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annual report 2011For the Year Ended March 31, 2011
ann
ual repo
rt 2
011
2-1, Toranomon 2-chome, Minato-ku, Tokyo 105-8422, JapanTel: (81) 3-3582-3111Fax: (81) 3-5572-1441URL: http://www.jti.co.jp
the jt group missionThe mission of the JT Group is to create, develop and nurture its unique brands to win
consumer trust, while understanding and respecting the environment, and the diversity of
societies and individuals.
the jt group wayIn achieving this, we are committed to fulfilling the expectations of our consumers and
behaving responsibly, striving for quality in everything we do, through continuous
improvement, and leveraging diversity across the JT Group.
Business Environment for the JT Group 049Major Risks of Businesses 054
Corporate Governance 035Activities Contributing to the Environment and Society
044
At a Glance 014Review of Operations 016
Japanese Domestic Tobacco Business 016International Tobacco Business 020Pharmaceutical Business 026Food Business 028
History of the JT Group 030
Financial Highlights 002Consolidated Five-Year Financial Summary 004To Our Stakeholders 005CEO Interview 006Analysis of the Results of FY3/2011 010
Consolidated Eleven-Year Financial Summary 058Management’s Discussion and Analysis of Financial Condition and Business Results 060Consolidated Balance Sheets 074Consolidated Statements of Income 076Consolidated Statements of Comprehensive Income 077Consolidated Statements of Changes in Equity 078Consolidated Statements of Cash Flows 079Notes to Consolidated Financial Statements 080Independent Auditors’ Report 115
Financial Data 117Japanese Domestic Tobacco Business 125International Tobacco Business 136Pharmaceutical Business 138Food Business 139Number of Employees 140
Shareholder Information 141Members of the Board, Auditors, and Executive Officers
143
Corporate Data 144
Management
Business & History
Responsibi l i ty
Business Environment & Risk
Financial Information
Fact Sheets
General Information
FORWARD-LOOKING AND CAUTIONARY STATEMENTS This report contains forward-looking statements about our industry, busi-ness, plans and objectives, financial condition and results of operations that are based on our current expectations, assumptions, estimates and projec-tions. These statements discuss future expectations, identify strategies, discuss market trends, contain projections of results of operations or of our financial condition, or state other forward-looking information.
These forward-looking statements are subject to various known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from those suggested by any forward-looking statement. We assume no duty or obligation to update any forward-looking statement or to advise of any change in the assumptions and factors on which they are based. 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 health concerns relating to the use of tobacco products;2 legal or regulatory developments and changes, including, without
limitation, tax increases and restrictions on the sale, marketing and usage of tobacco products, and governmental investigations and pri-vately imposed smoking restrictions;
3 litigation in Japan and elsewhere;4 our ability to further diversify our business beyond the tobacco industry;5 our ability to successfully expand internationally and make investments
outside of Japan;6 competition and changing consumer preferences;7 the impact of any acquisitions or similar transactions;8 local and global economic conditions; and9 fluctuations in foreign exchange rates and the costs of raw materials.
Unless otherwise specified in this annual report, the information herein is as of June 24, 2011.
JAPAN TOBACCO INC.
Annual Report 2011
Contents
Unless the context indicates otherwise, references in this report to “we,” “us,” “our,” “Japan Tobacco,” “JT” or “ the JT Group” are to Japan Tobacco Inc. and its consolidated subsidiaries. References to “JTI” are to Japan Tobacco International, JT Group’s international tobacco business, and those subsidiaries of JT Group’s international tobacco business.
Business &
History
Managem
entR
esponsibilityB
usiness Environm
ent & R
iskFinancial Inform
ationFact Sheets
General Inform
ation
page 001JAPAN TOBACCO INC. Annual Report 2011
Business ScaleJT Group Sales Volume
Japanese Domestic Tobacco Business 134.6 Billions of cigarettes International Tobacco Business 428.4 Billions of cigarettes JT Group Share in Global Cigarette Market (Source: Euromonitor)
9.8 %Adjusted Net Sales Excluding Excise Taxes*1
1,956.6 Billions of yen EBITDA
541.1 Billions of yen ProfitabilityEBITDA Margin*2
27.7 % ROE
9.2 % Per Share DataDiluted EPS
15,137 yen up 4.8% Diluted EPS (excluding the impact of goodwill amortization)
24,650 yen up 0.1% StabilityFree Cash Flow
299.8 Billions of yen D/E Ratio
0.47 times Return of Profits to ShareholdersThe Per Share Dividend
6,800 yen The Dividend Payout Ratio
44.9 % 27.6% (Excluding the Impact of Goodwill Amortization)
Business Scale: The JT Group’s total tobacco
sales volume in Japan and abroad comes to
approximately 563 billion cigarettes per year,
representing around 10% of the global
market. In addition to the domestic and
international tobacco businesses, the JT
Group engages in the pharmaceutical and
food businesses, and its annual consolidated
sales including excise taxes stand at approxi-
mately ¥6,190 billion, adjusted net sales
excluding excise taxes at approximately
¥1,960 billion and consolidated EBITDA at
more than ¥540 billion.
Profitability: With the high profitability of the
tobacco business, the ratio of EBITDA to
adjusted net sales excluding taxes comes to
around 28% and ROE stands at between 9%
and 10%.
Per Share Profits: Per-share EPS grew as a
result of an increase in EBITDA, recurring
profit and net income, despite adjusted net
sales excluding taxes decreased slightly.
Stability: Free cash flow increased to
approximately ¥300 billion supported by a
stable cash flow generated by the tobacco
business.
D/E Ratio is about 0.5 times.
Return of Profits to Shareholders: The
per-share dividend was set at ¥6,800. The
dividend payout ratio excluding the impact
of goodwill amortization rose from last year
to 27.6%.
*1 Japanese domestic tobacco; excluding excise taxes and revenue from the imported tobacco, domestic duty free, the China Division, and other miscellaneous. International tobacco; excluding excise taxes and revenue from distribution, contract manufacturing and other peripheral business.
*2 EBITDA margin on Adjusted Net Sales excluding excise taxes (1,956.6 billion yen as of FY3/2011)
Financial HighlightsJapan Tobacco Inc. and Consolidated Subsidiaries / FY3/2011
Financial data disclosed herein are rounded.
page 002JAPAN TOBACCO INC. Annual Report 2011
page 003JAPAN TOBACCO INC. Annual Report 2011
Operating Income Net Income
2011201020092007 2008
223.0
–1,493.7
240.2299.8
250.7
–1,200
–800
–400
0
200
400
500
1,000
1,500
2,000
2,500
2011201020092007 2008
1,633.2
2,068.4
2,243.1
1,956.61,981.0
100
200
300
400
500
600
700
800
2011201020092007 2008
464.6
602.1646.2
541.1526.7
10,000
20,000
30,000
40,000
2011201020092007 2008
22,001
24,916
12,880
23,895 24,617 24,650
14,449 15,137
2,000
4,000
6,000
8,000
2011201020092007 2008
4,000
4,800
5,400
6,800
5,800
2011201020092007 2008
18.2
44.9
19.3
41.9
27.6
40.1
18.0 19.0
22.6 23.6
10
20
30
40
50
2011201020092007 2008
2,024.6
11.3
2,154.6
1,624.3 1,591.211.8
6.8
9.2
1,723.3
8.6
500
1,000
1,500
2,000
2,500
4
8
12
16
20
2011201020092007 2008
219.30.11
1,389.3
996.1
708.7
0.670.64
0.47
874.3
0.53
500
1,000
1,500
2,000
0.2
0.4
0.6
0.8
2011201020092007 2008
332.0
210.8238.7
123.4
430.6
363.8
328.7
145.0
296.5
138.4
100
200
300
400
500
Interest-bearing Debt and D/E Ratio
(Billions of yen/times)
Net Sales Excluding Excise Taxes
(Billions of yen)
EBITDA
(Billions of yen)
Free Cash Flow
(Billions of yen)
EPS
(Yen)
Operating Income and Net Income
(Billions of yen)
Total Equity and ROE
(Billions of yen/%)
Cash Dividends Applicable to the Year
(Yen)
Dividend Payout Ratio on a Consolidated Basis
(%)
Total Equity ROE
Please see Note 2 on page 4.
EPS EPS (excluding the impact of goodwill amortization)
Interest-bearing Debt D/E Ratio
Financial data disclosed herein are rounded.
Note: 2007–2009 EPS 2010–2011 Diluted EPS
Dividend Payout Ratio Dividend Payout Ratio (excluding the impact of goodwill amortization)
Japan Tobacco Inc. and Consolidated Subsidiaries / Years ended March 31
Managem
ent
page 002JAPAN TOBACCO INC. Annual Report 2011
page 003JAPAN TOBACCO INC. Annual Report 2011
Billions of yen
Millions ofU.S. dollars
(Note 1)2007 2008 2009 2010 2011 2011
For the year:Net Sales excluding excise taxes (Note 2) 1,633.2 2,068.4 2,243.1 1,981.0 1,956.6 23,531
Japanese Domestic Tobacco 729.4 715.0 648.8 616.0 617.9 7,431International Tobacco 550.3 946.0 1,080.8 906.8 897.5 10,793Pharmaceutical 45.5 49.1 56.8 44.1 47.0 565Food 286.6 336.4 436.0 394.7 375.0 4,510Others 21.4 21.9 20.8 19.5 19.2 231
EBITDA (Note 3, Note 4) 464.6 602.1 646.2 526.7 541.1 6,508Japanese Domestic Tobacco 326.5 306.7 272.3 251.3 257.7 3,099International Tobacco 112.7 270.8 338.0 277.7 288.2 3,466Pharmaceutical (8.2) (6.3) 4.9 (9.7) (13.3) (160)Food 12.0 8.4 17.0 14.5 17.3 208Others 21.6 22.1 13.1 13.3 12.9 155Elimination/Corporate 0.1 0.5 0.9 (20.4) (21.7) (261)
Depreciation and Amortization (Note 3) 132.6 171.5 282.4 230.2 212.4 2,555Operating Income (Note 4) 332.0 430.6 363.8 296.5 328.7 3,953
Japanese Domestic Tobacco 245.4 222.3 188.3 198.7 212.9 2,561International Tobacco 81.1 205.4 174.8 136.9 156.1 1,878Pharmaceutical (11.2) (9.6) 1.0 (13.6) (17.4) (209)Food 6.7 0.7 (11.5) (13.7) (9.4) (113)Others 9.3 10.4 9.7 10.6 10.0 120Elimination/Corporate 0.7 1.4 1.5 (22.4) (23.5) (283)
Net Income 210.8 238.7 123.4 138.4 145.0 1,743Free Cash Flow (FCF) (Note 5) 223.0 (1,493.7) 240.2 250.7 299.8 3,605At year-end:Total Assets 3,364.7 5,087.2 3,879.8 3,872.6 3,571.9 42,958Interest-bearing Debt (Note 6) 219.3 1,389.3 996.1 874.3 708.7 8,524Liabilities 1,340.0 2,932.6 2,255.5 2,149.3 1,980.7 23,821Total Equity 2,024.6 2,154.6 1,624.3 1,723.3 1,591.2 19,137Ratios:Return on equity (ROE) 11.3% 11.8% 6.8% 8.6% 9.2% —Return on assets (ROA) 10.7% 10.5% 8.4% 7.8% 8.9% —Equity Ratio 58.3% 40.8% 40.0% 42.6% 42.4% —Amounts per share: (in yen) —Net Income (Note 7) ¥ 22,001 ¥ 24,916 ¥ 12,880 ¥ 14,449 ¥ 15,137 —Total Equity 204,618 216,707 162,088 172,140 159,040 —Cash Dividends Applicable to the Year 4,000 4,800 5,400 5,800 6,800 —Dividend Payout Ratio excluding goodwill amortization (Note 8) 18.0% 19.0% 22.6% 23.6% 27.6% —
Notes: 1. Figures stated in U.S. dollars in this report are translated at the rate of ¥83.15 per $1, as of March 31, 2011. 2. 2007–2008: Excluding imported tobacco in the Japanese domestic tobacco and distribution business in the international tobacco, respectively. 2009–: Excluding the imported tobacco, domestic duty free, the China Division and other miscellaneous items in the Japanese domestic tobacco business, in addition to the
distribution, contract manufacturing and other peripheral businesses in the international tobacco business 3. EBITDA = operating income + depreciation and amortization Depreciation and amortization = depreciation of tangible fixed assets + amortization of intangible fixed assets + amortization of long-term prepaid expenses + amortization of goodwill 4. 2010–: Before royalty payment for the international tobacco business. Before acceptance of royalty payment for the Japanese domestic tobacco business. A part of overhead cost &
CAPEX allocation were changed. 5. FCF = (cash flow from operating activities + cash flow from investing activities) excluding the following items: From “cash flow from operating activities”: Dividends received / interest received and its tax effect / interest paid and its tax effect From “cash flow from investing activities”: Cash outflow from purchase of marketable securities / proceeds from sales of marketable securities / cash outflow from purchases of
investment securities / proceeds from sales of investment securities / others (but not business-related investment securities, which are included in the investment securities item) 6. Interest-bearing Debt includes lease obligation from FY3/2009 7. Diluted net income per share. 8. Dividend payout ratio is calculated by adding goodwill amortization to net income. 9. Financial data disclosed herein are basically rounded.
Consolidated Five-Year Financial SummaryJapan Tobacco Inc. and Consolidated Subsidiaries / Years ended March 31
page 004JAPAN TOBACCO INC. Annual Report 2011
page 005JAPAN TOBACCO INC. Annual Report 2011
To Our Stakeholders
First and foremost, we would like to express our sincere sympathy for the people affected by the tragedy of the Great East Japan Earthquake that took place on March 11, 2011. We pray for an early recovery from the disaster.
Looking back at the fiscal year ended March 2011, the JT Group performed strongly despite a difficult business envi-ronment both in Japan and abroad. In the Japanese domestic tobacco business, we secured revenue and profit growth through strategic pricing and brand-loyalty enhancing mea-sures, more than offsetting a significant volume decline due to a tax increase of unprecedented scale. In the international tobacco business, we achieved another year of remarkable results, driving the profit growth of the JT Group. We main-tained our focus on top-line growth led by global flagship brands (GFB), despite industry contraction in many countries due to the prolonged global recession and tighter regulation.
The new fiscal year ending March 2012 began with severe challenges to our product supply in the Japanese domestic market following the Great East Japan Earthquake. While we will take more vigorous and proactive measures to minimize the impact of natural disasters in the future, we are now focusing our efforts towards overcoming the current situation in order to recover our market share as quickly as possible. Furthermore, we will continue to invest in our product
Yoji WakuiChairman of the Board
Hiroshi KimuraPresident and CEO and Representative Director
Yoji WakuiChairman of the Board
Hiroshi KimuraPresident and CEO and Representative Director
quality and services in order to withstand the increased retail prices. In the international tobacco business, we are seeing encouraging signs in the business environment along with a slowdown of industry contraction in some key markets since the second half of 2010. We aim to achieve 10% growth in EBITDA at constant rates of exchange through quality top-line growth and strict cost-control, but without compromis-ing on investments to strengthen our business.
Overall, we will strive to achieve the company-wide objectives under the JT-11 medium-term management plan by combining the diverse domestic and overseas resources of the JT Group. In addition, we will further strengthen our business foundations with a view to seizing future growth opportunities.
June 2011
Managem
ent
page 004JAPAN TOBACCO INC. Annual Report 2011
page 005JAPAN TOBACCO INC. Annual Report 2011
Great East Japan Earthquake
QuESTION
Can you update us on the impact of the Great East
Japan Earthquake?
ANSwER
Following the Great East Japan Earthquake, we have been facing challenges posed to our product supply in the Japanese domestic market. However, we are gradually restoring a stable supply and are making every effort to ensure the resumption of normal shipments by early August. In addition, in order to quickly recover our market share, we will endeavor to strengthen our competitiveness.
The Great East Japan Earthquake, which occurred on March
11, 2011, is the greatest challenge that Japan has faced in the
postwar period, and is expected to have a significant impact
on our values, economic, political and social system, energy
policy and enterprise management.
The JT Group must consider how it should conduct
its business post-March 11, and like other Japanese
companies, we will take more vigorous and proactive
measures to minimize the impact of earthquakes and
other natural disasters in the future, such as securing
alternative sources of leaf and other materials, and
strengthening back-up structures for domestic and over-
seas production facilities.
Hiroshi KimuraPresident and CEO and Representative Director
CEO Interview
QuESTIONS
Great East Japan Earthquake
FY3/2011 financial results
International tobacco business: situation in key markets
Planned actions in FY3/2012
Plan for use of cash
page 007JAPAN TOBACCO INC. Annual Report 2011
5,500 6,500 8,5007,500 9,500 10,500
9,682
10,144
10,223
251.3
257.7
100 150 200 250 300
616.0
617.9
550 570 590 610 630
1,500 2,000 3,0002,500 3,500
2,965
3,194
3,282
Adjusted Net Sales Excl. Excise Taxes* in Japanese Domestic Tobacco Business(Billions of yen)
FY3/2010
FY3/2010
FY3/2011
FY3/2011
Core Net Sales Excluding Taxes*** in the International Tobacco Business (Millions of US dollars)****
2009
2009
2010
2010
2010 at constant rates of exchange
2010 at constant rates of exchange
EBITDA** in Japanese Domestic Tobacco Business(Billions of yen)
EBITDA** in the International Tobacco Business(Millions of US dollars)****
* Excluding revenue from imported tobacco, domestic duty-free, the China Division, and others.
** EBITDA=operating income+depreciation and amortization*** Excluding revenue from distribution and contract manufacturing.**** The US dollar is the reporting currency for our international tobacco business.Financial data disclosed in the CEO interview are rounded.
FY3/2011 financial results
QuESTION
what is your assessment of the financial results for the
fiscal year ended March 2011?
ANSwER
Overall, I would say that all of our businesses performed strongly in FY3/2011, despite the busi-ness environment remaining difficult. The Group EBITDA increased, driven by the Japanese domestic and international tobacco businesses. In the Japanese domestic tobacco business, strategic pricing more than offset the volume decline that followed the tax-led price increase. Likewise, pricing was the key driver for the international tobacco business, more than offsetting volume declines due to market con-traction in a number of markets. Operating income, recurring profit and net income all increased.
EBITDA increased while adjusted net sales excluding
taxes declined slightly. Both operating income and
recurring profit recorded double-digit growth, while
net income grew by 4.7% despite a large net loss from
extraordinary items.
In the Japanese domestic tobacco business, EBITDA
increased even though adjusted net sales excluding taxes
remained broadly flat. In effect, we offset the volume
decline that followed the excise tax increase in October
2010 by implementing strategic pricing and measures to
enhance brand loyalty.
In the international tobacco business, the business
environment continued to be challenging due to industry
contraction in many countries from the prolonged global
recession and tighter regulations. By focusing on top-line
growth led by GFB, the international tobacco business
continued to drive the profit growth of the JT Group.
In the pharmaceutical business, we made progress in
the clinical development of compounds, including those
in late phases of clinical trials, and strengthened our
R&D pipeline.
As for the food business, the beverage business
performed steadily, while the processed food business
remained stable despite a difficult business environment.
We continued to focus on core products, such as staple
foods, and strengthened our production facilities. In addi-
tion, we made steady progress on business integration.
page 007JAPAN TOBACCO INC. Annual Report 2011
International tobacco business: situation in key markets
QuESTION
How did the international tobacco business succeed in
increasing its market share in most key markets?
ANSwER
These positive results are mainly driven by our balanced brand portfolio, performing strongly in all price segments, as well as our continuous efforts and investment in our brands to enhance brand equity.
In many key markets, we have witnessed industry contraction
and accelerated down-trading due to the recession and sharp
increases in tobacco excise taxes in 2009 and 2010. However,
in the second half of 2010, industry volumes started to show
signs of improvement and in some key markets we observed
signs of recovery. Under these circumstances, the interna-
tional tobacco business succeeded in increasing market share
in all key markets except the United Kingdom. This positive
performance was the result of our balanced brand portfolio,
our steady efforts to enhance brand equity and strong trade
marketing activities.
In Russia, the market share of Winston, the No. 1
brand in the country, increased further. LD, the No. 3
brand in the market, experienced strong growth. We are
also leveraging Camel and Russian Style in the premium
segment, further strengthening a strong No. 2 position.
Thus, our market share leadership in Russia has been
reinforced. Moreover, in other key markets such as
Turkey, France and Italy, Winston and other GFB are
driving JTI’s market share growth.
Planned actions in FY3/2012
QuESTION
As the business environment continues to be challeng-
ing in Japan and abroad, what actions will the JT
Group take?
ANSwER
We will remain focused on consumers and do our utmost to achieve our objectives. In the Japanese domestic tobacco business, we will put emphasis on both product development and sales activities. The international tobacco business will continue to focus on top-line growth.
Our business environment in the past two years has been
marked by industry contraction, including Japan, and foreign
exchange fluctuations.
In Japan, industry volume declined due to an unprec-
edented tax hike and the damage inflicted by the Great
East Japan Earthquake. To better satisfy our customers,
we will continue seeking to improve the overall quality of
our products, in addition to actively launching new
extensions in our key brands and by implementing
enhanced sales promotion activities.
In the international business, the prolonged global
recession and tighter regulations resulted in industry
contraction. In order to achieve 10% EBITDA growth
year-on-year at constant rates of exchange, we will con-
tinue focusing on GFB to grow our top-line, leveraging
pricing opportunities and broadening our market base.
These changes in the business environment far
exceeded our assumptions in the JT-11 medium-term
management plan. Nevertheless, we will do all we can to
achieve our goal of 5% Group EBITDA growth as set
out in JT-11.
(Actual results may differ materially from those
estimated in these statements as a result of a number of
factors, including, but not limited to, those described in
“Major Risks of Businesses.”)
page 008JAPAN TOBACCO INC. Annual Report 2011
18.0
1,800
2,200
19.0
2,200
2,600
22.6
2,600
2,800
23.6
2,800
3,000
27.6
2,800
4,000
4,000
4,000
0
3,000
6,000
9,000
0
10
20
30
Changes in Dividend Payout Ratio Excluding the Impact of Goodwill Amortization on a Consolidated Basis and Dividend per Share(Yen) (%)
Year-end dividend per share Half-year dividend per-share Dividend payout ratio (excluding the impact of goodwill amortization)
FY3/2007 FY3/2008 FY3/2009 FY3/2010 FY3/2011 FY3/2012 (Forecast)
Plan for use of cash
QuESTION
How does the JT Group, which can expect a stable
cash flow from the tobacco business, plan to use the
cash? will there be any change in the objective on the
distribution of profits to shareholders?
ANSwER
We will use the cash for business investment to grow further as well as to repay interest-bearing debts. In addition, we will maintain our existing policy regarding the distribution of profits to shareholders, including dividends.
In the business year ended March 2011, despite a challeng-
ing business environment, we utilized cash generated by
our businesses to invest in our future growth as well as to
steadily reduce interest-bearing debts.
Furthermore, in accordance with the existing policy
on the allocation of resources, we will pay an annual
dividend of 6,800 yen per share, including an interim
dividend, for the fiscal year ended March 2011. The divi-
dend payout ratio, excluding the goodwill amortization,
is 27.6%. When including the recent repurchase of our
own shares, worth around 20 billion yen, total returns to
shareholders amount to approximately 85 billion yen.
In the fiscal year ending March 2012, although the
business environment has greater elements of uncertainty
than ever before, we are determined to maintain sustain-
able profit growth in the medium to long term by over-
coming the current difficulties.
The JT Group regards dividend as the main means to
return profits to shareholders and we have consistently
increased our dividend, targeting a payout ratio of 30%,
excluding the goodwill amortization, in the medium term.
In keeping with this policy, we plan to pay an annual
dividend of 8,000 yen per share for the fiscal year ending
March 2012. We will pursue efforts to continuously
increase our per-share dividend.
June 2011June 2011
Managem
ent
page 008JAPAN TOBACCO INC. Annual Report 2011
1,956.6
–0.2
–19.6
+2.9
–56.7
+6.9
+40.5
+1.9
1,981.0
1,900 1,920 1,940 1,960 2,0001,980 2,020 2,040
Adjusted Net Sales*2
(Billions of yen)
Net sales in the Japanese domestic tobacco business remained broadly flat, as the strategic pricing offset the volume decline following the tax led price increase.
Net sales in the International tobacco business were affected by the yen’s appreciation. On a U.S. dollar basis, net sales increased mainly driven by continued price/mix improvement.
Net sales in the Pharmaceutical business increased driven by the strong performance of Torii Pharmaceutical and the milestone revenue of out-licensed compounds.
Net sales for the beverage business grew due to the summer heat waves and steady sales growth of Roots brand. However, net sales for the processed food business declined due to the closure of the rice wholesale business, the exclusion of some sub-
sidiaries from the consolidation and a decline in sales to restaurants. Overall, net sales in the food business declined.*2 Japanese domestic tobacco; excluding excise taxes and revenue from the imported tobacco, domestic duty free, China Division and other peripheral business. International tobacco;
excluding excise taxes and revenue from the distribution, contract manufacturing and other peripheral business.
FY3/2010
Japanese domestic tobacco
International tobacco at constant rates of exchange
Pharmaceutical
Food
Others
FY3/2011
International tobacco Forex impact (JPY vs. USD)
International tobacco Forex impact (local currency vs. USD)
Actual ResultsDecreaseIncrease (Decrease in case of expense)
541.1
–1.7
+2.7
–3.6
–17.4
+7.7
+20.1
+6.4
526.7
520 525 530 535 540 545 555550 560 565 570
EBITDA*3
(Billions of yen)
EBITDA in the Japanese domestic business increased as the strategic pricing more than offset the volume decline following the tax led price increase.
EBITDA in the International tobacco business increased mainly driven by continued price/mix improvement. Yen based EBITDA grew despite the impact of strong yen.
EBITDA in the Pharmaceutical business declined due to an up-front payment by Torii Pharmaceutical in respect of a license agreement, despite increase in net sales.
EBITDA in the Food business grew due to the steady performance of the beverage business and in the absence of the one-time loss in the fishery product business in the prior year.
*3 EBITDA = operating income + depreciation and amortization Depreciation and amortization = depreciation of tangible fixed assets + amortization of intangible fixed assets + amortization of long-term prepaid expenses + amortization of goodwill
FY3/2010
Japanese domestic tobacco
International tobacco at constant rates of exchange International tobacco Forex impact (local currency vs. USD)International tobacco Forex impact (JPY vs. USD)
Pharmaceutical
Food
Others
FY3/2011
Analysis of the Results of FY3/2011*1
*1 International tobacco business: Year ended Dec. 2009 and Year ended Dec. 2010
page 010JAPAN TOBACCO INC. Annual Report 2011
page 011JAPAN TOBACCO INC. Annual Report 2011
145.0
–50.6
+57.1
138.4
0 10020 40 60 80 120 140 180160 200
Net Income(Billions of yen)
Net income increased driven by the increase in recurring profit despite the deterioration in extraordinary income/loss due to 1) a decrease in profit on sales of property, plant and equipment, 2) absence of previous years’ reversal of liability on fines levied under the UK competition law, 3) expenses for a settlement with Canadian authorities, and 4) losses arising from the Great East Japan Earthquake.
FY3/2010
Recurring profit
Extraordinary income/loss, Income taxes, etc.
FY3/2011
312.5
+24.9
+32.2
255.4
220 250 260240230 270 280 310300290 320
Recurring profit increased due to improvement in foreign exchange profit/loss conditions and in financial income/payments, in addition to an increase in the consolidated operating income.
*4 Recurring profit is calculated by combining operating income with profits and losses arising from financing activities and other non-operating profits and losses, except for nonrecurring profits and losses or those on prior years’ adjustment.
Recurring Profit*4
(Billions of yen)
FY3/2010
Operating income
Non-operating income/loss
FY3/2011
328.7
+17.8
+14.4
296.5
280 290285 300 305295 310 315 320 325 330
Operating income grew driven by EBITDA increase and decrease in amortization of goodwill in U.S. dollar terms, as a result of the yen’s appreciation.
Operating Income(Billions of yen)
FY3/2010
EBITDA
Depreciation and amortization
FY3/2011
Breakdown of Net Sales(Billions of yen)
FY3/2010 FY3/2011
Adjusted net sales excl. excise taxes*5*6*7 1,981.0 1,956.6
Japanese domestic tobacco*6 616.0 617.9
International tobacco*5*7 906.8 897.5
Pharmaceutical 44.1 47.0
Food 394.7 375.0
Others 19.5 19.2
*5 International tobacco business: Year ended Dec. 2009 and Year ended Dec. 2010*6 Excluding revenue from the imported tobacco, domestic duty free, China Division and
other peripheral business.*7 Excluding revenue from the distribution, contract manufacturing and other peripheral
business.
Actual ResultsDecreaseIncrease (Decrease in case of expense)
Managem
ent
page 010JAPAN TOBACCO INC. Annual Report 2011
page 011JAPAN TOBACCO INC. Annual Report 2011
Cash and deposits/ short-term investment securities
3,571.9
–69.5
–239.6
–64.5
+4.9
–41.2
+109.2
3,872.6
3,500 3,550 3,600 3,650 3,700 3,750 3,800 3,850 3,900 3,950 4,000
Consolidated Balance Sheet (Assets)(Billions of yen)
Total assets decreased due to the effect of yen appreciation and lower goodwill and trademark amortization.
Mar. 31, 2010
Inventories
Notes and accounts receivable—trade
Trademarks
Goodwill
Other assets
Mar. 31, 2011
Compared to B/S as of Mar. 31, 2010
–196.8
–24.8
3,571.9
+89.5
+4.8
–9.3
–7.2
–119.0
–37.9
3,872.6
3,500 3,550 3,600 3,650 3,700 3,750 3,8503,800 3,900 3,950 4,000
Consolidated Balance Sheet (Debt and Equity)(Billions of yen)
Debt and Equity decreased due to the repayment of commercial paper, and lower foreign currency transaction adjustments as a result of the yen’s appreciation.
Mar. 31, 2010
Loans payable
Commercial paper (CP)
Tobacco excise tax payable
Other liabilities
Retained Earnings
Foreign currency translation adjustments
Other net assets
Mar. 31, 2011
Bonds
Compared to B/S as of Mar. 31, 2010
EBITDA by Business Segment(Billions of yen)
FY3/2010 FY3/2011
Consolidated EBITDA 526.7 541.1Operating income 296.5 328.7Depreciation and amortization*8 230.2 212.4
Japanese domestic tobacco EBITDA 251.3 257.7Operating income 198.7 212.9Depreciation and amortization*8 52.5 44.8
International tobacco EBITDA*9 277.7 288.2Operating income 136.9 156.1Depreciation and amortization*8 140.7 132.0
Pharmaceutical EBITDA –9.7 –13.3Operating income –13.6 –17.4Depreciation and amortization*8 3.9 4.1
Food EBITDA 14.5 17.3Operating income –13.7 –9.4Depreciation and amortization*8 28.2 26.7
Others*10 EBITDA –7.1 –8.8Operating income –11.9 –13.5Depreciation and amortization*8 4.8 4.8
*8 Depreciation and amortization = depreciation of tangible fixed assets + amortization of intangible fixed assets + amortization of long-term prepaid expenses + amortization of goodwill
*9 International tobacco business: Year ended Dec. 2009 and Year ended Dec. 2010*10 Other peripheral business, elimination and corporate expenses
Average Exchange Rate
2009 Jan. to Dec. average
2010 Jan. to Dec. average
YEN/USD 93.65 87.79RUB/USD 31.77 30.36GBP/USD 0.65 0.65EUR/USD 0.73 0.75
page 012JAPAN TOBACCO INC. Annual Report 2011
page 013JAPAN TOBACCO INC. Annual Report 2011
At a Glance 014Review of Operations 016
Japanese Domestic Tobacco Business 016International Tobacco Business 020Pharmaceutical Business 026Food Business 028
History of the JT Group 030
Business & History
The Japanese domestic tobacco business is positioned as the core source of profits for the JT Group. under a difficult business environment, the Japanese domestic tobacco business continues to explore opportunities for top-line growth and at the same time to build an optimum operating structure. The international tobacco business is actively exploring opportunities for top-line growth so that it can continue to act as the JT Group’s profit growth engine. In the pharmaceutical business, JT will continue to devote efforts to increasing and advancing compounds in a late phase of clinical trial and enhancing the R&D pipeline. In the food business, we are devoting our efforts to the three business areas of beverages, processed foods and seasonings, striving to further strengthen our business foundation for future growth.
Business &
History
page 012JAPAN TOBACCO INC. Annual Report 2011
page 013JAPAN TOBACCO INC. Annual Report 2011
2007 2008 2009 2011
270.0 258.5 245.8 233.9
100
200
300
210.2
2010
Source: TIOJ
Total Market(Billions of cigarettes)
2007 2008 2009 2010
174.9 167.8 159.9 151.9134.6
50
150
100
200
2011
Sales Volume(Billions of cigarettes)
Net Sales Excl. Excise Taxes(Billions of yen)
2007 2008 2009 2010 2011
729.4 715.0648.8 616.0 617.9
200
800
600
400
1,000
Note: 2007 – 2008: Excluding revenue from the imported tobacco.
2009 – 2011: Excluding revenues from the imported tobacco, domestic duty free, the China Division, and other miscellaneous.
Note: 2007 – 2009: After royality acceptance 2010 – 2011: Before royalty acceptance, we have
changed allocation method of the overhead expenses from 2010.
2007 2008 2009 2010 2011
45.5 49.156.8
44.1 47.0
20
40
60
80
Net Sales(Billions of yen)
EBITDA Operating Income (Loss)
2007 2008 2009 2010 2011
–8.2–6.3
4.9
–9.7–11.2–9.6
1.0
–13.6 –13.3
–17.4–20
–10
–15
–5
0
5
10
EBITDA/Operating Income (Loss)(Billions of yen)
2007 2008 2009 2010 2011
326.5 306.7272.3 251.3 257.7245.4
222.3188.3 198.7 212.9
100
200
300
400
EBITDA/Operating Income(Billions of yen)
EBITDA Operating Income
At a Glance
Japanese Domestic Tobacco Business (Years ended March 31)Overwhelm the competition in the home country market as the core source of profits.
JT GroupThe Japanese domestic tobacco business is the core source of profits for the JT Group. The business environment is becoming increasingly difficult due to a decline in overall demand in the domestic market and intensifying competition. In this business environment, the Japanese domestic tobacco business continues to explore opportunities for top-line growth and at the same time build an optimum operating structure.
The international tobacco business is continuously exploring opportunities for top-line growth so that it can continue to be the JT Group’s profit growth engine.
In the pharmaceutical business, JT will continue to build world-class, unique R&D capabilities and reinforce its market presence through innovative drugs by devoting efforts to increasing and advancing compounds in a late phase of clinical trial and enhancing the R&D pipeline.
In the food business, we are devoting our efforts to the three business areas of beverages, processed foods and seasonings, implementing measures to establish the highest standard of safety management and striving to further strengthen our business foundation for future growth.
Pharmaceutical Business (Years ended March 31)Pursuing high value-added business by developing world-class innovative drugs
see page 16
see page 26
page 014JAPAN TOBACCO INC. Annual Report 2011
page 015
2007 2008 2009 2010 2011
286.6336.4
436.0394.7 375.0
100
200
300
400
500
Net Sales(Billions of yen)
EBITDA Operating Income (Loss)
2007 2008 2009 2010 2011
12.08.4
17.014.5
17.3
6.7
0.7
–11.5 –13.7–9.4
–15
–10
–5
0
5
10
15
20
EBITDA/Operating Income (Loss)(Billions of yen)
2006 2007 2008 2009 2010
240.1
385.6445.9 434.9 428.4
100
200
300
400
500
Note: 2008 – : Including cigars, pipe tobacco and snus, but not including contact manufactured products
Total Shipment Volume(Billions of cigarettes)
2006 2007 2008 2009 2010
149.1
203.2
245.5 243.4 249.8
100
200
300
Note: GFB in 2006: Winston, Camel, Mild Seven, Salem GFB in 2007 – : Winston, Camel, Mild Seven, Benson
& Hedges, Silk Cut, LD, Sobranie, Glamour
GFB Shipment Volume(Billions of cigarettes)
Note: 2006 – 2007: Excluding revenue from distribution. 2008 – 2010: Excluding revenues from distribution
contract manufacturing and other peripheral business. Note: 2006 – 2008: After royalty payment 2009 – 2010: Before royalty payment
2006 2007 2008 2009 2010
550.3
946.01,080.8
906.8 897.5
300
600
900
1,200
Net Sales Excl. Excise Taxes(Billions of yen)
2006 2007 2008 2009 2010
112.7
270.8
338.0
277.7
81.1
205.4174.8
136.9
288.2
156.1
100
200
300
400
EBITDA/Operating Income(Billions of yen)
EBITDA Operating Income
Food Business (Years ended March 31)Increasing profits by achieving sustainable growth based on the combined strength of group companies with world-class competitiveness
JT Group Share in Global Cigarette Market (2010)Net Sales Breakdown by Business Segment (FY3/2011)
Pharmaceutical Business
2.4%Food Business
19.2%
Other Business
1.0%
InternationalTobacco Business
45.9%
International Tobacco Business (Years ended December 31)Attain a sustainable leadership position in profitability and/or market share in a growing number of markets, and continue to be the driving force for profit growth.
Note: Japanese Domestic Tobacco Business and International Tobacco Business are Adjusted Net Sales Excl. Excise Taxes
Source: Euromonitor
9.8%
see page 20
see page 28
Japanese Domestic Tobacco Business
31.6%
Business &
History
page 014JAPAN TOBACCO INC. Annual Report 2011
page 015JAPAN TOBACCO INC. Annual Report 2011
Japanese Domestic Tobacco Business
FY3/2011 Business Performance Summary
* Adjusted net sales excluding taxes do not account for revenue from the imported tobacco, domestic duty free, China Division and other miscellaneous business.
When looking at the component ratio of price segments by JT sales volume, share of premium price segment increased significantly.
JT leads the market share in the premium price segment above 440 yen.
As products in the premium price segment increased, product mix improved significantly after the price amendment
Review of Operations
Sales volume
134.6 billion cigarettesDown 11.3%
Adjusted net sales excluding taxes*
¥ 617.9 billionUp 0.3%
EBITDA
¥ 257.6 billionUp 2.6%
Operating income
¥ 212.9 billionUp 7.1%
Japanese Domestic Tobacco Business –EBITDA(Billions of yen)
FY3/2010
Price and product mix effect
Sales promotion and others
Leaf tobacco reappraisal gain/loss
Cost
FY3/2011
Volume effect
251.2
+70.8
–52.4
–4.1
+5.5
–13.5
257.6
160 180 200 220 240 260 280
Japanese Domestic Tobacco Business –Adjusted Net Sales Excluding Taxes*(Billions of yen)
Component ratio of price segment in JT sales volume
FY3/2010
Volume effect
Price and product mix effect
FY3/2011
Others
615.9
–69.8
+70.8
+0.9
617.9
500 520 540 560 580 600 620
less than ¥400 ¥410 more than ¥440 (Since Oct. 2010) less than ¥320 ¥300 more than ¥290 (Before Sep 2010)
0%
50%
100%
FY3/2011Oct–Mar (after tax increase)
FY3/2010
8.0
13.0
79.0
27.2
66.0
6.8
* Adjusted net sales excluding taxes do not account for revenue from the imported tobacco, domestic duty free, China Division and other miscellaneous.
As the effect of strategic pricing offset the volume decline, adjusted net sales excluding taxes remained broadly flat while EBITDA increased.
page 016JAPAN TOBACCO INC. Annual Report 2011
page 017JAPAN TOBACCO INC. Annual Report 2011
JT Share(Years ended March 31)
(%)
Total Share of Key Brands*(Years ended March 31)
(%)
2008200743.5
44.5
44.5
45.1
44.8
43.7
44.0
45.5
46.5
2009 2010 2011
2007 200863.5
64.564.1
64.964.965.1
64.8
65.5
66.5
2009 2010 2011
The Japanese domestic tobacco business is positioned as the core source of
profits for the JT Group.
Due to factors such as the aging of Japanese society and growing aware-
ness about the health risks associated with smoking and tightening of smok-
ing-related regulations, demand has been declining. Moreover, the steep tax
increase in October 2010 has resulted in a significant drop in demand and
the business environment is becoming increasingly difficult. JT will strive
to achieve continuous growth by providing quality and services suitable for
the prices of its products. At the same time, JT will improve its productivity
in order to increase the value of its Japanese domestic tobacco business in
the medium term.Mitsuomi KoizumiPresident, Tobacco Business
* Mild Seven, Seven Stars, Pianissimo (The market share figure for key brands is inclusive and retrospective of market share figures for ‘icene’ and ‘Lucia,’ which were integrated into the Pianissimo family in January 2010)
Market share moved significantly, affected by the tax increase and the price amendment.
Market share was affected by the tax increase and the price amendment as the range for price increase was varied for each product. Market share was also affected by the earthquake as temporary suspension of shipment of all products.
New products, mainly of key brands, were aggres-sively introduced.
Mild Seven Family• The Mild Seven family has won numerous loyal
customers since its launch in June 1977.• As Japan’s major cigarette brand, Mild Seven has consistently com-
manded the No. 1* share of the Japanese domestic market for more than 30 years since 1978.
• Today, the Mild Seven family encompasses 25 products (as of April 30, 2011), reflecting the evolution that it has undergone in step with the changing times and brand expansion.
* Source: TIOJ
Seven Stars Family• Launched in 1969, Seven Stars featured Japan’s
first domestically produced charcoal filter in pursuit of better taste.
• Since its launch, Seven Stars has consistently offered unique value in terms of taste, aroma, and product design.
• The Seven Stars family comprises a lineup of 10 products (as of April 30, 2011) centered on Seven Stars, which recorded the top* performance by brand in the fiscal year ended March 2011. The Seven Stars family contin-ues to capture a growing share of the market.
* Source: TIOJ
Pianissimo Family• In August 1995, the Pianissimo family saw the
launch of Japan’s first 1 mg-tar menthol cigarette product featuring reduced odor and smoke*.
• Pianissimo, an FSK (Filter Super King) slim menthol product, has contin-ued to achieve growth after undergoing the Japanese tobacco market’s first integration of brands in the fiscal year ended March 2010.
• The Pianissimo family, a core JT tobacco franchise, features a diverse lineup of 8 products (as of April 2011), centered on Pianissimo One, the No. 1** 1mg menthol product.
* Reduced smoke: Less smoke is released from the tip of the cigarette based on a visual comparison with conventional JT cigarette products.
** Source: TIOJ
NEw PRODUCTS LAUNChED IN FY3/2011
April 2010 Seven Stars Black Impact BoxMay 2010 Zerostyle MintJune 2010 Winston Lights 6 Box
Winston Extra 3 BoxWinston Ultra One 100’s Box.
July 2010 Mild Seven Aqua Squash Menthol 7 BoxNovember 2010 Pianissimo Super Slims Menthol One
January 2011 Mild Seven D-SPEC One 100’s Box
Business &
History
page 016JAPAN TOBACCO INC. Annual Report 2011
page 017JAPAN TOBACCO INC. Annual Report 2011
PRODUCT STRATEgY
Our product strategy will focus on enhancing the brand equity so as to provide value commensurate with the price, and build-ing a brand portfolio that offers a wide selection of products. To that end, we will strive to enhance product innovation (enhance R&D capability), broaden the scope of brand extension and strengthen the programs to improve package design and other product features so as to maintain and expand our market share.
DISTRIBUTION STRATEgY
The greatest challenge for our distribution strategy is to secure overwhelming superiority in product exposure at retail stores. We will strive to secure product exposure in ways suited to the characteristics of each store type by making suggestions for store remodeling that will give more visibility to products and by introducing display boxes. As for sales through vending machines, we will strive to make efficient allocation while making investments necessary for increasing the attractiveness of our products.
MARKETINg STRATEgY
Our marketing force, the vast size of which eclipses the marketing teams of our competitors, satisfies the multitude and variety of needs of retailers scattered across the country. We will continue to engage in efficient and effective marketing activities in ways linked to our product and distribution strategies, while complying with regulations and rules such as restrictions on tobacco advertising and prevention of youth smoking.
IMPROvINg QUALITY AND PRODUCTIvITY
We will implement measures to maximize customer satisfaction, including constantly improving product quality and strengthen-ing the shipment assurance system. As part of this effort, we will renew the process of raw materials processing and introduce a new tobacco blending method and a new tobacco processing technology so that we can satisfy customers’ diverse preferences by providing products with a wide variety of tastes and aromas.
Regarding productivity improvement, which is a critical chal-lenge for any manufacturer, we closed three factories by the end of March 2011 as scheduled under the current medium-term management plan. As of April, there were six factories in opera-tion in Japan.
We will continue to strive toward an even more cost-efficient operating structure.
FULFILLINg OUR RESPONSIBILITY AS ThE MARKET LEADER
We will continue to fulfill our responsibilities as the leading tobacco company in the Japanese market by endeavoring to achieve a harmonious coexistence between smokers and non-smokers. We will also engage in initiatives to improve smoking manners and strive harder to secure and create space and opportunity for smoking, for example by helping to provide comfortable smoking areas.
AS A CORE SOURCE OF PROFITS FOR ThE JT gROUP
We will ensure that the Japanese domestic tobacco business contin-ues to serve as the JT Group’s core source of profits by overcoming challenges in the Japanese domestic market, such as the continuing decline in total tobacco demand and intensifying competition.
Strategies and Specific Measures
Optimizing our marketing mix toward sustainable growth through the provision of quality and services commensurate with the price
page 018JAPAN TOBACCO INC. Annual Report 2011
page 019JAPAN TOBACCO INC. Annual Report 2011
D-SPEC
Regarding the Caster brand, which many customers have applauded for its low level of odor,
its balance of aromatic essences has been improved so as to further reduce odor while keep-
ing the taste unchanged. As a result, the Caster brand has been renewed as a product that
meets JT’s D-spec low odor standard that enhances the enjoyment of taste.
ROUND-CORNER BOx
Regarding the box package products in the Mild Seven family, we adopted a round-corner box
package as widely requested by customers. As a result, these products feature the Mild
Seven family’s image of being stylish and graceful and are also user-friendly as their package
shape follows the contours of the hand.
DESIgN UNIFICATION
The package of the Mild Seven Impact One 100’s Box was changed from a regular box to a
round-corner box. In addition, the Blue Wind symbol of the Mild Seven family is indicated on
the package in the shape of a sharp streamline, as on the package of the Mild Seven Impact
One Menthol, so as to convey the sense of “impact.”
PRODUCT UPgRADE
We are striving to upgrade our products so that we can satisfy customers’ diversifying needs.
RENEwAL OF 3 PRODUCTS IN ThE SEvEN STARS FAMILY
We will build a more sophisticated lineup of products in response to customers’ requests for
better package design, taste and aroma.
The strong menthol flavor and rich taste of this product have become more distinct as a result
of the renewal.
The renewed product features a sharp, strong and solid menthol flavor.
After the renewal, this product, for which we used to emphasize a rich smoke volume,
enriched aroma and full-bodied taste, now features a sharp and solid flavor.
We are aggressively pursuing product innovation in order to ensure quality and services commensurate with the retail price.
PRODUCT INNOvATION MEASURES IMPLEMENTED IN FY3/2011
Early April 2010 All 9 products in the Caster family Change-over to the D-Spec type
Mid-November 2010 4 menthol products in the Mild Seven family Adoption of a round-corner box package
Mid-February 2011 5 regular products in the Mild Seven family Adoption of a round-corner box package
Mid-February 2011 Mild Seven Impact One 100’s Box Package redesign
Late February 2011 3 products in the Seven Stars family Full renewal of tastes, aromas and names
Seven Stars Menthol Box Seven Stars Deep Menthol Box
Seven Stars Black Charcoal Menthol Box Seven Stars Solid Menthol Box
Seven Stars Black Impact Box Seven Stars Solid Box
Topics: Product Innovation
Seven Stars Deep Menthol Box
Seven Stars Solid Menthol Box
Seven Stars Solid Box
Please be reminded that this section is intended to explain the business operations of JT to investors, but not to promote sales of tobacco products or encourage smoking by consumers.
Business &
History
page 018JAPAN TOBACCO INC. Annual Report 2011
page 019JAPAN TOBACCO INC. Annual Report 2011
FY3/2011 Business Performance Summary
***
Core net sales increased by 5.6% driven by:
Robust pricing Market share gains in key markets owing to our continued
investment in our brands and our excellence in trade marketing
Favorable currency exchange movements
Total shipment volume*
428.4 billion cigarettesDown 1.5%
Core net sales excluding excise taxes**
$10,144 millionUp 4.8%
GFB shipment volume
249.8 billion cigarettesUp 2.7%
EBITDA
$3,194 millionUp 7.7%
Core net sales excluding excise taxes**
$10,223 millionUp 5.6%
EBITDA
$3,282 millionUp 10.7%
* Total shipment volume includes cigars, pipe tobacco and snus, but does not include contract manufactured product.
** Core net sales exclude revenue from distribution, contract manufactur-ing and other peripheral business.
*** Applying the previous year currency exchange rates.
International Tobacco Business
Strong EBITDA growth of 10.7%, or 7.7% at constant rates of exchange driven by:
Continued price/mix improvements, more than compensat-ing for the impact of shipment volume decline due to indus-try contraction as well as for increasing leaf costs and additional investment in brands and global infrastructure
Favorable currency exchange movements
* Core net sales exclude revenue from distribution, contract manufacturing and other peripheral business.
** The forex impact represents the fluctuation between the US dollar and other currencies.*** The US dollar is the reporting currency for our International Tobacco Business.**** Applying the previous year currency exchange rates.
8,000
9,682
–128
+589
10,144
+79
10,223
8,500 9,000 9,500 10,000 10,500
FY3/2010
Volume
Price/product mix
FY3/2011 at constant rates of exchange****
Forex impact**
FY3/2011
International Tobacco Business – Core Net Sales Excluding Taxes*(Millions of US dollars)***
International Tobacco Business – EBITDA(Millions of US dollars)***
2,965
–91
–233
+553
3,194
+88
3,280
2,800 2,900 3,000 3,100 3,200 3,4003,300 3,500
FY3/2010
Price/product mix
Others
FY3/2011 at constant rates of exchange****
FY3/2011
Volume
Forex impact**
page 020JAPAN TOBACCO INC. Annual Report 2011
page 021JAPAN TOBACCO INC. Annual Report 2011
Camel is an iconic international brand and originator of the American Blend type of cigarette since 1913. Now sold in more than 100 countries around the world. Camel’s 2010 performance has been strengthened by the successful
introduction of Black & White line extension and the new Brand World leading to market share gains in most key markets.
First introduced in 1954, Winston has proved its status as JTI’s key growth driver, becoming in 2007 the 2nd* largest cigarette brand in the world. After
almost a decade of strong momentum, Winston further accelerated its sales volume growth in Middle East, Western Europe & CIS in 2010. Winston’s performance has been strengthened by Super Slims brand extensions and ongoing product innovation.* Source: Euromonitor
Originating in Japan and launched in 1977, Mild Seven is the top-selling premium charcoal brand. Its key
markets outside Japan are Taiwan, Korea, Russia and Malaysia.
Launched in 1964, Silk Cut estab-lished its credentials as one of the first low tar brands in the 1970’s, long before it became the norm for
other manufacturers. JTI owns the Silk Cut trademark throughout the EU with the core markets being the UK, Ireland and Greece, where the brand enjoys a significant market share in the premium segment.
Sobranie is one of the world’s oldest tobacco brands and has been synonymous with luxury cigarettes since 1879. This heri-
tage, exquisite style and the best selected tobaccos have made Sobranie one of the most prestigious brands in the world. Since 2009 a new generation Sobranie range has been rolling out across CIS markets.
Originally created for the Prince of Wales in 1873, Benson & Hedges has a proud British
heritage. Today, JTI owns the Benson & Hedges trademark in EU markets (excl. Baltics) where it is a leading Virginia premium brand. Benson & Hedges is continuously evolving its portfolio and brand extensions to adapt to its consumers’ lifestyles.
LD was launched in 1999 as a mid-price proposition in the Russian market. The brand achieved immedi-
ate success and is accepted as a credible international proposition. Since 2007 LD has grown continuously, expanding its presence to more than 30 countries across multiple regions supported by its constant portfolio expansion in response to consumer aspirations.
Glamour is JTI’s leading Super Slims brand. Since its introduction in 2005, Glam-
our has achieved remarkable growth consoli-dating its No. 1 position as a Super Slims brand in several CIS markets. Glamour is constantly expanding its geographical presence and evolving portfolio in the growing Super Slims segment.
Japan Tobacco International (JTI), JT Group’s international tobacco
business, continues to be the profit growth engine of the JT Group, mainly
thanks to its brands, its people and its diversified geographic profile. Our
continued investment in our business and innovation meant that share of
market grew in most key markets, despite ongoing economic difficulties
and a challenging operating environment.
While the economic recovery is still fragile and pressure is mounting
on the regulatory front, we believe that, based on our quality top-line
growth and strong brand portfolio, we will continue delivering strong
results in the future.
Pierre de LaboucherePresident & CEO, Japan Tobacco International
ENgINEWinston and Camel are the engine brands driving JTI’s growth.
STRONghOLDFour stronghold brands have a significant presence in their respective regions increasing the competitive power of JTI’s portfolio.
FUTURE POTENTIALSobranie and Glamour have strong future growth potential.
gLOBAL FLAgShIP BRANDS PORTFOLIO
The eight Global Flagship Brands (GFB) constitute the core of JTI’s brand portfolio, to drive quality top-line growth.
Business &
History
page 020JAPAN TOBACCO INC. Annual Report 2011
page 021JAPAN TOBACCO INC. Annual Report 2011
gFB PORTFOLIO MOMENTUM
2010 GFB shipment volume vs. 2009
(Unit: billion cigarettes)
Volume/Year-on-year growth Year-on-year change
2009 243.4
Premium and above brands 1.1 +1.4%
Sub-premium 3.3 +2.5%
Mid/Value 2.1 +6.1%
2010 249.8 +2.7%
CIS+ South & West Europe North & Central Europe Rest-of-the-World
CIS+ South & West Europe North & Central Europe Rest-of-the-World
* Rest-of-the-World core net sales include HQ
CIS+ South & West Europe North & Central Europe Rest-of-the-World
REgIONAL BREAKDOwN
Total shipment volume Core net sales*
48%
15%
11%
26% 31%
21%18%
30% 30%
24%22%
24%
Share in key markets
2009 2010 ppt. change
RUSSIA 36.7% 36.9% +0.2
FRANCE 14.8% 16.0% +1.2
ITALY 18.5% 19.7% +1.2
SPAIN 20.6% 20.8% +0.2
UK 39.2% 39.0% –0.2
TURKEY 19.0% 22.6% +3.6
TAIwAN 38.0% 38.4% +0.4
* Twelve months moving average** Market shares do not include Roll-Your-Own/Make-Your-Own.Data source: AC Nielsen, Logista and Altadis
Operating Performance
JTI gained share in key markets as a result of our strength in all price segments, as well as our excellence in trade marketing.
GFB shipment volumes grew 2.7% to 249.8 billion cigarettes building on our strong brand equity, which we are constantly strengthening and which will continue to drive our perfor-mance in the future.
Total shipment volumes decreased by 1.5% to 428.4 billion cigarettes due to global industry contraction caused by eco-nomic difficulties and excise tax increases.
GFB shipment volumes grew 2.7% versus 2009, representing 58.3% of our total shipment volume
Winston drove GFB growth, performing strongly in the Middle East and Italy, while LD performed strongly in Poland, Turkey and Hungary.
Our volume in the premium and above segments grew 1.4%, or 1.1 billion cigarettes, driven by markets such as Korea, Turkey, France and Czech Republic.
EBITA (excluding HQ allocation)
page 022JAPAN TOBACCO INC. Annual Report 2011
page 023JAPAN TOBACCO INC. Annual Report 2011
Strategies and Specific Measures
Quality top-line growth is JTI’s overriding priority. JTI remains committed to deploying its key strategies under the guiding principle of continuous improvement.
Build and nurture outstanding brands Continue to enhance productivity Sharpen focus on responsibility and credibility Develop human resources as a cornerstone of growth
EBITDA EBITDA Margin
* As of 2009, EBITDA margin based on the revenue which excludes distribution, contract manufacturing and other peripheral business.
+26% CAgR
(%)
2000
338
10%
2001
400
2002
441
2003 2004 2005
551712
925
2006
1,090
2007
2,452
2008 2009
3,452
2,965
2010Reported
3,282
32%
1,000
2,000
3,000
4,000
5,000
8
16
24
32
40
EBITDA AND EBITDA MARgIN, 2000–2010
(Millions of US dollars)
2011 Outlook: keep growing the top-line and con-tinue to be JT Group’s profit growth engine.
In 2010, pricing remained robust despite the recession and drove our performance, as we achieved 7.7% EBITDA growth at con-stant rates of exchange.
We will remain focused on growing the top-line, through continued investment in our business. Looking into 2011, we are cautiously optimistic. Despite the lingering economic uncer-tainty, we are confident that with our strong brand portfolio and our focused strategy of growing the top-line, we will continue to deliver strong results.
CIS+ (Unit: billions of cigarettes)2010 Year-on-year change
Total shipment volume* 203.6 –5.1%GFB shipment volume 105.3 +0.3%
• Significant market contraction is starting to slow down• Strengthening JTI market share and favorable pricing drove core net sales and
EBITA growth• At constant rates of exchange, core net sales excluding excise taxes and EBITA
grew 6.0% and 10.7% respectively.
REST-OF-ThE-wORLD (Unit: billions of cigarettes)2010 Year-on-year change
Total shipment volume* 112.7 +4.0%GFB shipment volume 66.9 +7.3%
• A market rebound in Turkey and Taiwan in H2/2010• Strong shipment volume growth led by the Middle East and Korea• At constant rates of exchange, core net sales excluding excise taxes and EBITA
grew 4.8% and 3.0% respectively.
NORTh & CENTRAL EUROPE (Unit: billions of cigarettes)2010 Year-on-year change
Total shipment volume* 49.0 +3.1%GFB shipment volume 22.3 +9.7%
• Solid total and GFB volume growth• Strong pricing drove core net sales and EBITA growth• At constant rates of exchange, core net sales excluding excise taxes and EBITA
grew 6.4% and 9.7% respectively.
SOUTh & wEST EUROPE (Unit: billions of cigarettes)2010 Year-on-year change
Total shipment volume* 63.2 –2.0%GFB shipment volume 55.2 –0.8%
• Continued industry contraction, with a rebound in H2/2010• JTI gained market share in all key markets• Favorable pricing more than offset shipment volume declines, driving core net
sales and EBITA growth• At constant rates of exchange, core net sales excluding excise taxes and EBITA
grew 1.7% and 4.5% respectively.
* Total shipment volume includes cigars, pipe tobacco and snus, but does not include contract manufactured products** Core net sales exclude revenue from distribution, contract manufacturing and other peripheral business
Business &
History
page 022JAPAN TOBACCO INC. Annual Report 2011
page 023JAPAN TOBACCO INC. Annual Report 2011
Market Share in Russia(%)
Market Share in Turkey(%)
Total Industry Size (Billions of cigarettes)
Total Industry Size (Billions of cigarettes)
Market Share of GFB & Non-GFB(%)
Market Share of GFB & Non-GFB(%)
201020092008
405 390 380–3.6% –2.7%
0
100
200
300
400
500
201020092008
104 10396–1.2%
–9.6%
0
30
60
90
120
150
33.8 34.9 35.736.7 36.9
19.2 19.0 18.1
14.6 15.917.6 19.0
19.2
17.7 17.7
0
10
20
30
40
20102009200820072006
11.2
14.416.9
19.0
22.6
8.6
11.212.9 13.8
17.1
2.6
3.34.1
5.2
5.5
0
10
5
15
20
25
20102009200820072006
Non-GFB GFB Data source: AC Nielsen
Data source: JTI internal data
Non-GFB GFBData source: AC Nielsen
Data source: AC Nielsen
0
5
10
29
34
39
2.43.24.4
9.7
3.45.0
10.4
3.9
5.2
10.6
3.8
5.2
10.3
4.0
5.2
10.5
4.0
5.2
10.8
4.0
5.2
10.8
31.9
35.7 33.7
36.734.636.9
34.536.7
34.737.0
34.837.1
34.636.8
2.4 2.1 2.1 2.1 2.1 2.0
Q4Q3Q2Q1201020092008
0
3
6
13
19
25
0.50.9
3.1
11.4
1.5
4.2
11.7
2.3
4.9
13.4
1.8
4.8
12.6
2.5
5.1
13.2
2.6
5.1
13.7
2.2
4.7
14.016.919.0
22.621.2
22.8 23.5 23.0
0.6 1.4 1.0 1.3 1.5 1.6
Q4Q3Q2Q1201020092008
12-month moving average
12-month moving average
3-month average
3-month average
Russia is JTI’s largest market, where we
lead both in terms of share of market and
share of value.
• In 2010, JTI strengthened its market share
leadership and grew share of value.
• Over the last 18 months, JTI has led
industry pricing to fully recover excise tax
increases and cost inflation.
After a 3.6% decline in 2009 due to the
economic crisis, overall market contraction
stabilized in the second half of 2010, slow-
ing to 2.7% in year 2010.
we steadily increased our gFB market
share, despite a competitive environment
that continues to be challenging.
• We will continue to focus on GFB brand
equity building and portfolio optimization
through new launches and innovations.
Turkey, the largest market in the Rest-of-
the-world cluster, is also the 2nd largest
market by shipment volume for JTI.
we continued to be the fastest grow-
ing manufacturer in this market.
• Winston remained both the largest and
fastest-growing brand in the market.
• In the competitive popular and value
segments, JTI maintained its position,
capturing down-trading consumers.
gFB enjoyed strong volume and share
growth thanks to their increasing con-
sumer appeal and growing brand equity,
despite rising competitive pressure.
• Continuing to invest in our brand equity
with a focus on Winston and Camel.
• Strengthening our portfolio to enhance its
relevance to consumers.
JTI Total Share of MarketJTI Total Share of ValueWinstonLDPeter IPremium and above brands
JTI Total Share of MarketWinstonMonte CarloLDCamel
Russian Market
Turkish Market
Data source: AC Nielsen
Data source: AC Nielsen
page 024JAPAN TOBACCO INC. Annual Report 2011
page 025JAPAN TOBACCO INC. Annual Report 2011
LINE ExTENSIONS TO wIDEN ThE SCOPE OF ExISTINg BRANDS:
• Camel Black & White, successfully introduced in France and now available in 11 markets
worldwide, represents a modern interpretation of the Camel brand. It was built as a flexible
proposition that can adapt to local market needs through different formats, to address
relevant consumer trends.
• Camel Essential was extended into Roll-Your-Own with a unique pack.
• Winston’s launch of XS King Size Super Slims in the CIS markets became the year’s big-
gest innovation story. Sales in excess of 3 billion units in 2010 propelled XS to regional
number 2 position in the King Size Super Slims segment and strengthened Winston’s
leadership in Russia.
• LD Club was successfully launched in Russia and Ukraine in 2010 as the first compact
format cigarette in the Value segment. LD Club offers a cosmopolitan premium style, up-to-
date and convenient format at an accessible price and contributes to the LD image as a
modern and international brand. In Russia, LD Club has become number 3 position in the
King Size Super Slims segment after Winston XS.
• Winston Avant Edition, an image enhancer with clear innovation and premium cues,
launched in Ukraine and having positive impact on Winston performance post-launch phase.
• Benson & Hedges Slide, representing the modern, progressive style of the B&H brand, has
been launched in 10 markets across Europe, achieving strong growth in Central Europe in
2010. The Slide range, in tune with a new and socially interactive style that takes its cues
from the design codes of technological innovation, provides a new target audience with a
relevant proposition from Benson & Hedges.
• Amber Leaf new mini pouch CPB (Crush Proof Box) – a 12.5g pouch with papers offered
together in a cigarette pack format, addresses the key consumer needs of increased conve-
nience & freshness.
TEChNOLOgY TO TAKE ADvANTAgE OF OUR ENgINEERINg KNOw-hOw:
• LSS (Less Smoke Smell) line extension is Mild Seven’s strategic innovation anchor and its
success helped Mild Seven retain its status as the fastest growing international brand in
the Korean market.
• WRC (Wrapped Re-functional Charcoal) filter is the newly invented technology to compete
in the emerging premium menthol segment, especially in Asia. WRC technology delivers
perfect balance between refreshing menthol and smooth tobacco taste.
Innovation
This section is intended to explain the business operations of JT to investors, not to promote sales of tobacco products or encourage smoking by consumers.
To continue strengthening our brand equity and further enhance the growth momentum of our GFB, JTI’s strategy places significant emphasis on investment behind brands, including innovations. These innovations take several forms:
Business &
History
page 024JAPAN TOBACCO INC. Annual Report 2011
page 025JAPAN TOBACCO INC. Annual Report 2011
Pharmaceutical Business – Net Sales(Billions of yen)
Pharmaceutical Business – EBITDA(Billions of yen)
42.0
44.0
+2.9
+0
46.9
43.0 44.0 45.0 46.0 47.0 –16.0
–9.6
+0.2
–4.2
+0.4
–13.2
–12.0–14.0 –10.0 –6.0–8.0 –4.0 –2.0 0.0
FY3/2011 Business Performance Summary
Net sales in FY3/2011 grew driven by the strong performance of Torii Pharmaceutical and from mile-stone revenue of out-licensed compounds while profits declined due to an up-front payment by Torii Pharmaceutical in respect of a license agreement, among others.
Torii Pharmaceutical Co., Ltd. posted a rise in net sales and a decline in profits.
Sales of REMITCH CAPSULES, an anti-pruritus drug for hemodialysis patients, and sales of anti-HIV drug Truvada grew.
An up-front fee following the signing of an agreement with ALK-Abelló A/S of Denmark on the exclusive right to develop and sell in Japan house dust mite allergy immunotherapy products to treat and diagnose asthma and allergic rhinitis.
Net sales
¥ 46.9 billionUp ¥2.9 billion
EBITDA
¥ –13.2 billionDown ¥3.6 billion
Operating loss
¥ –17.4 billionDown ¥3.8 billion
Pharmaceutical Business
R&D Status
Increased and advance compounds in late phase of clinical trials and enhance R&D pipeline toward the final year of JT-11.
JTS-653 a drug for pain and overactive bladder and JTT-751 for treatment of hyperphosphatemia advanced to Phase 2 and Phase 3, respectively, in Japan as well as Type 2 diabetes mellitus drug JTT-851 advanced to the clinical development stage in Japan.
FY3/2010
Torii Pharmaceutical Co., Ltd. (non-consolidated)
Royalty income, etc.
FY3/2011
FY3/2010
R&D expenses (non-consolidated)
Royalty income, etc.
Operating income of Torii Pharmaceutical Co., Ltd. (non-consolidated)
FY3/2011
page 026JAPAN TOBACCO INC. Annual Report 2011
page 027JAPAN TOBACCO INC. Annual Report 2011
Food Business
In the pharmaceutical business, JT will continue to build world-class,
unique R&D capabilities and reinforce its market presence through innova-
tive drugs by devoting efforts to increasing and advancing compounds in a
late phase of clinical trial and enhancing the R&D pipeline, so that it can
pursue a high-value added business based on the development of world-
class innovative drugs.
Noriaki OkuboPresident, Pharmaceutical Business
Strategies and Specific Measures
Enhance clinic development capabilities, particularly for com-
pounds in late-stage clinical trials
• To strengthen the capability for clinical development in order to keep
up with the progress in clinical development
Further Strengthen R&D pipeline
• To continue concentrating R&D resources on the following four areas:
glucose and lipid metabolism; virus research; immune disorders and
inflammation; and bone metabolism
Enhance licensing activities and strengthen relationships with
partners
• To continue exploring opportunities for out-licensing
• To engage in in-licensing activity with emphasis on early market launch
OUT-LICENSINg DEALSFY Code Company
3/2005 JTT-705 (anti-dyslipidemia drug) Roche (Switzerland)
3/2005 JTK-303 (anti-HIV drug) Gilead Sciences (uS)
3/2007 Pre-clinical trial stage new compound GlaxoSmithKline (uK)
3/2007Pre-clinical trial stage anti-body drug candidate
MedImmune (uS)
3/2009 JTT-305 (anti-osteoporosis drug) Merck (uS)
IN-LICENSINg DEALSFY Code Company
3/2004 Three anti-HIV drugs Gilead Sciences (uS)
3/2008JTT-751 (anti-hyperphosphatemia drug)
Keryx Biopharmaceuticals (uS)
CLINICAL DEvELOPMENT (AS OF MAY 12, 2011)Code Key indication Stage Rights
JTT-705 (oral) Dyslipidemia Phase 2 (Japan)Roche (Switzerland) obtained the rights to develop and commercialize the compound worldwide, with the exception of Japan. (Development stage by Roche: Phase 3)
JTT-130 (oral) DyslipidemiaPhase 2 (Japan)Phase 2 (Overseas)
JTK-303 (oral) HIV infection Phase 1 (Japan)Gilead Sciences (uS) obtained the rights to develop and commercialize this compound worldwide, with the exception of Japan. (Development stage by Gilead Sciences: Phase 3)
JTT-302 (oral) Dyslipidemia Phase 2 (Overseas)
JTT-305 (oral) Osteoporosis Phase 2 (Japan)Merck (uS) obtained the rights to develop and commercialize this compound world-wide, with the exception of Japan.
JTS-653 (oral) Pain Overactive bladder Phase 2 (Japan)
JTK-656 (oral) HIV infection Phase 1 (Overseas)
JTT-751 (oral) Hyperphosphatemia Phase 3 (Japan)JT obtained the rights to develop and commercialize this compound in Japan from Keryx Biopharmaceuticals (uS). (Developed jointly with Torii)
JTK-853 (oral) Hepatitis C Phase 1 (Overseas)
JTT-851 (oral) Type 2 diabetes mellitus Phase 1 (Japan)
Further develop Torii Pharmaceuticals expertise in its areas of
strength
• Developing expertise in the field of HIV, renal disease and hemodialy-
sis, among others
• Acquisition of new products for marketing and development
• Expand R&D in the allergen area (cedar pollen allergies)
Business &
History
page 026JAPAN TOBACCO INC. Annual Report 2011
page 027JAPAN TOBACCO INC. Annual Report 2011
14.4
+1.0
+1.7
+0.1
17.2
13.5 14.0 14.5 15.0 15.5 16.0 16.5 17.517.0
394.6
+6.2
–25.9
375.0
370 375 380 385 390 395 400 405
FY3/2010FY3/2010
Beverage business
Processed food business, etc.
Overhead costs
Processed food business, etc.
FY3/2011 FY3/2011
Beverage business
FY3/2011 Business Performance Summary
Factors behind the net sales decline
Net sales for the overall food business declined. Net sales for the beverage business increased due to the
favorable effects of the summer heat waves and the robust sales of the Roots brand.
Net sales for the processed food business declined due to the closure of the rice wholesale business and the exclusion of some subsidiaries from the consolidated results as well as a decline in sales of products for restaurants.
Net sales
¥ 375.0 billionDown ¥19.6 billion
EBITDA
¥ 17.2 billionUp ¥2.7 billion
Operating loss
¥ –9.4 billionUp ¥4.2 billion
Food Business – EBITDA(Billions of yen)
Food Business – Net Sales(Billions of yen)
Food Business
Factors behind the EBITDA Growth
EBITDA for the overall food business increased. EBITDA for the beverages business increased due to the
favorable effect from the summer heat waves and the robust sales of the Roots brand.
EBITDA for the processed foods business grew due to the absence of the one-time factor in the fishery product business in the previous year.
One-time factor: Recording of loss provisions related to delays in the collection of some accounts receivable and valuation losses due to a steep drop in the market prices of some products.
Factors behind the operating income growth
The operating income growth was led by the increased EBITDA.
page 028JAPAN TOBACCO INC. Annual Report 2011
page 029JAPAN TOBACCO INC. Annual Report 2011
100,000
200,000
300,000
2010 2011200920082007
250,500 257,000 254,000 257,000 265,000
Number of Vending Machines(Years ended March 31)(Machines)
In the food business, we are striving to
provide delicious foods that people can
consume safely while wishing to “provide
products that your loved ones want to
eat.” We will continue to devote our
efforts to the three business areas of bev-
erages, processed foods and seasonings,
aiming to retain the trust of customers by
serving the people’s daily lives through our
offering of food products.
Miyoharu HinoPresident & CEO TableMark Co., Ltd.
Strategies and Specific Measures
In the food business, we are devoting our efforts to the three business areas of beverages, processed foods and seasonings, implementing measures to establish the highest standard of food safety management and striving to further strengthen our busi-ness foundation for future growth.
BEvERAgES BUSINESS
• To strengthen the Roots flagship brand, which is
acclaimed for its authentic coffee taste created
by JT’s original technology, so as to enhance
brand equity.
• To enhance our sales networks led by Japan
Beverage Inc., a JT subsid-
iary responsible for operat-
ing vending machines, and
to strive to provide consci-
entious services.
• To strengthen the profit
base by pursuing efficiency
in all business operations.
PROCESSED FOODS BUSI-
NESS, ETC.
• To expand the business volume and strengthen
profitability by strategic concentration in staple
food products (frozen noodles, frozen and packed
cooked rice and frozen bread) and yeast products
in seasonings, for which we can make maximal
use of acquired technology and product develop-
ment power in the TableMark group.
• To establish a strong business foundation by continuing efforts to
strengthen the value chain in the whole business process, from pro-
curement, to manufacturing, and production of sales.
• To strengthen cost competitiveness by further pursuing efficiency in
all business operations.
FOOD SAFETY CONTROL
I. Actions for reducing risks
• Promoting the acquisition of ISO 22000 certification for food safety
management systems as well as efforts to ensure food defense against
external purposeful attack.
II. Improving consumer response
• Collecting customer feedback on a 365-days-a-year basis and respond-
ing to the feedback quickly and appropriately by using JT’s own food
safety management system to strengthen cooperation between relevant
business divisions.
III. Strengthening the institutional capability
• Promoting a group-wide food safety initiative by establishing a food
safety management section at each of the beverages, processed foods
and seasonings businesses as the entity responsible for overseeing food
safety and analyzing raw materials and products of the beverages
business at TableMark’s Tokyo Quality Control Center.
• Actively incorporating diverse knowledge and viewpoints into food safety
control by seeking assessment and advice from outside experts appointed
as food safety advisers, and reflecting these in business activities.
Ryoko NagataHead of Soft Drink Business Division
Business &
History
page 028JAPAN TOBACCO INC. Annual Report 2011
page 029JAPAN TOBACCO INC. Annual Report 2011
History of the JT Group
History in Japan from the early 20th century to 1984, when the Japan Tobacco Inc. Law was enacted.Our history in Japan dates back to 1898, when the government formed a monopoly bureau to undertake the exclusive sale of domes-tic leaf tobacco. In the early 1900s, the government extended this
JT is a joint stock corporation that was incorpo-rated in April 1985 under the Commercial Code of Japan, pursuant to the Japan Tobacco Inc. Law, or the JT Law.
JT’s history in Japan dates back to 1898, when the government formed a monopoly bureau to operate the exclusive sale of domestic tobacco leaf.
The JT Group’s overseas history began with the founding of Austria Tabak in 1784. Roughly 70 years later, Tom Gallaher started out in business in
Before 1985
1784 1857
1891 1898
1949
19641957
1981
1954
1977
Northern Ireland, laying the foundations for Gallaher Group. Meanwhile, R.J Reynolds Tobacco Co. (RJR), which would subsequently create t