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    2914   JP3726800000

JAPAN TOBACCO INC.

(2914)
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Japan Tobacco : (Updated)Integrated Report 2020

06/18/2021 | 11:33am EDT

Japan Tobacco Inc.

Integrated Report 2020

Year ended December 31, 2020

Forward-looking statements

This report contains forward-looking statements. These statements appear in a number of places in this report and include statements regarding the intent, belief, or current and future expectations of our management with respect to our business, financial condition and results of operations. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "would," "expect," "intend," "project," "plan," "aim," "seek," "target," "anticipate," "believe," "estimate," "predict," "potential" or the negative of these terms or other similar terminology. These statements are not guarantees of future performance and are subject to various risks and uncertainties. Actual results, performance or achievements, or those of the industries in which we operate, may differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. In addition, these forward-looking statements are necessarily dependent upon assumptions, estimates and data that may be incorrect or imprecise and involve known and unknown risks and uncertainties. Forward-looking statements regarding operating results are particularly subject to a variety of assumptions, some or all of which may not be realized.

Risks, uncertainties or other factors that could cause actual results to differ materially from those expressed in any forward-looking statement include, without limitation:

  1. increase‌ in awareness of health concerns related to smoking;
  2. regulatory developments; including, without limitation, tax increases and restrictions on sales, marketing, packaging, labeling and use of tobacco products, privately imposed restrictions and governmental investigations;
  3. litigation‌ around the world alleging adverse health and financial effects resulting from, or relating to, tobacco products;
  4. our‌ ability to further diversify our business beyond the traditional tobacco industry;
  5. our‌ ability to successfully expand internationally and make investments outside Japan;
  6. competition,‌changing consumer preferences and behavior;
  7. our‌ ability to manage impacts derived from business diversification or business expansion;
  8. economic,‌ regulatory and political changes, such as nationalization, terrorism, wars and civil unrest, in countries in which we operate;
  9. fluctuations‌ in foreign exchange rates and the costs of raw materials; and

10. catastrophes,‌including natural disasters.

CORPORATE

002

Our management principle

006

Key performance indicators

004 At a glance

• Financial performance review

PROFILE

010

• Non-financial performance review

Our response to COVID-19

VALUE

014

Message from the CEO

022

Our value chains

018

Our history

024

Superior brand equity

CREATION

020 Our value creation process

028

Business Plan 2021

050

Risk factors

030

Message from the CFO

054

Regulation and key laws

034

Business strategy/Business review

057

Litigation

BUSINESS

• Tobacco Business

- International Tobacco Business

- Japanese-Domestic Tobacco Business

• Pharmaceutical Business

• Processed Food Business

060

Our material issues

068

Investing in people/Health and safety

062

Sustainability strategy

072

Focus areas by business segment

SUSTAINABILITY

064

Three absolute requirements for sustainability

• Tobacco Business

• Respect for human rights

• Pharmaceutical Business

• Improving our social and environmental impact

• Processed Food Business

• Good governance and business standards

082

Interview with the CSO

GOVERNANCE

086

Interview with the Outside Director

096

Management structure

090 Corporate governance

100

Internal control system &

risk management system

Editorial policy

Period covered

In principle, this report covers the period from January 1, 2020 to December 31, 2020, but also includes some information related to activities before and after this period.

Scope of report

Japan Tobacco Inc. and consolidated subsidiaries

Published

March 2021

Referenced guidelines

The International Integrated Reporting Council's "International Integrated Reporting Framework" was referred to in the writing of this report. In addition, the GRI Standards of the Global Reporting Initiative were referred to with regard to ESG information.

FINANCIAL

106

Financial review

184

Shareholder information

114

Consolidated financial statements

185

List of key disclosures

INFORMATION/

180

Glossary of terms

185

Contact information

OTHERS

182 Awards and recognitions

CORPORATE PROFILE

The JT Group is a leading global tobacco company operating in over 70 countries/regions and our products are sold in over 130 countries/regions.

To illustrate the overview of the Group, this chapter explains the Group's management principle and vision, which are the foundation of its value creation, outlines its businesses, and presents key financial and non-financial performance indicators.

  1. Our management principle
  1. At a glance
  1. Key performance indicators
    • Financial performance review
    • Non-financialperformance review
  1. Our response to COVID-19

PROFILE CORPORATE

CREATION VALUE

BUSINESS

SUSTAINABILITY

GOVERNANCE

INFORMATION/OTHERS FINANCIAL

Japan Tobacco Inc. Integrated Report 2020 001

Our management principle

Management principle

To pursue the 4S model

Under the 4S model, we strive 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.

Shareholders

Consumers

Employees

Society

VISION

CORPORATE

PROFILE

To continue to be a growing global company that

provides diverse value, unique to the JT Group.

Based on our 4S model, our vision is to continue to be a

growing global company that provides diverse value, unique to

the JT Group.

VALUE

Our long, rich history has endowed us with three key

CREATION

strengths: a solid financial base, superior brand equity and a

diverse workforce. To realize our vision, we plan to leverage

these strengths as sources of competitiveness in our

business activities. We will create a variety of products and

services that meet the needs of our consumers and society,

enhance the corporate value of the JT Group, and create

social value that contributes to the development of a sustain-

able society.

BUSINESS

The JT Group MISSION

The JT Group WAY

By pursuing the 4S model, we aim to achieve sustainable profit growth over the mid to long term. We firmly believe that pursuing the 4S model is the best approach to continuously grow our corporate value and serve our four stakeholder constituencies' common interests.

To create, develop and nurture our unique brands to win consumer trust, while understanding and respecting the environment, and the diversity of societies and individuals.

• Act with integrity, always putting the

consumer first.

• Continue to evolve while remaining committed

to quality in all its aspects.

• Harness the power of diversity across the

JT Group.

SUSTAINABILITY

Consumers

We provide exceptional products and services that deliver value beyond fulfillment of diverse needs and preferences. To keep doing so, we will upgrade our innovation capabilities by leveraging our Group's diversity.

Shareholders

We aim to enhance shareholder returns by realizing the mid- to long-term profit growth, placing priority on striking a balance between profit growth through business investments and shareholder returns.

Our mission is to create, develop and nurture our unique brands to win consumer trust, while understanding and respecting the environment, and the diversity of societies and individuals through the 4S model. Our Code of Conduct and values guide the way in which every employee should act on a daily basis. We have codified them into three statements we call the JT Group WAY.

The world in which we live encompasses diverse natural environments, societies and peoples. By embracing such diversity, we

GOVERNANCE

believe we can create brands that offer value to our consumers.

We define a brand as all products, services and actions trusted by consumers and believe it is the key to forming deep bonds of

Employees

We aim to be an appealing, highly esteemed company for which our employees are proud to work. While evaluating employees fairly and transparently and supporting their personal growth, we aim to foster a corporate culture that respects and embraces diverse values.

Society

In order to fulfill our responsibility as a member of society and contribute to society's sustainable development through our business, we will work with a wide range of stakeholders and strive to resolve various issues together.

trust between us and consumers. Setting our brands as our most valuable management resource, we will continue to create,

develop, and refine distinctive brands that win consumers' trust.

In order to achieve our mission, each and every one of us at the JT Group practices the JT Group WAY as a personal guide.

INFORMATION/OTHERSFINANCIAL

002 Japan Tobacco Inc. Integrated Report 2020

Japan Tobacco Inc. Integrated Report 2020 003

At a glance

The JT Group is a leading global tobacco company operating in over 70 countries/regions and our products are sold in over 130 countries/regions. In addition to the tobacco business, we are developing pharmaceutical and processed food businesses.

PROFILE CORPORATE

International Tobacco Business

The international tobacco business, headquartered in Geneva, manufactures and offers tobacco products all over the world except Japan and a few Asian countries/regions.

Its key markets include France, Italy, Russia, Spain, Taiwan, Turkey and the U.K. Its international brand portfolio includes leading brands in cigarettes and FCT (fine cut tobacco), such as Winston, Camel, MEVIUS and LD, as well as in RRP (Reduced-Risk Products),* such as Logic and Ploom.

Japanese-Domestic Tobacco Business

The Japanese-domestic tobacco business, headquartered in Tokyo, manufactures and offers tobacco products mainly for Japan.

Its brand portfolio includes Ploom in the RRP category and the key brands such as MEVIUS, Seven Stars, Natural Ameri- can Spirit, Winston and Camel in the cigarette category.

Pharmaceutical Business

The pharmaceutical business focuses on the R&D, manufacturing and sale of prescription drugs, concentrating on three specific therapeutic areas: metabolic diseases, autoimmune/ inflammatory diseases, and viral infection.

CORECTIM® Ointment, Riona® Tablets and REMITCH® CAPSULES/OD Tablets are the main products, among others.

Processed Food Business

The processed food business handles the frozen and ambient

VALUE

food business, mainly for frozen noodles, packaged cooked

CREATION

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.

Major products include "Reito-Sanuki-Udon" (frozen noodles),

"Takitate-Gohan" (packaged cooked rice), and the "Vertex"

(yeast extract seasonings) in particular.

BUSINESS

Combustibles market share in the tobacco business

The presence of JT Group in our key markets (2020)

ITALY

25.6%

RUSSIA

38.4%

U.K.

FRANCE

JAPAN

TURKEY

45.0%

27.1%

TAIWAN

59.8%

26.6%

SPAIN

47.7%

26.7%

Source: JT estimate, IRI, Nielsen and Logista

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

004 Japan Tobacco Inc. Integrated Report 2020

Total revenue (2020)

Processed food

Other

business

0.1%

7.1%

Pharmaceutical

business

3.8%

2,092.6

(JPY BN)

Japanese-domestic

International

tobacco business

tobacco business

26.5%

62.4%

Number of employees

(As of December 31, 2020)

Processed food

Other

business

1.7%

8.6%

SUSTAINABILITY

Pharmaceutical

business

2.4%

58,300

employees

GOVERNANCE

Japanese-domestic

International

tobacco business

tobacco business

17.8%

69.6%

INFORMATION/OTHERS FINANCIAL

Japan Tobacco Inc. Integrated Report 2020 005

Key performance indicators

Financial performance review

Revenue

(JPY BN)

Profit

(JPY BN)

PROFILE CORPORATE

2,143.3

2,139.7

2,216.0

2,175.6

2,092.6

2016

2017

2018

2019

2020

JPY 2,092.6BN

3.8%decrease year on year

Revenue on a consolidated basis. Excludes excise and other similar taxes, as well as sales from transactions in which the JT Group acts as an agent.

421.7

392.4

385.7

348.2

310.3

2016

2017

2018

2019

2020

JPY 310.3 BN

10.9%decrease year on year

Profit attributable to owners of the parent company.

CREATION VALUE

BUSINESS

Adjusted operating profit

Free cash flow

Dividend per share

(JPY BN)

586.8

585.3

595.5

+28.6

544.5

-57.6

515.9

487.0

2016

2017

2018

2019

Business

2020 at

FX

2020

momentum

constant FX

5.5% increase year on year at constant FX

5.6%decrease to

JPY 487.0BN (reported basis)

Consolidated adjusted operating profit (AOP) at constant FX, JT Group's performance indicator, grew 5.5%. On a reported basis, AOP was down 5.6% due to unfavorable foreign currency impacts. Adjusted operating profit is calculated as follows: Adjusted operating profit=Operating profit+amortization cost of acquired intangibles arising from business acquisitions+ adjusted items (income and costs).*

(JPY BN)

503.9

404.2

72.6

105.6

-316.2

2016

2017

2018

2019

2020

JPY 503.9 BN

JPY 99.7 BN increase year on year

Free cash flow is the sum of cash flows from operating activities and investing activities, but excludes the following items:

• From operating cash flow: depreciation from lease transactions, interest

received, dividends received, interest paid and income taxes related to

these items excluding lease transactions, and other items

(JPY)

SUSTAINABILITY

130

140

150

154

154

2016

2017

2018

2019

2020

154 yen

GOVERNANCE

The sum of interim and year-end dividends per share, the

record dates of which fall in the relevant fiscal year.

FINANCIAL

* Adjusted items (income and costs) are impairment losses on goodwill, restructuring income and costs and others.

006 Japan Tobacco Inc. Integrated Report 2020

• From investing cash flow: purchase of investment securities (both

short-term and long-term), payments into time deposits, proceeds from

sale or redemption of investment securities (both short-term and

long-term), proceeds from withdrawal of time deposits and other

investing activities not for business operation purposes

INFORMATION/OTHERS

Japan Tobacco Inc. Integrated Report 2020 007

This is an excerpt of the original content. To continue reading it, access the original document here.

Disclaimer

Japan Tobacco Inc. published this content on 19 June 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 18 June 2021 15:32:07 UTC.


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Sales 2021 2 197 B 20 139 M 20 139 M
Net income 2021 286 B 2 621 M 2 621 M
Net Debt 2021 371 B 3 403 M 3 403 M
P/E ratio 2021 13,6x
Yield 2021 5,96%
Capitalization 3 908 B 35 829 M 35 832 M
EV / Sales 2021 1,95x
EV / Sales 2022 1,89x
Nbr of Employees 58 300
Free-Float 54,5%
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Mean consensus HOLD
Number of Analysts 15
Last Close Price 2 202,50 JPY
Average target price 2 288,93 JPY
Spread / Average Target 3,92%
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