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

Securities Code: 2914
March 1, 2019

To Our Shareholders

Masamichi Terabatake
Representative Director and President

Japan Tobacco Inc.

2-1, Toranomon 2-chome, Minato-ku, TokyoNOTICE OF CONVOCATION OF
THE 34TH ORDINARY GENERAL MEETING OF SHAREHOLDERS
You are cordially invited to attend the 34th Ordinary General Meeting of Shareholders of Japan Tobacco Inc. (“JT”or the “Company”) to be held as set forth below.
If you cannot attend the meeting, you may exercise your voting rights in written form or by electromagnetic
means including the Internet. Please see the “Reference Documents for the General Meeting of
Shareholders” hereinafter described and exercise your voting rights by 6:00 p.m., on Tuesday, March 19,
2019, in accordance with “Instructions for Exercising Your Voting Rights” on pages 3 to 5.
Particulars
1. Date and Time of the Meeting: Wednesday, March 20, 2019 at 10:00 a.m.
2. Place of the Meeting:

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

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

1. Report on the Business Report, the Consolidated Financial Statements,
and the Independent Auditors’ Report and JT’s Audit & Supervisory
Board Report on the Consolidated Financial Statements for the 34th
Business Term (From January 1, 2018 to December 31, 2018)
2. Report on the Non-Consolidated Financial Statements for the 34th
Business Term (From January 1, 2018 to December 31, 2018)

Matters to be Resolved:
Item 1:
Item 2:Item 3:Item 4:Item 5:Item 6:Item 7:

Appropriation of Surplus
Partial Amendment to the Articles of Incorporation
Election of Two (2) Members of the Board
Election of Five (5) Audit & Supervisory Board Members
Revision of Remuneration Amount for Members of the Board
Revision of Amount of Stock Option Granted to Members of the Board
Revision of Remuneration Amount for Audit & Supervisory Board Members-1-

Information on Matters Posted on JT’s Website
1. Among the documents to be provided upon release of this Notice of Convocation of the 34th Ordinary General
Meeting of Shareholders, the items below are posted on our website (https://www.jti.co.jp/) in accordance withlaws and regulations, and the provision in Article 17 of the Articles of Incorporation. Therefore, they are notincluded in this Notice of Convocation of the 34th Ordinary General Meeting of Shareholders.
 “Overview of the Resolutions on the Development of Systems Necessary to Ensure the Properness of
Operations and the Operating Status of the Systems” on the Business Report
 “Consolidated Statement of Changes in Equity” and “Notes to Consolidated Financial Statements” on
the Consolidated Financial Statements
 “Non-consolidated Statement of Changes in Net Assets” and “Notes to Non-Consolidated Financial
Statements” on the Non-Consolidated Financial Statements
In addition, these items are included in the Consolidated and Non-Consolidated Financial Statements auditedby the Accounting Auditors in the course of preparing Accounting Auditors’ Report, and in the Business Report,
and Consolidated and Non-Consolidated Financial Statements audited by Audit & Supervisory Board Membersin the course of preparing Audit Report.
2. If there is any amendment to the Reference Documents for the General Meeting of Shareholders, Business
Report (available in Japanese), or Non-Consolidated and Consolidated Financial Statements (available inJapanese), it will be published on our website (https://www.jti.co.jp/).

JT’s website

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

Guidance to our shareholders attending the General Meeting of Shareholders* For those attending, please bring this Notice of Convocation of the 34th Ordinary General Meeting of
Shareholders with you.
* It is expected to be crowded immediately before the meeting begins. If meeting room No.1 becomes full, youwill be ushered to meeting room No.2. We sincerely ask you to come to the meeting at your earliest convenience.
* In case an agent attends the meeting, your agent must bring a letter of attorney along with the Voting Rights
Exercise Form. Only one other shareholder who can exercise the voting rights at the 34th Ordinary General
Meeting of Shareholders is supposed to be eligible to serve as your agent.
* Please note that the meeting will be conducted in Japanese only. An interpreter, including a sign language
interpreter, may accompany you. If you would like to have an interpreter accompany you, please tell so at thereception desk. It is also possible for us to arrange a Japanese sign language interpreter for you. If you are inneed of this service, please inquire us in writing by March 13 (Wednesday) (your letter of inquiry must reach
us by this date).
* Taking into account such factors as the smooth operation of the General Meeting of Shareholders, and thefairness between the shareholders who attend on the day and those who find it difficult to attend, the Company
decided to discontinue the gifts, which for each year up until last year had been given to the shareholders who
attend on the day.

-2-

Instructions for Exercising Your Voting Rights
Exercise of voting rights at the Company’s General Meeting of Shareholders is shareholders’ important right.
Please by all means exercise your voting rights.
There are three methods to exercise your voting rights as indicated below.
Please present the Voting Rights Exercise Form at thereception desk on arrival at the meeting. (Not required toA.
Attend the meeting
place a seal.)
Date and time of the General Meeting of Shareholders:
10:00 a.m., on Wednesday, March 20, 2019
Please post the Voting Rights Exercise Form indicating
whether you are for or against each of the items.
Post the Voting Rights
B.
Exercise due date:
Exercise Form
To be returned to us no later than 6:00 p.m., on Tuesday,
March 19, 2019
Please indicate whether you are for or against each of the
Exercise the Voting Rights
items following the instructions on the next page.
C.
via the Internet
Exercise due date:No later than 6:00 p.m., on Tuesday, March 19, 2019
Guide to filling in the Voting Rights Exercise Form
Please indicate for or against about each item.
Items 1, 2, 5, 6 and 7
When you are for the proposed item, mark ○ in the “for” box, and when you are against the item, mark○ in the “against” box.
Item 3 and 4
When you are for all of the proposed persons in the item, mark ○ in the “for” box, and when you areagainst all in the item, mark ○ in the “against” box.
If you are against certain candidates, mark ○ in the “for” box, and also write the candidate number foreach candidate you are against inside the parentheses.
* For those attending, procedures for posting the Voting Rights Exercise Form or exercising your voting rights
via the Internet are unnecessary.

-3-

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

Exercise due dateNo later than 6:00 p.m., on Tuesday, March 19, 2019

Log in via two-dimensional barcode
It is possible to log in to the Voting Rights Exercise website without entering the “Log-in ID” and the“Temporary Password” described on the lower right-hand side of the Voting Rights Exercise Form.
1. Scan the two-dimensional barcode at the lower right-hand side of the Voting Rights Exercise Form.
* Depending on the smartphone model being used, it may not be possible to log in using the two-dimensional
barcode.
The two-dimensional barcode may only be used once when logging in.
If exercising voting rights more than once, or if exercising voting rights without using the two-dimensional
barcode, please refer to “Log in with your Log-in ID and Temporary Password,” below.
2. Then, please indicate whether you are for or against each of the items following the directions on thewebsite.
Log in with your Log-in ID and Temporary Password
Voting Rights Exercise Website: https://evote.tr.mufg.jp/
1. Access the Voting Rights Exercise Website.
2. Enter the “Log-in ID” and the “Temporary Password” described on the lower right-hand side of the Voting
Rights Exercise Form, and click the “Log-in” button.
3. Register a new password.
4. Then, please indicate whether you are for or against each of the items following the directions on thewebsite.
* Please refer to the following page for the Cautions Regarding Exercise of the Voting Rights via the Internet.

-4-

Cautions Regarding Exercise of the Voting Rights via the Internet
For the exercise of the voting rights via the Internet, please access the Voting Rights Exercise Website(https://evote.tr.mufg.jp/), and exercise your voting rights after confirming the items below.
For those attending, procedures for posting the Voting Rights Exercise Form or exercising your voting rights via
the Internet are unnecessary.
* You will not be able to access the website from 2:00 a.m. to 5:00 a.m. each day during the exercise period.
* You may not be able to use the website in such Internet environments as those using firewalls, etc. for theInternet connection, those using antivirus programs, those with a proxy server, or those where TLSencrypted communications are not specified.
* 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 Website. Pleasetake care not to forget your new password.
* JT will notify you of the new “Log-in ID” and “Temporary Password” at each convocation of the General
Meeting of Shareholders.
* In the event voting rights are exercised more than once:(1) If the voting right is exercised both by posting the Voting Rights Exercise Form and via the Internet,
only the exercise of the voting right via the Internet shall be valid.
(2) If the voting right is exercised more than once via the Internet, only the last exercise of the voting rightshall be valid.
* Each shareholder shall bear any fees for accessing the Voting Rights Exercise Website (Internet connection
fees, communications fees, etc.).

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

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

To institutional
investors

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

-5-

REFERENCE DOCUMENTS
FOR THE GENERAL MEETING OF SHAREHOLDERS
Item 1: Appropriation of Surplus
The Company has adopted a management resources allocation policy, under which the Company will continue
to place a high priority on making business investments that contribute to sustainable mid- to long-term profit
growth as well as to value the balance between profit growth through business investments and shareholder
returns. In this context, the Company is pursuing enhanced shareholder returns in proportion to the mid- to longterm profit growth, while maintaining a strong financial base(Note).
In accordance with these policies, year-end dividends for the 34th Business Term will be paid as described
below.
(Note) As its financial policy, JT will maintain a strong financial base that secures stability in case of changes
in business environment such as economic crises and flexibility enabling expeditious responses tobusiness investment opportunities.

Year-end dividends(1) Type of assets to be paid as dividends:
Cash(2) Allotment of assets to be paid as dividends and their aggregate amount:¥75 per share of ordinary shares of JT

Aggregate amount: ¥134,356,751,925

Together with the interim dividends of ¥75 per share paid in September 2018, the annual dividends for the34th Business Term will be ¥150 per share, a ¥10 increase year on year.
(3) Effective date for distribution of surplus:
March 22, 2019
Reference: Trends in dividend per share(Note) (yen)(Note) A 200 for 1 share split was effectuated as of July 1, 2012. The above numbers are calculated on theassumption that the share split was retroactively effective.

-6-

Reference

In accordance with the “Business Plan 2019,” the Group will continue to pursue mid to high single-digit(Noteannual average growth rate over the mid- to long-term in adjusted operating profit at constant rates of
exchange(Note 2). The Group’s management resources allocation policy and returns to shareholders policy are as
follows.
1)

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

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

Returns to shareholders policy
Improve returns to shareholders
in agreement with mid- to longterm profit growth, while
maintaining a firm financialbase Work toward stable and consistent growth in dividend pershare Consider whether to execute the acquisition of treasury
shares in view of factors including the medium-term outlook
on business environment and financial positions
 Continue to monitor a trend in shareholder returns of global
FMCG(Note 3) companies(Notes) 1. mid to high single-digit: mid to high single-digit-percentage
2. Adjusted operating profit is calculated by deducting amortization cost of acquired intangibles andadjustment items (income and costs) from operating profit (loss). Adjustment items (income and costs)
are impairment losses on goodwill, restructuring income and costs, and other items. Adjusted operating
profit growth rate at constant rates of exchange is a financial measurement that excludes foreign exchange
effects by translating and calculating adjusted operating profit for the fiscal year in the International
Tobacco Business using the foreign exchange rates of the previous fiscal year.
3. A Fast-Moving Consumer Goods (daily consumer goods) company is a company that achieves a highgrowth business by adopting a stakeholder model.

-7-

Item 2: Partial Amendment to the Articles of Incorporation
1. Reasons for the Proposed Amendment
The Company expects the business environment surrounding JT Group to become increasingly challenging and tochange at an unprecedented scale and speed. In these circumstances, we believe it is necessary to enhance our corporate
governance in order for JT Group to continue to achieve mid- to long-term sustainable profit growth and increase
corporate value.
As part of our efforts to enhance our corporate governance, the Company will revise the article on the number of audit& supervisory board members in order to ensure a variety of perspectives and strengthen our auditing functions.

2. Details of the Proposed amendment
Proposed amendment is as follows.
(Underline indicates amended portions)
Current
Proposed Amendment
Article 27. (Number of Audit & Supervisory Board Article 27. (Number of Audit & Supervisory Board
Members)
Members)
The number of audit & supervisory board members The number of audit & supervisory board members
shall not exceed four.
shall not exceed five.

-8-

Item 3: Election of Two (2) Members of the Board
Having taken into account the Group’s business environment, as we move to realize sustainable profit growth andincreased corporate value over the mid- to long-term, we propose the election of two (2) new Members of theBoard with the aim of promoting sustainability management, as well as further strengthening and enhancing
corporate governance.
The candidates for the office of Member of the Board are as follows.
Candidate Number

1

Kazuhito Yamashita

Newly
appointed(Born February 4, 1963)

Number of the Company’s Shares Held

6,400

Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent
Positions outside the Company
Reasons for nomination as a
April 1986
Joined the Company
May 2007
Vice President, Corporate, Scientific & Regulatory candidate for Director
Affairs Division, Tobacco Business Headquarters
Kazuhito Yamashita has served in such
Vice President, Corporate Affairs Division, Tobacco
July 2009
roles as Senior Vice President, Chief
Business Headquarters
Corporate, Scientific & Regulatory
Senior Vice President, Chief Corporate, Scientific & Affairs Officer, and Head of China
June 2010
Regulatory Affairs Officer, Tobacco Business Division, focusing on promoting social
Headquarters
and environmental issues and on the
Senior Vice President, Head of China Division, expansion of the overseas business in an
January 2015
Tobacco Business Headquarters
increasingly complex and diverse
Senior Vice President, Compliance, Sustainability business environment. His leadership,
January 2019
Management and General Affairs
and the broad knowledge he has(Current Position)cultivated, are well-suited to thesustainability management needed toestablish an environment conducive to
the Group’s sustainable growth going
forward, for which reason we consider
him a suitable candidate for Director,
and propose his election as a Member ofthe Board.

(Note)

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

-9-Candidate Number

2

Yukiko Nagashima

Newly
appointed
OutsideDirector
Independent
Director(Notes)(Born April 4, 1961)

Number of the Company’s Shares Held0

Brief Personal History, Positions and Responsibilities in the Company, and Significant Concurrent
Positions outside the Company
April 1985
Joined Recruit Co., Ltd. (Current Recruit Holdings Reasons for nomination as a
candidate for Outside Director
Co., Ltd.)
April 2006
Corporate Executive Officer, Recruit Co., Ltd.
Over the course of her career Yukiko
January 2008
President and Representative Director, Recruit
Nagashima has been deeply involved in
Staffing Co., Ltd.
emerging businesses and corporate
October 2012
Corporate Executive Officer, Recruit Holdings Co., management, and also has experience as
Ltd.
a Member of the Audit and Supervisory
June 2016
Standing Audit and Supervisory Board Member, Boards. Given that we expect the
Recruit Holdings Co., Ltd.
influence of her wide-ranging insights,(Current Position)from the perspectives of both
April 2018
Standing Audit and Supervisory Board Member,management and auditing, on the
Recruit Co., Ltd.
management of the Group to contribute(Current Position)

to a further strengthening of corporate
governance, we consider her anappropriate candidate for Outside
Director of the Company, and propose
her election as such.

(Significant Concurrent Positions outside the Company)
Standing Audit and Supervisory Board Member, Recruit Holdings Co., Ltd.
Standing Audit and Supervisory Board Member, Recruit Co., Ltd.
1. No conflict of interest exists between the Company and Yukiko Nagashima.
2. Should Yukiko Nagashima election be approved, the Company intends to enter into an agreement with her to limit her liabilities
stipulated in Article 423, paragraph 1 of the Companies Act to the extent permitted by the laws and regulations.
3. Yukiko Nagashima satisfies the Criteria for Evaluating the Independence of Outside Executives of the Company and therequirements of an independent director prescribed by the Tokyo Stock Exchange, Inc.
Although the Company has business relationships with both Recruit Holdings Co., Ltd. and Recruit Co., Ltd., of which she isStanding Audit and Supervisory Board Member, in relation to recruitment etc., the value of the business in the fiscal 2018 was
negligible, coming to less than 0.01% of consolidated net sales for Recruit Holdings Co., Ltd. in the fiscal year ended March
2018, and less than 0.01% of the Company’s consolidated revenue in fiscal 2018.
We judge that this relationship has no impact on her independence.
4. The Company intends to designate Yukiko Nagashima as an independent director as prescribed by the Tokyo Stock Exchange,
Inc., should her election be approved.

-10-Reference: Composition of the Board of Directors after election (Plan)
Name[Current]

Yasutake Tango[Current]

Masamichi Terabatake[Current]

Mutsuo Iwai

[Current]

Naohiro Minami[Current]

Kiyohide Hirowatari[Newly appointed]

Kazuhito Yamashita

Attendance atmeetings ofthe Board of
Directors

Number ofyears asMember of the
Board

15/15
(100%)

4 years and9 months

10/10(100%)

1 year15/15(100%)

3 years

10/10(100%)

1 year10/10(100%)

1 year--Outside Director

15/15(100%)

6 years and9 months

Outside Director

10/10(100%)

1 yearOutside Director--

Positions and Responsibilities
in the Company

Chairman of the Board
Representative Director
and President,
Chief Executive Officer
Representative Director andExecutive Vice President,
President, Tobacco Business
Headquarters
Representative Director andExecutive Vice President,
Chief Finance Officer andCommunications
Representative Director andExecutive Vice President,
Corporate, Pharmaceutical Businessand Food Business
Member of the Board andSenior Vice President, Compliance,
Sustainability Management andGeneral Affairs

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

Koichiro Watanabe[Current][Outside Director][Independent Director][Newly appointed](Notes)Yukiko Nagashima[Outside Director][Independent Director]

1.

Attendance at meetings of the Board of Directors held in the fiscal year 2018 is presented.

2.

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

-11-

Item 4: Election of Five (5) 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. This being the case, in order to further enhance andstrengthen corporate governance, and with the aim of incorporating a diversity of viewpoints to further reinforce
the auditing function, we propose the election of five (5) Audit & Supervisory Board Members, an increase of one(1) person, on condition that Item 2 is approved and passed.
The Audit & Supervisory Board has approved this proposition.
The candidates for the office of Audit & Supervisory Board Member are as follows.
Candidate Number

1

Ryoko Nagata(Born July 14, 1963)

Number of the Company’s Shares Held

12,400Brief Personal History, Positions in the Company, and Significant Concurrent Positions outside theCompany
April 1987
April 2001
June 2008

July 2008

Reappointed

July 2010
June 2013
January 2018
March 2018

(Notes)Joined the Company
Vice President, Head of Products Division, FoodBusiness Division, Food Business Headquarters
Senior Vice President, Head of Beverage Business
Division, Food Business Headquarters and Products
Division, Food Business Division, Food Business
Senior Vice President, Head of Beverage Business
Division, Food Business Headquarters
Senior Vice President, Head of Beverage Business
Division
Senior Vice President, CSR
Senior Vice President, Assistant to President
Standing Audit & Supervisory Board Member(Current Position)

Reasons for nomination as a
candidate for Audit & Supervisory
Board Member
Ryoko Nagata assumed the position of
Audit & Supervisory Board Member of
the Company in March 2018. In thecourse of auditing the Group, she hasleveraged her abundant experience andher wide-ranging insights with regard to
the Group’s business operations acrossoperational businesses and internal
departments. We therefore again propose
her election as an Audit & Supervisory
Board Member, as we believe her broadand deep knowledge and experience willbe essential to the improvement of thecorporate governance of the Group
going forward.

1. No conflict of interest exists between the Company and Ryoko Nagata.
2. The Company has entered into an agreement with Ryoko Nagata to limit her liabilities stipulated in Article 423, paragraph 1 of
the Companies Act to the extent permitted by the laws and regulations. Should her election be approved, the Company intends
to extend the agreement.

-12-

Candidate Number

2

Hiroshi Yamamoto(Born November 29, 1963)

Number of the Company’s Shares Held0

Brief Personal History, Positions in the Company, and Significant Concurrent Positions outside theCompany
Reasons for nomination as a
April 1987
Joined the Company
Vice President, NTM Procurement Division,
candidate for Audit & Supervisory
July 2008
Tobacco Business
Board Member
Vice President, Operational Review and Business
June 2012
Hiroshi Yamamoto has served in such
Assurance Division (Current Position)

roles as the Vice President of the NTM
Procurement Division of the Tobacco
Business, and as Vice President of the
Operational Review and Business
Assurance, and particularly in the latter
position has played an important role in
improving corporate governance in theGroup’s business operations. Becauseof his detailed, deep and wide-ranging
knowledge and experience across all
business operations and internal
departments, we expect him to fulfill his
duty as an Audit & Supervisory Board
Member in relation to the effective
auditing of the Group, and therefore
propose his election as Member of the
Audit & Supervisory Board. In addition,
he is knowledgeable in the area offinance and accounting.

Newly
appointed(Notes)1. No conflict of interest exists between the Company and Hiroshi Yamamoto.
2. Should Hiroshi Yamamoto election be approved, the Company intends to enter into an agreement with him to limit his liabilities
stipulated in Article 423, paragraph 1 of the Companies Act to the extent permitted by the laws and regulations.

-13-

Candidate Number

3

Toru Mimura(Born December 26, 1955)

Number of the Company’s Shares Held0

Brief Personal History, Positions in the Company, and Significant Concurrent Positions outside theCompany
Reasons for nomination as aEntered Ministry of Finance
April 1979
Deputy Director-General of the Planning and candidate for Outside Audit &July 2010
Coordination Bureau, and Secretary-General of theSupervisory Board Member
Executive Bureau, Certified Public Accountants
Toru Mimura has extensive experienceand Auditing Oversight Board, Financial Services
Agencyover many years of serving in a wide
July 2011
January 2012

Newly
appointed
Outside Audit& Supervisory
Board Member

September 2012
July 2013
July 2014
October 2015
July 2016
September 2016
October 2017
March 2018

Director General, Kinki Local Finance Bureau,
Ministry of Finance
Resigned Director-General, Kinki Local Finance
Bureau, Ministry of Finance
Deputy Director-General, Minister's Secretariat,
Ministry of Defense
Director General, Bureau of Personnel and
Education, Ministry of Defense
Director General, National Institute for Defense
Studies, Ministry of Defense
Director General, Bureau of Finance and Equipment,
Ministry of Defense
Vice-Minister of Defense for International Affairs,
Ministry of Defense
Retired from the office of Vice-Minister of Defense
for International Affairs, Ministry of Defense
Chairman, Sompo Japan Nipponkoa ResearchInstitute Inc.
Director, Eltes Co.,Ltd.
Registered as Attorney at Law

range of important positions inministries and agencies, in addition to
his role as research institute chairman,
and through this has acquired deep
knowledge of such fields as finance,
global risk management, geopolitics andcompany law. We judge that the broadand deep knowledge he has cultivatedthrough this wide-ranging experience
will enable him to make a significant
contribution to the effective auditing of
the Group in this changeable and highly
uncertain business environment. In
addition, we believe his roles asStanding Audit & Supervisory Board
Member and Outside Audit &Supervisory Board Member facilitate
improvements to auditing from a thirdparty perspective, and will lead to astrengthening of the Group’s corporate
governance, for which reason we
propose his election as Outside Audit &Supervisory Board Member.

(Significant Concurrent Positions outside the Company)
Attorney at Law, Shiba International Law Offices(Notes)1. No conflict of interest exists between the Company and Toru Mimura.
2. Should Toru Mimura election be approved, the Company intends to enter into an agreement with him to limit his liabilities
stipulated in Article 423, paragraph 1 of the Companies Act to the extent permitted by the laws and regulations.
3. As explained in “Reasons for nomination as a candidate for Outside Audit & Supervisory Board Member” above, because Toru
Mimura has the knowledge and experience that the Company expects, the Company proposes that he be elected, and notes that
he satisfies the requirements of an independent auditor prescribed by the Tokyo Stock Exchange, Inc.
However, because of his professional experience at the Ministry of Finance, having taken into account the Company ’sprescribed criteria for independence, the Company does not intend to designate him an independent auditor.
More than seven years have elapsed since he resigned from his post at the Ministry of Finance.

-14-

Candidate Number

4

Hiroshi Obayashi

Reappointed
Outside Audit& Supervisory
Board Member
Independent
AuditorNumber of years as Audit & Supervisory Board Member(at the conclusion of this Ordinary General Meeting of Shareholders)Number of the Company’s Shares Held
(Born June 17, 1947)

4 years0

Brief Personal History, Positions in the Company, and Significant Concurrent Positions outside theCompany
Reasons for nomination as a
April 1970
Judicial Apprentice
candidate for Outside Audit &April 1972
Appointed as Public Prosecutor
May 2001
Director-General of the Rehabilitation Bureau, Supervisory Board Member
Ministry of Justice
Hiroshi Obayashi assumed the position
January 2002
Deputy Vice-Minister of Justice, Ministry of Justice of Audit & Supervisory Board Member
June 2004
Director-General of the Criminal Affairs Bureau, of the Company in March 2015. In
Ministry of Justiceaddition to his extensive experience inJune 2006
Vice-Minister of Justice, Ministry of Justice
the legal circles, he has accumulated
July 2007
Superintending Prosecutor, Sapporo High Public experience as an outside director andProsecutors’ Officeoutside audit & supervisory board
July 2008
Superintending Prosecutor, Tokyo High Public member across a wide range ofProsecutors Officeindustries. We consider his deep
June 2010
Prosecutor-Generalknowledge and experience to be
December 2010 Retired from the office of Prosecutor-Generalindispensable to improving the Group’s
corporate governance going forward,
March 2011
Registered as Attorney at Law
April 2011
Outside Audit & Supervisory Board Member, Daiwa for which reason we propose that he bereappointed as Outside Audit &Securities Co., Ltd. (Current position)
Supervisory
Board
Member.
June 2013
Outside Director, Mitsubishi Electric Corporation
Furthermore,
he
has
no
experienceof(Current position)
being
involvedincompany
June 2014
Outside Audit & Supervisory Board Member,
NIPPON STEEL & SUMITOMO METAL management other than through the roleof an outside director and outside audit
CORPORATION (Current position)
March 2015
Outside Audit & Supervisory Board Member, the & supervisory board member, but for
the reasons presented above, andCompany (Current position)
because he has adequately discharged
his responsibilities as Audit andSupervisory Board Member of theCompany, we judge that he would be
able to appropriately execute his duties
as Outside Audit & Supervisory Board
Member.

(Notes)(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
1. No conflict of interest exists between the Company and Hiroshi Obayashi.
2. The Company has entered 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 regulations. Should his election be approved, the Company
intends to extend the agreement.
3. Hiroshi Obayashi satisfies the Criteria for Evaluating the Independence of Outside Executives of the Company and therequirements of an independent auditor prescribed by the Tokyo Stock Exchange, Inc.
4. The Company has designated Hiroshi Obayashi as an independent auditor as prescribed by the Tokyo Stock Exchange, Inc.
and intends to designate him as such again, should his election be approved.

-15-

Candidate Number

5

Koji Yoshikuni(Born September 7, 1952)

Number of the Company’s Shares Held0

Brief Personal History, Positions in the Company, and Significant Concurrent Positions outside theCompany
April 1975
June 2003
June 2005

Newly
appointed
Outside Audit& Supervisory
Board Member

June 2007
February 2010
April 2012
April 2017

Joined Japan Broadcasting Corporation
Director Responsible for Finance of News
Department, Japan Broadcasting Corporation
Executive Director, Yokohama BroadcastingStation, Japan Broadcasting Corporation
Chief of Secretariat for Board of Governors, Japan
Broadcasting Corporation
Senior Director, Japan Broadcasting Corporation
Executive Director, Japan Broadcasting Corporation
Vice President, the Graduate School of Project
Design (Current position)
Auditor, Hosei University (Current position)

Independent
Auditor(Notes)Reasons for nomination as a
candidate for Outside Audit &Supervisory Board Member
Koji Yoshikuni has served in such roles
at Japan Broadcasting Corporation as
the Director Responsible for Finance ofNews Department, Chief of Secretariat
for Board of Governors, and Executive
Director, and has a knowledge ofpolitics and economics cultivated overlong years in his journalistic career, as
well as management experience that hasleft him thoroughly acquainted with all
business operations and internal
departments. We judge that we can
expect him to use the wide-ranging
knowledge derived from his previous
experience to play a significant role, as
an Audit & Supervisory Board Member,in improving the Group’s corporate
governance, for which reason we
propose that he be elected Outside Audit& Supervisory Board Member. In
addition, he is knowledgeable in thearea of finance and accounting.

1. No conflict of interest exists between the Company and Koji Yoshikuni.
2. Should Koji Yoshikuni election be approved, the Company intends to enter into an agreement with him to limit his liabilities
stipulated in Article 423, paragraph 1 of the Companies Act to the extent permitted by the laws and regulations.
3. Koji Yoshikuni satisfies the Criteria for Evaluating the Independence of Outside Executives of the Company and therequirements of an independent auditor prescribed by the Tokyo Stock Exchange, Inc.
4. The Company intends to designate Koji Yoshikuni as an independent auditor as prescribed by the Tokyo Stock Exchange, Inc.,
should his election be approved.

-16-

Reference: Composition of the Audit & Supervisory Board Members after election (Plan)

No.

1[Reappointed]

2[Newly appointed]

Attendance Number ofAttendanceat meetings years as
at meetingsof
Audit &
ofthe Audit & Supervisory
the Board ofSupervisory
Board
Directors
Board
MemberName

Responsibilities in the Company

Ryoko Nagata

Standing Audit & Supervisory
Board Member

10/10(100%)

9/9(100%)

1 yearStanding Audit & Supervisory
Board Member

-

-

-

Standing Audit & Supervisory
Board Member[Standing Audit &Supervisory Board Member] Outside Audit & Supervisory[Outside Audit & Supervisory Board Member

-

-

-

15/15
(100%)

13/13(100%)

4 years---[Standing Audit &Supervisory Board Member]

Hiroshi Yamamoto[Standing Audit &Supervisory Board Member]

Toru Mimura
3[Newly appointed]

Board Member]

Hiroshi Obayashi
4[Reappointed]

5[Newly appointed]

Koji Yoshikuni(Notes)

Outside Audit & Supervisory[Outside Audit & Supervisory Board Member
Board Member][Independent Auditor]

Outside Audit & Supervisory[Outside Audit & Supervisory Board Member
Board Member][Independent Auditor]

1.

Attendance at meetings of the Board of Directors and meetings of the Audit & Supervisory Board held in the fiscal
year 2018 is presented.

2.

The numbers of years as Audit & Supervisory Board Member at the conclusion of this Ordinary General Meetingof Shareholders are presented.

-17-

【Reference】Criteria for Evaluating the Independence of Outside Executives
The Company has established a Criteria for Evaluating the Independence of Outside Executives and Independent
Directors/Audit & Supervisory Board Members must not fall under any of the following categories.
1 A person who belongs or belonged to JT or an affiliate or sister company of JT
2 A person who belongs to a company or any other form of organization of which JT is a major shareholder
3 A person who is a major shareholder of JT or who belongs to a company or any other form of organization
which is a major shareholder of JT
4 A person who is a major supplier or customer of JT (if the supplier or customer is a company or any other formof organization, a person who belongs thereto)
5 A major creditor of JT including a major loan lender (if the creditor is a company or any other form oforganization, a person who belongs thereto)
6 A certified public accountant who serves as an accounting auditor or an audit advisor of JT, or a person who
belongs to an auditing firm which serves as an accounting auditor or an audit advisor of JT
7 A person who receives a large amount of fees from JT in exchange for providing professional services for legal,financial and tax affairs or business consulting services (if the recipient of such fee is a company or any otherform of organization, a person who belongs thereto)
8 A person who receives a large amount of donation from JT (if the recipient of such donation is a company or
any other form of organization, a person who belongs thereto)
9 A person who has fit any of the descriptions in 2 to 8 above in the recent past
10 A close relative of a person who fits any of the following descriptions:(1) A person who fits any of the descriptions in 2 to 8 above (if such descriptions apply to a company or any
other form of organization, a person who performs important duties thereof)(2) A member of the board, audit & supervisory board member, audit advisor, executive officer or employee
of JT or an affiliate or sister company of JT(3) A person who has fit the descriptions in (1) or (2) in the recent past-18-

【Reference】Nomination of Member of the Board Candidates
In “JT Corporate Governance Policy,” the Company prescribes the following.
Nomination of Member of the Board candidates and Audit & Supervisory Board Member candidates, dismissal of
Members of the Board who execute the business and related matters shall be conducted under the appropriate
supervision of the Board of Directors, according to the following policies and procedures.
 JT shall work on expanding, in terms of quality and quantity, the group of executive candidates with qualities
for assuming sustainable profit growth and increase of corporate value in the mid- to long-term by pursuingthe “4S” model.
In specific, JT aspires to expand a diverse group of executive candidates, while referring to opinions fromoutside at the Meeting for Talent Development currently established. Independent outside Members of theBoard are also participating in the said meeting, to further increase objectivity.
 Member of the Board candidates shall be nominated, upon the representative Member of the Board forming acandidate proposal in consideration of discussions, etc., at the above meeting, by resolution of the Board of
Directors through discussions on the candidate proposal at the Board of Directors meeting, after securing
opportunities for receiving appropriate advice from independent outside Members of the Board, such as bygiving explanations to independent outside Members of the Board before raising it at the Board of Directors
meeting. With respect to Audit & Supervisory Board Member candidates, a person who is expected to perform
his or her duties appropriately from a position independent of the Board of Directors shall be nominated byresolution of the Board of Directors, upon receiving the prior consent of The Audit & Supervisory Board.
 For dismissal of Members of the Board who execute the business, in the cases where they do not meet therequired qualifications or have become unable to perform their duties, a Member of the Board who is not
subject to dismissal shall bring a proposal for dismissal before the Board of Directors and the Board of
Directors shall resolve the proposal.
 Looking forward, the company will consider merging the functions of the abovementioned Meeting for Talent
Development and the existing Compensation Advisory Panel to newly establish a Personnel and Compensation
Advisory Panel as a voluntary advisory panel to the Board of Directors comprised mainly of independent
outside Members of the Board.
Further, when bringing up the agenda item on the appointment of Member of the Board candidates and Audit &Supervisory Board Member candidates at the shareholders’ meeting, and when the Board of Directors has resolved
to dismiss a Member of the Board who execute the business, JT shall disclose the reasons for the appointment of
individual candidates and for the dismissal.

-19-

Item 5: Revision of Remuneration Amount for Members of the Board
The remuneration amount for Members of the Board of the Company was approved at an annual level not
exceeding ¥870 million at the 22nd Ordinary General Meeting of Shareholders held on June 22, 2007, andhas remained unchanged since. However, with the need to respond to a rapidly changing businessenvironment, both the role and the duties of Members of the Board have increased, and with the
remuneration level at the group of companies that, having taken into account the scale of companies andtheir finances, the Company uses as a benchmark, rising as a result of globalization and the introductionof new incentives, it has become necessary for the Company maintain a level of remuneration adequate tosecure high-quality human resources. In accordance with the increase in the number of Members of theBoard, conditional upon approval being obtained for Item 3, it is hereby proposed that the remuneration
amount for Members of the Board be revised to an annual level not exceeding ¥1.2 billion (including ¥80
million annually for the Outside Directors).
There are currently seven (7) Members of the Board (including two (2) Outside Directors), and there will benine (9) Members of the Board (including three (3) Outside Directors), provided Item 3 is approved.

Item 6: Revision of Amount of Stock Option Granted to Members of the Board
In order to further bolster morale and raise motivation to increase corporate value among directors of theCompany, approval was obtained at the 22nd Ordinary General Meeting of Shareholders held on June 22,2007, for a stock option, with the remuneration amount not exceeding ¥200 million annually, and with thetotal number of subscription rights to shares not exceeding 800 annually. This plan has remained
unchanged since, but we propose to revise the remuneration for stock option grants to an amount notexceeding ¥240 million annually, with the total number of subscription rights to shares not exceeding 960
annually. The reasons for this revision are presented in Item 5.
There are currently seven (7) Members of the Board (including two (2) Outside Directors), and there will benine (9) Members of the Board (including three (3) Outside Directors), provided Item 3 is approved.
In addition, stock option grants are not allocated to Outside Directors of the Company.

Item 7: Revision of Remuneration Amount for Audit & Supervisory Board Members
The remuneration amount for the Audit & Supervisory Board Members of the Company was approved at
an annual level not exceeding ¥190 million at the 22nd Ordinary General Meeting of Shareholders held on
June 22, 2007, and has remained unchanged since. However, with the business environment changing
rapidly, and with the content of audit work becoming both more complex and more diverse, the role andduties of Audit & Supervisory Board Members have increased. Therefore, in accordance with the increasein the number of Audit & Supervisory Board Members, conditional upon approval being obtained for Item
2 and 4 respectively, it is hereby proposed that the remuneration amount for Audit & Supervisory Board
Members be revised to an annual level not exceeding ¥240 million.
There are currently four (4) Audit & Supervisory Board Members, and there will be five (5) Audit & Supervisory
Board Members, provided Item 2 and 4 are both approved.

-20-【Reference】Determination of Remuneration Amount for Members of the Board and Executive Officers
In “JT Corporate Governance Policy,” the Company prescribes the following.
The Board of Directors shall appropriately decide on compensation for Member of the Board and Executive
Officers according to the following policies and procedures.
 From the viewpoint of securing objectivity and transparency concerning compensation of Members of theBoard, the Board of Directors shall establish a Compensation Advisory Panel as a voluntary advisory panel ofthe Board of Directors. The main members of the Compensation Advisory Panel shall be independent outside
Members of the Board and independent outside Audit & Supervisory Board Members, and the Compensation
Advisory Panel shall respond to consultation, discuss and recommend policies, systems, calculation methods,
etc., concerning compensation for JT’s Members of the Board and Executive Officers, as well as monitor thesituation of compensation of Members of the Board at JT.
 The Board of Directors shall adopt a performance-based compensation system and a stock option system
concerning compensation of Members of the Board, adopt compensation composition corresponding to thenature of each Member of the Board and Executive Officer’s services and determine each Member of the Board
and Executive Officer’s compensation based on the following basic principles concerning compensation ofMembers of the Board in consideration of recommendations received from the Compensation Advisory Panel.
 The compensation standard shall be suitable for securing excellent personnel.
 The compensation system shall be performance-based which will serve as motivation for achieving
performance goals.
 Compensation shall be linked to mid- to long-term corporate value.
 Compensation shall be transparent based on objective points of view and quantitative framework.

-21-

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

Business Report(From January 1, 2018 to December 31, 2018)
I.

Matters Concerning Present State of the Corporate Group1.

Overview and results of operations
General summary
Revenue
In the International Tobacco Business, revenue was affected by the unfavorable foreign exchange effects
from weaker local currencies in emerging countries, etc., while the Domestic Tobacco Business was hit by
the impact of lower cigarette sales volume, but due to the effects of favorable pricing and the volume effects
in the International Tobacco Business, as well as rising RRP-related(Note 4) revenue and the effects of favorable
cigarette pricing in the Domestic Tobacco Business, in addition to increased royalty revenue in the
Pharmaceutical Business, revenue rose by 3.6% from the previous fiscal year to ¥2,216.0 billion.
Adjusted operating profit, operating profit and profit attributable to owners of the parent company
Adjusted operating profit at constant rates of exchange, which is one of the Group’s management benchmarks,
grew by 8.9% from the previous fiscal year, with declines in the Domestic Tobacco Business and theProcessed Food Business being offset by increases in the International Tobacco Business and thePharmaceutical Business, with another factor being the posting in the previous year of the one-time loss inrelation to the filing for bankruptcy of a distributor in the United Kingdom. In addition, adjusted operating
profit increased by 1.7% from the previous fiscal year to ¥595.5 billion, despite unfavorable foreign exchange
effects. Adjusted operating profit excluding the one-time loss in the previous year, declined by 1.9% fromthe previous fiscal year, and at constant currency, increased 4.9% from the previous fiscal year.
Operating profit increased by 0.7% from the previous fiscal year to ¥565.0 billion, driven by growth inadjusted operating profit and gains from the sale of real estate-related assets. This was despite an increase intrademark amortization related to acquisitions.
Despite an increase in operating profit, profit attributable to owners of the parent declined by 1.7% from theprevious fiscal year to ¥385.7 billion due to an increase in financial costs.
Consolidated performance[Billions of yen]

Change [%]2,216.0

3.6

Adjusted operating profit(Note 2)

595.5

1.7

Adjusted operating profit(at constant rates of
exchange)(Note 3)

637.2

8.9

Profit attributable to owners of
the parent company

385.7

(1.7)

Revenue(Note 1)

(Notes)

1. From the current fiscal year, in accordance with the application of IFRS 15, certain items
formerly treated as selling, general and administrative expenses are accounted for as reductionsof revenue. As a result, compared to the application of the former accounting standard, revenue
and selling, general and administrative expenses decreased by ¥10,944 million and ¥70,905
million respectively, and cost of sales increased by ¥59,962 million on the consolidated-22-

statement of income for the current fiscal year. These changes have no effect on operating profit
and profit for the year.
2. Adjusted operating profit is calculated by deducting amortization cost of acquired intangibles
arising from business acquisitions and adjustment items (income and costs) from operating profit(loss). Adjustment items (income and costs) are impairment losses on goodwill, restructuringincome and costs, and other items.
3. Adjusted operating profit (at constant rates of exchange) is a value that excludes foreignexchange effects by translating and calculating adjusted operating profit for the current fiscal
year in the International Tobacco Business using the foreign exchange rates of the previous fiscal
year.
4. Reduced-Risk Products (RRP) are products with potential to reduce the risks associated withsmoking such as E-Vapor products and T-Vapor products. E-Vapor products do not use tobacco
leaf, instead using electrical heating of a liquid inside a device or specialized cartridge to generate
vapor for the user to enjoy. Conversely, T-Vapor products do use tobacco leaf, but instead ofburning the leaf, they use methods such as heating the leaf to generate vapor (which includes
compounds derived from the tobacco leaf) for the user to enjoy.

-23-

Revenue breakdown by business segment

Revenue

Adjusted operating profit

Profit(Attributable to owners of the parent company)-24-

Domestic Tobacco BusinessIn the current fiscal year, sales volume of cigarettes(Note 1) was negatively impacted by a decline in cigarette
industry volume(Note 2) caused by the expansion of RRP market and the downtrend in total demand, among
others. As a result, sales volume fell by 11.7%, from the previous fiscal year to 82.0 billion cigarettes. The
Company’s RRP sales volume reached 2.8 billion cigarette equivalent units.
Cigarette market share increased 0.5ppt from the previous fiscal year to 61.8% led by the solid performanceof core brands.
Core revenue from the tobacco business(Note 3) fell by 1.4% from the previous fiscal year to ¥582.4 billion,
with the effects of favorable cigarette pricing and an increase of RRP related revenue, etc., not offsetting theimpact of lower cigarette sales volume. Core revenue from the tobacco business includes RRP related revenueof ¥64.6 billion.
Adjusted operating profit decreased by 10.0% from the previous fiscal year to ¥209.0 billion, due to theimpact of lower cigarette sales volume and an increase of sales promotion expenses, partially offset by anincrease in RRP related revenue and the effects of favorable cigarette pricing.
(Notes)1. Sales volume of cigarettes includes sales volume for the Company in the Japanese cigarettemarket, but it does not include sales volume for RRP and so on. In addition to the figure statedabove for sales volume, during the fiscal year ended December 31, 2018, 4.0 billion cigarettes
were sold at duty-free shops in Japan, as well as at markets in China, Hong Kong and Macauthat are under the control of the Company’s China Division (4.0 billion cigarettes in the previous
fiscal year).
2. Cigarette industry volume includes sales
volume for the whole Japanese cigarettemarket, but it does not include sales
volume for RRP and so on.
3. Core revenue in the Domestic Tobacco
Business includes revenue from thedomestic duty-free market as well asfrom markets in China, Hong Kong and
Macau that are under the control of theCompany’s China Division, in addition
to revenue related to RRP, but it excludes
revenue related to imported tobaccodelivery charges, among others.

-25-International Tobacco BusinessIn the current fiscal year, the effects of acquisitions in the Philippines, Russia and elsewhere resulted in total
shipment volume(Note 1) rising by 7.3% from the previous fiscal year to ¥427.6 billion. Excluding the effectsof acquisitions, total shipment volume declined by 1.1% from the previous fiscal year, since rising sales
volume in regions such as Turkey and Iran was not enough to compensate for the effects of declines in total
demand in areas such as Russia and Taiwan.
GFB(Note 2) shipment volume rose by 2.3% from the previous year to 266.4 billion cigarettes, driven by volume
growth of Winston, Camel and LD.
Yen-based core revenue increased by 6.3% from the previous fiscal year to ¥1,250.7 billion, driven by theeffects of favorable pricing in key markets including Russia and by the volume increases as a result of
acquisitions, etc. Adjusted operating profit rose by 9.5% from the previous fiscal year to ¥384.5 billion,
despite the increase in investments to strengthen the business foundation in the markets where the Company
made acquisitions. This was due to higher core revenue, as well as the one-time loss in the previous fiscal
year caused by a distributor in the United Kingdom filing for bankruptcy. Adjusted operating profit excluding
the one-time loss recorded in the previous fiscal year increased by 3.0% from the previous fiscal year.
Moreover, both core revenue and adjusted operating profit were subject to the unfavorable foreign exchange
effects.
For dollar-based core revenue(Note 3), the effects of favorable pricing and rising volume outweighed theunfavorable effects of foreign exchange, leading to an increase of 7.9% from the previous fiscal year, to$11,330 million (up 12.2% from the previous fiscal year at constant rates of exchange). In addition, despite
a rise in investments, higher core revenue drove an increase in adjusted operating profit of 11.3% from theprevious fiscal year, to $3,493 million (up 21.3% from the previous fiscal year at constant rates of exchange).
Adjusted operating profit excluding the one-time loss recorded in the previous fiscal year increased by 4.8%
from the previous fiscal year (up 14.3% from the previous fiscal year at constant rates of exchange).
(Notes)

1. Includes fine cut tobacco, cigars, pipe tobacco, snus and kretek, except for contract
manufacturing products, waterpipe tobacco products and RRP.
2. GFBs (Global Flagship Brands) consist of four brands, which serve as flagships of the Group’s
brand portfolio - Winston, Camel, Mevius, LD.
3. Core revenue in the International Tobacco Business includes revenue related to waterpipe
tobacco products and RRP, but excludes revenue related to the distribution business and contract
manufacturing, among others.

-26-Core revenue (USD basis)

Adjusted operating profit (USD basis)

Exchange rate per U.S. dollar
FY 2017

FY 2018

112.16110.44

Ruble

58.35

62.68

Pounds sterling

0.78

0.75

Euro

0.89

0.85

Taiwanese dollar

30.44

30.14

Turkish lira

3.64

4.82

Iranian rial

38,811

61,649Foreign exchange rate
per U.S. dollar
Yen

Main Market Shares (12-month rolling average)
2017 Dec

2018 Dec

Variance

Italy

23.1%

23.9%

0.7pptFrance

22.0%

23.2%

1.2ppt

Spain

24.0%

24.8%

0.8ppt

UK

40.5%

41.3%

0.8pptRussia(GFBs)
Turkey

32.9%
23.7%
28.8%

35.6%
24.8%
27.7%

2.6ppt1.1ppt(1.1ppt)

Taiwan

41.7%

42.5%

0.8pptSource: IRI, Logista, Nielsen and JTI estimates-27-

Pharmaceutical BusinessIn the Pharmaceutical Business, the Company has been striving to make a stable contribution to the Group’s
profits by promoting R&D on next-generation strategic products and by maximizing the value of each product.
In the area of product development, seven compounds are in clinical development.
In the current fiscal year, revenue increased by 8.9%, from the previous fiscal year to ¥114.0 billion, driven
by higher royalty revenue of an original JT compound that has been out-licensed and milestone revenue.
Adjusted operating profit increased by 18.0%, from the previous fiscal year to ¥28.4 billion, driven by therevenue growth, despite increased R&D investment.
The Company has reached an agreement with Gilead Sciences, Inc. and Group company Torii PharmaceuticalCo., Ltd. to terminate the license agreements under which the Company has an exclusive license to develop
and commercialize six anti-HIV drugs in Japan. The termination date is set for January 1, 2019. The Company
is currently working on necessary procedures to transfer the marketing approvals.

-28-

【Reference】
Japan Tobacco Inc. Clinical Development as of February 7, 2019＜In-house development＞
Code（Generic Name）

Potential
Indication/Dosage form

Mechanism

Phase（Region)

Note

JTZ-951(enarodustat)

Anemia associated with chronic
kidney disease/Oral

HIF-PH inhibitor

Increases red blood cells by stimulatingproduction of erythropoietin, anerythropoiesis-stimulating hormone, via
inhibition of HIF-PHD.

Phase3(Japan)
Phase1(Overseas)

In-house
Co-development with Torii

JTE-052(delgocitinib)

Autoimmune/allergic diseases/Oral, Topical*Atopic dermatitis/Topical

JAK inhibitor

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

NDA filed(Japan)

In-house*Co-development with Torii

JTE-051

Autoimmune/allergic diseases/OralInterleukin-2 inducible T
cell kinase inhibitor

Suppresses overactive immune response via
inhibition of the signal to activate T cells
related to immune response.

Phase2(Overseas)

In-house

JTT-251

Type 2 diabetes mellitus/Oral

PDHK inhibitor

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

Phase1(Overseas)

In-house

JTE-451

Autoimmune/allergic diseases/Oral

RORγ antagonist

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

Phase2(Overseas)

In-house

JTT-662

Type 2 diabetes mellitus/Oral

SGLT1 inhibitor

Suppresses postprandial hyperglycemia andnormalizes blood glucose level via inhibition of
SGLT1.

Phase1(Overseas)

In-house

JTT-751(ferric citrate)

Iron-deficiency anemia/Oral

Oral iron replacement

Corrects iron-deficiency anemia by using
absorbed Iron for synthesis of hemoglobin.

Phase3(Japan)

In-license（Keryx Biopharmaceuticals）
Co-development with Torii
Additional indication

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

＜Licensed compounds＞
Compound（JT's code）

Mechanism

LicenseeNovartis

MEK inhibitor

Inhibits cellular growth by specificallyinhibiting the activity of MAPK/ERK pathway.

MedImmune

ICOS antagonist

Suppresses overactive immune response via
inhibition of ICOS which regulates activationof T cells.

delgocitinib

LEO Pharma
ROHTO Pharmaceutical

JAK inhibitor

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

enarodustat

JW Pharmaceutical

HIF-PH inhibitor

Increases red blood cells by stimulatingproduction of erythropoietin, anerythropoiesis-stimulating hormone, via
inhibition of HIF-PHD.

trametinib

Anti-ICOS monoclonal antibody

-29-

Note

Processed Food BusinessIn the Processed Food Business, we concentrate on frozen and ambient processed foods, seasonings, andbakery, while at the same time making efforts to strengthen cost competitiveness and working on initiatives
to improve profitability.
In the fiscal year ended December 31, 2018, we continued working to expand product sales with an emphasis
on staple food products such as frozen noodles, frozen rice, packed rice and baked frozen bread. Specifically,
we launched 25 new and 49 renewed frozen and ambient temperature home-use products, such as by offering
the authentic taste of Chinese noodles in the form of “Seafood and Pork-Bone Based Soup with Charsiu
Ramen, which is the result of our tie-up with a famous ramen establishment, and “Beef Rice,” a hearty meatbased meal. In addition with the aim of boosting summer demand for frozen udon noodles, and raisingawareness of the TableMark brand, we used media activities, primarily television commercials, andimplemented consumer campaigns.
Despite growth in sales of staple food products and seasonings, revenue in the fiscal year ended December
31, 2018 decreased by 1.1%, from the previous fiscal year to ¥161.4 billion, due to a decline in sales of otherproducts. Adjusted operating profit decreased by 23.6%, from the previous fiscal year to ¥4.1 billion, due
mainly to higher raw material costs.
Furthermore, we have established the Processed Food Business Planning Division with the goal of building
an operating structure that will ensure seamless management of strategy planning and business execution ineach subsidiary of the Processed Food Business, such as TableMark Co., Ltd., Fuji Foods Corporation andSaint-Germain Co., Ltd., and have accordingly made the decision to liquidate the intermediate holding
company, TableMark Holdings Co., Ltd. The Processed Food Business began operations under this new
structure on January 1, 2019, but there has been no change to the business content of the business companies.

-30-

2.

Status of capital expenditures
In this fiscal year, we made capital expenditures totaling ¥159.8 billion.
In the Domestic Tobacco Business, we spent ¥55.4 billion, mainly on investments accompanying
maintenance and upgrade of manufacturing processes, productivity improvements, adaptation to new
products, improvements in product specifications, and others. In the International Tobacco Business, weinvested ¥75.7 billion mainly for optimization of manufacturing facilities in addition to improvements in
product specifications. In the Pharmaceutical Business, we spent ¥11.3 billion on enhancing andstrengthening research and development structures and the like. In the Processed Food Business, we invested¥12.7 billion in improvement, maintenance and renewals of production capability.
(Note) Capital expenditures includes land; building and structures; machinery and vehicles; and otherproperty, plant and equipment, as well as goodwill, right of trademark, software and other intangible
assets, necessary for production improvements at factories and other facilities, strengthening
competitiveness and executing business in a variety of fields, excluding assets acquired throughbusiness combinations.

3.

Status of financing
The Company conducted an issuance of corporate bonds with general mortgage totaling ¥100.0 billion on
September 10, 2018, to be applied to the repayment of short-term borrowings. In addition, with the aim of
allocating funds for the repayment of short-term borrowings by overseas subsidiary JT International
Financial Services B.V., on September 28, 2018, we issued foreign currency denominated straight bonds
consisting of $1.025 billion, €550 million, and £400 million, for a total of ¥239.8 billion.

4.

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

5.

Business transfers from other companies
No items to report.

6.

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

7.

Acquisition or disposal of shares, other equities or subscription rights to shares of other companies
On July 31, 2018, the Group acquired all of the shares issued(Note 1) of JSC Donskoy Tabak, a cigarettecompany in Russia, and making it a subsidiary.
In addition, on November 29, 2018, the Group acquired the tobacco business(Note 2) of the Akij Group(hereinafter “Akij”), a cigarette company in Bangladesh.
(Notes)

1. To purchase all of the shares issued of JSC Pereslavl-Tabak and 94.97% of the shares issued of
Syneteristiki Kapnoviomihania Ellados Sekap S.A. are included.
2. The Company acquired all of the shares issued of United Dhaka Tobacco Company Limited towhich Akij had transferred assets related to its tobacco business, and also tobacco-related rightsof trademarks owned by Akij.

-31-

8.

Trends in assets and operating results(1) Trends in assets and operating results of the JT Group [Consolidated]
31st term
From January 1,
2015 toDecember 31,
2015

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

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

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

Revenue(Millions of yen)

2,252,884

2,143,287

2,139,653

2,215,962

Profit before income
taxes(Millions of yen)

565,113578,237

538,532

531,486

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

398,454421,695

392,409385,677

Basic
share

221.95235.47219.10215.31

Total assets(Millions of yen)

4,558,235

4,744,374

5,221,484

5,461,400

Total equity(Millions of yen)

2,521,524

2,528,041

2,842,027

2,700,445(Notes)earnings per(Yen)

1. Consolidated financial statements of the JT Group are prepared based on IFRS (for the 34th term,
including the impact of IFRS 15 application).
2. During the 31st term, the Group withdrew from the Beverages Business and this business was
categorized as discontinued operations. Accordingly, revenue, profit before income taxes, profit
attributable to owners of the parent company, and basic earnings per share in “31st term” areshown for continuing operations.
3. When including amounts for discontinued operations for the 31st term, profit attributable toowners of the parent company, and basic earnings per share are ¥485,691 million and ¥270.54,
respectively.

-32-

(2) Trends in assets and non-consolidated operating results of JT [Non-consolidated]
31st term
From January 1,
2015 toDecember 31,
2015

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

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

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

Net sales(Millions of yen)732,483

729,286

681,840696,250

Ordinary income(Millions of yen)

371,989

203,242

199,336

190,343

Net income(Millions of yen)

345,009

173,607

160,120

164,595

Net income per share(Yen)

192.18

96.94

89.40

91.89

Total assets(Millions of yen)

2,756,785

2,849,913

2,885,760

2,682,344

Net assets(Millions of yen)

1,713,068

1,663,675

1,592,966

1,493,562(Note) Non-consolidated financial statements of the Company are prepared based on Japanese GAAP.

-33-

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

-34-

9.

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

-35-(2) Mid- to long-term management strategy and issues
In view of realizing the Group’s long-term vision of becoming a “Company committed to global growth thatprovides consumers with diversified value available uniquely from JT,” the Group intends to carry on
strategies that have hitherto been implemented, and believes that in order to take them to a higher level it isnecessary to cultivate the ability to respond to change, and that the skill and speed with which the Group
responds to such changes will be a crucial factor in determining competitiveness going forward. In addition,
we believe that not merely responding passively, we should initiate transformation ourselves, acquiring theability to generate change and thus making possible sustainable growth in profits over the mid- to long term.
Based on this thinking, the Group formulates its three-year business plan with the aim of renewing it eachyear on a rolling basis in order to speed up the Group’s ability to respond appropriately to unexpected changes.
In the “Business Plan 2019,” there is no change in the Group’s management resources allocation policy,
under which we will continue to place a high priority on making business investments that contribute tosustainable mid- to long-term profit growth as well as on valuing the balance between profit growth throughbusiness investments and shareholder returns.
In accordance with the “Business Plan 2019,” the Group will continue to pursue mid to high single-digit(Note1)
annual average growth rate over the mid- to long-term in adjusted operating profit at constant rates of
exchange(Note 2).
With regard to shareholder return policies, the Group will pursue enhanced shareholder returns in proportion
to the mid- to long-term profit growth by continually making proactive business investments while
maintaining a strong financial base(Note 3) that enables response to any possible environmental changes.
Specifically, the Group will work toward stable and consistent growth in dividend per share.
Whether to execute the acquisition of treasury shares will be considered in view of factors including the
medium-term outlook on business environment and financial positions.
Adopting a stakeholder model, the Group will continue to monitor a trend in shareholder returns of global
FMCG(Note 4) companies which achieve a high-growth business.
* At the Board of Directors meeting held on February 7, 2019, the Company made a resolution to conduct
share buybacks of up to 23,000,000 shares or up to ¥50,000,000,000, based on Shareholder Return Policy.
The mid- to long-term targets and roles for each business are as follows.
Tobacco Business
Domestic
International

Grow adjusted operating profit at mid to high single-digit rate perannum over the mid- to long-term as the core business and profit
growth engine of the JT Group
Core business that serves as the highly competitive profit generator
Also a core business that serves as the profit growth engine

Pharmaceutical Business

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

Processed Food Business

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

-36-

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. As part of our efforts to strengthen the organizational base inpursuit of these objectives, and in order to link rapidly growing digital technologies such as AI and IoT to
the improvement of the Company’s competitiveness, we established the Digitalization Offfice on January 1,
2019.
Based on the “4S” model that forms our management principles, we will pursue high-level, well-balanced
stakeholder satisfaction, while also aiming to set up environmental businesses that maintain, going forward,
the Group’s position as a company that is the preferred choice of society. To this end we established theSustainability Management Division on January 1, 2019.
The Group recognizes that uncertainties in the business environment in which it operates remain high, due
to factors such as global economic trends, foreign exchange risks and international geopolitical risks. In orderto overcome this uncertain business environment and operate its global business appropriately the Groupwill, based on the “4S” model, continue a policy of integrated business investment and adaptability to change
and, by changing itself and acquiring the ability to generate change, make possible sustainable growth inprofits over the mid- to long term, as well as achieve steady returns to shareholders.
(Notes)1. mid to high single-digit: mid to high single-digit-percentage
2. Adjusted operating profit is calculated by deducting amortization cost of acquired intangibles
and adjustment items (income and costs) from operating profit (loss). Adjustment items (income
and costs) are impairment losses on goodwill, restructuring income and costs, and other items.
Adjusted operating profit growth rate at constant rates of exchange is a financial measurementthat excludes foreign exchange effects by translating and calculating adjusted operating profit
for the current fiscal year in the International Tobacco Business using the foreign exchange ratesof the previous fiscal year.
3. As its financial policy, the Group will maintain a strong financial base that secures stability incase of changes in business environment such as economic crises and flexibility enabling
expeditious responses to business investment opportunities.
4. FMCG: Fast Moving Consumer Goods (daily consumer durables)-37-

【Reference】Our approach to sustainability
JT Group’s sustainability strategy
In order for the Group to achieve sustainable growth, it is essential for our business to contribute to thesustainable development of our society. We maintain on-going dialogues with our stakeholders and work
continuously on a variety of sustainability issues to fulfill our responsibilities as a member of our society.
The Group supports the Sustainable Development Goals (SDGs) set out by the United Nations. We would liketo contribute to the following goals through our business activities and initiatives.

In 2018, our tobacco business, the group’s core business, launched its sustainability strategy. There are four focus
areas with three absolute requirements for sustainability.

Tobacco Business – Sustainability Strategy
Product
andServices
PeopleSupply Chain
Regulatory
Environment
and BusinessStandards

4 Focus Areas
We will be a total tobacco company offering
consumers an even greater choice of
products by focusing on quality, innovation
and reduced risk potential.
We will be the employer of choice byinvesting in people.
We will reduce environmental and social
risks, and enable transparent and responsible
practices across our supply chain.
We will ensure the company is included inpolicymaking leading to fair and balanced
regulation and enhance our cooperation withgovernments to combat illegal trade.

RESPECT FOR
HUMAN RIGHTS

3 Absolute Requirements
AN IMPROVED SOCIAL AND
ENVIRONMENTAL IMPACT

GOOD GOVERNANCE AND
BUSINESS STANDARDSWe are committed to promoting
We are committed to respecting
transparent, fair, and timely
human rights across our global
We are committed to protecting thedecision-making that carefully
operations and value chains, as
environment and making a positive
considers the respective interests ofexpressed in our JT Group Human
difference wherever we operate.
consumers, shareholders,
Rights Policy.
employees, and the wider society.
Read more about the four strategic focus areas and the related targets of our tobacco business in the “FY2018 JT
Group Sustainability Report”, scheduled for publication at the end of May 2019. Furthermore, our pharmaceuticalbusiness and processed food business are both currently formulating their respective sustainability strategy.

-38-

JT Group Environment Plan 2030
The JT Group strives to foster a healthy, sustainable and productive environment for future generations bybalancing our activities and our relationship with the environment across our value chain and in wider society. We
believe that reducing environmental impacts contributes to the sustainable growth of the JT Group, as it results inefficient resource use, improved performance and cost reduction.
In 2014, we established the Environment Long-term Plan 2020, and we have been taking steps to reduce ourenvironmental impacts. Under this long-term plan, we have strengthened our approaches to reducing theenvironmental impacts across the JT Group, covering all the locations in the Japanese Domestic Tobacco business,the international tobacco business, the pharmaceutical business and processed food business.
Through a number of initiatives, we achieved in 2017 our key target to reduce total Greenhouse Gas (GHG)
emissions from our operations by 20%, three years ahead of the schedule. Given this and that we are approaching
2020, the target year of the current plan, we have started to establish “JT Group Environment Plan 2030”, looking
beyond 2020.
Based on “JT Group Environment Plan 2030”, which takes account of the social and business environments thathave changed dramatically in recent years, we will be addressing environmental issues that may have a long-term
impact on the JT Group's value chain. Specifically, we will set clear objectives and targets for Energy andEmissions, Natural Resources (water and forestry), and Waste.
For detail information, please refer to the “FY2018 JT Group Sustainability Report”, which is scheduled to be
published at the end of May 2019.

ENERGY AND EMISSIONSNATURAL RESOURCES

WASTE

The JT Group is working on environmental issues throughout the value chain

Sourcing

Manufacturing

Product
sales

Use ofproducts

DisposalandRecycling…Transport

Please visit the Company’s website to find out more about our approach to sustainability.
https://www.jt.com/sustainability/
With regard to the Company’s corporate governance, please refer to “ 【 Reference 】 Fundamental Policy
Concerning Corporate Governance” at the end of the Business Report.

-39-

10. Main business contents

Business segment

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

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

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

Capital(Millions of yen)

460
(Millions of yen)

461
(Thousands of CHF)

1,215,425(Thousands of GBP)

172,495(Millions of yen)

5,190(Millions of yen)

22,500Main business

74.5

Distribution of tobacco products

88.9

Manufacture and sale of filters for
tobacco products(100.0)

Manufacture and sale of tobacco
products(100.0)

Manufacture and sale of tobacco
products

53.5(100.0)

Manufacture
andprescription drugs

sale

of

Manufacture and sale of processedfoods

1. Figures in parentheses in the “Equity ownership” column indicate indirect holding rates.
2. There were 224 consolidated subsidiaries in this fiscal year, including 6 above-mentioned
important subsidiaries, as well as 11 affiliates accounted for by the equity method. In addition,
consolidated revenue for the fiscal year ended December 31, 2018 amounted to ¥2,216.0 billion
with profit attributable to owners of the parent company at ¥385.7 billion.
3. On the last day of the fiscal year ended December 31, 2018, there were no specified wholly
owned subsidiaries as stipulated in Article 118, item 4 of the Regulation for Enforcement of theCompanies Act.

-40-

12. Major lenders
Outstanding balance(Millions of yen)

Lender

57,150(EUR 450 million)

Syndicated loan
The Norinchukin Bank

40,000Shinkin Central Bank

30,000(Note) The syndicated loan to the Company’s overseas subsidiary JT International Holding B.V., a borrower,
was financed jointly by four banks, with UNICREDIT BANK AG acting as the arranger and agent.
13. Major sales offices and factories(1) JT
Headquarters:

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

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

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

Laboratories:

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

-41-

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

10,566

International Tobacco Business

45,319Pharmaceutical Business

1,877

Processed Food BusinessCommon company-wide services
within JT

5,303
903
63,968

Total(Notes)1. The above number of employees indicates the number of working employees.
2. The number of employees has increased by 6,005 people compared to the end of the previous
fiscal year, but this is due mainly to acquisition of the tabbaco business of the Akij Group.

(2) Employees of JT [Non-consolidated]

Male/Female
Male

Number ofYear-on-year
employees
increase (decrease)(Person)(Person)
6,312
71

43.7

Average years ofservice(Year)
19.4

Average age(Year old)

Female

1,145

50

36.9

12.0

Total or average

7,457

121

42.7

18.3

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

-42-

II.

Matters Concerning Shares of JT

1. Total number of shares authorized:

8,000,000,000 shares

2. Total number of shares issued:

2,000,000,000 shares(Including treasury shares

208,576,641 shares)

3. Number of shareholders:

4.

394,994

Major shareholders
Number of shares held
(Share)Name of shareholders
Minister of Finance
Master Trust Bank of Japan, Ltd.
(Trust Account)
Japan Trustee Services Bank, Ltd.
(Trust Account)
Trust & Custody Services Bank, Ltd. as
trustee for Mizuho Bank, Ltd.
Retirement Benefit Trust Account reentrusted by Mizuho Trust and Banking
Co., Ltd.
State Street Bank and Trust Company
505223
Japan Trustee Services Bank, Ltd.
(Trust Account 5)
SSBTC Client Omnibus AccountJapan Trustee Services Bank, Ltd.
(Trust Account 9)
State Street Bank West Client - Treaty
505234
JPMorgan Chase Bank 385151

Equity ownership (%)

666,926,200

37.23

91,137,400

5.09

68,848,700

3.84

23,660,000

1.32

23,351,971

1.30

22,744,400

1.27

22,178,610

1.24

21,978,900

1.23

20,542,232

1.15

20,367,542

1.14(Note) Equity ownership is calculated after deducting treasury shares (208,576,641 shares).
5.

Other significant matters concerning shares
At the Board of Directors meeting held on February 7, 2019, the Company made a resolution to conduct
share buybacks of up to 23,000,000 shares or up to ¥50,000,000,000, based on Shareholder Return Policy.

-43-III. Matters Concerning Subscription Rights to Shares
1.

Total number and others of subscription rights to shares as of December 31, 2018

(1) Total number of subscription rights to shares:
4,147 units(2) Class and number of shares to be delivered upon exercise of subscription rights to shares:
Ordinary shares 829,400 shares(200 shares per subscription right to shares)
2.

Status of subscription rights to shares held by Members of the Board and Audit & Supervisory Board
Members of JT as of December 31, 2018

(1) Class and number of shares to be delivered upon exercise of subscription rights to shares:
Ordinary shares 237,200 shares(200 shares per subscription right to shares)(2) Value of property to be contributed when subscription rights to shares are exercised:¥1 per share(3) Assignment of subscription rights to shares
The approval of the Board of Directors is required for the assignment of subscription rights to shares.
(4) Conditions for exercising subscription rights to shares
Subscription rights to shares holder may exercise his/her subscription rights to shares only if he/she loses
his/her all position as Member of the Board, Audit & Supervisory Board Member and Executive Officer(sikkoyakuin).

-44-

(5) Status of ownership by Members of the Board and Audit & Supervisory Board Members of JT
Year
grantedPayment due
upon allotment ofsubscription
rights to shares

FY2007¥581,269 per unit

FY2008¥285,904 per unit

FY2009¥197,517 per unit

FY2010¥198,386 per unit

FY2011¥277,947 per unit

FY2012¥320,000 per unit

FY2013¥513,400 per unit

FY2014¥483,200 per unit

FY2015¥711,200 per unit

FY2016¥572,600 per unit

FY2017¥482,200 per unit

FY2018¥300,000 per unit

(Notes)1.
2.

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

Members of the Board

Audit & Supervisory
Board Members

Numberof units

Number ofshareholders

Numberof units

Number ofshareholders

16

1

-

-

18

1

15

1

40

1

36

1

42

1

30

1

9

1

32

1

50

3

23

1

49

3

14

1

63

4

8

1

106

4

17

1

96

4

13

1

144

4

21

1

344

5

-

-

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

-45-

3.

Status of subscription rights to shares granted to employees of JT from January 1, 2018 to December
31, 2018(1) Class and number of shares to be delivered upon exercise of subscription rights to shares:
Ordinary shares 109,400 shares(200 shares per subscription right to shares)(2) Payment due upon allotment of subscription rights to shares:¥300,000 per unit
(3) Value of property to be contributed when subscription rights to shares are exercised:¥1 per share(4) Exercise period of subscription rights to shares:
From July 3, 2018 to July 2, 2048
(5) Assignment of subscription rights to shares
The approval of the Board of Directors is required for the assignment of subscription rights to shares.
(6) Conditions for exercising subscription rights to shares
Subscription rights to shares holder may exercise his/her subscription rights to shares only if he/she loses
his/her all position as Member of the Board, Audit & Supervisory Board Member and Executive Officer(sikkoyakuin).
(7) Status of granting to employees of JT
547 subscription rights to shares were granted to 18 Executive Officers (sikkoyakuin) (excluding persons
serving as Members of the Board) of JT.

-46-

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

Members of the Board and Audit & Supervisory Board Members
Position

Name

Responsibility

Chairman of the Board

Yasutake Tango*Representative
Director and President
Representative
Director and Executive
Vice President*Representative
Director and Executive
Vice President*Representative
Director and Executive
Vice President

Masamichi
Terabatake
Mutsuo Iwai

Chief Executive
OfficerPresident, Tobacco
Business

Naohiro Minami

Member of the Board

Main Kohda

Chief Finance
Officer andCommunications
Compliance, General
Affairs, Legal,
Corporate Strategy,
IT, CSR, Human
Resources andOperation Review &Business Assurance*Member of the Board

Koichiro Watanabe*Standing Audit &Supervisory Board
MemberStanding Audit &Supervisory Board
MemberAudit & Supervisory
Board Member

Kiyohide Hirowatari

Ryoko Nagata
Tomotaka
KojimaYoshinori Imai

-47-

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

Novelist
LIXIL Group Corporation
Outside Director
Japan Exchange Group, Inc.
Outside Director
MITSUBISHI MOTORSCORPORATION
Outside Member of the Board
Dai-ichi Life Holdings, Inc.
Representative Director andChairman of the Board
The Dai-ichi Life Insurance
Company, Limited
Representative Director andChairman of the Board

Position

Name

Audit & Supervisory
Board Member

Hiroshi Obayashi(Notes)Responsibility

Significant concurrent positions
outside the Company
Obayashi Law Office
Attorney at Law
Daiwa Securities Co., Ltd.
Outside Audit & Supervisory
Board Member
Mitsubishi Electric Corporation
Outside Director
NIPPON STEEL &SUMITOMO METALCORPORATION
Outside Audit & Supervisory
Board Member

1. Members of the Board Main Kohda and Koichiro Watanabe are Outside Directors.
2. Audit & Supervisory Board Members Yoshinori Imai and Hiroshi Obayashi are Outside Audit& Supervisory Board Members.
3. Members of the Board, Main Kohda and Koichiro Watanabe, and Audit & Supervisory Board
Members, Yoshinori Imai and Hiroshi Obayashi, were designated as independent officers(directors and auditors) as prescribed by the Tokyo Stock Exchange, Inc.
4. Audit & Supervisory Board Member Tomotaka Kojima has relevant knowledge about financing
and accounting as he was Deputy Head of Finance Group of JT.
5. The Members of the Board and Audit & Supervisory Board Member denoted with the asterisk *assumed their office on March 27, 2018.
6. Representative Director Mitsuomi Koizumi, and Members of the Board Yasushi Shingai, Hideki
Miyazaki and Motoyuki Oka resigned on March 27, 2018.
7. Standing Audit & Supervisory Board Member Futoshi Nakamura resigned on March 27, 2018.
8. The Company has entered into agreements with each of its Members of the Board (excluding
those are Executive Directors, etc.) and Audit & Supervisory Board Members with respect to theliability set forth in Article 423, paragraph 1 of the Companies Act, by which the liability fordamages of each of them is limited to the minimum amount set forth in Article 425, paragraph 1of the same Act, provided they perform their duties without knowledge of such damages andwithout gross negligence.
9. Changes in the responsibilities etc. of Officers after the end of the current fiscal year
Positions and responsibilities in the Company, and significant
concurrent positions outside the Company
As of December 31, 2018
As of January 1, 2019
Representative Director andRepresentative Director andExecutive Vice President
Executive Vice President
Compliance, General Affairs,
Legal, Corporate Strategy,
Kiyohide Hirowatari Legal, Corporate Strategy, IT,
Digitalization, Human Resources,
CSR, Human Resources andOperation Review & Business
Operation Review & Business
Assurance, Pharmaceutical
Assurance
Business and Food Business
Name

-48-

2.

Remunerations for Members of the Board and Audit & Supervisory Board Members(1) Total remunerations for Members of the Board and Audit & Supervisory Board Members
Audit & Supervisory
Board Members
Amount to
Amount to
NumberNumber to
be paidbe paid
to be paid
be paid(Millions of(Millions of(Person)(Person)
yen)
yen)
11
408
5
125
4
176
8
109
693
125
Members of the Board

Category

Basic remuneration
Officers’ bonus
Stock option grants
Total

Total
Numberto be paid
(Person)16
4
8-

Amount to
be paid(Millions of
yen)
533
176
109
818

(2) Policy concerning the remuneration amount for Members of the Board and Audit & Supervisory
Board Members or the remuneration calculation method thereof and the method of determining thepolicyThe Company has the Compensation Advisory Panel in place as a non-statutory advisory body to the Boardof Directors in order to increase objectivity and transparency regarding the remuneration of Members of theBoard and Audit & Supervisory Board Members. The Compensation Advisory Panel, which holds meetings
several times a year, holds deliberations and makes reports in accordance with its advice on such matters as
the Company’s policy, system and calculation method regarding remuneration for its Members of the Board
and Executive Officers (sikkoyakuin), and monitors the status of remuneration for Members of the Board andAudit & Supervisory Board Members at the Company. The Compensation Advisory Panel currently consistsof 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
Main Kohda
Outside Director
Koichiro Watanabe
Outside Audit & Supervisory Board Member
Yoshinori Imai
Outside Audit & Supervisory Board Member
Hiroshi Obayashi-49-

In light of reports by the Compensation Advisory Panel, JT’s basic concept of remuneration for Members of
the Board and Audit & Supervisory Board Members is as follows: Setting the remuneration at a level sufficient to secure personnel with superior capabilities
 Linking the remuneration to business performance so as to motivate Members of the Board and Audit &Supervisory Board Members to enhance performance Linking the remuneration to mid- to long-term corporate value Ensuring transparency based on an objective point of view and quantitative schemes
In accordance with the above concept, the remuneration for Members of the Board and Audit & Supervisory
Board Members is made of three components. In addition to the monthly “basic remuneration,” there is an“officers’ bonus,” which reflects the Company’s business performance in the relevant fiscal year, and a “stock
option,” which is linked to the mid- to long-term corporate value of JT. The said “stock option” wasintroduced in 2007 as remuneration that is linked to the mid- to long-term corporate value, thereby providing
an incentive towards increasing shareholder value.
The composition of the remuneration for Members of the Board is as follows:
For Members of the Board who also serve as Executive Officers (sikkoyakuin), remuneration consists of the“basic remuneration,” the “officers’ bonus,” and the “stock option” because they are required to achieve
results by executing their duties on a daily basis. If the “officers’ bonus” is paid at the standard amount, thesum of this bonus and the “stock option” is set to be equivalent to approximately 80% of the basic
remuneration.
Members of the Board (excluding Outside Directors) who do not serve as Executive Officers (sikkoyakuin)
receive remuneration that consists of the “basic remuneration” and the “stock option” since they are required
to make decisions on company-wide management strategies and fulfill supervisory functions 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 Members of the Board and Audit & Supervisory Board
Members, which was approved at the 22nd Ordinary General Meeting of Shareholders (held in June 2007),is ¥870 million per year for all Members of the Board and ¥190 million per year for all Audit & Supervisory
Board Members. In addition, the upper limit of “stock option” that may be granted to Members of the Board
separately to the remuneration mentioned above is 800 units and ¥200 million per year. This was also
approved at the 22nd Ordinary General Meeting of Shareholders. The number of units allocated for eachterm, including the number allocated to Executive Officers (sikkoyakuin) who are not also Members of theBoard, is decided by resolution of the Board of Directors.
The amounts of remunerations for Members of the Board are determined by resolution of the Board of
Directors 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, whose size and profits are at similar levels to those of the Company, areundertaken based on third-party research into remuneration for corporate executives. The amounts ofremunerations for Audit & Supervisory Board Members are benchmarked in the same way, and determinedthrough discussions among Audit & Supervisory Board Members, within the approved upper limits.

-50-

3.

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

Name

Main Kohda
Member of the
Board
Koichiro
Watanabe

Audit &
Supervisory
Board Member

Hiroshi Obayashi

Organizations whereconcurrent positions are held
Novelist
LIXIL Group Corporation
Japan Exchange Group, Inc.
MITSUBISHI MOTORSCORPORATION
Dai-ichi Life Holdings, Inc.
The Dai-ichi Life Insurance
Company, Limited
Obayashi Law OfficeDaiwa Securities Co., Ltd.
Mitsubishi Electric
Corporation
NIPPON STEEL &SUMITOMO METALCORPORATION

Position
Outside Director
Outside Director
Outside Member of the
Board
Representative Director andChairman of the Board
Representative Director andChairman of the Board
Attorney at Law
Outside Audit & Supervisory
Board Member
Outside Director
Outside Audit & Supervisory
Board Member(Note) There are no special relationships to be mentioned between the above organizations in which
concurrent positions are held and JT.
(2) Major activities during this fiscal year
Category

Name
Main Kohda

Member of the
Board
Koichiro Watanabe

Yoshinori Imai
Audit &
Supervisory Board
MemberHiroshi Obayashi

Status of main activities
Attended all 15 Board of Directors meetings held during
this fiscal year. Ms. Kohda asked questions and maderemarks where necessary at these meetings, as a Memberof the Board.
Attended all 10 Board of Directors meetings held during
this fiscal year since he assumed office on March 27,
2018. Mr. Watanabe asked questions and made remarks
where necessary at these meetings, as a Member of theBoard.
Attended 14 out of 15 Board of Directors meetings, aswell as 12 out of 13 meetings of the Audit & Supervisory
Board held during this fiscal year. Mr. Imai asked
questions and made remarks where necessary at thesemeetings, as an Audit & Supervisory Board Member.
Attended all 15 Board of Directors meetings, as well as
all 13 meetings of the Audit & Supervisory Board, held
during this fiscal year. Mr. Obayashi asked questions andmade remarks where necessary at these meetings, as an
Audit & Supervisory Board Member.

-51-

(3) Total amount of remunerations
Outside Audit &Supervisory Board
Total
MemberAmount to
Amount to
Amount to
Number to
Number to
be paidbe paidbe paidbe paidbe paid(Millions of(Millions of(Millions of(Person)(Person)
yen)
yen)
yen)
38
2
31
5
70

Outside Director
Category

Basic remuneration

Number to
be paid(Person)
3

-52-

V.

Matters Relating to Independent Auditor

1.

Name of Independent Auditor:

2.

Fees for Independent Auditor relating to this fiscal year

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

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

ii)

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

¥330 million¥81 million(2) Amount of cash and other financial benefits to be paid by JT and its subsidiaries:¥543 million(3) Reasons for approval of the Independent Auditor’s remuneration by the Audit & Supervisory Board:
When the Company concluded an audit contract with Independent Auditor, the Audit & Supervisory Board
Members obtained necessary materials and received reports from the Members of the Board, relevant internal
departments, and the Independent Auditor, and performed verification to confirm that the amount of remuneration
to be paid to the Independent Auditor, the persons in charge of the audits, and other details of the audit contract
were appropriate.
Based upon this verification, the Audit & Supervisory Board checked and examined matters including the content
of the Independent Auditor’s accounting plan, the status of the performance of the auditing duties, and the basis
for calculation of the remuneration estimate, and, as a result, determined that approval was fair and reasonable.
(Notes)

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

3.

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

-53-

【Reference】Corporate GovernanceFundamental Policy Concerning Corporate Governance
We have enhanced our corporate governance, based on our belief that it is the means for conducting
transparent, fair, timely and decisive decision-making for pursuing JT’s management principle, the “4Smodel.” Specifically the 4S model aims “to fulfill our responsibilities to our valued consumers,
shareholders, employees and the wider society, carefully considering the respective interests of these four
key stakeholder groups, and exceeding their expectations wherever we can.”We have set out the “JT Corporate Governance Policies” on 4 February, 2016, and continuously strive
to make enhancements based on our belief that it will enable us to achieve mid- to long-term sustainableprofit growth and increase corporate value, which will contribute to the development of our group’s
stakeholders and eventually the economic society as a whole.
“JT Corporate Governance Policies” is posted on our website (https://www.jti.co.jp/).
JT’s Corporate Governance System (as of December 31, 2018)-54-

Overview of the Board of Directors, Audit & Supervisory Board, and Committees■ The Board of Directors
The Board of Directors assumes responsibility in making decisions for important issues including the Groupstrategy as well as supervising all the activities of the Group. In view of the point that the Board of Directors
determines company-wide management strategy and important matters and effectively assumes roles andresponsibilities as the body exercising supervision over all business activities, the concept concerning thecomposition of the Board of Directors shall be set forth as follows.
 The number of Members of the Board in the Board of Directors shall be fifteen (15) or less, within necessary
and appropriate scope, composed of diverse people with a high-integrity sense of ethics as professionals,
knowledge, experience and skills.
 JT shall appoint two (2) or more independent outside Members of the Board with qualities that willcontribute to its sustainable profit growth and increase of corporate value in the mid- to long-term from theviewpoint of strengthening supervisory functions and transparency of business.
It is currently composed of seven (7) Members of the Board (including two (2) Outside Directors). Conditional
on approval by this Ordinary General Meeting of Shareholders, in future it is planned that it be composed ofnine (9) Members of the Board (including three (3) Outside Directors).
In year ended December 31, 2018, we had 15 board meetings to discuss important issues including themanagement plan.
■ The Audit & Supervisory Board
The Audit & Supervisory Board shall be composed of persons with proven experience in business, law, financial
affairs and accounting, etc. Audit & Supervisory Board Members, in addition to participating in the Board of
Directors meetings and other important meetings and making remarks as an independent body mandated by theshareholders, shall actively exercise his/her authority such as by proactively inspecting business bases, etc., aswell as appropriately conduct an audit from an objective position corresponding to the nature of duties of
independent outside Audit & Supervisory Board Members or standing Audit & Supervisory Board Members.
It is currently composed of four (4) Audit & Supervisory Board Members (including two (2) Outside Audit &Supervisory Board Members). Conditional on approval by this Ordinary General Meeting of Shareholders, infuture it is planned that it be composed of five (5) Audit & Supervisory Board Members (including three (3)Outside Audit & Supervisory Board Members).
In year ended December 31, 2018, we had 13 board meetings to discuss issues including the auditing policies
and preparing of Audit Report.
■ Compensation Advisory Panel
The Company has established the Compensation Advisory Panel as an optional advisory body to the Board of
Directors with the aims of enhancing the objectivity and transparency regarding the remuneration of Members of
the Board and Audit & Supervisory Board Members. The Compensation Advisory Panel consists of the
Chairman of the Board and four (4) Outside Directors and Outside Audit & Supervisory Board Members(including two (2) Outside Directors and two (2) Outside Audit & Supervisory Board Members). (For details,
please refer to IV. Matters Concerning Members of the Board and Audit & Supervisory Board Members of JT,
2. Remunerations for Members of the Board and Audit & Supervisory Board Members, (2) in the Business
Report of this notice.)
In year ended December 31, 2018, we had 2 meetings to discuss issues including the level of the remuneration ofMembers of the Board and Audit & Supervisory Board Members.
In addition, at the Meeting for Talent Development, which is also attended by independent outside Members of
the Board, the Company formulates and implements successor plans for the CEO and others, and works toexpand a diverse group of executive candidates. Looking forward, the Company will consider merging thefunctions of this Meeting for Talent Development and the Compensation Advisory Panel to newly establish a
Personnel and Compensation Advisory Panel as a voluntary advisory panel to the Board of Directors comprised
mainly of independent outside Members of the Board.
■ JT Group Compliance Committee
As part of the Company’s efforts to ensure that compliance is practiced fairly and effectively, it has establishedthe JT Group Compliance Committee. The JT Group Compliance Committee is headed by the Chairman of theBoard, with the majority of the members consisting of external members.
In year ended December 31, 2018, we met 3 times to discuss initiatives, etc. to further strengthen compliance. Its
conclusions have been reflected in the Compliance Plan for FY2019.
* All figures contained in this Business Report are rounded to the nearest unit.

-55-

Consolidated Statement of Financial Position(As of December 31, 2018)(Millions of yen)Account title

AmountCurrent assets

Account title

AmountCurrent liabilities

Cash and cash equivalents

282,063

Trade and other payables

380,516

Trade and other receivables

456,591

Bonds and borrowings

250,466

Inventories

649,238

Income tax payables

72,449Other financial assets

35,633

Other financial liabilities

4,486

Other current assets

385,872

Provisions

6,078

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

Non-current assets
Property, plant and equipment
Goodwill

1,809,396

Other current liabilities

716,19010Total current liabilities

1,430,185

1,809,406

Non-current liabilities
758,841

Bonds and borrowings

727,3142,008,416

Other financial liabilities

10,067
321,838

Intangible assets

503,076Retirement benefit liabilities

Investment property

17,558Provisions

Retirement benefit assets

57,140

Other non-current liabilities

179,274

Investments accounted for using theequity method

66,807

Deferred tax liabilities

88,497

Other financial assets

115,046

Total non-current liabilities

Deferred tax assets

125,109

Total non-current assets

3,651,993

Total liabilities

5,461,400

1,330,770
2,760,955

EquityShare capital

100,000

Capital surplus

736,400

Treasury shares(442,829)

Other components of equity(423,357)

Retained earnings

2,660,381

Equity attributable to owners of theparent company

2,630,594

Non-controlling interests

Total assets

3,780

69,851

Total equity

2,700,445

Total liabilities and equity

5,461,400-56-

Consolidated Statement of Income(Year ended December 31, 2018)(Millions of yen)Account title

AmountRevenue

2,215,962

Cost of sales(933,034)

Gross profit

1,282,928

Other operating income

48,532

Share of profit in investments accounted for using the equity method

3,931

Selling, general and administrative expenses(770,407)

Operating profit

564,984

Financial income

5,754

Financial costs(39,252)

Profit before income taxes

531,486

Income taxes(144,055)

Profit for the period

387,431

Attributable to:
Owners of the parent company

385,677

Non-controlling interests

1,755

-57-

Nonconsolidated Balance Sheet(As of December 31, 2018)
Account title

AmountAccount title

ASSETS
Current assets
Cash and deposits
Accounts receivable–trade
Securities
Merchandise and finished goods
Semi-finished goods
Work in process
Raw materials and supplies
Advance payments–trade
Prepaid expenses
Deferred tax assets(Millions of yen)AmountLIABILITIES
432,963
106,089
54,296

Current liabilities
Accounts payable–trade
Lease obligations

39,80033,304
61,6252,294
43,226
2,667
9,742
13,657

Short-term loans receivable from subsidiaries
and affiliates

46,357

Other
Allowance for doubtful accounts

19,931(26)

Noncurrent assets
Property, plant and equipment
Buildings

2,249,380

593,441
9,806
3,085

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

62,403

Income taxes payable
Accrued consumption taxes
Cash management system deposits received
Provision for bonuses
Other39,364

Noncurrent liabilities
Bonds payable
Long-term loans payable
Lease obligations

74,403
10,56285,14523,790250,231
5,675
28,976595,341
373,692
70,0004,874

86,012

Provision for retirement benefits
Deferred tax liabilities

Structures

2,740

Other

Machinery and equipment

69,652

Total liabilities

1,188,782

Vehicles

1,387

Tools, furniture and fixtures

17,412NET ASSETS
Shareholders’ equity

1,461,323

LandConstruction in progress

71,394

Intangible assets

388,684

Patent right
Right of trademark

115,732

Software

20,231

Goodwill
Other

250,397

262,466

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

13,869243

2,082

131,041
11,4604,274

100,000
736,400
736,400
1,067,752
18,776
1,048,976
287
41,753
10,179Investments and other assets

1,598,230

Retained earnings brought forward

996,757

Investment securities
Shares of subsidiaries and affiliates

54,855

Treasury shares
Valuation and translation adjustments
Valuation difference on available-for-salesecurities(442,829)

1,504,796

Long-term loans receivable from subsidiaries
and affiliates

19,21525,815Long-term prepaid expenses
Other

9,888
9,708

Subscription rights to shares

Allowance for doubtful accounts(232)

Total net assets

1,493,562

Total liabilities and net assets

2,682,344

Total assets

2,682,344

Deferred gains or losses on hedges

30,693

-58-

4,877
1,547

Nonconsolidated Statement of Income(Year ended December 31, 2018)(Millions of yen)Account title

AmountNet sales

696,250

Cost of sales

192,604

Gross profit

503,646

Selling, general and administrative expenses

348,375

Operating income

155,271

Non-operating income
Interest income

502

Dividends income

36,387

Other

6,478

43,366

Non-operating expenses
Interest expenses

846Interest on bonds

4,344

Other

3,103

8,294
190,343

Ordinary income
Extraordinary income
Gain on sales of noncurrent assets

38,607

Other

1,106

39,714Extraordinary losses
Loss on sales of noncurrent assets

247

Loss on retirement of noncurrent assets

6,750

Impairment loss

746

Other

1,215

8,958
221,098

Income before income taxes
Income taxes–current

59,263

Income taxes–deferred(2,760)56,503
164,595

Net income-59-

(TRANSLATION)
INDEPENDENT AUDITOR'S REPORT
February 8, 2019
To the Board of Directors ofJapan Tobacco Inc.:
Deloitte Touche Tohmatsu LLC
Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:

Masahiko Tezuka (Seal)

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

Yasuhiko Haga

Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:(Seal)

Yoichi Matsushita (Seal)

Pursuant to the fourth paragraph of Article 444 of the Companies Act, we have audited theconsolidated financial statements, namely, the consolidated statement of financial position as ofDecember 31, 2018 of Japan Tobacco Inc. and its consolidated subsidiaries, and the related
consolidated statements of income and changes in equity for the fiscal year from January 1, 2018 to
December 31, 2018, 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 the disclosures required under International Financial
Reporting Standards ("IFRS"), and for such internal control as management determines is necessary toenable the preparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audit. We conducted our audit in accordance with auditing standards generally accepted in Japan.
Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.

-60-

An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the consolidated financial statements. The procedures selected depend on the auditor's judgment,
including the assessment of the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity's preparation and fair presentation of the consolidated
financial statements in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.
An audit also includes evaluating the appropriateness of accounting policies used and thereasonableness 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 omissionof a part of the disclosures required under IFRS pursuant to the provisions of the second sentence ofthe first paragraph of Article 120 of the Ordinance on Company Accounting, present fairly, in allmaterial respects, the financial position of Japan Tobacco Inc. and its consolidated subsidiaries as ofDecember 31, 2018, and the results of their operations for the year then ended.
Interest
Our firm and the engagement partners do not have any interest in Japan Tobacco Inc. for which
disclosure is required under the provisions of the Certified Public Accountants Act.

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

-61-

(TRANSLATION)
INDEPENDENT AUDITOR'S REPORT
February 8, 2019
To the Board of Directors ofJapan Tobacco Inc.:
Deloitte Touche Tohmatsu LLC
Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:

Masahiko Tezuka (Seal)

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

Yasuhiko Haga

Designated Unlimited Liability Partner,
Engagement Partner,
Certified Public Accountant:(Seal)

Yoichi Matsushita (Seal)

Pursuant to the first item, second paragraph of Article 436 of the Companies Act, we have audited thenonconsolidated financial statements, namely, the nonconsolidated balance sheet as of December 31,
2018 of Japan Tobacco Inc. and the related nonconsolidated statements of income and changes in
net assets for the 34th fiscal year from January 1, 2018 to December 31, 2018, and the related notes ofsignificant accounting policies and other related notes to nonconsolidated financial statements, andthe 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 and the accompanying supplemental schedules in accordance with accounting
principles generally accepted in Japan, and for such internal control as management determines isnecessary 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 theaccompanying supplemental schedules based on our audit. We conducted our audit in accordancewith auditing standards generally accepted in Japan. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the nonconsolidated financial
statements and the accompanying supplemental schedules are free from material misstatement.

-62-

An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the nonconsolidated financial statements and the accompanying supplemental schedules. The
procedures selected depend on the auditor's judgment, including the assessment of the risks ofmaterial misstatement of the nonconsolidated financial statements and the accompanying
supplemental schedules, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity's preparation and fair presentation of thenonconsolidated 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 of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of thenonconsolidated financial statements and the accompanying supplemental schedules.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
Audit Opinion
In our opinion, the nonconsolidated financial statements and the accompanying supplemental
schedules referred to above present fairly, in all material respects, the nonconsolidated financial
position of Japan Tobacco Inc. as of December 31, 2018, and the results of its operations for the year
then ended in accordance with accounting principles generally accepted in Japan.
Interest
Our firm and the engagement partners do not have any interest in Japan Tobacco Inc. for which
disclosure is required under the provisions of the Certified Public Accountants Act.

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

-63-

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

AUDIT REPORTRegarding the performance of duties by the Members of the Board for the 34th fiscal year from January 1, 2018
to December 31, 2018, the Audit & Supervisory Board hereby submits its audit report, which has been preparedthrough discussions based on the audit report prepared by each Audit & Supervisory Board Member.
1. Auditing Methods Employed by Audit & Supervisory Board Members and the Audit & Supervisory Board
and Details of Such Methods(1) The Audit & Supervisory Board established auditing policies, allocation of duties, and other relevant matters,
and received reports from each Audit & Supervisory Board Member regarding his or her audits and results
thereof, as well as received reports from the Members of the Board, other relevant personnel, and Independent
Auditors regarding performance of their duties, and sought explanations as necessary.
(2) Each Audit & Supervisory Board Member complied with the auditing standards of Audit & Supervisory
Board Members established by the Audit & Supervisory Board, followed the auditing policies, allocation ofduties, and other relevant matters, communicated with the Members of the Board, and any other relevant
personnel, and made efforts to optimize the environment for information collection and audit, and conducted
his or her audits in the following methods:i) We participated in the Board of Directors’ meetings and other important meetings, received reports from theMembers of the Board, and other relevant personnel regarding performance of their duties, sought explanations
as necessary, examined important documents, and studied the operations and financial positions at the head
office and principal offices. With respect to subsidiaries, we communicated and exchanged information withMembers of the Board, Audit & Supervisory Board Members, and other relevant personnel of the subsidiaries,
and received business reports from subsidiaries as necessary.
ii) We monitored and verified the details of the resolution of the Board of Directors related to the system that
ensures Members of the Boards are carrying out their duties in compliance with laws and regulations and the
Articles of Incorporation, and other systems that ensure the propriety of the operations of the corporate group
comprised of a stock company and its subsidiaries, which are described in paragraphs 1 and 3 of Article 100 of
the Regulation for Enforcement of the Companies Act. We also monitored and verified the condition of thesystem (internal control system) put in place in accordance with the aforesaid resolution.
iii) We monitored and verified whether the Independent Auditors maintained their independence andimplemented appropriate audits, and we received reports from the Independent Auditors regarding theperformance of their duties and sought explanations as necessary. In addition, we received notice from the
Independent Auditors that “the system for ensuring that duties are performed properly” (matters set forth ineach item of Article 131 of the Regulation on Accounting of Companies) is organized in accordance with the“Quality Management Standards Regarding Audits” (Business Accounting Council, October 28, 2005) andother relevant regulations, and sought explanations as necessary.
Based on the above methods, we examined the business report and the accompanying supplemental schedules,
the non-consolidated financial statements (non-consolidated balance sheet, non-consolidated statement ofincome, and non-consolidated statement of changes in net assets) and the accompanying supplemental schedules,-64-as well as consolidated financial statements (consolidated statement of financial position, consolidated
statement of income, and consolidated statement of changes in equity, which omit some disclosure items
required under International Financial Reporting Standards (IFRS) in accordance with the provision of thesecond sentence of Article 120, paragraph 1 of the Regulation on Accounting of Companies) related to therelevant business year.
2. Audit Results(1) Results of Audit of Business Report and Other Relevant Documents
1.

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

2.

With regard to the performance of duties by the Members of the Board, we have found noevidence of wrongful action or material violation of related laws and regulations, nor of any
violation with respect to the Articles of Incorporation.

3.

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

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

February 14, 2019
The Audit & Supervisory Board, Japan Tobacco Inc.

Standing Audit & Supervisory Board Member

Ryoko Nagata(seal)

Standing Audit & Supervisory Board Member

Tomotaka Kojima(seal)

Audit & Supervisory Board Member

Yoshinori Imai(seal)

Audit & Supervisory Board Member

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

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