Japan Tobacco Forecasts 17% Profit Drop Amid Restructuring

Japan Tobacco Inc. (2914), Asia’s biggest listed cigarette maker, said profit will probably fall 17 percent this year because of restructuring costs for its domestic business and a drop in profit from selling real estate.

The company projects net income will decline to 370 billion yen ($3.6 billion) in the 12 months ending December from 443.6 billion yen a year earlier, it said in a statement to Tokyo’s stock exchange yesterday. Sales may rise 2.4 percent to 2.43 trillion yen, according to the forecast.

Japan Tobacco is cutting jobs and closing factories as the Tokyo-based company restructures its domestic business amid a declining number of smokers and a shrinking population. Tobacco sales at home may drop 3.5 percent by volume this year from 2013, in part due to higher prices and an increase in the sales tax, the company said in its statement.

The company is setting aside 54 billion yen for domestic restructuring costs this year and expects a 47 billion-yen decline in profit from selling real estate, President Mitsuomi Koizumi said in Tokyo yesterday.

Japan Tobacco fell 0.4 percent to 3,312 yen as of 9:01 a.m. in Tokyo trading. The shares have dropped 3.1 percent this year, compared with an 11 percent decline in Japan’s benchmark Topix index. (TPX)

The tobacco maker said in October it would cut 1,600 jobs and close four factories in Japan to boost domestic competitiveness and profitability. The company raised domestic prices for most cigarette brands by 10 yen or 20 yen a pack starting this month, as the national sales-tax levy rose to 8 percent from 5 percent effective April 1.

Fewer Smokers

The rate of smokers in Japan fell to 20.9 percent of the population in 2013 from 24.9 percent in 2009, according to Japan Tobacco’s website, as cigarette taxes increased and consumers grew more health-conscious. Japan’s declining population is eroding the company’s domestic market as well.

Depreciating currencies in emerging markets are putting pressure on profit from the company’s overseas tobacco business, which accounts for about half of Japan Tobacco’s sales. Russia’s ruble fell about 12 percent against the dollar in the year ended March amid increasing tension between the country, which is Japan Tobacco’s biggest overseas market, and Ukraine over the situation in Crimea.

Sales volume for Japan’s overseas tobacco business fell 4.6 percent in 2013 while it rose 3.3 percent domestically in the last fiscal year, according to the company’s statement yesterday.

Nomura Holdings Inc. lowered its operating profit forecast for the tobacco maker 2.5 percent to 546 billion yen for the nine months ending December due to weakening emerging-market currencies, it said in a research note dated April 14.

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

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

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