Japan Tobacco looks to Russia

15 February 2011

TOKYO: Japan Tobacco, the cigarette manufacturer, expects increased earnings for 2011, with Russia and other Eastern European nations among its key targets for growth.

Speaking to Bloomberg, Yasushi Shingai, an executive vice president at the company, said the firm is aiming to increase its foreign profits by 10% or more.

To achieve this, Japan Tobacco will focus on its more successful existing brands, such as Mild Seven and Winston, rather than developing new products.

Russia is Japan Tobacco's largest international market, accounting for 48% of its sales outside of Japan during 2010.

But tobacco firms' growth prospects could be limited by a tougher regulatory environment.

The Russian authorities recently announced they are considering an increase to tobacco taxes and a ban on cigarette ads, bringing the country in line with other European nations.

The ad restrictions could be in place by 2012, with a ban on smoking in public potentially being enforced from 2015.

According to Euromonitor forecasts, Japan Tobacco will derive roughly 30% of its 2010 net sales from tobacco in Japan, with sales in international markets accounting for another 48%.

The remainder will be taken up by its pharmaceutical and foods businesses.

Euromonitor was particularly upbeat on Japan Tobacco's prospects in Eastern Europe.

The firm was the biggest cigarette maker in Russia in 2009, achieving a market share of 37.5%.

Japan Tobacco is forecast to grow by an average 0.3% over the years to 2014.

"Despite the recession and significant tax rises affecting the Eastern Europe region in 2009, particularly Russia and Ukraine, JT has managed to increase regional market share and remains well placed where though volumes are now falling, value and margins should increase in upcoming years," the Euromonitor report added.

Data sourced from Bloomberg/Euromonitor; additional content by Warc staff