Message from
our CEO
A sustainable society
Global affairs and regulations continued to evolve
rapidly in 2018.
Reduced-Risk Products meanwhile have shownstrong growth over the last few years and we havewitnessed a surge in this new category.
Although the risks surrounding our business haveincreased, new opportunities have emerged, as thetobacco industry goes through a period of significant
transformation.

In the meantime, we have seen major societal andbusiness shifts towards sustainability around theworld. Corporations are showing greater awarenessfor environmental issues triggered by climate change,a greater respect for human rights that extends to a
corporation’s supply chain, and a sustained uptake
in Environmental Social and Governance (ESG)
initiatives. Society now expects corporations to beproactive about creating a sustainable and inclusive
future.

Sustainability at
our Group
Our management principles and our approach tosustainability are governed by our 4S model, underwhich we strive to fulfill our responsibilities toour valued consumers, shareholders, employees,
and the wider society, carefully considering therespective interests of these four key stakeholders,and exceeding their expectations wherever we can.
We engage with our stakeholders and work on
our sustainability issues to fulfill our responsibility
as a member of society. The JT Group prioritizes
investments in its business: we invest in our products
and services, our production facilities, in innovation,
our people, and, at times, through acquisitions. These
investments enable our business to create value,
which is distributed to our stakeholders in a balancedmanner. Our ethos is to grow together, in a viablefashion.
With sustainability at the heart of our management,
early 2019 saw a reorganization of our organizationalstructure. We created a Sustainability Management

3Division at the JT Group head office in Tokyo, andappointed a dedicated Senior Vice President forSustainability. This reflected our focus in 2018 as oursustainability strategy was formulated.
We outlined three ‘absolute requirements’ forsustainability, which apply to the whole Group:
Respect for Human Rights, An Improved Social andEnvironmental Impact and Good Governance andBusiness Standards. Our core business, tobacco,
has already set out its four focus areas, and eachremaining business division will establish its own
focus areas. Our pharmaceutical division andprocessed food business are currently defining theirown approaches. Both our sustainability strategy andthe philosophy of our 4S model is perfectly alignedwith the objectives of the United Nations’ Sustainable
Development Goals (SDGs) which seek to achieve
17 global goals, for the realization of sustainable andinclusive society.

1The JT Group’s
Sustainability Strategy

Sustainability within ourtobacco business

Let’s look at our sustainability strategy in moredetail. Our Group strategy is based on threeabsolute requirements for sustainability: ‘Respectfor Human Rights’, ‘An Improved Social andEnvironmental Impact’, and ‘Good Governance andBusiness Standards’.

Our tobacco business has set out four focus areas
for its sustainability strategy. These are ‘Products andServices’, ‘People’, ‘Supply Chain’ and ‘Regulatory
Environment and Illegal Trade’.

RESPECT FOR HUMAN RIGHTS continues to be a priority for our Company. We have beenbuilding upon an important step forward we made in 2016, when we set out the JT Group
Human Rights Policy. A Group-wide e-learning module enabled employees to gain a better
understanding of this subject. We then initiated our human rights due diligence process,an ongoing management procedure for assessing human rights impacts, acting on thefindings, tracking responses, and communicating our progress. We continue to work hardto embed this process into our organization’s Plan-Do-Check-Action (PDCA) cycle.

IMPROVING OUR ENVIRONMENTAL IMPACT is critically important, as we seek to manage
our business while simultaneously protecting the environment. The greenhouse gas (GHG)
reduction target within our current plan, the ‘JT Group Long-Term Environment Plan 2020’
was achieved in 2017, three years ahead of target. Beyond 2020, we have set out a newplan, the ‘JT Group Environment Plan 2030’. This outlines clear objectives for energy andemissions, natural resources (water and forestry), and waste. We will continue to engage
with stakeholders such as CDP and have set and obtained approval for Science Based
Targets for reducing our GHG emissions as well as employing scenario analysis. All this isto better understand the impact of climate change on our business and to integrate thesefindings into our organizational structure.

To serve the needs of society in the areas in which we operate, we consider IMPROVINGOUR SOCIAL IMPACT to be an integral part of the JT Group’s sustainability strategy. We
specifically target three areas: reducing inequalities, improving community resilience, andprotecting the environment. By offering volunteering opportunities to our employees, wecan help make communities more sustainable and inclusive.

GOOD GOVERNANCE AND BUSINESS STANDARDS is a priority for the JT Groupmanagement as we seek to continuously improve our framework for corporategovernance. To enforce our supervisory function and improve the transparency of ourbusiness, in March 2019 we welcomed one additional new external director, and one
additional new external auditor and supervisory board member. An advisory panel on
nomination and compensation* was also established, comprised mostly of external
directors. These initiatives will help us to ensure transparent, fair, timely and effective
decision-making.

Within ‘PRODUCTS AND SERVICES’, we will be atotal tobacco company offering consumers an evengreater choice of products by focusing on quality,innovation, and reduced-risk potential. Specifically,we will lead in providing the widest range ofconsumer choice in the Reduced-Risk Products
category.
Employees are one of the key stakeholders of our4S model and investing in PEOPLE lies at the heartof what we do. Our efforts in this area have beenrecognized by a number of external institutions.
Our Japanese operations was certified for a third
consecutive year as an ‘Outstanding Company in
Health and Productivity Management 2019 White
500’, a program that recognizes large companies
that strategically engage in improving employeewell-being. We were also recognized as a ‘Nadeshiko
Brand 2019’ for our initiatives in encouraging
women’s empowerment in the workplace. I am also
pleased to announce that our international tobacco
business was certified as a Global Top Employer in
53 countries around the world, and a Global Top
Employer for the fifth consecutive year.

Sourcing a sustainable supply of quality tobacco leaf
at an optimum cost is essential for the sustainabilityof our business. In 2018, our Agricultural Labor
Practice (ALP) program, the core program for
managing our leaf SUPPLY CHAIN, showed solid
progress: 96% of our directly contracted growers
were observed against ALP, while 96% of ourleaf merchants reported on ALP. Through ARISE(Achieving Reduction of Child Labor in Supportof Education), we continued to tackle issues
fundamental to eliminating child labor in our leaf
supply chain.
The REGULATORY ENVIRONMENT surrounding
the tobacco industry is becoming increasingly
challenging; the way in which we operate in thisheavily regulated environment is a key concern toour business. We will ensure that the Company isincluded in policymaking leading to fair and balanced
regulation which meets societal concerns andsupports business growth.
ILLEGAL TRADE is another factor that can seriously
affect the sustainability of our business. We work
hard to combat all kinds of illegal trade and willcontinue to engage in dialogue with law enforcement
agencies to help reduce the presence of illegal
tobacco products around the world.

Working towards asustainable future
Sustainability calls for our management to havea broad long-term perspective, and to ensure thebusiness continues to create value, thus ensuring thesustainability of our business and of society, over thelong term. If all corporations make similar efforts, oursociety can grow and flourish. With the full rollout ofour sustainability strategy, the JT Group is moving
into a new phase. Our Group will act as one, andtogether with our stakeholders, we will jointly movetowards sustainable growth.

Masamichi Terabatake,President and Chief Executive Officer, Japan Tobacco Inc.

2

*The Advisory Panel on Nomination and Compensation is a voluntary advisory body to the Board of Directors, which was newly established onMarch 20, 2019 by merging the functions of the existing Meeting for Talent Development and the Compensation Advisory Panel.

3Our year in brief
REDUCED-RISK
PRODUCTS
We expanded our Reduced-Risk Products portfolio
to provide consumers with greater choice:

ANTI-ILLICIT TRADEENVIRONMENTHUMAN RIGHTS

E-VaporLOGIC COMPACTLAUNCHED
IN THE U.K.

We provided information to law enforcement that
led to:We created the JT GROUP ENVIRONMENT PLAN 2030.
The scope extends beyond our own operations.

T-Vapor

PLOOM TECH+ AND
PLOOM S LAUNCHED
IN JAPAN (JANUARY 2019)+COUNTERFEIT TOBACCOFACTORIES AND STORAGE
LOCATIONS RAIDEDOur GHG emission reduction targets wereapproved by the Science Based Targets initiative(February 2019).

5ILLEGALCIGARETTESSEIZED31%100+BILLION YEN

39+2.7

OF ELECTRICITY IN OURINTERNATIONAL FACTORIESWAS EITHER PURCHASEDOR GENERATED FROMRENEWABLE SOURCES.

HUMANRIGHTS IMPACTASSESSMENTS

We completed 5 Human Rights Impact
Assessments in high-risk markets.

BILLION

We are investing 100 billion Yen in Reduced-Risk
Product development between 2018 and 2020.

AGRICULTURALLABOR PRACTICES

96%96%4

OF OUR DIRECTLYCONTRACTED LEAFGROWERS WEREOBSERVED BY
LEAF PRODUCTIONTECHNICIANSOF OUR LEAFMERCHANTS REPORTEDON ALP

ARISEAchieving Reduction ofChild Labor In Supportof Education

7,123

CHILDREN OFF FARMS
AND INTO SCHOOLS
THROUGH THE ARISE
PROGRAMHUMAN
RESOURCESCOMMUNITYINVESTMENT

Our international tobacco business was certified as a
GLOBAL TOP EMPLOYER for the 5th consecutive year.

We were certified as Top Employer by the Top
Employers Institute in 53 countries around theworld.

9,986

EMPLOYEES VOLUNTEERED25,429 HOURS ON
COMPANY TIME

4,694

EMPLOYEES SPENT 23,493
HOURS OF THEIR OWNTIME TAKING PART IN
VOLUNTEERING ACTIVITIESORGANIZED BY THE
COMPANY

5Corporateprofile

SWEDENPOLANDGERMANYRUSSIAUKRAINESERBIASWITZERLAND
CANADAWe are one of the world’s leading
tobacco companies, with offices andfactories in more than 70 countries
and regions, and products sold in
more than 130 countries and regions.
Headquartered in Tokyo, Japan Tobacco
Inc. (TSE:2914) is listed on the Tokyo
Stock Exchange.
We also operate pharmaceutical andprocessed food businesses.

U.S.
DOMINICAN
REPUBLIC

EGYPT

ROMANIABANGLADESHKAZAKHSTANPHILIPPINESGREECETAIWAN

TURKEYMYANMAR

IRAN

INDONESIAJORDANSPAIN (CANARIES)REPUBLIC OF SUDANETHIOPIAJAPAN

MALAWIBRAZILZAMBIATANZANIACIGARETTE AND TOBACCO-RELATED FACTORIESTOTAL REVENUE IN 2018 (%)
5.1

7.3

NUMBER OF EMPLOYEES IN 2018 (%)
1.40.3

International

35Japanese domestic

641

TOTAL

Countries in which we directly source tobacco

98.3

Our businesses

2.9¥

28.0

16.5

2,216
BILLION YEN

63,96859.2

EMPLOYEES

70.8

INTERNATIONAL TOBACCO

JAPANESE DOMESTIC TOBACCOOur international tobacco business is headquarteredin Geneva, Switzerland. We manufacture and sell
ready-made cigarettes, fine cut, cigars, pipe tobacco,snus and kretek, water pipe tobacco, and ReducedRisk Products.

Our Japanese domestic tobacco business isheadquartered in Tokyo, Japan, and manufacturing
and sales are largely focused on the Japanesemarket. We are the market leader in Japan, which isone of the largest markets in the world.

Our main markets include France, Italy, Russia, Spain,Taiwan, Turkey, and the U.K.

Our Japanese portfolio includes key brands such as
Winston, Mevius, Seven Stars, and Natural American
Spirit as well as Ploom TECH for Reduced-RiskProducts.

The portfolio includes leading brands in cigarettes
and fine cut, such as Winston, Mevius, Camel, andLD, as well as in Reduced-Risk Products, such as
Ploom and Logic.

6International tobacco business

International tobacco businessJapanese domestic tobacco businessJapanese domestic tobacco business

PHARMACEUTICALSPROCESSED FOOD

Pharmaceutical businessPharmaceutical business

Processed food business

Processed food business

OtherOther

Our pharmaceutical business focuses on theresearch, development, production, and sales
promotion activities of prescription drugs, basedon three therapeutic areas: metabolic diseases,autoimmune/inflammatory and viral infections.

Our processed food business manufactures and sells
goods such as frozen noodles, frozen and packed
cooked rice, frozen baked bread, pastries, andseasonings.

7