Japan Tobacco Inc., half owned by the government, reported Monday a double-digit fall in earnings for the April-June period, as heightened health concerns and a tax hike cooled smokers' cravings.

Operating profit dropped 14 percent to 67.5 billion yen, while revenue was down 7 percent to 1.16 trillion yen.

On a net basis, the firm reversed a year-earlier loss of 64.17 billion yen to a profit of 43.31 billion yen. But it was mostly due to the absence of a hefty pension-related charge booked last fiscal year, and does not reflect JT's regular business activity.

Among the firm's various products, tobacco sales alone dropped 8 percent to 1.07 trillion yen during the quarter.

The decline was especially steep in the domestic market, where JT's sales dropped by 107.8 billion yen. In terms of volume, sales fell 18 percent to 54.2 billion cigarettes.

The company attributed the drop to a long-term downtrend in tobacco consumption and the tax hike introduced in July 2003.

The tax hike also made the year-on-year fall bigger than usual, because the prospect of the tax increase during last year's April-June period prompted consumers to hoard cigarettes, pushing up sales.

Meanwhile, JT's overseas sales increased, helped by strong sales of Winston cigarettes in Russia, Ukraine and Turkey.

The former government monopoly is facing an ever-shrinking domestic tobacco market.

Recently, JT announced it will seek voluntary tobacco cultivation cutbacks by domestic growers, the first such request to cope with the decline.

On the marketing front, the company will lose its license to produce and sell the popular Marlboro brand in Japan at the end of next April.