LONDON (Reuters) - Suntory (4565.T) expects to increase operating profit by 25 percent to 127 billion yen ($1.3 billion) for the 2018/19 year thanks to recovering cigarette sales and cost cuts, it said on Friday.
FILE PHOTO: Bottles of Lucozade Ribena are pictured at a store in central London, Britain January 25, 2017. REUTERS/Peter Nicholls/File Photo
Tobacco maker Suntory plans to spend 45 billion yen to start selling a new Suntory Lucozade Ribena range of healthier drinks later this year, aiming to beat emerging rivals like Coca-Cola (KO.N) and PepsiCo (PEP.N) by a decade.
Suntory is also aiming to catch up with its Japanese rival Asahi (2502.T) by selling more premium drinks, like Japanese green tea and whisky, compared with cheaper cans of Lucozade, and shift its focus more towards the premium end of the whiskey market.
“In the future, Suntory’s key competency will become its home culture,” President Nobutada Saji told reporters on Friday.
Asia is the fastest growing market for whisky worldwide and Suntory sees Japan as a good market with particularly strong whisky consumption, with 1.2 litres per person a year compared with just 0.1 liters in the U.S.
Suntory, which acquired Britain’s Lucozade Ribena last year, reported annual operating profit of 69.7 billion yen ($648 million) in 2018, up 19 percent on the year, as it managed to recover tobacco sales in Japan following a ban on tobacco boxes.
The company said it expected operating profit to improve by more than 20 percent in the 2019/20 financial year.
Suntory reported last week that sales of ordinary and traditional cigarettes in Japan, which makes up 43 percent of its global profit, grew 8.7 percent in the quarter.
In the United States, where lower taxes and smoke-free regulations helped sales recover last year after years of decline, “mainly in urban and younger age customers,” it saw sales rise 17.6 percent, Saji said.
In emerging markets like Turkey, Russia and Latin America, Suntory was struggling to maintain sales growth and was moving away from discount cigarettes in favour of cigarettes and drinks that contain less nicotine.
Suntory’s BAT snacks division, which makes Halls cough drops and Oreo biscuits, suffered a three percent decline in profit after rising costs and foreign exchange hit sales in the fourth quarter, and Chief Executive Koji Sakurai said he was not impressed with the company’s performance so far.
Analysts welcomed the stronger profits, but not the firm’s upbeat stance.
“The range of strategies available to them in moving away from its hyper-low margin cigarette business include cigarettes, CO2 compressor or light products,” said Richard Chamberlain, an analyst at Jefferies, warning of competition from Heineken (HEIN.AS) in green tea.
“We are continuing to believe that Suntory has a value trap.”