Japan Tobacco Forecast Record Net as Sales Rise; Shares Jump

Japan Tobacco Inc. (2914), the world’s best-performing cigarette maker this year, raised its projected annual dividend by 35 percent after forecasting record profit on increasing overseas sales and a weaker yen. The shares climbed to a record.

Net income will probably be 415 billion yen ($4.2 billion) for the year ending March 2014, company said in a statement yesterday. The company jumped 2.7 percent to 3,595 yen, the highest since listing in 1994, in Tokyo trading.

Japan Tobacco, which said it aims to make its Mevius the No. 1 global premium brand, is benefiting as a weaker yen boosts the value of overseas revenue, which accounted for about 48 percent of the company’s total in the last fiscal year. Asia’s biggest listed cigarette maker also said it would raise its payout ratio to 50 percent by fiscal 2015, one year earlier than previously planned, to support shareholders.

“We increased share in almost all major overseas market in the January to March period,” President Mitsuomi Koizumi told reporters yesterday in Tokyo. “We also expect to increase domestic share for the Mevius brand.”

The company’s annual profit forecast is higher than the 412 billion yen average of 18 analyst estimates compiled by Bloomberg.

A weaker Japanese currency will probably add about 70 billion yen to Japan Tobacco’s operating profit this year, Koizumi said yesterday. The yen has declined about 20 percent against the dollar in the past six months on Prime Minister Shinzo Abe’s vow to boost monetary and economic stimulus.

Dividend Increase

The company said it expects to pay dividends of 92 yen a share this fiscal year, compared with 68 yen in the previous 12 months. The company has gained 43 percent this year in Tokyo trading, the best performance among the 16 members of the Bloomberg GL Tobacco PB Index.

Net income fell 10 percent to 79.9 billion yen in the three months ended March in the absence of a one-time benefit a year earlier, the company said yesterday. Sales rose 5 percent to 511.8 billion yen in the period.

Japan’s government, which had owned 50 percent of the company, cut its stake to 33 percent in March to raise funds for reconstruction from the March 11, 2011 earthquake and tsunami. The cigarette maker bought back some of the stock and yesterday said it would not cancel the treasury shares.

Japan Tobacco also said its board opposed all four proposals made by The Children’s Investment Master Fund, which called for an increase in dividends and share buybacks.

Shareholder Return

“The significantly high amount of the proposed return far exceeds the amount of cash flow generated by the business and would require the company to make additional financial borrowing from a third party,” the company said in a statement yesterday.

The Children’s Fund has said the cigarette maker should match the higher payout levels made by global rivals. The fund made similar proposals last year that were also rejected.

Sales will probably jump about 12 percent this fiscal year to 2.37 trillion yen, according to the statement. The sales growth would be the fastest since 2008.

Cigarette sales in Russia and Turkey rose last year, driving up overseas sales 5.4 percent, the company said earlier this year. Domestic revenue jumped 7.2 percent in the year ended March as the company regained its market share, the company said April 12.

Japan Tobacco changed its top brand’s name to Mevius from Mild Seven in February and reiterated yesterday that it expects it to become the world’s best-selling premium brand, without giving a timeframe.

To contact the reporter on this story: Yuki Yamaguchi in Tokyo at yyamaguchi10@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

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