[Intl-tobacco] Japan: Health concerns, tax hike douse Japan Tobacco's earnings

[robert weissman]

Health concerns, tax hike douse Japan Tobacco's earnings
The Japan Times
August 10, 2004

By TAIGA URANAKA
Staff writer

Japan Tobacco Inc., half owned by the government, reported Monday a
double-digit fall in earnings for the April-June period, as heightened
health concerns and a tax hike cooled smokers' cravings. Operating profit
dropped 14 percent to 67.5 billion yen, while revenue was down 7 percent to
1.16 trillion yen.

On a net basis, the firm reversed a year-earlier loss of 64.17 billion yen
to a profit of 43.31 billion yen. But it was mostly due to the absence of a
hefty pension-related charge booked last fiscal year, and does not reflect
JT's regular business activity.

Among the firm's various products, tobacco sales alone dropped 8 percent to
1.07 trillion yen during the quarter.

The decline was especially steep in the domestic market, where JT's sales
dropped by 107.8 billion yen. In terms of volume, sales fell 18 percent to
54.2 billion cigarettes. The company attributed the drop to a long-term
downtrend in tobacco consumption and the tax hike introduced in July 2003.

The tax hike also made the year-on-year fall bigger than usual, because the
prospect of the tax increase during last year's April-June period prompted
consumers to hoard cigarettes, pushing up sales.

Meanwhile, JT's overseas sales increased, helped by strong sales of Winston
cigarettes in Russia, Ukraine and Turkey.

The former government monopoly is facing an ever-shrinking domestic tobacco
market. Recently, JT announced it will seek voluntary tobacco cultivation
cutbacks by domestic growers, the first such request to cope with the
decline.

On the marketing front, the company will lose its license to produce and
sell the popular Marlboro brand in Japan at the end of next April.