For debt investors

Please refer to the following link:
https://www.jt.com/investors/financial/

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. 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.

There has been no change in our two key policies for management resource allocation: give top priority to investment and balance profit growth resulting from investment with shareholder returns. Based on the 4S model, our management principle, and the JT Group Purpose, we will put top priority on investments leading to sustainable profit growth, especially in the tobacco business. We continue to designate the pharmaceutical and the processed food businesses as complementary to our core business, assisting profit growth for the entire Group.

Based on the resource allocation policy, our benchmark payout ratio has been 75%*1 since February 2021. In monitoring trends in shareholder returns among global FMCG firms, we have confirmed this as a competitive level in terms of capital markets in Japan and abroad.

Through the term of the current business plan, we will invest substantially in HTS*2. However, we are working to increase shareholder returns by continuing to build adjusted operating profit at constant currency, which is our foundation for profit growth over the medium and long terms, while maintaining a target payout ratio based on the policy I’ve outlined.

In discussing whether to buyback our own shares and in what quantities, in addition to financial prospects for the current fiscal year, we carefully consider the medium- and long-term prospects of our environment; our FCF, balance sheet and the like; and levels of profit and progress with investments and initiatives.

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. In the pharmaceutical business, we are continuing to conduct research and development of next-generation strategic products and working to maximize the value of each product to enhance the profit contribution to the entire Group. In the processed food business, we intend to drive sustainable profit growth, mainly through top-line expansion, by allocating our resources to high-value product groups and taking necessary related measures.

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

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

The pharmaceutical business focuses its R&D on these areas: Cardiovascular, Kidney and Skeletal Muscle; immunology; and neuroscience
Target: Focus on R&D investment for next-generation strategic products, and maximizing the value of each product

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

Our processed food business focuses on frozen and ambient foods such as frozen udon, packaged rice, and okonomiyaki, as well as seasonings such as yeast extract and oyster sauce.
Target: Realize profitable top-line growth

Risk description
Some of JT’s subsidiaries are defendants in lawsuits filed by plaintiffs seeking damages for harm allegedly caused by smoking 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 pending in 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 some of its subsidiaries are also defendants in lawsuits other than the smoking/vaping and health-related cases and may face further lawsuits in the future.

Potential impact
To date, the JT Group has never lost a case or paid any settlement award in connection with smoking/vaping and health-related litigation. However, the Group is unable to predict the outcome of currently pending or future lawsuits. A decision unfavorable to the JT Group and payment of a substantial amount of monetary compensation could materially affect its financial performance.
Moreover, critical media coverage of these lawsuits may reduce social tolerance of smoking, strengthen public regulations concerning smoking and prompt the filing of a number of similar lawsuits against the JT Group, forcing it to bear litigation costs and materially affecting its business performance.
Apart from smoking/vaping and health-related ones, the JT Group also may become a defendant in further litigation. Should any problems arise on the Group’s product quality, this may lead to claims seeking product liability. Such litigation cases may negatively affect the Group’s business performance or the manufacture, sale and import and export of its products, should the outcome of any such claims prove unfavorable.

Main measures to address risk

Please refer to the following link to see Litigation (Integrated Report 2023 P. 135) for more details
https://www.jt.com/investors/results/integrated_report/index.html

Risk description
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.
Such regulations can 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 market in which we operate. We believe laws and regulations should rightfully differ from one country to another as a reflection of countries’ respective legal systems, cultures and social conditions.

Potential impact
Imposition of stricter regulations on sales promotion activities may undermine top-line growth strategies’ effectiveness by depriving us of opportunities to grow brand equity. It can also cause us to incur additional regulatory compliance costs under certain circumstances. Our unit sales, revenue and/or profits may decrease as a result of such impacts.

Main measures to address risk

Please refer to the following link to see Regulation and key laws (Integrated Report 2023 P. 132) for more details
https://www.jt.com/investors/results/integrated_report/index.html

Risk description
Tobacco products are subject to tobacco taxes or other similar taxes in addition to sales tax or VAT. Some countries 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 on 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. We also endeavor to minimize tax increases’ impact on our operations through measures to drive top-line growth and improve cost efficiency. 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.

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. Consequently, they may result in reductions in our unit sales, revenue and/or profits.

Main measures to address risk

Please refer to the following link:
https://www.jt.com/sustainability/strategy/materiality_strategy_sdgs/index.html

Please refer to the following link:
https://www.jt.com/sustainability/environment/index.html

Please refer to the following link:
https://www.jt.com/sustainability/tobacco/supply_chain/index.html