The world's second-largest tobacco company, which merged last year with Rothmans International BV, will close one factory and reduce staff at two others to better utilise the combined company's production capacity, which is 50% higher than demand in the U.K. and export markets, BAT said.

BAT blamed the over capacity on several factors, including economic difficulties in Asia, the loss of duty-free sales in Europe and the impact of cigarette smuggling. It also said there is a trend to local cigarette production in emerging markets, where BAT has a large market share.

According to the plan, BAT will shutter its Spennymoor factory, and keep two others at Darlington and Southampton open but with reduced staff.

Southampton has a volume capacity of 50 billion cigarettes annually, and produces brands including State Express 555, Benson & Hedges and John Player Gold for export. Darlington has a volume capacity of 22 billion cigarettes annually, and produces brands such as Rothmans King Size and Dunhill King Size for the UK and international markets.

The global cigarette market, now estimated at around 5.5 trillion sticks a year, is likely to decline by around 5% in 1999, because of economic problems in many regions, declining markets in key western countries and anti-tobacco health campaigns.

The Wall Street Journal