Japan Tobacco Lifts Forecast After Gallaher Purchase

Source from:  By Maki Shiraki Aug. 9 (Bloomberg) 08/10/2007

Japan Tobacco Inc., the world's third-largest traded cigarette maker, lifted its full-year earnings forecast by 38 percent as the purchase of Gallaher Group Plc adds sales in Russia and other European countries. Net income is likely to increase to 256 billion yen ($2.15 billion) in the year ending March 31, from 211 billion yen a year earlier, it said in a statement today. The company had earlier forecast profit of 186 billion yen. The Tokyo-based maker of Camel and Mild Seven cigarettes is moving into emerging markets and expanding food sales as tobacco consumption falls in its home market. It completed the 7.5 billion pound ($15 billion) purchase of Gallaher in April to reduce its reliance on the Japanese tobacco market, which accounts for 76 percent of sales. "The contribution from Gallaher will help earnings growth," said Junko Miyakawa, an analyst at Shinsei Securities Co. in Tokyo. The company's first-quarter profit fell 15 percent to 64.6 billion yen from a year earlier when sales were boosted as Japanese consumers stocked up on cigarettes before a tax increase. Gallaher earnings were not included in the results. Tobacco revenue in Japan, where it has about 65 percent of the market, fell 13 percent to 857 billion yen in the three months ended June 30. Domestic cigarette sales are in decline due to Japan's shrinking population and an upswing in health consciousness. Emerging Markets International tobacco sales rose 25 percent to 273 billion yen, led by sales in Russia, Turkey, Iran and Spain. Revenue from food sales, such as canned coffee and frozen pizza, gained 5.2 percent to 73.9 billion yen. Japan Tobacco expects to achieve annual cost savings of at least $300 million by the end of 2010 as a result of its purchase of Gallaher, the maker of Benson & Hedges cigarettes in Europe. Tobacco companies are merging around the world, enabling those that remain to charge more and offsetting shrinking consumption caused by smoking bans and higher tobacco taxes. Bristol, England-based Imperial Tobacco Group Plc agreed last month to acquire Spain's Altadis SA. Japan Tobacco, which is 50 percent government-owned, is the biggest traded cigarette maker after Altria Group Inc.. and British American Tobacco Plc. The stock fell 4.4 percent today to 610,000 yen before the results were released, paring this year's gain to 6.1 percent. -- With reporting by Noriko Tsutsumi and Mamiko Shimizu in Tokyo and translation work by Taku Kato. Editor: Maguire (jvs/gan) To contact the reporter on the story: Maki Shiraki in Tokyo at mshiraki1@bloomberg.net Enditem