JTI Cigarette Factory May be Shut down in South Africa

Source from:  BD Live 10/20/2015

JAPAN Tobacco International (JTI), the world's third-largest cigarette maker, is considering shutting down its factory in SA to improve operational efficiencies in a declining cigarette market.

JTI's brands include Benson & Hedges, Camel and Silk.

The Wadeville factory, located in the east of Johannesburg, was set up in 2008 shortly after the Japanese cigarette maker acquired Gallaher, a FTSE 100 business, for £9.4bn. It employs 84 workers.

Each year, the factory makes 1.9-billion cigarettes, which is less than a third of its operational capacity of 6.7-billion cigarettes per annum.

"The decision to review operations at Wadeville was taken due to the factory being significantly underutilised," said Andrew Newman, GM of JTI Manufacturing SA.

Mr Newman said efforts to improve efficiencies at the Wadeville factory over the past few years through increased investments in innovation and additional product lines had not yielded the desired results.

"In this context‚ and as part of JTI's wider efforts to optimise its manufacturing footprint and remain competitive‚ the company has no option but to consider discontinuing operations at Wadeville," he said

The potential factory shutdown is not expected to affect staff at JTI SA's other divisions.

"The factory workers only represent 30% of JTI's workforce. The majority of our workforce is in purchasing, marketing and administration," Mr Newman said.

JTI operates in 20 countries in Africa. Its products are distributed through chains such as Pick n Pay and Spar, as well as through wholesalers. Should the Wadeville factory be closed, the company would source the cigarettes to be sold in SA from other manufacturing facilities it operates across the continent.

"The reality is the tobacco market in SA is declining. To meet demand for our product we would need a larger factory and SA's cigarette market is just not big enough," Mr Newman said.

JTI SA holds less than 9% of the country's cigarette market. The lion's share (70%) is held by British American Tobacco, the world's second-largest tobacco producer. SA is not the only country seeing cigarette volumes dwindle.

Increasingly, smokers worldwide are quitting, mainly in response to global awareness campaigns about the negative health implications of smoking.

Industry sales declined 3.5% during the first half of the financial year.

The 84 workers employed at the factory in Germiston have already been issued with Section 189 letters.

Consultations are scheduled to take place with unions over the next 60 days, after which a final decision about the factory will be made. Enditem