Japan Tobacco to Exit Drinks Business as Market Matures

Japan Tobacco Inc. will exit the drinks business that it has built in the past 26 years, as an “increasingly challenging” operating environment in Japan makes it difficult for the unit to turn a profit.

The company will quit the manufacturing and sale of JT beverage products by end-September this year, it said in a stock exchange statement today. The company entered the business in 1988.

“The beverage market matured and the scale of the business has become more important for maintaining and strengthening the competitiveness,” Japan Tobacco said in the statement, adding “it will be difficult to make a profitable contribution to the JT Group in the mid- to long-term.”

The company will consider the sale of its drinks brands, which include “Roots” canned coffee and “Momono Tennen-sui” flavored water, Deputy President Noriaki Okubo said at a briefing held in Tokyo today, adding that Japan Tobacco is not putting the beverage manufacturing and sales business up for sale.

Boosting Tobacco

Japan Tobacco shares rose 4.8 percent to 3,350 yen at the close of trading in Tokyo before the announcement. The benchmark Topix index rose 1.8 percent.

Japan Tobacco’s two vending machine subsidiaries will continue to operate while it considers options for them, the company said in the statement. It will offer to reassign affected employees at JT beverage, it said.

The company’s investment priority is to boost its tobacco businesses, and it will also invest in the pharmaceutical and the processed food segments, Japan Tobacco said. The beverage manufacturing and sales business made a revenue of about 50 billion yen ($426 million) in the fiscal year ended March 31, 2014, it said.

The plan wouldn’t affect its results for the year to end-December 2014, while possible impact in the current fiscal year haven’t been confirmed, Japan Tobacco said. The beverage business made up about 7.7 percent of Japan Tobacco’s revenue, according to the company.

Japan Tobacco will announce full-year earnings tomorrow.

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