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JTI to Open Caucasus Regional Headquarters in Georgia

Written by Keti Chkhikvadze

27/03/2011 23:40 (1120 Day 14:57 minutes ago)

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The FINANCIAL -- Japan Tobacco International, JTI, has made the decision to locate its headquarters for the Caucasus region in Georgia, according to Martin Braddock, JTI Regional President for the CIS, Romania and Adriatica Region.

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“There were many reasons for our decision. We looked at the investment and business climate here in Georgia. In the tobacco industry two things are very important: excises and regulations. Here in Georgia, what we have seen is that the Government is willing to talk to the industry and listen to the industry and with the industry help to ensure that the operating environment is well regulated,” Braddock said.

 

“Moreover, we had to look at the quality of resources available in the country in terms of office, people, and professional skills. Our decision was that Georgia is the right place to locate headquarters of our Caucasus business,” said Braddock.

 

“We are also looking at business performance in the Caucasus. In 2010 we increased business here by 50% compared to 2009. In Georgia we significantly increased our Camel business and our Winston business. We had 44% growth of JTI sales. Clearly business performance and the investment climate helped us make the decision to base our headquarters here in Georgia,” Braddock added.

 

JTI operations in Georgia have generated significant tax revenues: in 2006-2010, JTI importer, Eliz Group Ltd., paid over 327 million GEL in different types of taxes, including more than 98.5 million GEL in 2010 only.

 

Currently, JTI is in the process of looking for office space in Georgia, establishing a legal entity and hiring 41 employees in addition to already existing staff. As Braddock mentioned formal registration documents will be completed sometime in the middle of the year and currently the company is being presented by a representative office.

 

JTI is one of the leaders of the domestic tobacco market. The company has reached a 23% SOM in Georgia since its entry in 2000.

 

JTI offers Georgian smokers renowned international brands: Winston, Camel and Sobranie. JTI has a strong growth trend. In 2010 JTI sales increased by 44% compared to 2009. The company’s leading brands Winston and Camel have grown by 38% and 71% respectively. The number of JTI employees in Georgia increased by 39% since January 1, 2008.

 

“We are assessing that the Georgian tobacco market volume is 7 billion cigarettes, and I think year on year we have not seen significant changes in demand volumes,” Braddock said.

 

JTI is the international tobacco division of Japan Tobacco Inc. (JT), the leading international tobacco product company with 23 billion USD net sales (fiscal year ended March 31, 2009). JT is the third largest global tobacco company, with a global tobacco market share of 10.5% and is listed in global Fortune 500 Company. 

 

JTI was formed in 1999 when JT purchased, for 8 billion USD, the international tobacco operations of the US multinational R.J.Reynolds. JTI total sales amounted to 435 billion cigarettes in 2009, generating net sales of 9.6 billion USD and growth rate of 15% compared to 2008.

 

The company brands are sold in over 120 countries worldwide. It has 89 offices all around the world, employing over 90 nationalities. Eight Global Flagship Brands constitute the core of JTI’s brand portfolio, including Winston, Camel, Sobranie, Mild Seven, B&H, Silk Cut, LD, and Glamour.

 

Martin Braddock started his career at JTI/RJR in 1993 at the company’s headquarters in Geneva, where he held various financial positions. Braddock rose to the position of Senior Vice President Finance, Information Technology & Chief Financial Officer for JTI in 2002.

 

Braddock is a qualified accountant who trained with Price Waterhouse and worked on different assignments in Eastern Europe advising on accounting, privatization and business valuation matters.

 

He believes that one’s career path is like a pyramid, the stronger the base the higher one can climb. “I believe the accounting qualification I have is a very strong stone in my career . The professional experience I gained in PwC allowed me to work with many big companies in a very short period of time, gave me business experiences in the short term. I was lucky to go to work in Eastern Europe as soon as I qualified as an accountant, which gave me huge experiences and put another very strong stone in the pyramid,” Braddock said.

 

Q. What are JTI’s expectations in terms of sales growth and market share growth after establishing headquarters in Tbilisi , Georgia?

 

A. Clearly the decision to base management here is aimed at increasing our business in the future. We have plans and a number of products that are coming into the market, which are aimed at increasing our market share in the future. We have plans for the strengthening of about two of our leading brands - Winston, Camel. Moreover, we have brought our brand Sobranie into the market, a trademark with unique heritage and history. JTI is looking for opportunities in market to access segments which we do not compete in yet. We aim to become the number one tobacco company in terms of market share.

 

Q. In your opinion, what are the main challenges JTI will face in Georgia?

 

A. The main challenges as always in any business are continuing to increase business volume. JTI has many plans. Recently, in Camel we introduced a new line extension called Camel Black and Camel White, it took a lot of effort from marketing and sales force to management force and required time.

 

We have plans to increase the market share of Camel, Winston, Sobranie and many other brands which are still not present in the market. The first challenge is to keep that going, and second to establish the management structure here. The company has to hire staff, that’s 41 people who are not employed yet. We have to find those people, staff those people and educate them. Building the organization is a huge challenge. So the challenge is to continue to run and grow the business, and second, to build management structure.

 

Q. JTI sales in Georgia started in 2000. What has changed since then in the Georgian market? How would you compare the present and past situation?

 

A. I have seen that the market has become much more sophisticated. All the international players in the market are presented here, the environment is very competitive, you have well established local players, and you have some very sophisticated distribution companies right now that you did not have 10 years ago. You have very discerning consumers who only want quality products. Moreover, now you have a much more regulated tobacco market, excise is significantly higher than 10 years ago, so there are many changes that are already evident in the market.
 
Q. Georgia is among the countries with the cheapest prices for cigarette and largest number of smokers. In your opinion, will the prices of tobacco increase in the near future?

 

A. This is a very simple question with a complex answer. If you say that in Georgia the price of tobacco is cheap you should look at the purchasing power of the consumer. So, when you consider countries like Ukraine , tobacco is more expensive for the consumer than countries like the USA due to purchasing power. So looking at absolute prices is not necessarily the right view to take.

 

To answer the question will tobacco prices rise - of course they will. Two things are certain in this industry: excise will grow higher and regulations will become stricter. And these two things combined with governmental policies to reduce tobacco consumption will ensure that over time tobacco prices will grow.

 

Q. Japan Tobacco is listed on the Tokyo Stock Exchange. In your opinion, what will be the effect and outcomes of the recent events in Japan on your production, sales as well as stock price?

 

A. I think, in looking at recent events in Japan the first issue is really the scale of human suffering as a result of the tsunami, earthquake and situation around the nuclear facility. From a JT perspective the business has been impacted and JT has made external releases in terms of the specific impact on its production and sales operations. There is clearly an impact on the business, and the company is currently assessing it, what that means and how we can continue to run effective operations.

 

At JTI we are separate from the business in Japan as we run a separate organization in Geneva, Switzerland. So, we continue to produce and sell cigarettes. Within the company we have established a disaster relief fund to show solidarity and support to our colleagues in Japan. This programme allows employees and our business partners to contribute to the fund, and whatever amount is contributed by April 30, the company will double that money.

 

Q. What are the CSR activities JTI is engaged in in Georgia?

 

A. As any company we have the duty to contribute to society, and we set a goal to be the most responsible tobacco company from a CSR point of view. We have many programmes across the world which we are supporting including charity projects and cultural activities.

 

On the philanthropic side we have established a programme with Caritas here in Georgia, where we have agreed to support a soup kitchen over 3 years, supporting primarily the elderly. Currently 190 people are getting daily food at Caritas soup kitchen. Moreover JTI supports cultural activities in Georgia. We are working with the Japanese Embassy and held several events together. We have brought Japanese and Georgian culture closer to each other.

 

 

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