Bloomberg News

Japan Tobacco Profit Rises on Lower Taxes, Currency Gains

November 01, 2011

(Updates with comment from spokesman in fourth paragraph.)

Oct. 31 (Bloomberg) -- Japan Tobacco Inc., Asia’s largest cigarette maker by market value, said first-half profit jumped 18 percent on lower taxes and currency gains.

Net income rose to 95.9 billion yen ($1.2 billion) in the six months through September from 81.3 billion yen a year earlier, the Tokyo-based company said in a statement. Sales fell 1.5 percent to 1.28 trillion yen.

Net sales for the company’s domestic tobacco business fell 20.5 percent in the period, with volume plummeting by 41.2 percent, resulting in a reduced tax expenditure that boosted profit by 17.5 billion yen, according to the statement. Currency exchange gains contributed 6.9 billion yen to the increase in earnings, spokesman Hideyuki Yamamoto said in an e-mail.

“The biggest driver of net income for the last six months is reduced tax expenses,” Yamamoto said. Decreased sales in Japan meant the company paid lower taxes in a country that has a high corporate tax rate, he said.

The yen gained 7.9 percent against the dollar in Japan Tobacco’s fiscal first half, according to data compiled by Bloomberg.

Domestic Business Recovering

Japan Tobacco, the third-best performer this year on the Nikkei 225 Stock Average, fell 0.6 percent to 395,500 yen in Tokyo trading, before it announced results. The stock has gained 32 percent this year, compared with a 15 percent decline in the broader Topix index.

Volumes were hurt partly by the effects of the March 11 earthquake in Japan. The cigarette maker said its domestic business is now recovering from the earthquake as shipments have resumed. Market share rebounded to 57.8 percent in September from 20.7 percent in April, the company said.

The ratio of Japanese adults who smoke declined to 21.7 percent, 2.2 percentage points lower than a year ago, as of August because of higher tobacco taxes imposed in October and an aging population, Japan Tobacco said earlier this month.

Core net sales, which excludes items such as excise taxes, rose 9.3 percent at the company’s international business, spurred by higher prices and increased share in many markets. A strong performance in Russia, Turkey, Italy, Poland and the Middle East boosted overseas shipments, the company said.

Earnings before interest, taxes, depreciation and amortization at the overseas business climbed 15 percent.

Japan Tobacco is targeting goodwill and amortization adjusted dividend payout of 30 percent this year.

“We will see whether we can increase it a further 10 percent from the current level in the medium term,” Vice President Munetaka Takeda said at a press conference.

The Japanese government, which owns 50 percent of the cigarette maker, is considering selling part of its holding and may raise tobacco taxes to help fund reconstruction after the March 11 earthquake and tsunami killed almost 20,000 people and caused the worst nuclear crisis since Chernobyl.

--With assistance from Anjali Cordeiro in Hong Kong. Editors: Frank Longid, Suresh Seshadri.

To contact the reporter on this story: Cheng Herng Shinn in Tokyo at hcheng52@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net


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