Terrie's Take 437 -- Tobacco business, ebiz news from Japan

Mon Sep 17 10:55:42 JST 2007

* * * * * * * * *  T E R R I E 'S   T A K E  * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, September 16, 2007 Issue No. 437
+++ INDEX

- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

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+++ WHAT'S NEW

[Ed: This week we take a look at the smoking industry in
Japan. Check out Japan Inc's other take on smokers and
smoking in the JIN July 11th editorial,
http://www.japaninc.com/jin422.]

Go to any neighborhood park as we did one humid Sunday
afternoon, and you'll see a few kids around the jungle gym
set and a lot more adults on park benches whiling away some
free time. Perhaps most the incongruous thing about this
scene is that while the kids are getting plenty of
exercise, most of the adults around them are puffing away
on cigarettes, and according to the Japanese Health
Ministry, reducing their life spans by almost 10% in the
process.

Until 1985, tobacco was a government monopoly, much the
same as salt and alcohol were, and it is no wonder that the
largest domestic tobacco company today, Japan Tobacco, is
still 50% government owned. Japan Tobacco, "JT" for short,
started out as the Japan Government Monopoly Bureau in
1885. Later, after WWII, it became the Japan Tobacco and
Salt Public Corporation, then in 1985, just Japan Tobacco.

Having been a monopoly for all those years has been a huge
boon for the firm, and today it is still a major company,
with domestic sales last year (FY2006) of JPY2.3trn
(US$20bn) and profits of JPY132bn (US$1.15bn). Consolidated
sales which combine the overseas operations are about
double these numbers -- and soon, as you'll read below --
the sales and profit are about to leap another 200%.

In terms of output, JT sold over 410bn cigarettes globally
last year. About 220bn of these were consumed in Japan.

[Continued below...]

------------ Relaxing in the Yaeyama Islands --------------

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Immersrse yourself in the traditional culture and relax
surrounded by the beautiful coral reefs, mangrove jungles,
waterfalls and an array of tropical fish.

...And don't forget the awamori!

Hirata Tourism Inc.
http://www.hirata-group.co.jp/english/
Tel: 09-8082-6711 Fax: 09-8088-6945

-----------------------------------------------------------

[...Article continues]

Many consider Japan as the haven for cigarette smokers,
but we can testify that it was much worse in the 1980's,
when you had to fly and bus with smokers and being in
the no-smoking section meant less smoke but a nose
full of acrid fumes. The good news is that in 2007, the size
of the smoking public is now dropping significantly. A
2005 JT survey found that about 45.8% of men and 13.8% of
women smoke -- about 29% of the population. This compares
with 10 years earlier when 58.8% of men and 15.2% of women
smoked, and 20 years ago when almost half the population
did.

JT knows that the writing is on the wall for its local
market and has been tilling the fields abroad for the last
10 years from its Geneva, Switzerland international
headquarters. The company has been unusually successful for
what was previously a purely domestic firm, especially in
dealing with the complexities of emerging markets like
Russia and Eastern Europe, and also in M&As.

The highlight capital event for JT until this year was the
company's successful takeover of the RJ Reynolds Nabisco's
(think "Camel" and "Salem") non-US tobacco business back in
1999. Many observers including those in government were
concerned back then that the conservative company was
over-reaching itself by shelling out what seemed to be the
very rich sum of JPY940bn (US$8.17bn) for the RJR business.

However, as the synergies of the new acquisition kicked in,
it became obvious that the overseas operation was not only
profitable, but in fact has helped turn around JT's
previously dwindling fortunes. Last year's EBITDA for the
international unit jumped 44% to JPY94bn (US$817m) and the
JPY600bn (US$5.21bn) loan used to pay for the RJR purchase
was repaid through profits from the unit itself. Not a bad
result financially, probably less pleasant news for
non-smokers...

Emboldened by the success of its RJR deal, JT in April this
year took an even bigger punt, betting the farm really, by
taking over the British tobacco manufacturer/distributor
Gallaher Group Plc (think "Benson & Hedges"). This was a
humungous deal, that at JPY2.5trn (US$21bn) eclipsed even
the Softbank buyout of Vodafone as the largest M&A deal by
a Japanese firm.

Again, the handwringers were worried about the debt and
impact on JT's balance sheet, but with JPY1trn in cash in
its war chest before the deal, JT executives were sure that
they could afford it. Indeed, they now point out that they
expect that the acquisition will create production and
marketing synergy worth about JPY46trn(US$400m) in extra
annual profit over the next 3 years. That is BIG business.
And as a result of this deal, JT is now the world's 3rd or
4th (depending on how you calculate) largest tobacco
company.

Enough of JT now.

The Japanese government not only makes money out of its
tobacco company share dividends, it also makes pretty good
tax revenues as well. According to the Ministry of Finance,
tax from tobacco in month of June this year was JPY73.01bn
(US$634m), or on an annualized basis, around JPY880bn
(US$7.6bn). The Ministry must be concerned about consumers
getting thoughts of healthier, smoke-free lifestyles,
though, because its tobacco taxes fell 11.3% year-on-year
in June, because  last year's July 2006 tax increase
persuaded a lot of smokers to give up. If the consumption
tax goes up again in 2009 to the rumored 7.5% or even 10%,
you can bet that tobacco sales (and thus taxes) will fall
by more than another 10%.

Of course, not everyone likes tobacco in Japan. Readers
will be aware that Chiyoda ward in Tokyo has banned smoking
from public places. While that's probably a good thing, if
you've been to Chiyoda-ku recently, you'll know that the
anti-smoking ordinance hasn't made much impact on the man
in the street. Take a wander down the back streets of
Akihabara and you'll see just how many hardcore smokers
still inhabit the area. However, these people are in for a
shock come April 1st, 2009, because that is when
Chiyoda-ku plans to increase its enforcement to all areas
and will start doing on-the-spot fines of JPY2,000 per
incident.

Actually, for a government-owned industry, it is surprising
to see recently how the government itself is clamping down
on tobacco through various ordinances limiting its
availability. Maybe because someone finally convinced the
politicians that it costs more for lung cancer and stroke
medical care than the amount taken in as taxes...?

Well, anyway, the most recent clamp-down as been to require
all tobacco machines to vend to adults only. This will be
achieved by issuing potential customers with a special
photo-ID card, to be called "Taspo". We don't know which
cartoon character they'll be using as a campaign mascot.

Maybe Tim Burton's Corpse Bride...? :-)!

Apparently the cost for retrofitting 430,000 of the
nation's 560,000 cigarette machines will be hundreds of
billions of yen (billions of dollars) and will be paid for
by none other than JT, BAT, and Philip Morris, as well as
retailers owning their own machines. This has caused
the tobacco retailers to kick up a big stink over the new
law, but it looks like it's a done deal, with the first
machines being rolled out in Kagoshima and Miyazaki in July
2008. Don't all the best revolutions start down in Kyushu?

Lastly, we'll leave you with this thought. Last year,
researchers at Osaka University said they'd identified the
gene responsible for Nicotine addiction -- named CYP2A6.
The researchers found that 70% of their smoker subjects
having an active CYP2A6 gene would want a cigarette shortly
after waking. Apparently the gene produces enzymes that
specifically break down nicotine and allows them to smoke
more.

So now it's official, JT is off the hook for future class action
law suits and health expenses. Instead, smokers will have to
blame their ancestors!

**************

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-----------------------------------------------------------

+++ NEWS

- Another consumer finance firm down
- Daihatsu technology eliminates platinum
- GPlusMedia buys JapanToday.com
- August worst for hedge funds in 7 years
- Travel agent market shares	
- Solar cell market to grow 270% by 2010

-> Another consumer finance firm down

While the long-term prospects for the consumer finance
industry are improving, the shakeout of the mid-tier firms
continues. This time Shizuoka-based Credia has gone
bankrupt. The firm apparently owes debts of JPY76bn, a high
level given its revenues were only JPY26.7bn (US$232m). The
company says that the Supreme Court ruling last year
setting the maximum interest rate at 20%, caused banks to
deny further loans and forced them into insolvency. ***Ed:
We don't buy the excuse. Clearly this company was in
trouble long before the reduced rates ruling, as evidenced
by the high debt to sales level. More interesting is the
fact that JCB is Credia's largest shareholder, with 20%. We
wonder if they were also a major creditor and what the
knock-on effect to JCB will be?**  (Source: TT commentary
from ft.com, Sep 15, 2007)

http://www.ft.com/cms/s/0/19e53064-6317-11dc-b3ad-0000779fd2ac.html

-> Daihatsu technology eliminates platinum

One of the most expensive materials used in conventional
automobile fuel cells is platinum, a major cost inhibitor
to wider use of fuel cells. However, Daihatsu Motor has
just announced that they have created a fuel cell electrode
using cobalt and nickel to substantially reduce cost and
improve availability. ***Ed: Apparently the average fuel
cell requires about 100gms of platinum, at a cost of about
JPY500,000. Daihatsu's replacement technology come in at a
price of around JPY700 -- so this is quite a major
breakthrough.** (Source: TT commentary from afp.google.com,
Sep 14, 2007)

http://afp.google.com/article/ALeqM5jDIul9GbCTIdbf4aWxpCWCo_P-kg

-> August worst for hedge funds in 7 years

According to the Eurekahedge index, which tracks 124 hedge
funds investing in Japan, August was the worst performing
month for most funds in the last seven years. The Japan
part of the index slipped 2.8% in a single month, mostly
due to the fall-out here from the subprime loan crisis
going on in the USA. ***Ed: Luckily Japan-focused funds did
better than overseas, where the Topix Index recorded a
5.7% slide for August. Also, we note that the US$1.6bn
Penta Fund just down the road from our Aoyama office, run
by the redoubtable John Zwaanstra, recorded a strong 6.3%
gain in August. We guess this proves that some fund
managers know the Japan markets better than others.**
(Source: TT commentary from bloomberg.com, Sep 12, 2007)

http://www.bloomberg.com/apps/news?pid=20601101&sid=a73l.W5jo8LA&refer=japan

-> GPlusMedia buys JapanToday.com

GPLusMedia, the creators of the gaijinpot.com and
ecentral.jp job sites has announced that it has bought one
of Japan's busiest news web sites, www.japantoday.com, from
Crisscross KK the publisher of the Metropolis Tokyo free
newspaper.  The purchase was for an undisclosed sum and
GPlusMedia has indicated that it expects revenues for the
current fiscal year to increase 150% over FY2006, to between
US$3.5m and US$4m. (Source: TT commentary from webwire.com,
Sep 13, 2007)

http://www.webwire.com/ViewPressRel.asp?aId=47641

-> Travel agent market shares	

The Nikkei has just issued a list of the top 50 Japanese
travel agencies, stating that sales from overseas tours
rose 6.5% yoy to JPY2.65trn in FY2006. The top players
were: JTB with 35.3%, then H.I.S. with 10.9%, followed by
Hankyu Express (9.3%), Kinki Nippon Tourist (6.9%), and
Nippon Travel Agency (6.4%). JTB have been stealing share
from smaller firms while HIS has been targetting tours at
young people traveling in SE Asia. (Source: TT commentary
from nikkei.co.jp, Sep 13, 2007)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20070913D10HH844.htm

-> Solar cell market to grow 270% by 2010

Market research firm Fuji Keizai says that the worldwide
market for solar cells will almost triple from today,
reaching sales of JPY2.77trn by FY2010. Demand for
alternative energy by countries in Europe and particularly
Germany is credited with driving the increased demand.
(Source: TT commentary from nikkei.co.jp, Sep 13, 2007)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20070912D12JSN01.htm

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

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+++ CANDIDATE ROUND UP/VACANCIES

=> LINC Japan Ltd., an affiliate of the LINC Media group,
is actively marketing the following positions for market
entry customers setting up in Japan, as well as other
employers of bilinguals.

** HIGHLIGHTED POSITION

Business Development Manager

One of the world's largest commercial banks is a company
you not have heard of before, and which is ramping up its
still nascent office in Tokyo. The bank is looking for a
Credit and Business Promotion Manager for either its Tokyo
or Osaka branch.

This person will be responsible for the following:
1) Marketing to Japanese companies and banks wanting
international loans and other products
2) Credit analysis (translation from Japanese of financial
statements and preliminary analysis of credit proposals)
3) Trade Finance business development, increasing the
bank's trade finance portfolio by co-marketing with
Japanese partner companies

Successful candidate will be bilingual and have experience
in credit and trade finance for at least 5 years,
preferrably with in a foreign/Japanese bank. The person
has to have a strong interest in marketing, ability to work
in a team, and of course have strong English and Japanese
language skills.

Attractive remuneration to the right person.

Candidates can contact keiko.watanabe at lincjapan.net for
more information.

POSITIONS VACANT

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* IT software solution sales, bilingual -- JPY6-7m
* IT Administrative Officer, bilingual -- JPY6-7m
* Onsite Project Coordinator - JPY6-7m

CANDIDATES AVAILABLE

* Trilingual (E/J/ Mandarin) Japanese female with strong
marketing and sales experience in the media and
publications industry. Exellent background in planning,
research and management of new business and projects, with
strong connections to advertisers and marketers in various
industries. Available Sep-Oct, target salary of JPY10M plus
commission.

* Bilingual Japanese male in early 40's with expertise in
project management and with excellent Marketing and PR
experience. Very strong in insurance industry, with
personal network throughout the financial sector. Available
October or early-Nov. Target salary is JPY10+M/annual.

Interested hirers and Japanese/foreign candidates, email:
terrie at lincjapan.net or keiko.watanabe at lincjapan.net
-----------------------------------------------------------

+++ UPCOMING EVENTS/ANNOUNCEMENTS

----------------- YMCA Charity Ball -----------------------

YMCA Foreign Community Support Committee (FCSC) Charity
Ball on September 28th at Hilton Shinjuku. Donation of
25,000yen person. Table of 10 = 10% discount.

Champagne, wine, dinner, live band and dancing, raffle
draw, and auction featuring authentic signed items:
Guitars by Eric Clapton and Keith Richards, David Beckham's
jersey, Michael Schumacher's F1 Glove, baseball bat by
Ichiro, photo Johnny Depp, Brad Pitt, Valentino Rossi, and
much more!

Bid on these rare items from Aug 23rd at
http://www1.ymcajapan.org/content/01_home
All proceeds to benefit YMCA's Challenged Children Project.
Please contact: 03-5367-6640 fcsc at ymcajapan.org

-----------------------------------------------------------

------------------- ICA Event-Sept 20 -------------------

SPECIAL JOINT EVENT with the AUSTRALIAN NEW ZEALAND CHAMBER

Speaker: Tim Williams, Founder & Director of Value Commerce
Topic: Japan Success Stories - Value Commerce

Details: Complete event details at http://www.icajapan.jp/
(RSVP Required)
Date: Thursday, September 20, 2007
Time: 6:30 Doors open
(Light buffet, beer, wine, soft drinks included)
Cost: 3,500 yen (members), 5,500 yen (non-members)

Open to all-location is Australian Embassy B2
http://www.australia.or.jp/english/seifu/embassy/map.html

-----------------------------------------------------------

-------------- Start a Company in Japan -------------------

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If you have been considering setting up your own company,
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founder of over 15 start-up companies in Japan, will be
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company in Japan. This is an ideal opportunity to find out
what is involved, and to ask specific Japan-related
questions not normally answered in business books. All
materials are in English and are Japan-focused.

For more details: http://japaninc.com/terrie_lloyd/
-----------------------------------------------------------

______________________________________________________
IT events announcements are priced at JPY50,000 per week.
For more information, contact sales at japaninc.com

***------------------------****-------------------------***

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November/December 2007 issue

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-----------------------------------------------------------

+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors at terrie.com.

-> No corrections this week.

***********************************************************
END

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+++ ABOUT US

STAFF
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