For debt investors


  • Can you tell us about your relationships with the Japanese government and the Minister of Finance?

    The JT Act obligates the government to continue to hold more than one-third of all the Company’s shares issued. As of December 31, 2020, the government held 33.35% of all the Company’s shares issued. As a consequence, the Japanese government is able to have a substantial influence on proposals for ordinary resolutions at the Company’s General Meetings of Shareholders such as the election of Members of the Board. Furthermore, the Japanese government has the veto power for special resolutions for such actions as mergers, capital reductions or amendments to the Articles of Incorporation.

    In addition, the Minister of Finance has the authority to supervise the Company under the JT Act and Tobacco Business Act. Under the JT Act, the scope of the Company’s businesses includes the “manufacture, sale and importation of tobacco products and ancillary businesses, as well as businesses required for attaining the objective of the Company,” and “business required for attaining the objective of the Company” are subject to the Minister of Finance’s approval. Consequently, the Minister of Finance’s approval is required in order for the Company to engage in new businesses outside the scope of currently-approved businesses.

    As mentioned above, in addition to the Japanese government’s rights as a shareholder of the Company, the government has the authority to supervise the Company and other powers under the JT Act and Tobacco Business Act. Since it cannot be guaranteed that the interests of the government will always coincide with the interests of other shareholders, this may have a negative effect on the interests of other shareholders.

    Under the “Act on Special Measures for Securing Financial Resources Necessary for Reconstruction from the Great East Japan Earthquake,” which was promulgated on December 2, 2011, the government makes it a principle to secure revenue to fund reconstruction resources until the fiscal year ending March 31, 2023. To this end, it is required for an examination to be made of the feasibility of selling the Company’s shares by reassessing the framework under which the government holds the shares, while taking into consideration the framework of the country’s commitment to tobacco-related business based on the Tobacco Business Act and the like.



  • What is your KPI?

    Consolidated adjusted operating profit (AOP) at constant FX, a measure of operating performance that excludes exchange rate movements and special factors, is JT Group’s key performance indicator. Under our Business Plan 2021, our three-year business plan, we will remain committed to pursuing sustainable profit growth over the mid to long term. Specifically, we will continue aiming to achieve mid to high single digit annual average growth of consolidated AOP at constant FX over the mid to long term.

  • Can you tell us about your resource allocation policy and investment strategy, including M&A related to the Tobacco Business?

    The RRP*1 category has grown substantially over the past few years, particularly in Japan. We are currently stepping up investment to lay the groundwork to grow our RRP sales. We intend to achieve sustainable growth by using cash generated by combustibles to prioritize investments in the RRP category, especially HTS*2. While combustibles are our current source of earnings, we are counting on RRP as the pillar of our future business growth.

    Meanwhile, we have made various business investments over the years, including M&A. In recent years, we have made a number of acquisitions to expand our brand and product portfolios and to enlarge our previously small footprint in Asia and Africa. We have been branching into emerging markets in the aim of growing along with their economic growth. Our pursuit of long-term growth through geographic expansion is sometimes faced with unforeseen circumstances like COVID-19. With the pandemic exacerbating volatility in emerging markets in particular, we believe we need to be more cognizant of various factors than in the past when expanding into emerging markets, including through M&A, over the next several years. While appropriately assessing such factors, we will seek investment opportunities conducive to the JT Group’s growth.

    • *1 RRP (Reduced-Risk Products): Products with the potential to reduce the risks associated with smoking.
    • *2 HTS (heated tobacco sticks): Products containing tobacco that is heated (though not burnt) to create an inhalable vapor.
  • What is the rationale behind holding Pharmaceutical and Processed Food businesses?

    We have been operating in the pharmaceutical and processed food businesses for many years now. Both of these businesses play an important role as secondary profit growth drivers. The pharmaceutical business is committed to developing globally marketable, innovative drugs and making them available to patients as early as possible; the processed food business will focus on producing products that consumers and their loved ones can enjoy safely.

    Core strategies and targets of the Pharmaceutical and Processed Food businesses are:

    Pharmaceutical Business
    Our pharmaceutical business operates based on the following core strategies in order to fulfill its role, which is to complement the JT Group’s profit growth.

    • Focus on drug discovery capabilities
    • Develop compound pipeline
    • Enhance both in- and out-licensing activities

    Our R&D is focused mainly on metabolic diseases, autoimmune/inflammatory diseases, and viral infection.
    Target: Focus on R&D investments toward next-generation strategic products and maximize the value of each product

    Processed Food Business
    Our processed food business operates based on the following core strategies in order to fulfill its role, which is to complement the JT Group’s profit growth.

    • Expand sales of priority products with original technology and strengthen our product development capabilities of high valueadded products based on changing consumer demand
    • Increase profitability through optimization in manufacturing capabilities
    • Mitigate the impact of rising raw material costs and distribution costs

    Our business primarily engages in frozen and ambient foods, notably frozen udon noodles, prepackaged rice and okonomiyaki;
    seasonings including yeast extracts and oyster sauce; and products for bakery chain outlets mainly in the Tokyo metropolitan area.
    Target: Ensure sustainable profit increase through top-line growth

  • Can you tell us the litigation developments, its risk description and potential impact?
    Also, what is your main measures to address the related risks?

    Like other tobacco companies, we face the risk of being sued for damages due to smoking, marketing of tobacco products and exposure to secondhand smoke. There are lawsuits involving smoking-related health claims pending against JT Group companies, including suits where we may be found to have indemnity obligations under the agreement whereby we acquired RJR Nabisco Inc.’s non-U.S. tobacco business. We cannot predict the outcome of any current or future lawsuits. Additionally, we may be sued on grounds other than smoking-related health claims. For example, we could be sued on a product liability claim if some product-quality problem were to arise.

    Risk description and potential impact
    If a lawsuit is decided against us, we may bear significant compensation liability for damages, and/or incur other consequences, that could adversely affect our financial results. Additionally, critical media coverage of the ongoing lawsuits against us could make the public less tolerant of our products and trigger a strengthening of public regulation for smoking. Such media coverage could also lead to more such lawsuits against us and potentially litigation expenses.

    Main measures to address risk

    • Establish an internal and external coordination scheme and swiftly act on information gathering of litigation claims as well as reporting to managements and relevant functions.
    • Continue to appropriately defend against litigation claims in coordination with external legal counsel.

    Please refer to the following link to see Litigation (Integrated Report 2020 P. 57) for more details

  • Can you tell us the regulation developments, its risk description and potential impact?
    Also, what is your main measures to address the related risks?

    The tobacco industry is subject to many regulations, most notably on sales promotion activities (including advertising). Regulatory developments may affect our operations and/or financial results. For example, we may incur incremental costs in complying with product regulations on ingredients and packaging. Such regulations could also lead to growth in illicit trade to the potential detriment of our law-abiding, above-board businesses. Additionally, if stricter regulations are imposed on communications with consumers, they may preclude effective sales promotion activities and, in turn, adversely affect top-line growth. As a responsible company, we comply with the laws and regulations of every country/region in which we operate. We believe laws and regulations should rightfully differ from one country to another as a reflection of the countries’ respective legal systems, cultures and social conditions. We pursue constructive dialogue with governments and regulatory authorities to encourage reasonable, unbiased regulation of tobacco products.

    Risk description and potential impact
    Imposition of stricter regulations on sales promotion activities could undermine top-line growth strategies’ effectiveness by depriving us of opportunities to grow brand equity. Under certain circumstances, additional costs may arise in order to comply with regulations, resulting in our unit sales decreasing.

    Main measures to address risk

    • Expeditiously collect accurate information to learn of regulatory developments.
    • Pursue constructive dialogue with governments and regulatory authorities to encourage reasonable, unbiased regulation that fulfills its intended objective.

    Please refer to the following link to see Regulation and key laws (Integrated Report 2020 P. 54) for more details

  • Can you tell us the tax increase developments, its risk description and potential impact?
    Also, what is your main measures to address the related risks?

    Tobacco products are subject to tobacco taxes or other similar taxes in addition to sales tax or VAT. Some countries, including Japan, have been raising tobacco taxes or discussing tax increases from a fiscal and/or public health standpoint. Additionally, VAT rates generally tend to increase over time. Our policy with respect to tax increases is to raise prices to pass through the tax increase to consumers, taking into account not only the tax increase’s magnitude but also the price elasticity of demand
    for tobacco products. In addition to this, measures to bolster the top line and improve cost-efficiency are also taken to mitigate the financial impact due to tax increases. Most governments have adopted a reasonable approach to taxation, recognizing that large or repeated tax increases may end up reducing tax revenues. In some instances, however, past tax increases have materially affected our business in certain markets.

    Risk description and potential impact
    Large or repeated increases in taxes on tobacco products tend to lead to reduced consumption of and/or increased illicit trade in tobacco products. They may also induce consumers to switch to lower-priced products. They consequently could result in reductions in our unit sales, revenue and/or profits.

    Main measures to address risk

    • Promote understanding among relevant authorities that large or repeated tax increases may be counterproductive with negative impact from decline in tax revenue due to decreased demand or increase in illicit trade.
    • Optimize product portfolio for adaptability to changes in consumer preferences and behavior.
    • Strengthen and expand our global business foundation as well as expand number of continuously profitable markets to avoid overdependence on profits from a few markets.
    • Further improve cost-efficiency to ensure adequate profitability.
    • Set prices appropriately to minimize tax increases’ impact in affected markets.