Strategy shift for British American Tobacco NZ

British American Tobacco NZ closed its manufacturing line in Napier in 2006, shifting work to Australia. Photo / Peter Meecham

British American Tobacco's New Zealand business has lost responsibility for strategic decisions, leaving it principally a distribution point for the cigarette maker in an increasingly hostile market.

Since last July, the local holding company, British American Tobacco Holdings (NZ), has focused on trade marketing and distributing products locally, with all portfolio strategy, brand and pricing decisions made by UK-based related entity BAT (UK and Export), which is responsible for the manufacture and supply of the group's products such as Pall Mall, Benson & Hedges and Dunhill cigarettes.

The restructure reduced the company's wage bill, with employee costs down 13 per cent to $13.1 million, and also terminated BAT NZ's trademark licences, which were sold to the related UK company for a net gain of $229.9 million, statements filed with the Companies Office show.

Saul Derber, BAT NZ's head of legal and external affairs, said the move wasn't to mitigate the risk posed by the Government's plans to impose plain packaging on tobacco products, rather it was the result of a review to keep the firm operating competitively.

"In the past these reviews have resulted in moving manufacturing and product development out of New Zealand," Derber said. "In the latest review, it was decided that the NZ business should now focus only on distribution and meeting the competitive challenges in its trade environment."

BAT NZ closed its manufacturing line in Napier in 2006, shifting work to Australia and ending 60 years of production in Hawke's Bay.

NZ tobacco companies face annual tax hikes of 10 per cent a year to cut smoking. While those tax hikes feed through to higher revenue for firms like BAT NZ, whose sales were up 6.1 per cent to $1.31 billion in calendar 2015, gross margins have been squeezed by the added duty.