Japan Tobacco Profit to Fall 12% on Domestic Decline

Source from:  Bloomberg 04/28/2009

Japan Tobacco Inc., the world's third-largest traded cigarette maker, forecast a 12 percent drop in profit this fiscal year as it expects domestic sales will decline. Net income may fall to 186 billion yen ($1.56 billion) in 2007, while sales may increase 2.5 percent to 4.89 trillion yen, Japan Tobacco said in a filing to the Tokyo Stock Exchange today. The Tokyo-based company completed on April 18 its purchase of Gallaher Group Plc, the maker of Benson & Hedges cigarettes in Europe, for 7.5 billion pounds ($15 billion). The earnings forecast for 2007 announced today does not include figures from Gallaher. Domestic cigarette sales are in decline due to Japan's shrinking population and an upswing in health consciousness. A tax rise on cigarettes instituted in July also discouraged sales. Japan Tobacco expects sales at home, which account for 70 percent of all revenue, will decrease 0.5 percent in the current year. In contrast, overseas sales will rise 13 percent to 1.1 trillion yen. For the year ended March 31, net income rose 4.6 percent to 210.8 billion yen, or 22,001 yen per share, from 201.5 billion yen, or 105,084.78 yen, a year earlier. Sales rose 2.8 percent to 4.77 trillion yen. The company also said it would increase its annual dividend 400 yen to 4,400 yen. Emerging Markets Japan Tobacco expects the Gallaher purchase to double its market share in Russia, Europe's biggest market, to 34 percent. U.S.-based Altria Group Inc. leads the Russian market, which consumes 370 billion cigarettes a year, according to Gallaher. Tobacco companies are consolidating to cut production costs and expanding into emerging markets as Western European governments tighten anti-smoking laws. Gallaher purchased Russia's biggest cigarette maker in 2000. The U.K.'s Imperial Tobacco Group Plc, the maker of West cigarettes, offered 12 billion euros ($16.3 billion) for Altadis SA of Spain this month. Japan Tobacco said today it borrowed 900 billion yen from Merrill Lynch & Co. and other financial institutions in its purchase of Gallaher. The company also used 820 billion yen of its own cash to pay for the takeover. Japan Tobacco and Gallaher have 790 billion yen in debt and loans outstanding, according to data compiled by Bloomberg. Japan Tobacco's debt accounted for 7.13 percent of its total assets in the year ended March. Japan Tobacco is rated Aa3, or the fourth highest level, by Moody's Investors Service. Standard & Poor's rates the company A+, or the fifth highest. The stock dropped 11,000 yen, or 1.8 percent, to 586,000 yen as of the close of the Tokyo Stock Exchange, before the earnings announcement. Enditem