Japan Tobacco Lifts 2015 Forecast on Vending Machine Sale

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Japan Tobacco Inc. raised its annual profit target by 22 percent as the sale of its vending machine units is expected to boost earnings.

Net income will probably be 471 billion yen ($3.8 billion) for the year through December, compared with its previous forecast of 387 billion yen set in February, the Tokyo-based company said Monday. That’s higher than the 442 billion yen average of 14 analysts estimates compiled by Bloomberg.

Japan Tobacco has said its priority is investing to boost competitiveness of its tobacco businesses, which led to its withdrawal from its drinks and vending machine businesses. The former Japanese tobacco monopoly has sped up acquisitions of brands and products abroad in the face of a shrinking population and a stagnating smoking rate at home.

Japan Tobacco said on May 25 that it will sell its vending machine units and transfer two of its beverage brands to Suntory Beverage & Food Ltd. Suntory Beverage for about 150 billion yen. The vending machine disposal is expected to provide a 100 billion yen boost to the company’s net income, the company said last month.

Russian Sanctions

The earnings impact from vending machine sale is “very temporary,” Executive Deputy President Hideki Miyazaki said at a briefing in Tokyo, adding Japan Tobacco has not yet decided on including the gain into its dividend. The planned interim payout for 2015 remains at 54 yen per share, he said.

Japan Tobacco shares ended 0.7 percent higher at 4,846.5 yen by the close of trading in Tokyo, before the announcement. The benchmark Topix index closed little changed.

The company’s net income rose 4.7 percent to 211.5 billion yen in the first half ended June, even as operating profit fell 6.7 percent to 290 billion yen. The international unit reported adjusted operating profit dropped 3.2 percent to 212.9 billion yen during the six-month period.

Tightening sanctions against Russia over the Ukraine crisis has weakened the ruble, eroding the value of Japan Tobacco’s profit from its biggest overseas market when converted into dollars at its international unit. The currency fell 40 percent versus the dollar in the past 12 months.

E-Cigarette Purchases

In February, President Mitsuomi Koizumi announced 2015 as Japan Tobacco’s “year of investments” and said the company plans to speed up investments into other types of tobacco products such as e-cigarettes. Japan Tobacco bought Zandera Ltd., the maker of the E-Lites e-cigarette brand in the U.K., in June last year for an undisclosed sum.

The company completed 11 acquisitions totaling at least $2.1 billion in the past five years, the largest of which was the purchase of a 20 percent stake in Russia’s Megapolis Distribution BV for $750 million in 2013, according to data compiled by Bloomberg.

More recently, Japan Tobacco announced a purchase of Logic Technology Development LLC, a U.S. e-cigarette brand, for an disclosed sum on April 30 as it expands in emerging products.

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