By Joe Stonor
British American Tobacco's South African subsidiary said it would close its only factory in the country by the end of the year, citing a booming black market.
BAT South Africa said it would cease cigarette production in South Africa because of "the devastating impact of the illicit cigarette trade" in the country. The move comes after the company decided to close its Mozambican operations in December.
The affected factory, which is located in Heidelberg--around 50 kilometers southeast of Johannesburg--is currently operating at 35% of its total capacity because of severe volume losses, the company said. Its closure threatens around 230 jobs, the company added. The company employs 970 staff in South Africa.
Shares in the group, which owns the Lucky Strike and Camel brands as well as a roster of non-tobacco products, rose 1.7% to a one-month high of 43.12 pounds in afternoon European trading. They are up around 45% over the past year.
The FTSE 100 company said that South Africa's 2020 Tobacco Sales Ban--which halted all legal sales of tobacco products for 20 weeks--as well as above-inflation rises in tobacco duties, widened the price gap between legal and illegal cigarettes.
"With approximately 75% of the South African cigarette market now estimated to be illicit, continued local manufacturing has become unviable," said Johnny Moloto, the company's head of corporate and regulatory affairs in the region.
The Heidelberg factory operated for 50 years. While the company doesn't break down revenue by country, the Asia-Pacific, Middle East and Africa region of which South Africa is a part contributes one-fifth of the group's total revenue. Elsewhere in Africa, the company continues to operate factories in Nigeria, Kenya and Zimbabwe.
BAT South Africa didn't say how much the closure will cost the company, or how much it expects to save in the longer term. BAT will continue to sell products into South Africa, the company said, and will retain its Johannesburg listing.
Write to Joe Stonor at josephmichael.stonor@wsj.com
(END) Dow Jones Newswires
01-15-26 0924ET
