CORPORATE PROFILE

BUSINESS andSUSTAINABILITYVALUE CREATIONGOVERNANCE

FINANCIAL INFORMATION /OTHERSAt a glance

The JT Group is a leading global tobacco company operating in over 70 markets and our products are sold in

Global business foundation

over 130 markets. In addition to the tobacco business, we are developing pharmaceutical and processed foodbusinesses.
Revenue (2021)
Processed foodbusiness 6.3%

Others 0.1%

Number of employees (As of December 31, 2021)
Processed foodbusiness 8.8%

2,324.8

55,381
employees(JPY BN)

Pharmaceuticalbusiness 3.5%

Tobaccobusiness 90.1%

Others 1.8%

Pharmaceuticalbusiness 2.4%

Tobaccobusiness 87.0%

The Group’s tobacco business has the third largest sales
volume in the world* and includes three of the top ten
global-selling brands in its product portfolio.
The Group has a global manufacturing footprint and aims
to manufacture quality tobacco products that secure

consumers’ trust. As of the end of 2021, the Group operates
six factories in Japan (four manufacturing tobacco andtwo tobacco-related factories), and 33 factories in 28 othercountries (including tobacco-related factories).
* Excluding China National Tobacco Corporation

Location of Factories related to Tobacco Manufacturing(As of December 31, 2021)n

Factories manufacturing finished goods

Switzerland
Germany

SwedenPolandSerbianOther tobacco-related factories

RussiaRussiaRussiaUkraineRussiaCanadaKazakhstan
GreeceTobacco Business

Canary Islands

The tobacco business, headquartered in Geneva, Switzerland since 2022, manufacturesand offers tobacco products all over the world.

TurkeyIranRomania
JordanEgypt
Sudan
Ethiopia

Its key markets include Japan, the Philippines, Taiwan, Italy, Spain, the U.K., Romania,
Russia, and Turkey, with leading brands in combustibles, such as Winston, Camel,
MEVIUS and LD, as well as in RRP (Reduced-Risk Products), * such as Ploom and Logic.

Bangladesh
Bangladesh

MyanmarU.S.

TaiwanDominican Republic

Philippines

Tanzania
MalawiIndonesia* RRP (Reduced-Risk Products): Products with the potential to reduce the risks associated with smoking.
Japan

BrazilPharmaceutical Business
The pharmaceutical business focuses on the R&D, manufacturing, and sale of prescription drugs, concentrating on three specific therapeutic areas: Cardiovascular, Renal andMetabolism (CVRM); immunology; and neuroscience. Its products include CORECTIM®
Ointment 0.25% and CORECTIM® Ointment 0.5%, Riona® Tablets 250mg and ENAROY®
Tablets 2 mg • 4 mg, among others.

Processed Food Business
The processed food business handles the frozen and ambient food business, mainly forfrozen noodles, packaged cooked rice, and frozen okonomiyaki (Japanese savory pancakes); the seasonings business, focusing on seasonings including yeast extracts; and the
bakery business through bakery chain outlets, mainly in the Tokyo metropolitan area.

Factories

39 factories
Processed food business 5 factories
Tobacco business*There are no factories in the pharmaceutical business.

Major products include Reito-Sanuki-Udon (frozen noodles), Takitate-Gohan (packaged
cooked rice), and the and the HIMAX (yeast extract seasoning) in particular.

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BUSINESS andSUSTAINABILITYVALUE CREATIONFINANCIAL INFORMATION /OTHERS

GOVERNANCE

Key performance indicators
Financial performance review
Revenue

Profit2,324.8(JPY BN)

2,400
2,139.7

2,216.0

JPY
BN
11.1% YoY increase

2,324.8
2,175.6

2,092.6

1,800

Despite continued market share growth and positive price effects

400

392.4

338.5

385.7
348.2

338.5
310.3

JPY
BN
9.1% YoY increase
Profit decreased from 2017 through 2020, mainly as a result of a300

in the international tobacco business, consolidated revenue de-decline in operating profit and increasing financial costs net ofcreased for two consecutive years through 2020, mainly as a result

financial income. In 2021, however, profit grew 9.1% year on year toof negative foreign-exchange effects, growth in the Japanese RRP

1,200(JPY BN)(Reduced-Risk Products) market and a continued downtrend in the338.5 billion yen by virtue of operating profit growth.

200Japanese market as a whole. In 2021, consolidated revenue grew
11.1% year on year to 2,324.8 billion yen, driven mainly by positive
foreign exchange effects in addition to robust market-share growth

600

100

and buoyant overall demand in the international tobacco business.

0

2017

2018

2019

0

2021

2020

Adjusted operating profit
（%）

800

30

22.9% YoY increase on
constant FX basis+111.5 598.4 +12.0 610.4

26.9
600 585.3 595.5

515.9
23.7

487.0
23.3

25

00.0

400

JPY610.4BN (reported basis)

25.4% YoY increase
and 2020, mainly as a result of negative foreign-exchange effects
Japanese-domestic tobacco business. In 2021, adjusted operating

200

15

2021

revenue growth and positive foreign-exchange effects in the interyear to 598.4 billion yen.

FX

2021

Dividend per share
(JPY)

600

160
503.9

450

（%）

150

140

482.0

154

100
140
00.0

78.6

150
72.6

50

10

0
2017

2018

25

40

105.6

2019

2020

2021

482.0

JPY
BN
JPY21.9BN YoY decrease
In terms of free cash flow, the cash-generating capacity of ourbusinesses is stable. In 2021, free cash flow decreased 21.9 billion

75

69.7

63.9

80

300

154

88.1

120

404.2

profit increased 25.4% to 610.4 billion yen, boosted mainly bynational tobacco business. AOP at constant FX grew 22.9% year on

調整後営業利益率

2020

Adjusted operating profit on a reported basis declined in both 2019202017 2018 2019 2020 Business 2021 at
momentum constant FX

2019(JPY BN)in the international tobacco business and reduced revenue in the

0

2018

Free cash flow

(JPY BN)

27.4

2017

0

0
2017

2018

2019

2020

2021

配当性向（連結）

140

JPY

Until 2019, we had been increasing our dividend per share every
year. Based on the change in our shareholder returns policy, we
paid total dividends of 140 yen per share for 2021.

yen to 482.0 billion yen, largely because of non-recurrence of the
cash inflow a year earlier from the sale of the former JT head officebuilding.

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Japan Tobacco Inc.

Please see at P.29 for details of our resource allocation policy, including ourshareholder returns policy.

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FINANCIAL INFORMATION /OTHERS

Risk factors
The JT Group is a leading global tobacco company, selling products in more than 130 markets. It
also operates pharmaceutical and processed foodbusinesses. Our operations are subject to various
risks stemming from their attributes, changes inbusiness environments, and other factors.

Risk factors

1 Large or repeated tax
increases

We identify and closely monitor risks that could affect ouroperations and implement measures to prevent themfrom materializing and mitigate their impacts in the eventthat they come to pass.

We have established an integrated system for identifying
and managing all identified risks. We promote a four-steprisk management process: (1) identify risks, (2) assess them,(3) formulate plans to address them and (4) monitor theplans’ progress.

Risk description

The risks enumerated below are not all-inclusive. Other risks
exist that could affect our operations and/or financial results.
This following discussion of risk factors should be read together with “FORWARD-LOOKING STATEMENTS” at P.129.

Potential impact(s)Main measures to address risk

Tobacco products are subject to tobacco taxes or other similar taxes in addition to sales tax or VAT. Some countries have

Large or repeated increases in taxes on tobacco products tend to• Promote understanding among relevant authorities that large or repeated tax in-

been raising tobacco taxes or discussing tax increases from a fiscal and/or public health standpoint. Additionally, VAT rates

lead to reduced consumption of, and/or increased illicit trade in,creases may have counterproductive consequences, such as growth in illicit trade

generally tend to increase over time. Our policy with respect to tax increases is to raise prices to pass on the tax increase totobacco products. They may also induce consumers* to switch toand decreased tax revenue due to reduced demand

consumers*, taking into account not only the tax increase’s magnitude but also the price elasticity of demand for tobacco

lower-priced products. Consequently, they may result in reduc-• Optimize product portfolio for adaptability to changes in consumers* preferences

products. We also endeavor to minimize tax increases’ impact on our operations through measures to drive top-line growth

tions in our unit sales, revenue and/or profits.

and behavior

and improve cost efficiency. Most governments have adopted a reasonable approach to taxation, recognizing that large or• Strengthen and expand global operational platform and increase number of con-repeated tax increases may end up reducing tax revenues. In some instances, however, past tax increases have materiallysistently profitable markets to avoid overdependence on profits from aaffected our business in certain markets.

few markets• Further improve cost efficiency to ensure adequate profitability• Set prices appropriately to minimize tax increase impact in affected markets

2 Growth in illicit trade

3 Tightening of tobacco
regulations

Illicit trade is a problem for not only the tobacco industry but also society as a whole. It harms the tobacco industry by diverting

Growth in illicit trade results in decreased demand for legitimate

demand from law-abiding businesses. Its potential societal harms include reduction in government tax revenues, increased orga-

products and may lead to reductions in our unit sales, revenue and/authorities and law enforcement agencies

nized crime, and adverse health consequences due to poor production quality or inadequate post-production quality controls.

or profits. Costs incurred to combat illicit trade may also weigh on• Do business only with reputable parties in accord with stringent compliance policies

Together with the rest of the tobacco industry, we continue to endeavor to eradicate illicit trade, particularly cigarette smuggling

profits. Additionally, circulation of counterfeit products may under-• Educate consumers* on negative consequences of purchasing illegitimate prod-

and counterfeiting.

mine trust in legitimate products and, in turn, impair the value of

ucts

Illicit trade tends to grow following large or repeated tax increases. Additionally, regulations on cigarette ingredients and packag-

both the brand and brand owner for a number of reasons, including

ing may facilitate illicit trade by making cigarettes easier to counterfeit and illegitimate products harder to detect.

the low quality of counterfeit products.

4For more details on activities to eradicate illicit trade, please see Tobacco Business: Regulatory environment and illegal trade (P. 57) for more details.

The tobacco industry is subject to many regulations, most notably on sales promotion activities (including advertising).

Imposition of stricter regulations on sales promotion activities• Expeditiously collect accurate information to learn of regulatory developments

Regulatory developments may affect our operations and/or financial results.

may undermine top-line growth strategies’ effectiveness by• Pursue constructive dialogue with governments and regulatory authorities toSuch regulations can also lead to growth in illicit trade to the potential detriment of our law-abiding, above-board busi-

depriving us of opportunities to grow brand equity. It can also

encourage reasonable, unbiased regulation that fulfills its intended objective

nesses. Additionally, if stricter regulations are imposed on communications with consumers*, they may preclude effective

cause us to incur additional regulatory compliance costs under

4Please see Regulation and Key Laws (P. 84) for more details.

sales promotion activities and, in turn, adversely affect top-line growth.

certain circumstances. Our unit sales, revenue and/or profits may

As a responsible company, we comply with the laws and regulations of every market in which we operate. We believe

decrease as a result of such impacts.

• Take action to eradicate illicit trade in cooperation with governments, regulatory

laws and regulations should rightfully differ from one country to another as a reflection of countries’ respective legal
systems, cultures and social conditions.

4 Competition

Our tobacco business is engaged in fierce competition with competitors.

Market share fluctuations may affect our financial results. Ad-• Optimize product portfolio by offering products that meet consumers’* needs

In the tobacco business, we have been expanding our operations through not only organic growth but also M&A, includ-ditionally, markets in which we operate sometimes becomeand changing preferences/behavior, and by achieving strong brand positioning ining acquisitions of RJR Nabisco Inc.’s non-U.S. tobacco business and Gallaher Group Plc. As a result of such acquisitions, weembroiled in price competition due to events such as a brandevery price segmentcompete with both global tobacco companies and local players with strong footholds in their respective markets.

repositioning or a price cut in pursuit of market share gains. Such

• Strengthen sales capabilities and conduct effective sales promotions

Market shares fluctuate in response to various factors, including regulatory changes, shifts in consumer* preferences/

price competition may negatively impact our profit margins in• Further improve cost efficiency to ensure profitability

behavior, and local economic conditions. Market shares are also prone to short-term fluctuations in response to one-off

individual markets.

• Strengthen and expand global operational platform and increase number of

events such as competitors’ new product launches and accompanying sales promotion campaigns.

consistently profitable markets to avoid overdependence on profits from a few
markets*Adult consumers. Minimum legal age for smoking varies in accordance with the legislation in each country.

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Risk factors

Risk factors

5 Country risk

Risk description

Potential impact(s)Main measures to address risk

To realize long-term growth, we have continued to expand our earnings foundation through M&A, entry into new markets

Political instability, economic recession, social unrest or other such

• Collect and monitor information related to country risk in markets in which we oper-

and organic growth in existing markets, mainly in our tobacco business. Such geographic expansion has been accompanied

events could disrupt our operations in the market in question. The

ate to maintain stable operations

by increased exposure to country risk. If political, economic or social turmoil were to occur in a market in which we operate,

disruption includes interruption in supply chains or distribution,• Strengthen and expand global operational platform and increase number of consistent-

our operations and/or financial results may be affected. As announced in 10th of March 2022, concerning the recent Rus-

damage to assets or facilities, or difficulties in staffing and sales

ly profitable markets to avoid overdependence on profits from a few markets

sia-Ukraine war, the Company suspended all new investments and marketing activities in the Russian market. In addition, as

management. This may lead to a decrease in our unit sales, revenue

announced in 28th of April 2022, given the challenging and unpredictable environment, the Company has continued to eval-and/or profits.

uate various options for the Russia business, including the potential transfer of ownership. Since the challenges of operating in
Russia at this time are unprecedented, the Company is unable to reasonably estimate the outlook and the impact on financial
results as of the issued date of Integrated Report 2021.

6 Currency risk

Our operations’ global scope exposes us to currency risk.

Our consolidated financial results are affected by changes in other• Formulate foreign-exchange hedging policies that comprehensively take into

While we prepare our consolidated financial statements in Japanese yen, our overseas subsidiaries prepare their financial

currencies’ exchange value against the yen. The international

account prevailing foreign-exchange market conditions, among other factors, andstatements in various other currencies, including the Russian ruble, euro, pound sterling, Taiwanese dollar, U.S. dollar andtobacco business’s financial results, the reporting currency for

mitigate currency risk by hedging with foreign-currency debt or other suitable instru-

Swiss franc. Changes in such foreign currencies’ exchange value against the yen affect our reported earnings. Additionally, inwhich is the U.S. dollar, are affected by changes in other currencies’ments in accordance with said policies

our international tobacco business, JT International Holding B.V. consolidates its foreign subsidiaries’ financial statements into

exchange rate against the U.S. dollar. Subsidiaries’ transactions infinancial statements presented in U.S dollars. Its financial statement data are affected by changes in exchange rates between

currencies other than their respective reporting currencies are also

the U.S. dollar and other local currencies used by those foreign subsidiaries. We generally do not hedge risks stemming fromsubject to currency risk.

such currency translation of financial statements except to hedge the currency risk posed by translating foreign subsidiaries’equity into yen. We hedge this risk with foreign-currency debt, a portion of which is designated as net-investment hedges.
Additionally, gains or losses on the sale or liquidation of subsidiaries that were acquired in a transaction denominated in a non-yen
currency and impairment losses recognized against such subsidiaries are affected by changes in the acquisition currency’s exchange value against the yen between the acquisition date and the date of the sale, liquidation or impairment.

7 Pandemics

We operate businesses globally. Global pandemics have the potential to severely impact our operations. In recent years, theGlobal pandemics could adversely affect our operations and/or• Implement various preventive/anti-pandemic measures, including proactively uti-

global spread of COVID-19 has triggered a global economic slowdown and wrought unprecedented changes in lifestyles. We

financial results through such occurrences as a global economic

lizing telecommuting and imposing stricter workplace hygiene controls, to prevent

must closely monitor the COVID-19 pandemic’s impact on our businesses, including mid to long-term consumption/demand

slowdown or lifestyle changes.

infections and keep employees and their families safe

trends. We are not currently experiencing any business disruptions due to the pandemic, but our financial results could be• Build stable supply chains from business continuity standpoint through such meansadversely affected in the event of renewed spread of COVID-19 or an outbreak of another pandemic.

as sourcing from multiple suppliers and maintaining safe production operations
through such means as stringent process hygiene controls

8U nfavorable litigation
developments

Certain JT Group companies are being sued for damages due to smoking, marketing of tobacco products and exposure to

If a lawsuit is decided against us, we may be held liable for substantial• Establish internal and external coordination channels, swiftly ascertain information on

secondhand smoke. Lawsuits involving smoking-related health claims are pending against certain JT Group companies, in-damages, and/or incur other consequences, that could adversely

litigation and related matters and share it with management and concerned organi-cluding suits where we may be found to have indemnity obligations pursuant to the agreement under which we acquired RJR

affect our financial results. Additionally, critical media coverage ofzational units

Nabisco Inc.’s non-U.S. tobacco business. We cannot predict the outcome of any current or future lawsuits.

ongoing lawsuits against us could make the public less tolerant of• Continue to appropriately defend against litigation claims in coordination with exter-

Additionally, we may be sued on grounds other than smoking-related health claims. For example, we could be sued on a

our products and lead to stricter public regulation of smoking. Suchnal legal counsel

product liability claim in the event that a product-quality problem were to arise.

media coverage could also lead to subsequent lawsuits against us and

4Please see Litigation (P. 87) for more details.

additional litigation expenses.

9 Natural disasters

Our financial results could be adversely affected by earthquakes, typhoons, floods and/or other natural disasters’ consequences,

Natural disasters could disrupt not only our own operations but• Routinely gather and relay information related to crisis management on ongoing basis

potentially including employee casualties, supply shortages due to damage to suppliers’ facilities, disruptions in transportation,

also any of our value-chain partners’ operations. Such disruptions• Periodically review business continuity plans and revise them as warranted

distribution services and/or sales channels, power outages, water service interruptions, and reduced demand for our products.

could adversely affect our financial results.

• Conduct initiatives such as disaster preparedness drills and foster disaster-prepared-

To minimize natural disasters’ impact on our operations, we have adopted a Business Continuity Plan, the scope of which

ness mindset among employees

includes global supply-chain optimization.

10 Climate change

082Japan Tobacco Inc.

Climate change associated with global warming has various adverse impacts, including flooding and landslides due to ab-

Climate change could adversely affect our operations and/or value• Conduct climate scenario analysis in accord with TCFD Recommendations and devel-normal weather events such as torrential rainfall; intense heat waves, heavy snowfall and drought due to anomalous weather;chains and, in turn, our financial results. Additionally, our financial

op the capability to more accurately ascertain climate change’s potential impacts onwater-resource change and biodiversity loss. Such impacts’ potential consequences include supply chain disruptions andresults could be adversely affected by increases in operating expens-

our operations and take appropriate action to mitigate themchanges in the environments in which tobacco leaf and/or other agricultural commodities we use in our products are grownes stemming from the transition to a decarbonized society.

• Strive to reduce greenhouse gas emissions to net zero across our value chain toor raised. Such consequences may adversely affect our products and/or financial results through deterioration in these inputs’

mitigate climate change’s impacts

quality and/or increases in their prices/sourcing costs.

• Implement the measures in Section 9 above to address risks posed by natural disas-

Additionally, if a carbon tax is imposed on energy derived from fossil fuels in conjunction with the transition to a decarbonized

ters, which may be exacerbated by climate change

society to mitigate climate change’s impacts, our profits may be reduced by increased operating expenses.

4Please see Improving Our Environmental Impact (P. 76) for more details.

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Regulation and key laws

Tobacco business
The tobacco regulatory environment has been becoming increasingly stringent since the WHO Framework Convention
on Tobacco Control (FCTC) took effect in February 2005.
The FCTC’s objective is to “reduce continually and substantially the prevalence of tobacco use and exposure totobacco smoke.” The FCTC covers price and tax measures
to reduce tobacco demand, non-price measures to reduce
tobacco demand (e.g., protection from exposure to secondhand smoke, regulation of tobacco products’ contents
and emissions, regulation of tobacco product disclosures,
regulation of tobacco products’ packaging and labeling, regulation of tobacco advertising, promotion and sponsorship)and measures to reduce the supply of tobacco products(e.g., measures to prevent illicit trade in tobacco products
and sales of tobacco products to minors*). The Japanese
government ratified the FCTC in June 2004.
While the FCTC requires its signatory countries to develop,
implement, periodically update and review national tobacco
control strategies, plans and programs, it leaves to the discretion of each country the specifics of national regulations’content, scope and methods. The FCTC’s governing body,the Conference of the Parties (COP), has been meeting
regularly since the FCTC first took effect. The COP is a forum
for ongoing discussions among FCTC-signatory countries on
issues such as formulating FCTC Article-specific guidelines
and protocols (which must be separately ratified or otherwise agreed to by the parties).
Among FCTC-signatory countries, Russia, one of our key
markets, enacted a comprehensive tobacco control law in
February 2013 and phased it in from June 2013. The law
restricts retail sales locations and point-of-sale displays of
tobacco products; prohibits advertising, sales promotions
and sponsorship; sets minimum retail prices; bans smoking
in public; and combats illicit trade in tobacco products.
The EU revised its July 2001 Tobacco Products Directive(TPD) effective May 2014. The revised TPD tightened restrictions on tobacco product packaging and labeling, added
new regulations on tobacco product additives and E-Vapor
products, and also included measures to address illicit
trade. EU-member countries have implemented regulations
associated with the revised EU TPD.

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Japan Tobacco Inc.

Australia mandates generic packaging of tobacco products
under its Tobacco Plain Packaging Act, which took effect inDecember 2012. The law prohibits tobacco packaging frombearing logos, brand images, promotional text or anythingelse except the product name printed in a standardized fontand color. Plain packaging regulations have since been adopted elsewhere, including in France and the U.K. A numberof other countries are exploring the possibility of following
suit or have already decided to follow.
In Japan, the Tobacco Business Act (TBA) prescribes that weare obligated to purchase a grower’s entire tobacco crop
excluding any portion not suitable for manufacturing tobacco products and that our own tobacco products as well astobacco products imported by a designated distributor may
be sold by retailers only at prices approved by the Ministerof Finance. Tobacco product sales and promotional activities
in Japan are regulated under the TBA, related laws/regulations and voluntary industry standards. One regulatory
requirement is that advertisements and product packaging
must carry a cautionary statement about the health implications of consuming tobacco products. In accordance with
the Tobacco Institute of Japan (TIOJ)’s voluntary standards,
which were revised in 2020, the cautionary statement on
tobacco product packaging was changed to be consistent
with the latest scientific knowledge, and the area it occupied on the packaging was enlarged. Revisions to the TIOJ’s
advertising voluntary standard included measures to more
effectively shield minors* from tobacco product ads, including online, and new restrictions on point-of-sale ad size anddisplay methods.
In July 2018, the Health Promotion Act (HPA) was amended
to better prevent unwanted exposure to secondhand smoke
in facilities frequented by the public. We recognize public
places that allow smoking are going to decrease in number
under the amended HPA, which fully took effect from April
1, 2020. While it is difficult to predict smoking environmentchanges in detail, we expect our financial results to beaffected to some extent.
In relation to RRP (Reduced-Risk Products), the U.S. andEuropean countries are starting to establish new guidelines
and frameworks for scientifically assessing the reduction in
health risks associated with smoking. Tobacco makers havebeen stepping up activities to obtain official certificationof risk-reduction benefits. Some countries have applied

existing tobacco product regulations to RRP while others
have newly adopted separate regulations. The U.S., for example, banned the sale of certain flavored E-Vapor cartridges
in February 2020. With a global regulatory consensus yet
to take shape, regulatory treatment of RRP varies widely
among markets/countries.

Regulatory impacts on our operating performance
While the future content of laws, regulations and industry
guidelines on smoking, tobacco products and tobacco
product marketing, sales promotions, packaging andlabeling is impossible to accurately predict, we expect theregulations discussed above to expand in scope and/or new
regulations (including municipal regulations) to be imposed
in Japan and overseas markets in which we sell products.
We are supportive of reasonable and appropriate regulationof tobacco, but if tobacco regulations like those describedabove are tightened or if we are not afforded enough time
to adequately adapt to such regulatory tightening, ourfinancial results may be adversely affected by contraction
in tobacco product demand, loss of market share and/or
increased regulatory compliance expenses.

Self-regulation of marketing
In addition to complying with the regulations of every
country in which we operate, we also operate in accord with
our own Global Marketing Principles (GMPs), the principles
based on our recognition of the importance of responsibly
marketing tobacco products. Our GMPs include not marketing to minors* and not encouraging anyone, including
adults*, to start smoking or dissuading anyone from quitting. We believe that preventing minors* from smoking is an
issue that requires society-wide engagement. We are pursuing various initiatives to address this issue in coordination
with governments and concerned organizations in addition
to appropriately operating in accord with our GMPs.

Pharmaceutical businessPharmaceutical R&D, manufacturing, sales and marketingare stringently regulated in Japan and major overseas markets. Additionally, regulatory authorities globally have beenreviewing new drug applications (NDA) increasingly rigorously in recent years in response to a growing imperative toensure drug safety. Given the need to demonstrate safety inlarger sample sizes over sufficiently long timeframes, clinical
trials are growing in both scale and duration. Meanwhile,with required NDA documentation being internationallystandardized both qualitatively and quantitatively, drug
companies now commonly use a single set of data available
in multiple countries for drug development, a practice that
increases development efficiency and reduces costs.
In Japan, pharmaceutical manufacturing and sales are
regulated by the Ministry of Health, Labour and Welfare(MHLW) and/or prefectural authorities under the Act on
Securing Quality, Efficacy and Safety of Products Including
Pharmaceuticals and Medical Devices (the “Pharmaceuticaland Medical Device (PMD) Act”). The PMD Act requires
companies that manufacture and sell pharmaceuticals to
be licensed in every prefecture in which they operate andto renew those licenses every five years. Additionally, every
pharmaceutical manufactured or sold in Japan must be
approved by the MHLW.
Japan’s National Health Insurance (NHI) program maintains
a drug formulary and sets official drug prices. The NHI isplanning to radically reform drug pricing. The planned
reforms include annual drug price revisions, paring-downof the list of drugs qualifying for premium pricing intended
to incentivize drug discovery and reduce off-label drug use,
and tiered reductions in long-listed drug prices based on
generic substitution rates.

Please visit JTI.co.jp (Japanese only) for more details.
*Minimum legal age for smoking varies in accordance with the legislation in eachcountry. In Japan, smoking is not permitted for those under 20 years of age.

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Regulation and key laws

Processed food business
Our processed food business is regulated as a food productmanufacturer and distributor, mainly under the Food Safety
Basic Act, Food Sanitation Act and Food Labeling Act.
The Food Safety Basic Act, enacted and effective from2003 with the purpose to ensure food safety and protect
consumers, charges food companies with a responsibility to
implement safeguards necessary to ensure food safety froma scientific standpoint through risk control, assessment andcommunication at each stage of their entire supply chains.
The Food Sanitation Act aims to keep food and beverages
free of hygienic hazards and protect the health of consumers. It requires food companies to acquire knowledge andtechnology, verify ingredient safety, inspect their facilities,
and otherwise act diligently to fulfill their responsibilities toensure the safety of their food products, additives, utensils,
containers and/or packaging. As part of the revision in 2018,
additional requirements such as hygiene management inline with the HACCP (Hazard Analysis and Critical Control
Point) are in place. The Food Labeling Act, aiming to upholdconsumer interests and contribute to making food production support the protection and/or promotion of consumer
health, sets labeling standards for food products offered for
sale, including with respect to allergen content, shelf life, ingredients, and place of origin. Food companies are required
to label their products in compliance with these standards.
In addition to meticulously complying with these and otherapplicable laws and regulations, our processed food business is working to upgrade our safety management fromfour standpoints - food safety, food defense, food quality
and food communication - so that it can provide consumers
with safe, quality food products that they can enjoy withpeace of mind.

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FINANCIAL INFORMATION /OTHERS

Litigation

Japan Tobacco Inc. Act
JT was established pursuant to the Japan Tobacco Inc.
Act (the “JT Act”) to manufacture, sell and import tobacco
products. Under the JT Act, the Japanese government must
always own at least one-third of our total issued shares(excluding any non-voting share classes*¹). The Minister ofFinance must approve any offerings of newly-issued stock or
subscription rights to shares, as well as any issuance of stock,subscription rights to shares or bonds cum subscription
rights to shares in conjunction with a stock swap. In addition
to manufacturing, selling and importing tobacco products
and operating businesses incidental thereto, we are permitted by the JT Act to engage in other businesses as required
to fulfill our purpose and subject to the Minister of Finance’s
approval. Other matters requiring the Minister of Finance’s
approval include appointment/dismissal of Directors,
Executive Officers and Audit & Supervisory Board members,
amendments to our Articles of Incorporation, appropriationsof capital surplus (excluding appropriations to rectify anaccumulated deficit), mergers, split-ups and dissolution. We
are also required to submit a statement of financial position,statement of income and business report to the Minister ofFinance within three months of every fiscal year-end.
The Reconstruction Financing Act*², which took effect on
December 2, 2011, directed the government to reassessstate involvement in the tobacco industry under the
Tobacco Business Act by March 31, 2023, and to explore thepossibility of divesting its JT shareholdings.
*1 Defined as classes of shares with no right to vote on any resolutions at
general meetings of shareholders.
*2 The Act on Special Measures for Securing Financial Resources Necessary for
Reconstruction from the Great East Japan Earthquake.

Some of JT’s subsidiaries are defendants in lawsuits filed byplaintiffs seeking damages for harm allegedly caused bysmoking or vaping, the marketing of tobacco or E-vapor
products or exposure to tobacco smoke. There are lawsuits
involving smoking/vaping and health-related cases pendingin which some of JT’s subsidiaries are named as defendants
or for which JT may have certain indemnity obligations pursuant to the agreement for JT’s acquisition of RJR Nabisco
Inc.’s non-U.S. tobacco business. In addition, JT and/or someof its subsidiaries are also defendants in lawsuits other than
the smoking/vaping and health-related cases.
There are ten ongoing health care cost recovery cases in
Canada pending against JTI-Macdonald Corp. (hereinafterreferred to as JTI-Mac), our Canadian subsidiary and JT’s
indemnitees (RJR Nabisco Inc.’s affiliates), brought by
Canadian provinces. In addition, there are 8 pending classactions in Canada where plaintiffs are seeking damages forharm allegedly caused by smoking of cigarettes. Damages
claimed in some of these cases reach sums in the multi-billion- dollar range. We will continue to take all appropriate
actions to defend such claims vigorously and believe there
are a number of valid defenses.
On March 8, 2019, JTI-Mac filed for protection from its
creditors under Canada’s Companies’ Creditors Arrangement
Act (CCAA). The Ontario Superior Court granted the CCAA
application on the same date and extended the protection infavor of JTI-Mac. All the Canadian matters against JTI-Mac referred to herein have been stayed by the court order. JTI-Mac
carries on business in the ordinary course under the CCAA.
In recent decades, numerous, large-scale, smoking andhealth-related cases have been brought against tobacco
product manufacturers in the U.S. and some of the cases initially resulted in verdicts with massive damage awards. We
are not defendants in any of these lawsuits, nor are we subject to any indemnity claims with respect to them. The JT
Group’s U.S. tobacco business does not include the businessthat it acquired from RJR Nabisco Inc. in 1999, as well as the
Natural American Spirit’ non-U.S. business that it acquired
from Reynolds American Inc. group in January 2016.

There is ongoing litigation in the U.S. alleging healtheffects associated with E-Vapor use and harm caused toconsumers* by misleading representations and advertising
for which plaintiffs are seeking damages and/or demanding
health warnings against E-Vapor manufacturers in the
U.S. One such case has been brought against a number of
E-Vapor manufacturers including JT subsidiaries. This casehas been stayed by the court order. We believe that wehave valid grounds to defend this claim and intend to do sovigorously.
Even now, the scale of the JT Group’s U.S. tobacco businessremains small. Hence, we believe that litigation in the U.S.
will not materially affect its businesses in the near future.
Please see “Contingent Liabilities” of our Consolidated
Financial Statements’ “Contingencies” note for major lawsuits to which some of JT’s subsidiaries or indemnitees are
named as defendants.
To date, JT Group have never lost a case or paid any
settlement award in connection with smoking/vaping andhealth-related litigation. However, the Group is unable topredict the outcome of currently pending or future lawsuits.
A decision unfavorable to the JT Group and payment of
substantial amount of monetary compensation could materially affect its financial performance. Moreover, regardlessof the results of these lawsuits, critical media coverage
may reduce social tolerance of smoking, strengthen public
regulations concerning smoking and prompt the filing of anumber of similar lawsuits against the JT Group, forcing it
to bear litigation costs and materially affecting its businessperformance. Apart from smoking/vaping and health-related ones, the JT Group also may become the defendant infurther litigation. Should any problems arise on the Group’s
product quality, this may lead to claims seeking profit liability. Such litigation cases may negatively affect the Group’sbusiness performance or the manufacture, sale and importand export of its products, should the outcome of any suchclaims prove unfavorable.
*Adult consumers. Minimum legal age for smoking varies in accordance withthe legislation in each country.

Integrated Report 2021

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