Japan Tobacco CEO favours regional deals over complex purchase

[TOKYO] Japan Tobacco favours pursuing deals in South-east Asia and markets where it lacks a presence as it actively seeks to expand overseas, according to the company's new chief.

The world's third-largest listed tobacco company is aiming to command around a 40 per cent share of the heated tobacco market in Japan by 2020, said Masamichi Terabatake in an interview Wednesday at the company's headquarters in Tokyo. A pillar of that growth will be its next-generation device, Ploom Tech, as well as other new devices the company has in development.

"We look at economics, population growth and gross margin expansion in markets we want to enter," said Mr Terabatake, 52, who took the helm at Japan Tobacco this month. "Recently one such area is Asia."

The maker of Mevius and Winston cigarettes is targeting acquisitions overseas and expanding its offering of high-tech smoking devices to grow profits as the conventional cigarette market is pressured around the globe. Japan Tobacco has been slower than its global competitors such as Philip Morris International and British American Tobacco in selling next-generation products, which heat tobacco to deliver nicotine.

Mr Terabatake said underdeveloped markets are more attractive compared to a complicated acquisition. Earlier this year, analysts speculated that Japan Tobacco might buy Imperial Brands. But the Japanese company has focused on developing countries such as Indonesia, the Philippines and Ethiopia, where it has spent more than a combined US$2 billion in recent months acquiring assets. Mr Terabatake declined to comment on an Imperial acquisition directly.

The tobacco industry has been consolidating over the past few years amid declining smoking rates. After large deals like BAT's US$49 billion buyout of Reynolds American, there are few big targets left.

BLOOMBERG