Tobacco Asia

Tobacco Asia 13 Q&A THE TA TA: What were your latest acquisitions and which factors play a role in this continuous drive? PS: The company has been constantly expanding its operations both organically and through targeted acquisitions. The most recent example is Bangladesh Akij Group, acquired by the JT Group in 2018 for around US$1.5 billion. As we see combus- tible tobacco products coexisting with reduced-risk products such as heated tobacco sticks into the foreseeable future, we need to secure a stable supply of high-quality tobacco leaf at a competitive price and, with the support of our r&d capabilities, enable the development of new products. Our business success hinges on a robust tobacco leaf supply chain. TA: That sounds like you are pursuing a quite diversified model… PS: Yes, indeed. JTI has a dispersed footprint for sourcing tobacco leaf. While the only farming assets we actually own are solely for r&d purposes, our operational model, includes both verticalized operations and third-party leaf suppliers. This gives us the flexibility to adjust our operations as needed to maintain a consistent supply that meets consumer demand, mitigates challenges, risks, and potential disruptions and ensures the sustainable growth of our business. TA: How does JTI's global network of leaf operations fit into your strategic approach for sustainable growth? PS: Tobacco leaf sourcing is a key part of our supply chain and a critical component of making a positive impact to achieve sustainable growth. We are accountable not only for delivering strong financial performance and creating shareholder value but also for our environmental and societal impact. We source tobacco from countries with varied economic and social development conditions, and many are located in the most economically challenged regions of the world. We recognize that our sustainable growth depends on supporting local farmers and communities. By investing in our people, operations, systems, and r&d, we believe we are well posi- tioned to continue delivering value to our stakeholders, including our growers. In an effort to manage our tobacco leaf more sustainably, we fully integrated in 2024 our ESG and agronomy depart- ments. This better reflects the key elements of our ESGA Framework, which covers crop production, resource manage- ment, climate change, human rights, grower livelihoods, and leaf integrity, supported by a strong supply chain due diligence process. This framework ensures that we address sustainability and operational areas that directly affect our business through continuous improvement. TA: What are the main pillars on which this sustainable growth rests, and could you please cite some real-life examples? PS: JTI's overall sustainability framework is based on three pillars: product, people, and planet, and we link all our efforts to these three pillars. Under the "planet" pillar, we focus on achieving net-zero emissions and environmental conservation through zero deforestation, zero land conversion, and biodiversity over a plan period. Our focus on farm efficiencies also includes energy and prioritizes the development of renewable sources of energy. For example, at our Bangladesh leaf operations, we reduced wood use in farmers' tobacco-curing barns by using combustible briquettes made from tobacco stems and leaf byproducts. Under the "people" pillar, we prioritize grower livelihoods and human rights, striving to improve the living conditions of contracted growers and farm workers in our supply chain. For example, in 2012, we launched the Agricultural Labor Practices program to uphold labor and safety standards across our leaf supply chain, tackling child labor risk and workers' rights while focusing on improving workers' health and safety at the farm level. Our ARISE (Achieving the Reduction of Child Labor in Support of Education) program is a key part of our approach to eliminating child labor and is integrated into our SCDD process. Launched in 2011, it operates in countries where we source much of our tobacco, such as Brazil, Malawi, Tanzania, Zambia, and Bangladesh. Under the "product" pillar, we focus on maximizing tobacco crop yield and quality. Contracting leaf growers directly enables the production of a customized crop while improving grower productivity, leaf quality, integrity and traceability. Our leaf production technicians provide extensive support to growers to ensure they follow the best agronomic and environmental practices and produce tobacco per JTI's quality standards. In parallel, our r&d efforts focus on tackling climate resilience and the development of new raw materials for current and future products. We view each tobacco farm as a whole business unit and strive to ensure it operates efficiently and sustainably. TA: What concrete benefits for JTI's global leaf operations have you observed by implementing these strategies? PS: They have delivered significant benefits. Firstly, our centralized leaf operations framework helps mitigate challenges linked to climate change which [can] disrupt supply chains. For example, in 2024, the tobacco industry lost around 230 million kilos of tobacco due to extreme weather conditions such as flooding and droughts. But despite that, JTI nevertheless achieved a 2% year-over-year increase in combustible volume, as we were able to secure the required tobacco leaf through our diversified operations. Secondly, our strategies foster sustainable growth for our partners, particularly growers. In Malawi, our verticalized operation contracts around 9,000 small-scale growers, who boosted their yields from 800kg per hectare in 2009 to 1,950kg per hectare in 2023. This increased productivity and efficiency supports growers' profitability, ensuring their long-term economic growth while aligning with JTI's ESG standards. Thirdly, these strategies enhance our overall operational efficiency, such as reducing losses, optimizing investment cycles, and strengthening supplier relationships through direct connectivity to drive cost efficiencies and building supply chain resilience. TA: Are there aspects of your global leaf operations that still require improvement or adjustment?

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