TOKYO (AFP) — Japan Tobacco Inc. said Thursday its annual net profits rose 13.3 percent as brisk cigarette sales overseas following the takeover of British rival Gallaher made up for a drop in domestic demand.
But Japan Tobacco (JT) forecast a steep drop in profit in the current fiscal year because of acquisition-related costs, higher raw material prices and the impact of a health scare over dumplings the company imported from China.
For the past year to March, JT posted a net profit of 238.7 billion yen (2.3 billion dollars), a record high.
"The decline in domestic sales was more then offset by brisk sales in overseas tobacco markets," said JT president Hiroshi Kimura.
Operating profit jumped 29.7 percent from the previous year to 430.55 billion yen as revenue increased 34.4 percent to 6.41 trillion yen, both all-time bests, the company said.
JT has enjoyed a major boost from its acquisition last year of Gallaher for 2.25 trillion yen -- the biggest-ever foreign acquisition by a Japanese firm.
For the current fiscal year, however, JT forecast a 38 percent tumble in net profit to 148 billion yen and a 27.8 percent decline in operating earnings to 311 billion yen, on revenue of 6.61 trillion yen, up 3.1 percent.
Profits are expected to be hit by a stronger yen, weak domestic sales and the fallout from the scandal over pesticide-tainted dumplings from China.
The health scare is having an "extremely serious" effect on the food business whose products will be off the shelves until the autumn, said Kimura.
Police are investigating the case after at least 10 people who suffered pesticide poisoning in Japan and thousands more complained of illness.
The food unit saw its operating profit slump by 90.1 percent amid rising costs and expects an operating loss of 4.0 billion yen in the year to March 2008.
The company also blamed the weak outlook on planned goodwill amortisation linked to past acquisitions and on the increased cost of raw materials.
JT said it had increased its domestic market share for the first time since its privatisation in 1985, but even so revenue from domestic tobacco sales dropped 1.6 percent to 3.36 trillion yen in the last fiscal year.
By contrast, its international tobacco sales soared 164.1 percent to 2.64 trillion yen thanks to the takeover of Gallaher, the maker of Benson & Hedges and Silk Cut cigarettes.
JT's existing brands Winston and Camel also did well in countries including Russia, Ukraine, Turkey, Spain, France and Italy.
JT has been seeking to expand outside of the tobacco industry to make up for its poor domestic cigarette sales.
Its pharmaceutical division narrowed its operating loss to 9.6 billion yen from 11.2 billion the previous year as revenue rose 7.9 percent.
JT said it had enhanced its research and development pipeline and currently has 11 potential treatments under clinical trial, including five new ones.
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