Japan Tobacco : Download Integrated Report 2021

Integrated Report 2021

Japan Tobacco Inc.

Purpose of our Integrated Report

This report consolidates important information for our stakeholders to better understand the JT Group. For detailed information, please visit our website.

In this report, we integrate financial information, e.g., management princi- ple, business plan and business performance, and non-financial informa- tion, namely sustainability information that supports the JT Group's growth in the mid to long term. The purpose of this report is to inform our various stakeholders, including shareholders and investors, of the current and future value creation story of the JT Group.

Value creation story

nancial-Non information

Financialinformation

JT website

JT website

Sustainability

Investor Relations

• Top management

• Management

message

information

• Our sustainability

• Results and reports

strategy

• For shareholders

• Respecting human

• IR calendar

rights

• For debt investors

• Improving our social

impact

• Environment

• Governance and

compliance

• Investing in people

Detailed information

Forward-looking statements contained in this document are necessarily dependent upon assumptions, estimates and data that may be incorrect or imprecise and involve known and unknown 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. Please see "FORWARD-LOOKING STATEMENTS" at P.129 for further details.

018 VALUE CREATION	088 GOVERNANCE
020	Our history	090	Message from the Chairperson
022	Our value creation process	092	Messages from Outside Directors
024	Our value chains	094	Corporate governance
		102	Management structure
		108	Internal controls

002	CORPORATE PROFILE	026	BUSINESS and
	SUSTAINABILITY
004	Our management principle	028	Business Plan 2022
006 Message from the CEO	030	Sustainability
012	At a glance		034	Message from the CFO
014	Key performance indicators	038	Message from the CSO
	• Financial performance review
	040	Overview of tobacco business and its sustainability
	• Non-financial performance review
		initiatives
				• Products & services
				• Building sustainable supply chains
				• Optimizing the regulatory environment and tack-
				ling illegal trade
			060	Overview of pharmaceutical business and its sustain-
				ability initiatives
			064	Overview of processed food business and its sustain-
				FINANCIAL
				ability initiatives
				112 INFORMATION/
			068	Investing in people
				• Health and safety
			072	Three absolute requirements for sustainability		OTHERS
				• Respect for human rights	114 11-year consolidated financial data
				• Improving our social impact
				• Improving our environmental impact	116	Financial review
			080	Risk factors		124	Glossary of terms
			084	Regulation and key laws	126	Awards and recognitions
			087	Litigation		128 Shareholder information and contact information

Japan Tobacco Inc.

Integrated Report 2021

001

CORPORATE PROFILE

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

To provide an overview of the Group, this section discusses the Group management principle and vision that form its foundation for value creation, outlines its businesses, and presents key financial and non-financial performance indicators. The section also has a special section featuring a message from the CEO explaining initiatives the Group is undertaking to continuously deliver value.

1. Our management principle

1. Message from the CEO

1. At a glance

014 Key performance indicators

• Financial performance review
• Non-financialperformance review

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Our management principle

Management principle

To pursue the 4S model

CORPORATE PROFILE	VALUE CREATION	BUSINESS and	GOVERNANCE	FINANCIAL INFORMATION /
SUSTAINABILITY	OTHERS

VISION

To continue to be a growing global company that provides diverse value, unique to the JT Group.

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

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.

Our long, rich history has endowed us with three key strengths: a solid financial base, superior brand equity

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 sustainable society.

By pursuing the 4S model, we aim to achieve sustainable		Consumers
profit growth over the mid to long term. We firmly believe
that pursuing the 4S model is the best approach to continu-
ously grow our corporate value and serve our four stake-	Employees	Society
holder constituencies' common interests.

and a diverse workforce. To realize our vision, we plan to

The JT Group MISSION

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.

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.

The JT Group WAY

• 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.

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 the sustainable development of society through our business, we will work with a wide range of stakeholders and strive to resolve various issues together.

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

We define a brand as all of the products, services and actions trusted by consumers and believe it is the key to forming deep bonds of trust between us and our consum- ers. 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 philosophy.

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CORPORATE PROFILE

VALUE CREATION		BUSINESS and		GOVERNANCE		FINANCIAL INFORMATION /
	SUSTAINABILITY			OTHERS

Message from the CEO

Driving changes on our own initiative

Since its inception, the JT Group has grown by keeping its focus on the future, anticipating challenges and adapting swiftly to change. I am convinced this proactive approach will continue to lead the JT Group towards more sustainable mid- to long- term growth, further supported by organizational reforms and cultivating a working environment where each and every employee can initiate changes on their own.

Knowing the business environment

The JT Group's business environment remains difficult to predict because of changes in the international political situation, and risks related to exchange-rate fluctuations, as well as the persistent impact of the pandemic and the subsequent changes in consumer behavior and operations by businesses around the world.

It is undeniable that all our business segments currently face, and will continue to face, increasingly challenging en- vironments. The tobacco business continues to experience tighter regulations and higher taxes, combined with increasing demand for reduced-risk products (RRP), especially heated tobacco sticks (HTS). Meanwhile, the pharmaceutical business is facing higher hurdles for new drug approval and growing pressure to lower prices, while the processed food business is facing rising costs for personnel, distribution and raw materials.

In addition, digital technology is constantly progressing, consumer preferences and behaviors are evolving with increasing awareness of sustainability and ESG priorities, and the needs and expectations among our shareholders, as well

Masamichi Terabatake

Representative Director and President,

Chief Executive Officer

as society at large, are changing. Amid these major, rapid global trends, it is vital that we drive initiatives proactively rather than react passively.

2022 is also marked by the unprecedented crisis of the war in Ukraine. I would like to express my sincere condolences to those who have tragically lost loved ones in the war, and to the many others who have had to face devastating difficul- ties, such as having to leave everything behind in order to seek safety. I sincerely hope that peace will return soon.

While the JT Group's first priority is the safety and security of our employees and their families, we are also working hand in hand with international and local aid organizations to establish relief programs and provide immediate help to those affected. We will continue to closely monitor the situation and prioritize our employees and their families' safety, while extending all possible support to those in need, taking all necessary decisions to address the changing situation in accordance with our Group's management principle, which is to pursue the 4S model.

Note: The word, consumers, used in the context of the tobacco business means adult consumers. Minimum legal age for smoking varies in accordance with the legislation in each country.

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