To make sustainable growth possible, the Group has set maintaining a strong financial base anchored by resilience and flexibility as its financial policy. “Resilience” means the ability to maintain business despite the emergence of significant risks, such as an economic crisis. “Flexibility” mainly means responding in an agile manner to attractive investment opportunities.

Furthermore, pursuant to the Japan Tobacco Inc. Act, the Japanese government must always own at least one-third of our total issued shares, and the Minister of Finance must approve any offerings of newly issued subscription rights to shares for funding. Consequently, debt finance is our basic stance with respect to raising funds. From the standpoint of maintaining financial soundness and secureness, we seek primarily to control interest rate volatility risk and retain liquidity, and move to make debt and liabilities long term. Accordingly, the weighted average for our remaining years of debt is over six years (as of December 31, 2024) and the long-term debt ratio is over 90% (as of April 30, 2025), delivering a debt composition that is capable of withstanding abrupt changes in the financial markets.

In addition, we are constantly working to diversify funding methods in order to improve funding stability. Over the past several years, this has led us to enter into subordinated loans, issue subordinated debt, and introduce a green loan facility.

Improved capital efficiency and business investments for realizing medium- to long-term sustainable profit growth are indispensable to maximizing corporate value. Cash flow management is vital to making these possible. And while the highest priority is placed on improving our cash creation capabilities via top-line growth in our businesses, we are working to optimize cash flow (CF) through a variety of initiatives.

The JT Group has operations globally, leading to a structure in which CF from these businesses is particularly susceptible to exchange rate volatility. Thus, to the extent possible, we use exchange forwards and other derivatives as hedges to mitigate the impact of sudden exchange rate volatility on CF in the short term. Nevertheless, when it comes to derivatives for addressing currencies in some emerging markets and long-term exchange rate changes, there are issues in cases in which hedging itself is not possible, or where the economic rationale is lacking.

In response to such issues, along with geographic and currency diversification in our businesses, we are also promoting natural hedges, pairing revenues and payments in the same currency whenever possible, as measures to strengthen resilience against exchange rate volatility across the Group. As a result of acquiring U.S.-based Vector Group Ltd. (Vector), completed last October, we have been able to raise the proportion of hard currency making up revenue and CF within the Group higher than before, which is helping bolster our ability to withstand exchange rate movements.

Further, from the standpoint of the connection between commodity prices and exchange rate changes, price revisions are another response to inflation. Of course, price revisions will be carried out after careful consideration of market environments, but we think they could also be a useful measure in responding to exchange rate fluctuations.

Beyond these, we are also seeking to optimize working capital through ongoing improvement of the cash conversion cycle, including through the rightsizing of inventory stock levels, and by reviewing cash receipt and payment terms through such measures as the liquidation of receivables and supplier financing.

The JT Group’s resource allocation policy, based on the 4S model and the JT Group Purpose, gives top priority to business investments, particularly in the tobacco business, that will lead to sustainable profit growth over the medium to long term. And our emphasis on striking a balance between profit growth through business investment and shareholder returns remains unchanged.

As a business investment, we continue to prioritize investment in Reduced-Risk Products (RRP) in the tobacco business, notably heated tobacco sticks (HTS). In our current business plan spanning fiscal year 2025 to 2027, plans call for large-scale strategic investment totaling 650.0 billion yen, centered mainly on marketing activities. In combustibles, the source for supporting RRP growth, our aim is to improve ROI through pricing and market share gain, as well as measures toward cost optimization.

In terms of shareholder returns, our focus remains mainly on dividends, and we continue to target a payout ratio of 75%^*, a competitive level in the capital markets. By growing adjusted operating profit (AOP) at constant currency—the Group’s key performance indicator—through business investment, we believe this will result in medium- to long-term growth in net profit and in turn lead to further improvement in shareholder returns.

*

Within a margin of ±5%

Profit attributable to owners of the parent company (JPY BN)

Dividend per share (JPY)

*1

Excluding a provision for litigation losses

*2

Including a provision for litigation losses

In drawing up a business plan, we calculate and examine our capital costs and report them to the Board of Directors. We check and confirm that our return on equity is well above capital costs. We set up a hurdle rate, taking into account country risks and inflation risks in our operating markets and use it as our baseline for profitability. By maintaining that discipline, we ensure our ROE is always above capital costs.

Furthermore, based on an approach that emphasizes sustainable profit growth into the future over the pursuit of short-term profit, we, as stated earlier, use AOP at constant currency as the Group’s key performance indicator, excluding the effects of amortization of intangible assets from M&A activities in prior fiscal years and the impact of major swings in exchange rates due to transient factors. Through mid-to-high single-digit growth in AOP at constant currency over the medium to long term, we are aiming ultimately to achieve net profit growth.

We intend to pursue sustainable improvement in ROE through extensive investment discipline and profit management from a medium- to long-term perspective.

Improving our financial performance is critical to leveraging capital gained to date to further accumulate profits from business activities into a solid financial base.

Throughout 2024, we saw an adverse business environment characterized by more acute geopolitical risks, rising supply chain costs, and exchange rate volatility. Despite this climate, we achieved record-high performance in both revenue and AOP on a reported basis.

Our key performance indicator, AOP at constant currency, rose 7.5% year on year. In addition to pricing contributions in the tobacco business throughout the year, performance benefited from the inclusion of business results for the three months following the acquisition of Vector, leading to profit growth that surpassed investments to strengthen Ploom, higher supply chain costs due to inflation, and an increase in personnel and other indirect costs.

Revenue and AOP on a reported basis rose by 10.9% and 3.3%, respectively, year on year, atop contributions from higher revenue in the processed food business, in addition to tobacco business momentum.

Meanwhile, a settlement has been reached through mediation for all pending tobacco-related claims, including all smoking and health lawsuits in Canada brought against the JT Group’s local subsidiary. Accordingly, we posted 375.6 billion yen to a provision for litigation losses for settlement payment, which caused a significant decline in both operating profit and net profit year on year. Excluding the impact of this provision, operating profit and net profit rose 3.7% and declined 3.9%, respectively, from the previous fiscal year.

Free cash flow was 170.5 billion yen, a year-on-year decline of 273.2 billion yen, due to payment for the acquisition of Vector.

As a performance forecast under the current business plan (2025-2027), we are projecting high single-digit growth in AOP at constant currency, lifted by the continued contribution of pricing in combustibles, RRP development and contributions from the acquisition of Vector. These factors will likely overcome the effects of investments focused on HTS to strengthen RRP.

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Financial data

Revenue and adjusted operating profit (JPY BN)

Improvements in financial performance, along with enhancing the quality and transparency of our management through proactive dialogue with capital markets, are critical to improving corporate value. As part of this, we are focusing on market evaluation. Comparing our total shareholder returns (TSR) with the Tokyo Stock Price Index (TOPIX) shows that we have trailed the TOPIX over the long term, but thanks to profit growth and higher dividends, we have outperformed it compared to the end of 2019.

We believe that continuous profit growth is important for the medium- and long-term stability of our share price and we aim to build corporate value through its achievement. We also believe that improving investor understanding of the Group through enhanced information disclosure will lead to an increase in TSR.

We appropriately disclose timely information, not only financial information including business performance, but also non-financial information such as business strategy, information related to ESG factors and the status of each business segment. We also proactively engage in dialogue with our shareholders and other investors, with sights on promoting a deeper understanding of the JT Group. We hold meetings with securities analysts and institutional investors in and outside of Japan regarding the details of recently announced financial results and other disclosures, as well as one-on-one meetings regarding ESG matters, earnings briefings for individual investors, and dialogue with bond investors. Beyond these, we also host investor-focused events and create opportunities for dialogue between Outside Directors and investors.

In 2024, we held approximately 480 individual meetings and also took part in conferences hosted by securities houses. The CEO, Executive Vice President in charge of finance and myself attended some of these events and received a host of feedback mainly related to our RRP business performance, medium- to long-term strategy, particularly our future business portfolio vision, and evaluations of our Integrated Report. We leverage feedback from investors to improve and review our initiatives and we will continue to pursue active dialogue with investors so that they can understand the Group’s performance and initiatives.

On the road to realizing further improvement in corporate value, we must achieve steady business growth despite a highly uncertain business environment.

Particularly in the tobacco business, we must address the global economic impact of increasingly stark geopolitical risk, hyperinflation in some markets of our EMA cluster, changing macroeconomic trends and tightening regulations. Adding to this, with interest in ESG investment rising in recent years, and given the coming codification of laws governing the disclosure of sustainability information, high-quality communication with stakeholders is another clear demand.

In order to enhance corporate value, my mission as the CFO is to propose and execute the financial and capital strategies that will help achieve and embody the JT Group Purpose of “Fulfilling Moments, Enriching Life.” As our society itself and the business environment undergo massive change, I am tasked with retaining and enhancing a financial base that makes it possible to respond to business opportunities and various risks flexibly, while maintaining the strength we have cultivated through to today and our financial discipline.

We also remain committed to communicating our progress and achievement to capital markets via dialogue with stakeholders, so that our corporate value is well understood.