Two of the world’s largest tobacco companies have suffered a fall in profits as the cost of closing factories and unfavourable currency exchange rates weighed on their full-year results.
Japan Tobacco, which sells the Camel and Winston brands through its international arm, said on Thursday that group profits fell 12.2 per cent to Y395.7bn for the year to the end of December 2014.
However, the company announced a share buyback plan worth Y100bn as it reported an 8.8 per cent rise in adjusted operating profit to Y447bn from Japan Tobacco International.
“Our international tobacco business delivered another set of impressive financial results and continues to be the profit growth engine of the JT Group,” said Mitsuomi Koizumi, JT chief executive.
Philip Morris International, the world’s largest tobacco company by volume outside of China, said its full-year profits fell 12.6 per cent to $7.5bn and warned that “extreme currency volatility” meant it did not plan any share buybacks this year.
“We remain steadfast in our aim to return around 100 per cent of our free cash flow to our shareholders,” said Andre Calantzopoulos, chief executive of PMI.
“However, given the recent extreme currency volatility, we are focused on managing our cash flow prudently and on maintaining our financial flexibility for business development opportunities.”
Reported earnings per share fell 9.5 per cent to $4.76.
Both companies have been restructuring their operations in the wake of falling global consumption. Japan Tobacco is closing its Gallaher plant in Northern Ireland, while PMI has halted production at plants in Australia and the Netherlands.
Erik Bloomquist, analyst at Berenberg, said Japan Tobacco’s share buyback programme would reassure investors about its commitment to returning cash. The company has been long pressed to return cash to shareholders by The Children’s Investment Master Fund, run by Chris Hohn.
“When investors look at various tobacco companies, JT’s commitment to competitive shareholder returns has been questioned. The buyback should alleviate much of that concern,” said Mr Bloomquist.
Cigarette volumes fell at both companies, driven by a market decline in Russia, the world’s second-largest market, and Japan, which have introduced tax increases on cigarettes.
Volumes fell 4.7 per cent to 398bn units at Japan Tobacco International and 3.6 per cent to 122.4bn in its domestic business. PMI’s volumes fell 2.8 per cent to 856bn units.
This article has been amended to reflect the fact that PMI has halted production at plants in Australia and the Netherlands, not Northern Ireland
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