Japan Tobacco’s Earnings Call Highlights Growth Amid Challenges

Japan Tobacco ((JP:2914)) has held its Q1 earnings call. Read on for the main highlights of the call.

Japan Tobacco’s recent earnings call highlighted a robust performance in its tobacco segment, with promising advancements in the Ploom ecosystem. However, these positive developments were tempered by uncertainties in the pharmaceutical sector, currency fluctuations, and rising costs.

Strong AOP Growth

Japan Tobacco reported a significant increase in Adjusted Operating Profit (AOP), which rose by 20.8% year-on-year on a constant FX basis. This growth was primarily driven by pricing contributions and volume growth in the tobacco business, notably supported by the acquisition of Vector Group.

Tobacco Business Volume Growth

The company’s total tobacco volume experienced a modest growth of 0.2% year-on-year, excluding inventory adjustments. Notably, there was a substantial increase in Reduced-Risk Products (RRP) and Heated Tobacco Sticks (HTS) volumes, which grew by 19.0% and 27.7%, respectively.

Ploom Ecosystem Expansion

The Ploom HTS segment saw its market share increase by 3.6 percentage points since the end of 2022, reaching 8.2%. Japan Tobacco plans to further expand the Ploom ecosystem with new introductions this year.

Financial Performance of Clusters

Strong pricing strategies in markets such as the Philippines, Russia, and the U.K. contributed to core revenue and AOP growth across various regional clusters, bolstering the company’s financial performance.

Processed Food Business Revenue Increase

Revenue in the processed food sector rose by JPY 0.8 billion year-on-year, driven by price revisions and increased sales of packaged cooked rice, despite challenges in raw material costs.

Pharmaceutical Business Uncertainty

Japan Tobacco announced the transfer of its pharmaceutical business to Shionogi, citing international competition and R&D restrictions. This strategic shift is expected to reduce profit attributable to owners by approximately JPY 6 billion.

Currency Impact on AOP

The depreciation of some emerging market currencies, alongside the appreciation of cost-related currencies like the U.S. dollar, partially offset the yen’s depreciation benefits, impacting AOP.

Delivery Delays in Japan

IT system issues led to delays in product delivery within Japan, with the financial impact still under evaluation.

Cost Increases

Higher raw material costs in the processed food business and increased amortization costs from the Vector acquisition have affected overall profitability.

Forward-Looking Guidance

Looking ahead, Japan Tobacco’s guidance for 2025 remains optimistic despite the transfer of its pharmaceutical business. The company expects a decrease in profit attributable to owners by approximately JPY 6 billion, recorded under discontinued operations from the third quarter. Nevertheless, the dividend for FY 2025 remains unaffected. The tobacco business is anticipated to remain a core profit driver, with continued growth in AOP and volumes.

In conclusion, Japan Tobacco’s earnings call reflected a strong start to 2025, with notable growth in its tobacco segment and strategic expansions in the Ploom ecosystem. However, challenges in the pharmaceutical sector and rising costs present hurdles that the company must navigate in the coming quarters.