Nomura: no smokes without firings is bad for cigarette industry

Investment bankers and brokers have stressful jobs. But resentful Nomura executives that smoke to relax will have to find another solution. The Japanese investment bank has banned staff from lighting up while working. The prohibition reflects a bleak outlook for the tobacco industry in Japan.

Smoking rates have more than halved in the past decade. But the adult male rate of 29 per cent remains one the highest in developed countries. Cigarettes are particularly prevalent in the workplace. Here, 38 per cent of men in their 40s are smokers.

Costs linked to smoking amounted to ¥2.1tn ($19.1bn) a year, according to a 2015 study. The government prohibited indoor smoking in restaurants and offices last year.

Such bans should worry Japan Tobacco. It dominates the local market and gets about 40 per cent of operating profits from cigarettes. Profits fell last year despite proceeds from a property sale.

The company has diversified with heat-not-burn devices and medical treatments. But the pharmaceuticals business brought in little more than 3 per cent of sales in the first half.

That has not arrested the decline in shares which have fallen 46 per cent in the past five years and trade at 11 times forward earnings, according to S&P Global. Expect further losses as business follows Nomura’s lead.

The bank can expect benefits beyond better employee health. Productivity should improve, assuming smokers can conquer distracting cravings. Piala estimated that breaks taken by its smokers reduced their working time by six days a year. Non-smokers at the Tokyo-based marketing agency get an extra six days holiday.

Lost hours add up for companies where labour typically accounts for a fifth of operating expenses. For banks, the impact is higher. Payroll accounted for 43 per cent of Nomura’s non-interest expenses of $10.6bn last year.

Nomura’s smokers, meanwhile, face a dilemma when working from home. Should they light up secretly, knowing their employer cannot enforce its ban? For hardworking company men and women, it is the ultimate loyalty test.

The Lex team is interested in hearing more from readers. Is Nomura right to ban smoking during working hours? Please tell us what you think in the comments section below.