OREANDA-NEWS. February 07, 2011. Net sales and EBITDA forecasts increased - now marginally below prior year numbers.

• Significant volume decline following the excise increase in the Japanese domestic tobacco business, although trends are better than earlier forecasts
• Continued growth in the international tobacco business
• 
Highlights

• Adjusted net sales excluding tax1 and EBITDA2 remained flat in comparison to the same period of prior year at JPY1,487.6 billion and JPY424.5 billion, respectively. Growth in the international tobacco business offset sales declines in the Japanese domestic tobacco business.

• Operating income 3 and Net income3 increased 4.8% and 11.8% respectively, reflecting increased sales in the international tobacco business and lower depreciation and amortization costs in the Japanese domestic tobacco business. Net income was additionally affected by improvement in non-operating expenses.

• Japanese Domestic Tobacco Business: Following heightened demand in the second quarter ahead of the 1st October tobacco excise increase, sales volume 4 decreased by 9.0% (2Q: +27.9%, 3Q:-47.7%). Adjusted net sales excluding tax5 decreased by 2.6%. Market shares for all brands and for the key brands6 were 64.4% (FY2009: 64.9%) and 44.9%7 (FY2009: 45.1%).

• International Tobacco Business: Core net sales excluding tax8 and EBITDA9 continued to grow, increasing by 8.0% and 12.4% respectively in US dollars, driven by strong pricing and favourable foreign exchange rates. Increases were also recorded at constant rates of exchange and in Japanese Yen. GFB 10 shipment volume regained momentum, increasing by 1.5%. Market share11continued to grow in most key markets.

• Forecast: Although the sales volume for the Japanese domestic tobacco business is forecast to decrease 36% in the second half of the fiscal year, we are increasing our full year forecast, primarily due to better than expected latest trends in that business. Adjusted net sales excluding tax and EBITDA forecasts are revised to JPY1,958.0 billion and JPY523.0 billion respectively, slightly below the prior year numbers.


Hiroshi Kimura, President and Chief Executive Officer of JT, commented:

“While our domestic tobacco business is affected by a significant reduction in demand following
the introduction of the October excise increase, latest sales volume trends are steadier than expected.

Given the prices consumers must now pay for tobacco products, we will continue to focus on offering quality brands and services that meet their expectations. Internationally, our EBITDA growth was strong with GFB volume growth and market share increases in most key markets.”

Results by Business Segment

Japanese Domestic Tobacco Business

Total sales volume12 decreased by 9.0%. Sales volume increased 27.9% in the second quarter caused by heightened demand ahead of the 1st October tobacco excise and retail price increases. This increase was followed by a 47.7% fall off in demand in the third quarter. While this fall off
was significant, recent trends are better than earlier forecasts. Adjusted net sales excluding tax and EBITDA decreased by 2.6% to JPY464.1 billion and by 7.0% to JPY185.1 billion respectively in April- December.
The all brands’ and the key brands’ market shares were 64.4% (FY2009: 64.9%) and 44.9% (FY2009: 45.1%) respectively.
Marketing initiatives with a focus on product innovation and improvements continued. In January “Mild Seven D-SPEC One 100’s BOX” was launched nationwide, featuring JT’s D-spec
technology which reduces cigarette smells. Later this month the packaging of five non-menthol “Mild Seven” products will be redesigned to incorporate round-corner boxes.

International Tobacco Business

Financial results relate to the period between January 1 and September 30, 2010
Core net sales excluding tax and EBITDA increased by 5.6% to USD 7,423 million and by 7.8% to USD 2,538 million respectively at constant rates of exchange, driven by strong pricing. In Japanese Yen, the increases were 1.8% and 5.9% respectively, despite the strong appreciation of the currency.

Market share has continued to grow in the key markets of Turkey, Italy, France and Russia.
Total shipment volume13 decreased by 1.9% to 319.5 billion cigarettes due to industry contraction in Russia, Ukraine, Romania and Spain. GFB shipment volume increased by 1.5% to 185.1 billion cigarettes largely due to increases in the Middle East, Turkey, Poland, France and Korea. During July–September 2010, total shipment volume increased by 4.8% compared to the same period in 2009.

Pharmaceutical Business

Net sales increased to JPY35.9 billion, as Torii Pharmaceutical’s REMITCH® CAPSULES, an antipruritus drug for hemodialysis patients, and its Truvada® Tablets, an anti-HIV drug, continued to perform well. Revenue received as milestone payments also contributed to the increase in net sales.

EBITDA remained virtually flat at -JPY6.4 billion due to increases in costs and expenses. JT currently has 10 compounds in clinical trial, all of which are listed in the attachment to this release.

Food Business

While the summer 2010 heat wave and the good performance mainly driven by Roots, our flagship coffee brand, contributed to increased sales in the beverages business, overall net sales declined to JPY293.6 billion due to the closure of the rice wholesale business, the exclusion of certain subsidiaries from the consolidated accounts and lower out-of-home product sales in the processed foods and seasonings business. EBITDA improved to JPY14.2 billion, as the beverages business’ performance offset lower profits in the processed foods and seasonings business.

Non-Operating Results & Extraordinary Profits and Losses

Non-operating profits and losses improved to JPY-16.1 billion (3Q FY2009: JPY-36.9 billion) primarily because of lower currency forward contract valuation losses relating to cash flow hedging and reduced interest expense. Extraordinary profits and losses were JPY-25.4 billion (3Q FY2009: JPY1.0 billion). This change was due to fewer non-current asset disposals when compared to the prior year, resulting in a reduced gain. In addition, an agreement payment between JTI-Macdonald Corp., our Canadian subsidiary, and the Canadian authorities relating to the illicit trade of cigarettes in Canada prior to the acquisition by JT, also affected the loss figure.

Forecast for the Fiscal Year Ending March 31, 2011 (consolidated)

Full year forecasts for adjusted net sales excluding tax and EBITDA have been upwardly revised to JPY1,958.0 billion and JPY523.0 billion respectively, marginally below the prior year numbers. This increase primarily reflects better than expected latest trends in the domestic tobacco business following the introduction of the October tobacco excise increase which has exacerbated ongoing market contraction.

For the Japanese domestic tobacco business, the adjusted net sales excluding tax and EBITDA forecasts have been increased, reflecting updates to sales volume forecast. Total sales volume is forecast to decrease 36% in the second half of the fiscal year and 12.1% in the full year, following the introduction of the October tobacco excise increase.

In the international tobacco business, core net sales excluding tax and EBITDA forecasts have
been marginally increased, primarily to take account of currency exchange movements. The pharmaceutical's net sales forecast has been upwardly revised to take account of an increase in milestone revenue. However, while revenue has increased, the EBITDA forecast has been revised downward to reflect an upfront payment made by Torii Pharmaceutical in respect of a license agreement to develop and commercialise allergy immunotherapy products in Japan.

In the food business, net sales and EBITDA forecasts have been increased to reflect the positive
performance of the beverages business.
For more information http://www.jt.com/investors/media/press_releases/2011/pdf/20110207_02.pdf