Japan Tobacco's Winston Sales Increase in Russia

Source from:  Bloomberg 05/18/2009

Japan Tobacco Inc., the world's third-largest publicly traded cigarette maker, said Russian sales are rising as taxes force up the prices of budget competitors to its Winston and LD brands. Cigarette volumes in Russia climbed 1.5 percent from January to March, Executive Vice President Masakazu Shimizu said at a press conference in London yesterday. "People are starting to trade up from the value segment" as prices rise, he said. "When people who used to belong to higher pricing products are trading down, we have the expansive presence in the mid-pricing zone to catch them." Taxes on tobacco are being increased incrementally until 2011 in Russia, where 42 percent of the population smokes, according to Japan Tobacco. Tax currently accounts for around one-third of the retail price on filtered cigarettes in the country. Japan Tobacco includes Russia in its Rest of the World unit, which accounted for 17 percent of sales last fiscal year. Japan Tobacco's U.K. market share rose to 39.2 percent in April from 38 percent a year earlier, the company said. The effect of the U.K. government's 2 percent increase on the tobacco levy is "very difficult" to predict, spokesman Guy Cote said, without elaborating further. Japan Tobacco was little changed at 252,400 yen at 11:00 a.m. in Tokyo trading today. The stock has lost 14 percent this year compared with a 2.6 percent gain for the Topix index. Europe Sales The Stirling brand is "doing well" in the super-value segment in the U.K., Cote said. It competes with British American Tobacco Plc's Pall Mall brand, and Imperial Tobacco Group Plc's JPS cigarettes. In the north and central Europe division, which includes the U.K., Japan Tobacco increased volumes by 3 percent in the first three months of the year, he said, adding it expects to increase sales in Europe this year. Shimizu said he doesn't believe the Japanese government has any "concrete plans" to sell its 50 percent stake in the tobacco company. Japanese laws require Japan Tobacco to purchase all of its tobacco leaf from local farmers for domestic production. Japan Tobacco, which purchased Gallaher Group Plc for 7.5 billion pounds ($11.4 billion) in 2007, will not make another similar-sized acquisition in the next three years, Shimizu said. Opportunities exist for alliances with distributors and suppliers, especially in Asia, he said. The maker of Camel and Mild Seven cigarettes forecast profit would fall by 19 percent in April this year, worse than analysts estimated, as demand falls in Japan, the strengthening yen weighs on overseas revenue, and costs rise from higher leaf tobacco prices. Enditem