Japan Tobacco Inc. (JT) announced Tuesday a major restructuring of its ailing domestic tobacco business, centering on the transfer of its head office's functions from Tokyo to Geneva, and integrating operations with its overseas tobacco business.
JT is also aiming to cut costs by seeking voluntary retirement from 1,000 domestic full-time employees and closing two factories in Fukuoka Prefecture.
The head office in Minato Ward, Tokyo, is currently in charge of domestic operations for JT's flagship tobacco business, while JT International (JTI), a Geneva-based JT group company, handles overseas operations. Under the realignment, the domestic tobacco business will be separated from JT in January 2022 and placed under JTI.
JTI will take the lead in management strategy, including sales planning in Japan and product development.
Of the company's four domestic production bases, its Kyushu factory in Fukuoka Prefecture will be closed in March 2022, along with a subsidiary filter factory. Of the about 6,500 full-time employees in the domestic tobacco business and head office divisions, the company will try to cut 1,000, or 15% of its employees, by offering special severance packages to those who voluntarily resign.
In addition, 1,600 part-time employees who assist in sales activities will be offered incentives to quit. The company expects to incur costs of 37 billion yen through its restructuring measures.
Certain head office functions, including food and pharmaceutical operations and personnel affairs for the entire JT group, will remain in Tokyo.
President Masamichi Terabatake said at an online press conference Tuesday: "This is the most important turning point since our foundation. We need to allocate resources efficiently to win out."
In fiscal 2020, JT sold 68.7 billion cigarettes in Japan, or one-fifth the 303.2 billion sold in fiscal 1985. Its business has suffered blows from the revised Health Promotion Law that went into full effect in April last year and the closure of smoking areas due to the novel coronavirus crisis.
In contrast, JT sold 435.7 billion cigarettes overseas in fiscal 2020, far more than in Japan. About 70% of the company's revenue of about 2.1 trillion yen came from overseas, according to the company's consolidated financial statements under international accounting standards for the business year ending in December 2020, released Tuesday.
When JT was privatized in 1985 from the Japan Tobacco and Salt Public Corporation, it gradually reduced its number of factories from more than 30 in Japan, and also gradually cut over 30,000 employees.
At the same time, the company has become the world's third-largest tobacco maker through aggressive mergers and acquisitions overseas. In 2007, it acquired Gallaher Group PLC for a then-record 2.2 trillion yen.
However, it failed to keep up with the rapid growth in global demand for heated cigarettes. In the domestic market for heated cigarettes, IQOS of Philip Morris of the U.S. has a 70% share, while JT's share is only about 10%. This is believed to be partly due to the fact that the command post for deciding business strategy was split between Japan and overseas.
From now on, JTI in Switzerland will take the lead to speed up management decisions.
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