Japan Tobacco Inc. is cutting 1,600 jobs and closing four factories in the country as part of its plan to boost domestic competitiveness and profitability.
The job cuts, or about 18 percent of the company’s workforce, will be made through a voluntary retirement program that will be offered to eligible employees in the Japanese domestic tobacco business and corporate functions, it said in a statement today. Most of these staff will leave the company at the end of March 2015 with more expected the year after.
“Our Japanese domestic tobacco business operates in an increasingly challenging environment, mainly due to consecutive tobacco tax increases, tightening of smoking related regulations, growing health consciousness and an aging society,” the Tokyo-based company in a statement to the Tokyo Stock Exchange today.
Japan Tobacco, Asia’s largest listed tobacco maker, faces declining demand in its home market amid a shrinking population and has been expanding its overseas business to offset the weakening domestic market. The ratio of smokers in Japan fell 4 percentage points to 20.9 percent over the last four years, according to company’s website.
The Tokyo-based company is seeking to boost profitability because it expects “future industry contraction in the mid to long term,” it said in today’s statement. It plans to begin discussions with labor unions, it said.
The cost cuts will start having effect from as early as April 2015, Akira Saeki, an executive deputy president who heads the tobacco business, said at a press conference in Tokyo today.
Japan Tobacco shares climbed 3.65 percent to close at 3,550 yen, the most since Aug. 14. The job cuts and factory closures were first reported by NHK earlier today.
The seller of the Mevius brand is shutting two cigarette manufacturing factories, two tobacco-related plants and a division that makes and sells tobacco vending machines as early as March 2015, it said. The company will also stop leaf processing operations at its business in Fukushima, it said.
“It will improve the production efficiency,” said Hiroshi Saji, an analyst at Mizuho Securities Co. “Domestic production had been on a decline, and reported measures are along the lines of the falling demand.” He expects the job cuts will boost the company’s operating profit by 17 billion yen ($173 million) per year.
The most recent voluntary retirement program was in the year ended March 2005 and 5,796 employees accepted that plan, spokesman Hisashi Sekiguchi said before the announcement. The company cut jobs at that time to increase its competitiveness, he said.
The company is scheduled to announce its first-half results tomorrow. It has 8,925 employees as of March, excluding group companies.
In April, Japan Tobacco forecast net income will climb 21 percent to 415 billion yen ($4.2 billion) while sales will gain 12 percent to 2.37 trillion yen in the year ending March 31. A weaker yen is boosting the value of revenue from tobacco operations overseas.
Japan’s government plans to raise the sales tax to 8 percent in April from 5 percent at present. The company, which plans to pass on the increase to customers, will decide on the price hike for its products by early next year, Saeki said in an interview this month.
The company plans to expand its range of smokeless tobacco products as the proportion of cigarette users declines in Japan, its biggest market, Saeki said then. Stiffer laws on the sale and consumption of cigarettes overseas have contributed to this trend, the company said.
Japan Tobacco is looking at tie-ups or acquisitions as regulations tightened worldwide and consumers demand alternatives because “cigarettes’ appeal may be diminishing” as more people are bothered by smoke, he said.
Japan Tobacco sees more growth opportunities in regions such as Africa, South America and some parts of Asia and plans to expand in Indonesia, Southeast Asia’s most-populous nation, possibly through acquisitions or ventures with local companies, the executive said, without giving specific details.
Overseas revenue accounts for about half of Japan Tobacco’s sales, according to data compiled by Bloomberg.