MARLBORO - WINSTON - L&M - CAMEL - PARLIAMENT - KENT - CLASSIC

Domestic sales by volume of its own brands, such as Mild Seven, and imported brands, such as Camel and Winston, fell to 42.7 billion cigarettes from 54...

TOKYO - The operating profit of Japan Tobacco Inc, the country's biggest tobacco company, was 8.6 percent lower in the fiscal first quarter ended June than a year before because of slower sales of cigarettes at home, the company said.

Even so, the company has raised earnings guidance for the fiscal year, saying its revenue would benefit from its acquisition of UK tobacco company Gallaher Group PLC.

Japan Tobacco posted first-quarter operating profit of 93.34 billion yen, against 102.07 billion yen a year earlier.

Its net profit fell 15.2 percent to 64.63 billion yen from 76.25 billion yen.

The company's revenue dropped 5.4 percent to 1.22 trillion yen as the sales value of its domestic tobacco business shrank 13 percent after the introduction of a higher tobacco tax rate in July 2006 and increases in its prices.

Before Japan Tobacco announced its first-quarter results, its stock closed 28,000 yen or 4.4 percent lower at 610,000 yen.

The company's domestic tobacco operations made an operating profit of 62.4 billion yen, compared to 81.5 billion yen. Domestic sales by volume of its own brands, such as Mild Seven, and imported brands, such as Camel and Winston, fell to 42.7 billion cigarettes from 54 billion a year earlier.

'But we are now seeing some positive signs in the Japanese market, in which we had a share of 64.9 percent share in the first quarter, up by 0.4 percentage points from the previous quarter, led by our Mild Seven family,' Japan Tobacco chief financial officer Munetaka Takeda told a press conference.

The company's tobacco operations overseas made an operating profit of 29.4 billion yen, up from 18.5 billion yen. Overseas sales by volume of its products surged 10.8 percent to 57.7 billion cigarettes because of the popularity of its Winston and Camel brands.

Japan Tobacco bought Gallaher for 7.5 billion pounds earlier in 2007, in one of the biggest-ever acquisitions by a Japanese company. Gallaher makes Benson & Hedges and Silk Cut cigarettes and Hamlet cigars.

'The consolidation of Gallaher and Japan Tobacco International allows us to seek economies of scale and explore chances to achieve better top-line growth,' said Yasushi Shingai, executive vice-president of Japan Tobacco International (JT International), which oversees the overseas businesses of the Japan Tobacco group.

He said that while Japan Tobacco aimed to achieve over 300 million US dollars in cost savings by 2010 through the consolidation of JT International and Gallaher, it was also hoping to boost operating profit by a net 100 million dollars, mainly through increased sales.

'JT International wants to continue to lead the growth of Japan Tobacco Group,' Shingai said.

The operating profit of the company's food business declined 26.8 percent to 1.3 billion yen.

The operating loss of its pharmaceutical division widened to 2.9 billion yen from 2.0 billion yen.

Japan Tobacco has increased its forecasts of net profit for the fiscal year ending March 2008 to 256 billion yen from 186 billion yen, of operating profit to 419 billion yen from 312 billion yen and of revenue to 6.41 trillion yen from 4.89 trillion. The higher forecasts take into account contributions from Gallaher.

The company plans to sell 168 billion cigarettes in Japan and 380 billion abroad during the fiscal year.

Japan Tobacco president Hiroshi Kimura said: 'By taking advantage of the acquisition of Gallaher, we now seek to evolve into a leading company in the global tobacco industry and aim for annualized growth of 10 percent in our earnings before interest, tax, depreciation and amortisation.'

Japan Tobacco forecasts EBITDA of 252 billion yen for the fiscal year.