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October 30, 2013 10:42 am
Japan Tobacco is cutting jobs and closing factories in its domestic market as it battles increasing taxation and regulation against a backdrop of ageing consumers.
Although the cigarette maker’s Japanese business is profitable, the company on Wednesday said it would axe about 15 per cent of its domestic workforce and close four factories, largely as pre-emptive cost-cutting measures.
The company said its domestic tobacco business was facing a raft of challenges: tax increases, tighter regulations and growing health consciousness.
“The measures that we announced today aim to proactively address anticipated future challenges,” said Mitsuomi Koizumi, president and chief executive.
There is no blanket ban on smoking indoors in Japan, with regulation at the discretion of local governments. However, several authorities have instigated bans in public places such as hotels, and Japan Tobacco expects more to follow.
The group’s domestic business employs about 11,000 people, and 1,600 of those jobs are expected to disappear by early 2016. It hopes most will go through voluntary retirement. In 2004, a similar programme resulted in 5,000 redundancies.
Japan Tobacco said it would also end production at four domestic factories within the same period, leaving it with five sites in Japan. Those factories made 22.5bn cigarettes in 2012, about one-fifth of the total sold by the company in Japan. Its 25 sales offices will also be cut to 15.
Growing health awareness allied with more aggressive regulation is eroding the ranks of smokers in developed countries. As a result, cigarette manufacturers are looking to markets such as India and China, or new products such as electronic cigarettes, for growth.
Sales in Japan Tobacco’s domestic unit have slipped over the past decade, although the unit has remained in the black. The business reported Y654bn in sales and Y281.3bn in earnings before interest, tax, depreciation and amortisation in the 12 months to March.
Temporarily bucking this trend, the company has forecast sales of Y669bn in the current fiscal year and ebitda of Y291bn, spurred by the prospect of Japan’s first sales tax increase in more than 15 years. Shares in Japan Tobacco closed up 3.65 per cent at Y3,550.
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