(Corrects currency to euros from pounds)
* Investment in new machines to be 100 mln to 200 mln euros
* Raises need to cut costs, no job losses expected
* New package sizes, graphic pictures
By Martinne Geller
BAYREUTH, Germany, April 29 British American
Tobacco expects compliance with new European regulation
on cigarettes to cost it 100 million to 200 million euros ($138
million-$277 million) over the next two years as it upgrades its
machines to meet new packaging rules.
The European Commission is implementing legislation known as
the Tobacco Products Directive (TPD) aimed at cutting down on
the estimated 700,000 EU citizens who die each year from
The law includes an eventual ban on menthol cigarettes and a
requirement that graphic health warnings cover 65 percent of the
surface of a pack of cigarettes with pictures of illnesses such
The new rules will require British American, maker of Lucky
Strike, Pall Mall and Kent cigarettes, to upgrade much of the
machinery in its factories.
It will spread the investment across its seven plants in
Europe, but the change will be felt most acutely in Bayreuth, a
town in the German countryside home to rapeseed fields and an
opera house that only puts on work by German composer Richard
The company says despite the cost impact, none of the 1,400
jobs here, its biggest factory, will be lost.
"What it really means is a significant, additional cost for
us, which at the end of the day puts pressure on us to save
money elsewhere," said Bernd Meyer, operations director of BAT
Germany and head of manufacturing for Western Europe.
BAT and rivals including Philip Morris International
and Imperial Tobacco are grappling with declining sales
in a number of European markets as regulation and taxes grow,
and increasingly health conscious consumers smoke less.
Earlier this month, Imperial said it would close factories
in England and France, resulting in the loss of about 900 jobs.
"Every site in the European Union is under pressure in
Western Europe, simply because we have currently decreasing
volumes," Meyer said.
The majority of BAT's investment in new machinery will be
made by the beginning of 2016, Meyer said, since member states
have two years to implement the TPD following its formal
adoption in March 2014. However, is the fact that various
European countries are likely to implement the laws differently
at different times.
Britain plans to go a step further by banning branded packs
altogether as Australia has done, adopting a standard of "plain
packaging" meant to remove any lure to non-smokers from brightly
Under the TPD, cigarette packages have to feature pictures
of tobacco-related diseases, which cost more in printing, Meyer
said. Also, since the pictures must be of a certain size,
smaller packs - like those of ultra-slim cigarettes - have to be
Meyer said the move should not have a long-term effect on
profitability, since standardisation can make production simpler
The factory in Bayreuth accounts for 35 percent of BAT's
European production, making cigarettes for Germany and export to
Italy, Spain, Denmark and Romania.
Excluding duty, excise and other taxes, British American had
2013 revenue of 15.3 billion pounds and adjusted profit of 5.8
billion pounds. It will give an interim management statement on
($1 = 0.7223 euros)
(Editing by Jason Neely)