UPDATE 1-Philip Morris to stop cigarette production in Australia

Tue Apr 1, 2014 11:48pm EDT

(Updates with more detail on reason for closure, comment from company)

SYDNEY, April 2 (Reuters) - American cigarette and tobacco company Philip Morris International Inc plans to stop manufacturing cigarettes in Australia by the end of the year, citing government production regulations that restrict its export opportunities.

Philip Morris said it would shift manufacturing from Victoria state to South Korea, where it would not be bound by so-called "reduced-fire risk" laws which mean it must use particular paper and construction methods.

"With any significant export opportunity restricted by Australian government regulations, our Moorabbin factory is significantly under-utilised, operating at less than half of its currently installed capacity," John Gledhill, managing director for Australia, New Zealand and Pacific Islands, said in a statement.

The company had invested heavily in the factory from 2006 to 2009 to capitalise on increased demand in Asia. But it said the introduction of the government's reduced-fire risk requirements in 2010, which are designed to ensure a cigarette self-extinguishes when dropped on the ground, led to taste changes that did not match consumer preferences in Asia.

About 180 jobs will be cut at Moorabbin, which was the first Philip Morris affiliate established outside the United States 60 years ago.

The company will continue to employ around 550 people in Australia in sales, finance and retail.

Gledhill said Philip Morris' sales and production volumes were stable in 2013, despite the introduction of Australia's plain packaging laws in December 2012.

Those laws, the most stringent in the world, require standardised packaging on all tobacco products, forcing companies to replace logos and branding with graphic images of smoking-related diseases on a drab background.

Clayton Ford, a spokesman for Philip Morris, said the factory closure was in no way related to the plain packaging laws.

(Reporting by Thuy Ong and Jane Wardell; Editing by Stephen Coates)

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