Japan Tobacco Feeling Bullish (fwd)

[Robert Weissman <rob@essential.org>]

Japan Tobacco Confident About Its Overseas Operations
July 7, 1999
Nikkei English News via NewsEdge

Corporation : TOKYO (Nikkei)--Two months
after it took over the international tobacco
business of RJR Nabisco Holdings Corp. of the
U.S. for 950 billion yen, Japan Tobacco Inc.
(JT) is increasingly confident about its
overseas operations. 

At its shareholders meeting on June 29, JT's
management received questions from the
floor about the takeover price and the firm's
ability to manage overseas operations. 

Morihiko Someya, JT's then vice president,
confidently brushed aside such concerns in
his replies. 

A foreign securities house forecasts JT's
overseas profit will grow an average of 10%
annually from its 1998 low of 250 million
dollars. 

JT is also forecast to raise its consolidated
return on equity (ROE) to the 7% level in
fiscal 2001 on effective use of ample funds
on hand, up from 5.4% in fiscal 1998 to
March 31, 1999. Though it doesn't compare
with the more than 30% yielded by Philip
Morris Cos. of the U.S., JT's ROE is expected
to top 8% in fiscal 2004. 

JT estimates the takeover of RJR Nabisco's
overseas business will produce synergy
effects equivalent to an after-tax profit of
300 million dollars in five years. In other
words, JT expects benefits from the "high
purchase price" in the form of tax cuts for
amortization of the trademark right, and a
cut in the cost of procuring tobacco leaves
and machinery through overseas purchases. 

JT is required to buy all tobacco leaves from
domestic growers at prices suggested by a
governmental panel. Despite JT's demand for
price cuts, the purchase prices, which are
four to five times higher than international
prices, have remained unchanged over the
past 10 years due to growers' influence on
politicians. 

The practice therefore is said to be JT's
Achilles' heel. 

But as the number of domestic tobacco leaf
growers has been falling, JT bought more
than 60% of its leaves from abroad in 1998,
up from 50% in 1990. 

Despite the fal-0-~ing cost of leaf
procurement, it is uncertain whether JT can
squarely compete with the world's two
largest tobacco companies, Philip Morris and
British American Tobacco Plc. 

In Japan, for example, imports continue
eating into JT's market share. 

Restructuring, therefore, is indispensable for
JT. Although the firm has since 1985 closed
12 of its 37 plants and carried out a
personnel cut of 15,000 to 20,000, further
restructuring plans are unclear. 

At stake is whether JT can be as bold in its
restructuring as it was in making the deal
with RJR Nabisco. 

(The Nihon Keizai Shimbun Tuesday morning
edition) 
	
<<Nihon Keizai Shimbun, Inc. -- 07-06-99