losses on goodwill, restructuringrelated income and costs, and others.

- 17 -

【Reference】
Figures calculated on the assumption that the Group’s accounting periods for both the previous fiscal
year and the fiscal year ended December 31, 2014, were the periods from January 1 to December 31 areprovided as below.
・Breakdown of Revenue

・Revenue

・Adjusted operating profit

・Profit(attributable to owners of parent company)- 18 -

Review of operations by business segment
Domestic Tobacco Business 30th term (From April 1, 2014 to December 31, 2014)[Billions of yen]

Revenue

505.6(Note 1)

Core revenue

478.7

Adjusted operating profit

172.2

In the fiscal year ended December 31, 2014 (from April 1 to December 31), despite our continuing
efforts to further strengthen brand equity in order to achieve customer retention, sales volume(Note 2) was
82.0 billion cigarettes due to a decline in total demand following the consumption tax hike and an
intensification of competition.
In addition, although market share fell as low as 59.1% in April after the consumption tax hike, it has
been firm since May owing to traction from Mevius and other focus brands, and our market share for the
fiscal year ended December 31, 2014 (from April 1 to December 31) ended at 59.9%.
The impact from the decline in sales volume caused by a demand decline resulting from a rush indemand ahead of the consumption tax hike was partially offset by favorable pricing through customer
retention, and core revenue was ¥478.7 billion. Domestic cigarette revenue per 1,000 cigarettes was¥5,666.
On the other hand, the adjusted operating profit was ¥172.2 billion as a result of decrease in the sales
volume.
(Notes) 1. Core revenue in the Domestic Tobacco Business is calculated by deducting revenue
pertaining to imported tobacco delivery charges, among others, from the revenue.
2. In addition to the figure stated above, during the current fiscal year (From April 1, 2014 toDecember 31, 2014), 2.5 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 JT’s China
Division.

- 19 -

【Reference to Domestic Tobacco Business】
Figures calculated on the assumption that the Group’s accounting periods for both the previous fiscal
year and the fiscal year ended December 31, 2014, were the periods from January 1 to December 31 areprovided as below.
・Core revenue / Adjusted operating profit

・JT sales volume / Industry volume- 20 -

International Tobacco Business 30th term (From January 1, 2014 to December 31, 2014)

Revenue(Note 1)

Core revenue

Adjusted operating profit[Billions of yen]

Change [%]1,328.0

4.6

1,258.2

4.8

447.1

8.8

The fiscal year end date of JT International Holding B.V. and its subsidiaries, which operate the Group’s
International Tobacco Business, is already December 31. Consequently, the financial results of thesecompanies for the 12-month period from January 1, 2014, through December 31, 2014, have been
consolidated into the Group’s consolidated financial results for the current fiscal year.
In the fiscal year ended December 31, 2014 (from January 1 to December 31), although there wereincreases in market share in several key markets such as the U.K. and Spain, there was also an impact
from a decline in total demand mainly in Russia. As a result, total shipment volume(Note 2) decreased by
19.5 billion cigarettes, or 4.7%, from the previous fiscal year (from January 1 to December 31, 2013) to398.0 billion cigarettes, while GFB(Note 3) shipment volume(Note 2) decreased by 5.3 billion cigarettes, or
2.0%, from the previous fiscal year to 262.2 billion cigarettes.
In addition to the impact from the decrease in shipment volume, there were impacts from unfavorable
foreign exchange effects on some local currencies, particularly the ruble. Despite this, dollar-based core
revenue declined by $363 million, or 3.0%, from the previous fiscal year to $11,911 million, andadjusted operating profit increased by $47 million, or 1.1%, to $4,253 million, partly due to favorable
pricing. Adjusted operating profit at constant rates of exchange increased by 13.1%.
As a result of the effects of a weaker yen when making conversions to that currency, yen-based core
revenue increased by ¥57.5 billion, or 4.8%, from the previous fiscal year to ¥1,258.2 billion, andadjusted operating profit increased by ¥36.2 billion, or 8.8%, to ¥447.1 billion.
(Notes) 1. Core revenue in the International Tobacco Business is calculated by deducting revenue
pertaining to distribution business and contract manufacturing, among others, from therevenue.
2. In the calculation of shipment volume, the translation method for RYO/MYO was partiallyamended.
RYO, which is an abbreviation of Roll Your Own, signifies fine cut tobacco to be used by acustomer to roll a cigarette by hand, using rolling paper. MYO, which is an abbreviation ofMake Your Own, signifies fine cut tobacco to be used by a customer to make a cigarette,using a specialized tool and cigarette tubes.
3. We have identified eight brands which serve as flagships of the JT Group’s brand portfolio,
Winston, Camel, Mevius, Benson & Hedges, Silk Cut, LD, Sobranie and Glamour, which wecollectively call the Global Flagship Brands (GFBs).
*

The exchange rates of major currencies against the U.S. dollar were as follows.
Foreign exchange rate
per U.S. dollar

29th term
From January 1, 2013
to December 31, 2013

30th term
From January 1, 2014
to December 31, 2014

Yen

97.73 yen105.79 yen

Ruble

31.84 rubles

38.40 rubles

0.64 pounds sterling

0.61 pounds sterling

0.75 euros

0.75 euros

Pounds sterlingEuro- 21 -

【Reference to International Tobacco Business】
・Core revenue / Adjusted operating profit- 22 -

Pharmaceutical Business 30th term (From April 1, 2014 to December 31, 2014)[Billions of yen]

Revenue

47.6

Adjusted operating profit(6.9)

In the pharmaceutical business, we are striving to establish a stronger profit platform by maximizing
the value of each product and promoting R&D on next-generation strategic products. In the area of
product development, the number of compounds developed in-house that are under clinicaldevelopment is now 10.
In the fiscal year ended December 31, 2014 (from April 1 to December 31), in November 2014 the JAK
inhibitor JTE-052 was out-licensed to LEO Pharma for development and commercialization globally
excluding Japan for topical treatment of skin conditions. As for original JT compounds that have been
out-licensed, Gilead Sciences, Inc., which is the licensee for JTK-303, has filed marketing applications
for the anti-HIV drug “elvitegravir (JTK-303)/cobicistat/emtricitabine/tenofovir alafenamide tablets” tothe US Food and Drug Administration (FDA) and European Medicines Agency (EMA). JT Group
company Torii Pharmaceutical Co., Ltd. started sales in Japan of hyperphosphatemia treatment Riona®
Tablets 250mg in May 2014 and of CEDARTOLEN® SUBLINGUAL DROP - Japanese Cedar Pollen, asublingual immunotherapy drug for Japanese cedar pollinosis, in October 2014. In addition, an
application for manufacturing and marketing approval in Japan was filed in January 2015 for TO-203, anallergen immunotherapy drug for patients with house dust mite allergies, for the indication of allergic
rhinitis.
Revenue for the fiscal year ended December 31, 2014 (from April 1 to December 31) was ¥47.6 billion.
Adjusted operating loss was ¥6.9 billion.
【Reference to Pharmaceutical Business】
Figures calculated on the assumption that the Group’s accounting periods for both the previous fiscal
year and the fiscal year ended December 31, 2014, were the periods from January 1 to December 31 areprovided as below.

- 23 -

Beverage Business 30th term (From April 1, 2014 to December 31, 2014)[Billions of yen]

Revenue
Adjusted operating profit

139.5
0.2

In the Beverage Business, we continued striving to improve profitability. To this end, we not only
implemented product launches centered on the flagship coffee brand “Roots,” but also enhanced
expenditure execution efficiency throughout the business and continued to implement productivity
improvement measures centered on Japan Beverage Holdings Inc., a Group company that operates
vending machines.
In the fiscal year ended December 31, 2014 (from April 1 to December 31), in the flagship coffee brand“Roots,” we actively implemented product launches including the new launch of “Aroma Gold Low
Sugar,” which contains a luxurious blend of high-quality beans (Brazil No. 2), and the launch of arenewal of “Aroma Black Hot Blend,” for which we adopted the most aromatic roasting method in thehistory of “Roots.”
Revenue for the fiscal year ended December 31, 2014 (from April 1 to December 31) was ¥139.5 billion,
due to the effect of unseasonable weather patterns over the summer and intensification of competition in
store sales channels. Adjusted operating profit was ¥0.2 billion due mainly to efficient execution of
expenditure and a reduction in raw material costs.
*After carefully considering the growth strategy for the manufacture and sale of JT beverage products,
the Company concluded that it would be difficult for this business to make a profitable contribution to
the JT Group in the mid- to long term. Thus, from the perspective of total optimization in areas such as
the Group’s resource allocation, a resolution was made to withdraw from manufacture and sale of JT
beverage products in the Beverage Business at a meeting of the Board of Directors held on February 4,
2015, targeting the withdrawal by the end of September 2015. The vending machine operation
business will continue to operate as before. Going forward, the Company will consider various options
for this business.
【Reference to Beverage Business】
Figures calculated on the assumption that the Group’s accounting periods for both the previous fiscal
year and the fiscal year ended December 31, 2014, were the periods from January 1 to December 31 areprovided as below.

- 24 -

Processed Food Business 30th term (From April 1, 2014 to December 31, 2014)[Billions of yen]

Revenue
Adjusted operating profit

122.9
1.3

With Group company TableMark Co., Ltd. taking a central role, the Processed Food Business is
primarily engaged in business concerning frozen and room temperature processed food, mainly staple
food products such as frozen noodles, frozen rice, packed rice and baked frozen bread, bakery chain
outlets in the Tokyo metropolitan area, and seasonings including yeast extracts and oyster sauce. In theProcessed Food Business, we make every effort to produce strong staple food products with establishedmarket shares and work to improve cost competitiveness, thus striving to improve profitability.
In the fiscal year ended December 31, 2014 (from April 1 to December 31), we continued working to
expand product sales with an emphasis on staple food products. Specifically, we conducted vigorous
sales promotions by such means as launching 30 new products and 28 renewed products in the areas offrozen home-use products and room temperature home-use products. These included vigorous sales
promotions for products including “Sanuki Udon Noodles 5 packs” and “Tannen-jikomi Authentic
Sanuki Udon Noodles 3 packs,” and “Using 1/3 of Recommended Daily Serving of Vegetables” series,
which targets consumer health consciousness.
Revenue for the fiscal year ended December 31, 2014 (from April 1 to December 31) was ¥122.9 billion,
due mainly to sales growth in staple food products. Adjusted operating profit was ¥1.3 billion.
【Reference to Processed Food Business】
Figures calculated on the assumption that the Group’s accounting periods for both the previous fiscal
year and the fiscal year ended December 31, 2014, were the periods from January 1 to December 31 areprovided as below.

- 25 -

2.

Status of capital expenditures
In this fiscal year, we made capital expenditures totaling ¥120.8 billion.
In the Domestic Tobacco Business, we spent ¥27.9 billion, mainly on measures to streamline
manufacturing processes; strengthen our ability to respond flexibly to supply and demand fluctuations
with regard to an increasingly diverse range of products; and develop new products. In the International
Tobacco Business, we invested ¥74.2 billion mainly for improvements in product specifications inaddition to improvement, maintenance and renewals of production capability. In the PharmaceuticalBusiness, we spent ¥2.9 billion on enhancing and strengthening research and development structures andthe like. In the Beverage Business, we invested ¥8.3 billion for maintenance and renewals of vending
machines. In the Processed Food Business, we invested ¥3.6 billion in improvement, maintenance andrenewals of production capability.
Please note that our own capital was allocated for capital expenditures.
* Capital expenditures includes land; building and structures; machinery and vehicles; and otherproperty, plant and equipment, as well as goodwill, right of trademark, software and other intangible
assets, necessary for production improvements at factories and other facilities, strengthening
competitiveness and executing business in a variety of fields.

3.

Status of financing
No items to report.

4.

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

5.

Business transfers from other companies
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.

- 26 -

8.

Trends in assets and operating results(1) Trends in assets and operating results of the JT Group

27th term
FY2011
Revenue(Millions of yen)

28th term
FY201229th term
FY201330th term
From April 1,2014 toDecember 31,
2014

2,033,825

2,120,196

2,399,841

2,153,970

441,355

509,355

636,203502,299

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

320,883

343,596

427,987

362,919

Basic earnings per
share
(Yen)

33,701181.07235.48199.67

Total assets(Millions of yen)

3,667,007

3,852,567

4,616,766

4,704,706

Total equity(Millions of yen)

1,714,626

1,892,431

2,596,091

2,622,503

Profit before income
taxes(Millions of yen)

(Notes) 1. Effective from the current fiscal year, the Company and those of its consolidated subsidiaries
with fiscal year ends other than December 31 have changed their fiscal year ends toDecember 31. As a result of this change, the consolidated fiscal year end date has beenchanged from March 31 to December 31, and the current fiscal year is the 9-month period
from April 1, 2014, through December 31, 2014. In addition, the fiscal year end date of JT
International Holding B.V. and its subsidiaries, which operate the Group’s International
Tobacco Business, is already December 31. Consequently, the financial results of thesecompanies for the 12-month period from January 1, 2014, through December 31, 2014, havebeen consolidated into the Group’s consolidated financial results for the current fiscal year.
2. Consolidated financial statements of the JT Group are prepared based on IFRS.
3. JT conducted a share split at a ratio of 200 to 1 with July 1, 2012 as effective date.
Consequently, .basic earnings per share are calculated on the assumption that this share split
was conducted at the beginning of the 28th term.
4. All the financial figures for the 29th term have been retrospectively adjusted due toapplication of IFRIC21: “Levies” in the fiscal year ended December 31, 2014.

- 27 -

Reference: Profit and Loss (year-on-year comparisons)
Profit and loss calculated on the assumption that the fiscal period was January 1 to
December 31in both the previous fiscal year and the fiscal year ended December 31,
2014, are as follows.
From January 1, 2013
to December 31, 2013

From January 1, 2013
to December 31, 2013

2,372,179

2,433,463

Profit before income taxes(Millions of yen)

630,465

573,565

Profit attributable to owners of
the parent company(Millions of yen)

443,027

389,065

Basic earnings per share(Yen)

241.80214.06

Revenue(Millions of yen)

(2) Trends in assets and non-consolidated operating results of JT

27th term
FY2011
Net sales(Millions of yen)

28th term
FY201229th term
FY201330th term
From April 1,2014 toDecember 31,
2014734,902781,067

809,967

572,323

198,071

210,568

230,900

159,746

Net income(Millions of yen)

142,726

149,773

168,779

108,656

Net income per share(Yen)

14,990

78.93

92.86

59.78

Total assets(Millions of yen)

3,016,651

2,784,914

2,732,637

2,729,270

Net assets(Millions of yen)

1,924,739

1,714,529

1,734,379

1,649,151

Ordinary income(Millions of yen)

(Notes) 1. Effective from the current fiscal year, the Company has changed its fiscal year end to
December 31. As a result of this change, the current fiscal year is the 9-month period from
April 1, 2014, through December 31, 2014.
2. The figures were prepared based on Japanese GAAP.
3. JT conducted a share split at a ratio of 200 to 1, with July 1, 2012 as effective date.
Consequently, net income per share is calculated on the assumption that this share split was
conducted at the beginning of the 28th term.

- 28 -

9.

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

(2) Mid- to long-term management strategy and issues
Information provided in (2) Mid- to long-term management strategy and issues has been calculated on
the assumption that the fiscal period of the Group was January through December.
The JT Group formulated its business plan, a three-year plan that is renewed each year on a rolling basis
in order to speed up the Group’s ability to respond appropriately to unexpected changes in accordancewith its recognition that strengthening its “adaptability to a changing environment” is an important theme.
Through the plan, the Group intends to carry on strategies that have hitherto been implemented for theGroup’s long-term vision of becoming a “Company committed to global growth that provides consumers
diversified value uniquely available from JT” while also taking them to a higher level.
In the “Business Plan 2013,” in accordance with the “4S” model concept, which constitutes the JT
Group’s management principles, the Group stated its intention to carry out mid- to long-term allocationof management resources with a high priority attached to business investment that contributes tosustainable mid- to long-term profit growth.
“Business Plan 2014” Targets•

Adjusted operating profit growth rate (at constant rates of exchange)(Note 1): Mid- to high single-digit
annual average growth rate over the mid- to long term.

•

Consolidated dividend payout ratio(Note 2): In order to be on par with global players in the FMCG
business, aim for at least 50%. Aim for 50% in the fiscal year ending December 31, 2015.

•

Adjusted EPS(Note 4) growth rate (at constant rates of exchange): High single-digit annual average
growth rate over the mid- to long term.

In the period from January through December 2014, the adjusted operating profit growth rate (at constantrates of exchange) was 10.6% over the same period of the previous fiscal year, mainly reflecting strong
momentum in the International Tobacco Business. The adjusted EPS growth rate (at constant rates of
exchange) was 11.1% over the same period of the previous fiscal year.

- 29 -

In the “Business Plan 2015,” which has been formulated in accordance with the Group’s rolling businessplan schedule, the Group has maintained its commitment to achieving sustainable profit growth throughbusiness investment.
“Business Plan 2015” Targets•

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

•

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

•

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

*At a meeting of the Board of Directors held on February 5, 2015 with the aim of supplementing mid- tolong-term adjusted EPS (at constant rates of exchange) growth as part of JT’s efforts to increase
shareholder returns, a resolution was made to acquire treasury shares at a maximum of either
36,000,000 shares or ¥100,000 million.

The Group will not only prioritize investment that contributes to strengthening competitiveness in the
tobacco business, but also steadily make investments in business foundations to facilitate profit
contributions to the Group from the pharmaceutical and food businesses as well. By these means, theGroup will work toward sustainable profit growth over the mid- to long term.
The mid- to long-term targets and roles for each business are as follows.
• Tobacco Business: Grow adjusted operating profit at mid to high single-digit rate per annum over themid- to long term as the core business and profit growth engine of the JT Group• Domestic: Core business that serves as the highly competitive profit generator• International: Also a core business that serves as the profit growth engine• Pharmaceutical Business: Strive to establish stronger profit platform through value maximization ofeach product and promotion of R&D on next-generation strategic products• Processed Food Business: Strive to achieve operating profit margin that is, at very least, on par withindustry average and aim to make profit contribution to the JT GroupThe Company decided to withdraw from manufacture and sale of JT beverage products in the Beverage
Business at a meeting of the Board of Directors held on February 4, 2015, targeting the withdrawal forthe end of September 2015.
The vending machine operation business will continue to operate as before. Going forward, the Company
will consider various options for this business.
In order to achieve the consolidated mid- to long-term profit targets, our strategic focus across all
businesses is to achieve quality top line growth by striving in accordance with each target and role. For
each business, our strategic focus is to improve cost competitiveness and business foundations that
support these efforts, thereby achieving sustainable profit growth.
We will work to strengthen our CSR initiatives further with an emphasis on the pursuit of high-level,well-balanced stakeholder satisfaction based on the “4S” model, which constitutes JT’s management
principles.
We think that the business environment surrounding the JT Group will continue to change on the global
scale and at a faster rate. In order to respond to the various changes that may happen in the future, wewill continue to strive for sustained growth in the mid- to long term and steadily actualizing shareholder
returns, based on the “4S” model and through consistent business investment and an “adaptability to achanging environment.”(Notes) 1. Adjusted operating profit (at constant rates of exchange) is a financial measurement that
excludes foreign exchange effects by translating and calculating adjusted operating profit for- 30 -

the current period in the International Tobacco Business using the foreign exchange rates ofthe same period of the previous fiscal year.
2. Consolidated dividend payout ratio is obtained by dividing annual dividend per share bybasic earnings per share.
3. FMCG: Fast Moving Consumer Goods (daily consumer durables)
4. Adjusted EPS = (Profit or loss attributable to owners of the parent company ± adjustment
items (income and costs)* ± tax and minority interests adjustments) / (weighted-averagecommon shares during the period + increased number of common shares under subscription
rights to shares)* Adjustment items (income and costs): Impairment losses on goodwill ± restructuringincome and costs ± others
10. Main business contents
Business segment

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

Domestic Tobacco Business
International Tobacco BusinessPharmaceutical Business
Beverage Business

Manufacture and sale of beverages

Processed Food Business

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

11. Status of important subsidiaries

Company name

Equityownership(%)

CapitalMain business(Millions of yen)

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

460

74.5

Distribution of tobacco products

87.6

Manufacture and sale of filters for
tobacco products(100.0)

Manufacture and sale of tobacco
products(100.0)

Manufacture and sale of tobacco
products(Millions of yen)

461
(Thousand of CHF)

JT International S.A.

1,215,425(Thousand of GBP)

Gallaher Ltd.
Torii PharmaceuticalCo., Ltd.

172,495(Millions of yen)

5,190

53.5

Manufacture and sale ofprescription drugs

100.0

Sale of beverages

70.5

Sale of beverages by vending
machine(Millions of yen)

JT Beverage Inc.
Japan Beverage
Holdings Inc.

90
(Millions of yen)

500
(Millions of yen)

TableMark Co., Ltd.

22,500(100.0)

Manufacture and sale ofprocessed foods(Notes) 1. Figures in parentheses in the “Equity ownership” column indicate indirect holding rates.

- 31 -

2. There were 215 consolidated subsidiaries in this fiscal year, including 8 above-mentioned
important subsidiaries, as well as 12 affiliates accounted for by the equity method. In
addition, consolidated revenue for the fiscal year ended December 31, 2014 (from April 1 to
December 31) amounted to ¥2,154.0 billion with profit attributable to owners of the parent
company at ¥362.9 billion.
3. TableMark Co., Ltd. conducted a company split with an effective date of April 1, 2014, in
which TableMark Co., Ltd. is the company conducting business operations and TableMark
Holdings Co., Ltd. is a pure holding company.
12. Major lenders
LenderMizuho Bank, Ltd.

Outstanding balance(Millions of yen)
39,785

13. Major sales offices and factories(1) JT
Headquarters:

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

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

Factories:

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

Laboratories:

Leaf Tobacco Research Center (Tochigi),
Tobacco Science Research Center (Kanagawa),
and Central Pharmaceutical Research Institute (Osaka)(2) Subsidiaries
TS Network Co., Ltd. (Tokyo)
Japan Filter Technology Co., Ltd. (Tokyo)
JT International S.A. (Switzerland)
Gallaher Ltd. (U.K.)
Torii Pharmaceutical Co., Ltd. (Tokyo)
JT Beverage Inc. (Tokyo)
Japan Beverage Holdings Inc. (Tokyo)
TableMark Co., Ltd. (Tokyo)(Note) Text in parentheses shows the location of head office.

- 32 -

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

11,648International Tobacco Business

26,829Pharmaceutical Business

1,840

Beverage Business

5,122

Processed Food BusinessCommon company-wide services
within JT

5,968
943

Total
(Note)

51,341

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

(2) Employees of JT

Male/Female
Male

Number ofYear on year
employees
increase (decrease)(Person)(Person)
7,763
70

45.3

Average years ofservice(Year)
22.8

Average age(Year old)

Female

1,152

71

38.4

15.2

Total or average

8,915

141

44.4

21.8

(Note)

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

- 33 -

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

3.

Number of shareholders:

4.

Major shareholders

Name of shareholders

182,443,388 shares)

147,546

Number of shares held
(Share)The Minister of Finance

666,930,000

36.69

48,016,600

2.64

44,042,200

2.42

JPMorgan Chase Bank 380055

40,614,441

2.23

State Street Bank and Trust Company

37,725,319

2.08

37,079,564

2.04

33,800,000

1.86State Street Bank and Trust Company

33,575,126

1.85

HSBC BANK PLC A/C THE CHILDRENSINVESTMENT MASTER FUND

28,362,300

1.56

JPMorgan Chase Bank 385632

16,560,688

0.91

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

State Street Bank and Trust Company
505223
Trust & Custody Services Bank, Ltd. as
trustee for Mizuho Bank, Ltd.
Retirement Benefit Trust Account reentrusted by Mizuho Trust and Banking
Co., Ltd.

(Note)
5.

Equity ownership (%)

Equity ownership is calculated after deducting treasury stock (182,443,388 shares).

Other significant matters concerning shares
At a meeting of the Board of Directors held on February 5, 2015 with the aim of supplementing mid- tolong-term adjusted EPS (at constant rates of exchange) growth as part of JT’s efforts to increase
shareholder returns, a resolution was made to acquire treasury shares at a maximum of either 36,000,000
shares or ¥100,000 million.

- 34 -

III. Matters Concerning Subscription Rights to Shares

1.

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

(1) Total number of subscription rights to shares:
5,355 units(2) Class and number of shares to be delivered upon exercise of subscription rights to shares:
Common shares 1,071,000 shares(200 shares per subscription right to shares)
2.

Status of subscription rights to shares held by Directors and Audit & Supervisory Board Membersof JT as of December 31, 2014

(1) Class and number of shares to be delivered upon exercise of subscription rights to shares:
Common shares 275,800 shares(200 shares per subscription right to shares)(2) Value of property to be contributed when subscription rights to shares are exercised¥1 per share(3) Assignment of subscription rights to shares
The approval of the Board of Directors is required for the assignment of subscription rights to shares.
(4) Conditions for exercising subscription rights to shares
Subscription rights to shares holder may exercise his/her subscription rights to shares only if he/she loses
his/her all position as Director, Audit & Supervisory Board Member and Executive Officer (sikkoyakuin).
(5) Status of ownership by Directors and Audit & Supervisory Board Members of JT

Category

DirectorYear
grantedPayment due upon
allotment ofsubscription rights toshares

FY2007¥581,269 per unit

FY2008¥285,904 per unit

FY2009Exercise period of
subscription rights tosharesNumberof units

Number ofshareholders

46

4

81

5

¥197,517 per unit

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

212

5

FY2010¥198,386 per unit

From October 5, 2010
to October 4, 2040

183

5FY2011¥277,947 per unit

257

5

FY2012¥320,000 per unit

257

5

FY2013¥513,400 per unit

165

5FY2014¥483,200 per unit

178

6

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

(Note) Outside Directors are not included in the above category of “Director.”- 35 -

3.

Status of subscription rights to shares granted to employees of JT from April 1, 2014 to December
31, 2014(1) Class and number of shares to be delivered upon exercise of subscription rights to shares:
Common shares 33,200 shares(200 share per subscription right to shares)(2) Payment due upon allotment of subscription rights to shares¥483,200 per share(3) Value of property to be contributed when subscription rights to shares are exercised¥1 per share(4) Exercise period of subscription rights to shares
From October 7, 2014 to October 6, 2044
(5) Assignment of subscription rights to shares
The approval of the Board of Directors is required for the assignment of subscription rights to shares.
(6) Conditions for exercising subscription rights to shares
Subscription rights to shares holder may exercise his/her subscription rights to shares only if he/she loses
his/her all position as Director, Audit & Supervisory Board Member and Executive Officer(sikkoyakuin).
(7) Status of granting to employees of JT
166 subscription rights to shares were granted to 19 Executive Officers (sikkoyakuin) (excluding
persons serving as Directors) of JT.

- 36 -

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

1.

Directors and Audit & Supervisory Board Members

Position

Name

Chairman of theBoard*
President, Chief
Executive Officer andRepresentative
Director
Representative
Director andExecutive Deputy
President

Yasutake Tango

Representative
Director andExecutive Deputy
President

Noriaki Okubo

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

Akira Saeki

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

Responsibility

Significant concurrent positions
outside the Company

Mitsuomi
KoizumiYasushi Shingai

Hideki Miyazaki

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

Recruit Holdings Co., Ltd.
Outside Director

JT International Group Holding
B.V.
Chairman

Assistant to CEO in
CSR, Finance andCommunications

Motoyuki Oka

NEC Corporation
Outside Director
Novelist
LIXIL Group Corporation
Outside Director

Main Kohda

FutoshiNakamura
Tomotaka
KojimaKoichi Ueda Law Office
Attorney at Law
Japan Racing Association
Member of the Board ofGovernors

Koichi Ueda

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

- 37 -

3. Members of the Board, Motoyuki Oka and Main Kohda, and Audit & Supervisory Board
Members, Koichi Ueda and Yoshinori Imai, were designated as independent officers(directors and auditors) as prescribed by the Tokyo Stock Exchange, Inc.
4. Audit & Supervisory Board Member Futoshi Nakamura and Audit & Supervisory Board
Member Tomotaka Kojima have relevant knowledge about financing and accounting as they
were the Senior Manager of the Accounting Division of JT and Deputy Head of FinanceGroup of JT, respectively.
5. The Member of the Board denoted with the asterisk * has assumed his office on June 24,
2014.
6. Chairman of the Board Hiroshi Kimura and Member of the Board Masamichi Terabatake
resigned on June 24, 2014.
2.

Remunerations for Directors and Audit & Supervisory Board Members(1) Total remunerations for Directors and Audit & Supervisory Board Members
Audit & Supervisory
Total
Board Members
Amount to
Amount to
Amount toCategory
Number to
Number to
Number to
be paidbe paidbe paidbe paidbe paidbe paid(Millions of(Millions of(Millions of(Person)(Person)(Person)
yen)
yen)
yen)
Basic remuneration
10
257
4
72
14
329
Directors’ bonus
5
102
5
102
Stock option grants
6
86
6
86
Total
445
72
517
(Notes) 1. For Directors’ bonuses, the amounts planned to be paid are shown.
2. For stock option grants, the total amounts granted during this fiscal year are shown.
Directors(2) Policy concerning the remuneration amount for Directors and Audit & Supervisory Board
Members or the remuneration calculation method thereof and the method of determining thepolicyThe Company has the Compensation Advisory Panel in place as a non-statutory advisory body to theBoard of Directors in order to increase objectivity and transparency regarding the remuneration of
Directors and Audit & Supervisory Board Members. The Compensation Advisory Panel, which holds
meetings several times a year, holds deliberations and makes reports in accordance with its advice onsuch matters as the Company’s policy, system and calculation method regarding remuneration for its
Directors and Executive Officers (sikkoyakuin), and monitors the status of remuneration for Directors
and Audit & Supervisory Board Members at the Company. The Compensation Advisory Panel currently
consists of five members: the Chairman of the Board, who has the role of the panel’s chairman, and two
Outside Directors and two Outside Audit & Supervisory Board Members.
Outside members of Compensation Advisory Panel
Outside Director
Motoyuki Oka
Outside Director
Main Kohda
Outside Audit & Supervisory Board Member
Outside Audit & Supervisory Board Member

Koichi Ueda
Yoshinori Imai

In light of reports by the Compensation Advisory Panel, JT’s basic concept of remuneration for Directors
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 Directors and Audit &Supervisory Board Members to enhance performance•

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

Ensuring transparency based on an objective point of view and quantitative schemes- 38 -

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

3.

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

Category

Name
Motoyuki Oka

Director
Audit &
Supervisory Board
MemberMain Kohda
Koichi Ueda

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

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

- 39 -

(2) Major activities during this fiscal year
Category

Name
Motoyuki Oka

Director
Main Kohda

Koichi Ueda
Audit &
Supervisory Board
MemberYoshinori Imai

Status of main activities
Attended 10 out of 11 meetings of the Board of Directors
held during this fiscal year. Mr. Oka asked questions andmade remarks where necessary at these meetings, as adirector.
Attended all 11 meetings of the Board of Directors held
during this fiscal year. Ms. Kohda asked questions andmade remarks where necessary at these meetings, as adirector.
Attended 10 out of 11 meetings of the Board of Directors,
as well as all 10 meetings of the Audit & Supervisory
Board held during this fiscal year. Mr. Ueda asked
questions and made remarks where necessary at thesemeetings, as an Audit & Supervisory Board Member.
Attended all 11 meetings of the Board of Directors, aswell as all 10 meetings of the Audit & Supervisory Board
held during this fiscal year. Mr. Imai asked questions andmade remarks where necessary at these meetings, as an
Audit & Supervisory Board Member.

(3) Outline of limited liability agreements
The Company has entered into agreements with each of its Outside Directors and Outside Audit &Supervisory Board Members with respect to the liability set forth in Article 423, paragraph 1 of theCompanies Act, by which the liability for damages of each of them is limited to the minimum amount set
forth in Article 425, paragraph 1 of the same Act, provided they perform their duties without knowledgeof such damages and without gross negligence.

(4) Total amount of remunerations
Outside Audit &Total
Supervisory Board
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)
23
2
18
4
41

Outside Director
Category

Basic remuneration

Number to
be paid(Person)2- 40 -

V.

Matters Relating to Independent Auditor

1.

Name of Independent Auditor: Deloitte Touche Tohmatsu LLC

2.

Fees for Independent Auditor relating to this fiscal year

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

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

¥266 million¥13 million(2) Amount of cash and other financial benefits to be paid by JT and its subsidiaries:¥439 million(Notes) 1. Fees paid under the terms of the audit contract concluded between Deloitte Touche
Tohmatsu LLC and JT in relation to audit attestation based on the Companies Act and the
Financial Instruments and Exchange Act are not clearly classified and, since they cannot beeffectively classified, their total is indicated in the amount in “i)” above.
2. JT retain Deloitte Touche Tohmatsu LLC for tasks other than audit attestation based on
Article 2, Paragraph 1 of the Certified Public Accountants Act, which consist of the
preparation of comfort letters, 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 auditedby Deloitte & Touche LLP. None of these subsidiaries are audited by Deloitte Touche
Tohmatsu LLC, the Independent Auditor of JT.
3.

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

- 41 -

VI. Overview of the Resolutions on the Development of Systems Necessary to Ensure the Properness of
Operations
The Board of Directors has resolved with regard to the development of systems necessary to ensure thatthe execution of the duties by the Directors complies with the laws and regulations and the Articles ofIncorporation, and other systems necessary to ensure the properness of operations of a stock company asfollows:(1) Systems to ensure that Directors and employees perform their duties in accordance with laws,
regulations and JT’s Articles of Incorporationi)Compliance system
JT has established Code of Conduct based on regulations concerning the compliance system inorder to ensure that Directors and employees comply with laws and regulations, JT’s Articles ofIncorporation, the social norms, etc., and set up a JT Group Compliance Committee as anorganization responsible for ensuring thorough compliance. This committee, headed by JT’s
Chairman, includes outside experts among its members and reports directly to the Board of
Directors.
JT appoints an Executive Officer (sikkoyakuin) in charge of compliance with overseeing theCompliance Office in an effort to establish and promote a company-wide, cross-sectional systemand shed light on issues.
The Compliance Office distributes to all Directors and employees the “JT Group Code of Conduct”,
which explains the Code of Conduct and enhances the effectiveness of the compliance system byenlightening Directors and employees about compliance through various compliance education
programs.
(Internal reporting system)
JT establishes a counter where employees may report any conduct they have detected which issuspected to breach laws and regulations. The Compliance Office is charged with investigating
reported cases, establishing necessary measures and implementing company-wide precautions toprevent recurrences after holding consultations with the departments and divisions concerned.
Matters of particular importance shall be referred to the JT Group Compliance Committee fordeliberation.
(System for excluding anti-social elements)
JT is resolved to fight against, not to comply with, an unreasonable demand and not to have any
relations with anti-social elements.
With the General Administration Division at JT’s headquarters assuming the responsibility forsupervising efforts to exclude anti-social elements, JT cooperates with police, lawyers and otherrelevant organizations and parties to gather and share information in order to deal with suchelements in an organized way.
In addition, the “prohibition of involvement with anti-social elements” has been provided for in the“JT Group Code of Conduct” and fully communicated to all officers and employees. At the sametime, an awareness raising program for excluding antisocial elements is to be consistently
administered for all officers and employees, including those working for its affiliates, by providing
relevant training as necessary.

ii)

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

- 42 -

iii) Internal audit system
The Operational Review and Business Assurance Division oversees the internal audit system andexamines and evaluates systems for supervising and managing the overall operations and the statusof business execution from the viewpoints of legality and rationality, in order to protect JT’s assets
and improve management efficiency.

(2) Procedures and arrangements for storage and management of information on the performance of
duties by the Directorsi)Storage and management of minutes
JT makes sure to properly stores and manages the minutes of General Meetings of Shareholders andmeetings of the Board of Directors, in line with laws and regulations.

ii)

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

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

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

ii)

Preparedness for possible emergencies
JT has produced a manual for crisis management and disaster response. In the event of an
emergency or a disaster, JT is ready to establish an emergency project system under the supervisionof the Corporate Strategy Division, and make prompt and proper responses under the leadership ofsenior management and through close cooperation between the relevant departments and divisions.
Events to which a response has been made and the details of such events shall be reported to theBoard of Directors on a quarterly basis.

- 43 -

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

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

ii)

Proper delegation of authority and system of responsibilities
For important management issues, particularly management policy and basic plans regarding overallbusiness operations of JT, in addition to matters to be referred to the Board of Directors, a clear
decision-making process is stipulated in rules on the allocation of responsibilities and authorities tohave a system that enables swift decision making.
Executive Officers (sikkoyakuin) appointed by the Board of Directors execute business properly by
exercising the authority delegated to them in their respective areas in accordance with a companywide business strategy decided by the Board.
In order to manage business operations in ways that contribute to the business efficiency andflexibility of JT, basic matters concerning JT’s organization and allocation of duties are specified byinternal rules on and the roles of each department are specified.

(5) Systems necessary to ensure the properness of operations in the business group which consists of astock company, its parent company and subsidiaries
i)

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

ii)

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

(6) System for employees assisting Audit & Supervisory Board Members in their duties in the event
such employees were requested by Audit & Supervisory Board Membersi)Establishment of Auditor’s Office
JT has created an Auditor’s Office as an organization supporting the Audit & Supervisory Board
Members in performing their duties.

ii)

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

- 44 -

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

ii)

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

(8) System for reporting by Directors or employees to the Audit & Supervisory Board and Audit &Supervisory Board Members and other systems for reporting to the Audit & Supervisory Board
and Audit & Supervisory Board Membersi)Reporting to the Audit & Supervisory Board
When Directors and Executive Officers (sikkoyakuin) detect any matter that may cause substantial
damage to JT, they are due to report it to the Audit & Supervisory Board. Moreover, when Directors
and employees detect any evidence of malfeasance in financial documents or serious breaches oflaws or regulations or JT’s Articles of Incorporation, they are due to report them to the Audit &Supervisory Board, along with other relevant matters that could affect JT’s management.

ii)

Attendance at important meetings
Audit & Supervisory Board Members are allowed to attend not only meetings of the Board of
Directors but also other important meetings.
When Directors and employees are asked by Audit & Supervisory Board Members to compile
important documents for their perusal, to accept field audits and to submit reports, they shall
respond in a prompt and appropriate manner.

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

Cooperation with audits and auditing expenses
Directors are due to cooperate with audits effectuated by Audit & Supervisory Board Members andestablish a budget for covering audit-related expenses so as to secure the effectiveness of audits.

ii)

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

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

- 45 -

Consolidated Statement of Financial Position(As of December 31, 2014)(Millions of yen)Account title

AmountCurrent assets

Account title

AmountCurrent liabilities

Cash and cash equivalents

385,820

Trade and other payables

419,764

Trade and other receivables

448,402

Bonds and borrowings

107,562

Inventories

587,849

Income tax payables

54,942Other financial assets

43,907

Other financial liabilities

14,463

Other current assets

230,530

Provisions

9,200

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

1,696,507

Other current liabilities

754,169

367

Total current liabilities

1,360,098

1,696,874

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

756,127

Bonds and borrowings

101,001

1,539,376

Other financial liabilities

18,617

Intangible assets

364,912Retirement benefit liabilities

351,915

Investment property

17,870

Provisions

25,425Retirement benefit assets

35,402Other non-current liabilities

121,792

Investments accounted for using theequity method

76,825

Deferred tax liabilities

103,356

Other financial assets

91,959Total non-current liabilities

722,106

Deferred tax assets

125,361

Total non-current assets

3,007,832

Total liabilities
EquityShare capital

100,000

Capital surplus

736,400

Treasury shares(344, 447)

Other components of equity

142,425

Retained earnings

1,902,460

Equity attributable to owners of theparent company

2,536,838

Non-controlling interests

Total assets

4,704,706

2,082,204

85,665

Total equity

2,622,503

Total liabilities and equity

4,704,706- 46 -

Consolidated Statement of Income(Nine months ended December 31, 2014)(Millions of yen)Account title

AmountRevenue

2,153,970

Cost of sales(886,267)

Gross profit

1,267,703

Other operating income

47,651

Share of profit in investments accounted for using the equity method

7,812

Selling, general and administrative expenses(823,410)

Operating profit

499,757

Financial income

13,847

Financial costs(11,304)

Profit before income taxes

502,299

Income taxes(133,673)

Profit for the period

368,626

Attributable to:
Owners of the parent company

362,919

Non-controlling interests

5,708- 47 -

Consolidated Statement of Changes in Equity(Nine months ended December 31, 2014)(Millions of yen)
Equity attributable to owners of the parent company
Other components of equity
Net gain (loss)

SharecapitalCapitalsurplusTreasuryshareson revaluation
Net gainExchangeof financial(loss) on
Subscription differences
derivatives assets measured
rights toon translation designated as at fair value
sharesof foreign
through othercash flow
operations
hedgescomprehensive
incomeAs of April 1, 2014

100,000

736,400(344,463)

1,443

229,990293

19,380

Profit for the period

－

－

－

－

－

－

－

Other comprehensive
income (loss)

－

－

－

－

(112,972)

922

3,753

Comprehensive income(loss) for the period

－

－

－

－

(112,972)

922

3,753

Disposal of treasury
shares

－

－

16

(14)

－

－

－

Share-based payments

－

－

－

202

－

－

－

Dividends

－

－

－

－

－

－

－

－

－

－

－

(597)

－

－

－

－

－

－

－

－

23

－

－

－

－

－

－

－

－

－

16

188

(597)

－

23

100,000

736,400(344,447)

1,631

116,421

1,215

23,156

Changes in theownership interest in a
subsidiary without aloss of control
Transfer from othercomponents of equity
to retained earnings
Other increase(decrease)
Total transactions withthe owners
As of December 31, 2014

- 48 -

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

Noncontrollinginterests

Total equity－

251,107

1,762,566

2,505,610

90,4812,596,091

Profit for the period－－

362,919

362,919

5,708

368,626

Other comprehensive
income (loss)(14,259)(122,556)－(122,556)(1,203)(123,759)

Comprehensive income(loss) for the period(14,259)(122,556)

362,919

240,363

4,505

244,868

Disposal of treasury
shares

－

(14)

(3)

0

－

0

Share-based payments

－

202

－

202

－

202

Dividends－－(181,755)(181,755)(2,736)(184,491)

－

(597)

(26,985)(27,581)(7,623)(35,204)

14,25914,282(14,282)

－

－

－

－

－

－

－

1,039

1,039

14,25913,874(223,025)(209,135)(9,321)(218,455)－

142,425

1,902,460

2,536,838

85,6652,622,503

As of April 1, 2014

Changes in theownership interest in a
subsidiary without aloss of control
Transfer from othercomponents of equity
to retained earnings
Other increase(decrease)
Total transactions withthe owners
As of December 31, 2014

- 49 -

Nonconsolidated Balance Sheet(As of December 31, 2014)
Account title
ASSETS
Current assets
Cash and deposits
Accounts receivable–trade
Securities
Merchandise and finished goods
Semi-finished goods
Work in process
Raw materials and supplies
Advance payments–trade
Prepaid expenses
Deferred tax assets
Short-term loans receivable fromsubsidiaries and affiliates
Other
Allowance for doubtful accounts
Noncurrent assets
Property, plant and equipment
Buildings
Structures
Machinery and equipment
VehiclesTools, furniture and fixtures
Land
Construction in progress
Intangible assets
Patent right
Right of trademark
Software
Other
Investments and other assets
Investment securities
Stocks of subsidiaries and affiliates
Investments in capital of subsidiaries andaffiliates

Amount(Millions of yen)Account title

44,231
63,29672,22031,76854,6352,924
38,721
2,052
7,477
37,248LIABILITIESCurrent liabilities
Accounts payable–trade
Current portion of bonds
Current portion of long-term loans payable
Lease obligations
Accounts payable–other
National tobacco excise taxes payable
National tobacco special excise taxes payable
Local tobacco excise taxes payable
Income taxes payable
Accrued consumption taxes

47,190Cash management system deposits received

429,031

27,294(24)
2,300,239
286,369
96,8002,851
70,7101,794
29,50780,3404,367
24,672558
3,794
17,973
2,347
1,989,198
50,464
1,906,853
782

Provision for bonuses
Other
Noncurrent liabilities
Bonds payable
Lease obligations
Provision for retirement benefits
Other
Total liabilities
NET ASSETS
Shareholders’ equity
Capital stock
Capital surplus
Legal capital surplus
Retained earnings
Legal retained earnings
Other retained earnings
Reserve for reduction entry
Special account for reduction entry

Amount834,135
13,21840,00030,000
5,595
123,390
95,426
14,758110,41433,96653,078297,060
5,424
11,807245,983
96,572
11,075
132,344
5,993
1,080,118
1,636,730
100,000
736,400
736,400
1,144,777
18,776
1,126,001
44,531
17,043General reserve
Retained earnings brought forward
Treasury stock(344,447)

Valuation and translation adjustments

10,790955,300
109,126

Long-term loans receivable fromsubsidiaries and affiliates

7,656

Long-term prepaid expenses

7,407

Valuation difference on available-for-salesecurities

21,087

Deferred tax assets
Other
Allowance for doubtful accounts
Total assets

6,270

Deferred gains or losses on hedges(10,298)

10,169(402)
2,729,270

Subscription rights to shares
Total net assets
Total liabilities and net assets- 50 -

1,631
1,649,151
2,729,270

Nonconsolidated Statement of Income(Nine months ended December 31, 2014)(Millions of yen)Account title

AmountNet sales572,323

Cost of sales

185,407

Gross profit

386,916

Selling, general and administrative expenses

229,203

Operating income

157,712

Non-operating income
Interest income

220

Dividends income

2,615

Other

2,663

5,498

Non-operating expenses
Interest expenses

821

Interest on bonds

1,296

Other

1,348

3,465
159,746

Ordinary income
Extraordinary income
68,995Gain on sales of noncurrent assets

6

Other

69,001

Extraordinary loss
752

Loss on sales of noncurrent assets
Loss on retirement of noncurrent assets

7,293

Business restructuring costs

56,726427

Other65,198
163,549

Income before income taxes
Income taxes–current

73,800

Income taxes–deferred(18,908)

54,893
108,656

Net income- 51 -

Nonconsolidated Statement of Changes in Net Assets(Nine months ended December 31, 2014)(Millions of yen)
Shareholders’ equity
Capital surplus
CapitalRetained earnings
Other retained earnings

stock

Legal
capitalsurplusTotal
capitalsurplusLegalretainedearnings

100,000

736,400

736,400

18,776

Cumulative
effects of changes
in accounting
policies－－

As of April 1,2014 after
cumulative effects
of changes inaccounting
policies

100,000

736,400

736,400

Provision ofreserve for
reduction entry－－

Reversal ofreserve for
reduction entry－

Provision ofreserve for
special accountfor reduction
entry

As of April 1,
2014

SpecialReserve foraccount for
reduction
reduction
entry
entry

Generalreserve

Retainedearnings
brought
forwardTotal
retainedearnings

Treasury
stock

Total
shareholders’equity48,211

14,440955,300

187,349

1,224,077(344,463)

1,716,013－－－(6,198)(6,198)－(6,198)18,776

48,211

14,440955,300

181,151

1,217,879(344,463)

1,709,816

－

－

5,094

－

－

(5,094)

－

－

－

－

－

－

(8,773)

－

－

8,773

－

－

－

－

－

－

－

－

7,696

－

(7,696)－－－

Reversal ofreserve for
special accountfor reduction
entry

－

－

－

－

－

(5,094)

－

5,094

－

－

－

Dividends fromsurplus

－

－

－

－

－

－

－

(181,755)(181,755)－(181,755)

Net income

－

－

－

－

－

－

－

108,656

108,656－

108,656

Disposal oftreasury stock

－

－

－

－

－

－

－

(3)

(3)

16

14

Net changes of
items other thanshareholders’equity

－

－

－

－

－

－

－

－

－

－

－

Total changes of
items during theperiod－－－－(3,680)2,603－(72,025)(73,102)

16(73,086)

As of December
31, 2014

100,000

736,400

736,400

18,77644,531

17,043

955,300

109,126

1,144,777(344,447)

1,636,730－－

Changes of items
during the period- 52 -

(Millions of yen)
Valuation and translation adjustments

Subscription

Total net assets

Valuation difference on
available-for-sale securities

Deferred gains orlosses on hedges

Total valuation andtranslation adjustments

rights to shares

17,786(863)

16,922

1,443

1,734,379

–

–

–

–

(6,198)17,786(863)

16,922

1,443

1,728,181

Provision of reserve for
reduction entry

–

–

–

–

–

Reversal of reserve for
reduction entry

–

–

–

–

–

Provision of reserve for
special account for
reduction entry

–

–

–

–

–

Reversal of reserve for
special account for
reduction entry

–

–

–

–

–

Dividends from surplus

–

–

–

–

(181,755)

Net income

–

–

–

–

108,656

Disposal of treasury stock

–

–

–

–

14

Net changes of items otherthan shareholders’ equity

3,302(9,434)(6,133)

188(5,945)

Total changes of items
during the period

3,302(9,434)(6,133)

188(79,030)

As of December 31, 2014

21,087(10,298)

10,7901,631

1,649,151

As of April 1, 2014
Cumulative effects ofchanges in accounting
policies
As of April 1, 2014 after
cumulative effects ofchanges in accounting
policies
Changes of items during
the period- 53 -

(TRANSLATION)

INDEPENDENT AUDITOR'S REPORT

February 6, 2015

To the Board of Directors ofJapan Tobacco Inc.:

Deloitte Touche Tohmatsu LLC

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

Yasuyuki Miyasaka (Seal)

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

Koji Ishikawa(Seal)

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

Takenao Ohashi(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, 2014 of Japan Tobacco Inc.
(the "Company") and its consolidated subsidiaries, and the related consolidated statements of income and changes inequity for the fiscal year from April 1, 2014 to December 31, 2014, and the related notes of significant matters for
preparing consolidated financial statements and other related notes to consolidated financial statements.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements
pursuant to the provisions of the second sentence of the first paragraph of Article 120 of the Ordinance on Company
Accounting which allows companies to prepare consolidated financial statements with the omission of a part of thedisclosures required under International Financial Reporting Standards ("IFRS"), and for such internal control as
management determines is necessary to enable the preparation of consolidated financial statements that are free frommaterial misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We
conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements arefree from material misstatement.

- 54 -

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessmentof the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentationof the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Audit Opinion
In our opinion, the consolidated financial statements referred to above, prepared with the omission of a part of thedisclosures required under IFRS pursuant to the provisions of the second sentence of the first paragraph of Article 120of the Ordinance on Company Accounting, present fairly, in all material respects, the financial position of Japan
Tobacco Inc. and its consolidated subsidiaries as of December 31, 2014, and the results of their operations for the
fiscal year then ended.
Emphasis of Matter
As discussed in "1. Significant matters for preparing consolidated financial statements—(5) Change of fiscal year
end," the Company has changed its fiscal year end from March 31 to December 31. Our opinion is not qualified in
respect of this matter.
Interest
Our firm and the engagement partners do not have any interest in the Company 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.
- 55 -

(TRANSLATION)

INDEPENDENT AUDITOR'S REPORT

February 6, 2015

To the Board of Directors ofJapan Tobacco Inc.:

Deloitte Touche Tohmatsu LLC

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

Yasuyuki Miyasaka (Seal)

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

Koji Ishikawa(Seal)

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

Takenao Ohashi(Seal)

Pursuant to the first item, second paragraph of Article 436 of the Companies Act, we have audited the nonconsolidated
financial statements, namely, the nonconsolidated balance sheet as of December 31, 2014 of Japan Tobacco Inc. (the"Company"), and the related nonconsolidated statements of income and changes in net assets for the 30th fiscal year
from April 1, 2014 to December 31, 2014, and the related notes of significant accounting policies and other related
notes to nonconsolidated financial statements, and the accompanying supplemental schedules.
Management's Responsibility for the Nonconsolidated Financial Statements
Management is responsible for the preparation and fair presentation of these nonconsolidated financial statements andthe accompanying supplemental schedules in accordance with accounting principles generally accepted in Japan, andfor such internal control as management determines is necessary to enable the preparation of nonconsolidated
financial statements and the accompanying supplemental schedules that are free from material misstatement, whether
due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these nonconsolidated financial statements and the accompanying
supplemental schedules based on our audit. We conducted our audit in accordance with auditing standards generally
accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the nonconsolidated financial statements and the accompanying supplemental schedules are free frommaterial misstatement.

- 56 -

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 misstatement of thenonconsolidated 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 the entity's preparation and fairpresentation of the nonconsolidated financial statements and the accompanying supplemental schedules in order todesign 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 nonconsolidated financial statements and the accompanying supplemental
schedules.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Audit Opinion
In our opinion, the nonconsolidated financial statements and the accompanying supplemental schedules referred toabove present fairly, in all material respects, the nonconsolidated financial position of Japan Tobacco Inc. as ofDecember 31, 2014, and the results of its operations for the fiscal year then ended in accordance with accounting
principles generally accepted in Japan.
Interest
Our firm and the engagement partners do not have any interest in the Company 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.
- 57 -

[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 Directors for the 30th business year from April 1, 2014 toDecember 31, 2014, 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

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 Directors, other relevant personnel, and Independent Auditors
regarding performance of their duties, and sought explanations as necessary.

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 Directors, and any other relevant personnel, andmade efforts to optimize the environment for information collection and audit, and participated in the Board of
Directors’ Meetings and other important meetings, received reports from the Directors, 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. We
monitored and verified the details of the resolution of the Board of Directors related to the system that ensures
Directors are carrying out their duties in compliance with laws and regulations and the Articles ofIncorporation, and other systems that ensure the propriety of the operations of a stock company, which aredescribed in paragraphs 1 and 3 of Article 100 of the Ordinance for Enforcement of the Companies Act. We
also monitored and verified the condition of the system (internal control system) put in place in accordancewith the aforesaid resolution. With respect to subsidiaries, we communicated and exchanged information with
Directors, Audit & Supervisory Board Members, and other relevant personnel of the subsidiaries, and received
business reports from subsidiaries as necessary. Based on the above methods, we examined the business report
and the accompanying supplemental schedules related to the relevant business year.

Furthermore, we monitored and verified whether the Independent Auditors maintained their independence andimplemented appropriate audits, and we received reports from the Independent Auditors regarding theperformance of their duties and sought explanations as necessary. In addition, we received notice from the
Independent Auditors that “the system for ensuring that duties are performed properly” (matters set forth ineach item of Article 131 of the Ordinance on Accounting of Companies) is organized in accordance with the“Quality Management Standards Regarding Audits” (Business Accounting Council, October 28, 2005) andother relevant regulations, and sought explanations as necessary. Based on the above methods, we examined
the 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, as well as consolidated financial statements (consolidated statement of financial position,- 58 -

consolidated statement of income, and consolidated statement of changes in equity, which omit somedisclosure items required under International Financial Reporting Standards (IFRS) in accordance withthe provision of the second sentence of Article 120, paragraph 1 of the Ordinance on Accounting ofCompanies) related to the relevant business year.

2. Audit Results(1) Results of Audit of Business Report and Other Relevant Documents
1. In our opinion, the business report and the accompanying supplemental schedules are inaccordance with the related laws and regulations and Articles of Incorporation, and fairly
represent JT’s condition.
2. With regard to the performance of duties by the Directors, we have found no evidence of wrongfulaction 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 Accounting 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 12, 2015

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

Futoshi Nakamura(seal)

Standing Audit & Supervisory Board Member

Tomotaka Kojima(seal)

Audit & Supervisory Board Member

Koichi Ueda

(seal)

Audit & Supervisory Board Member

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

- 59 -