British American Tobacco’s chief executive said efforts to offload its Russian business to a local partner could spill into 2024, underlining the difficulties that companies face as they seek to exit the country.
The owner of Lucky Strike and Dunhill brands said it was in “advanced discussions” to complete the sale in 2023, almost a year after it first promised to exit the country following the invasion of Ukraine.
But chief executive Jack Bowles admitted that he could not guarantee that the transfer would be concluded by the end of the year. “As I don’t have a crystal ball, I cannot be absolute on that one, but the objective is really to do it . . . We want to exit in 2023,” he told the Financial Times.
Bowles told investors that the cigarette maker was “working as quickly as possible to transfer the businesses in compliance with international and local laws”.
He added on Thursday that the talks with a “local joint management distributor consortium” — understood to be Russia’s SNS Group of Companies, which has worked with BAT since 1993 — were proceeding “with a view to completing the transfer in 2023”.
Russia had historically been identified as a key growth market by BAT and other big tobacco companies because of its high smoking rates and consumers’ openness to converting to new-generation tobacco products, such as BAT’s Vuse vaping devices.
In 2021, Russia and Belarus accounted for 3.1 per cent of BAT group revenues and 2.4 per cent of adjusted profits. The company also plans to exit Belarus as part of any deal.
BAT declined to say whether it was seeking to insert a buyback clause for its Russian operations in case the war ended, as Danish brewer Carlsberg admitted to this month. “These are things that we cannot speak about because we are not even finalised in terms of the deal,” Bowles said.
He stressed that he did “not hold the keys of the puzzle” to getting the “extremely complex” deal over the line, which is complicated by sanctions regimes in the US and Europe.
Of the major tobacco conglomerates, so far only Imperial Brands, maker of Gauloises and Davidoff cigarettes, has exited Russia, taking a £463mn hit to profits.
Marlboro maker Philip Morris International has announced plans to leave Russia but has yet to do so, while Japan Tobacco, which had a 40 per cent market share in the territory, has suspended new investments but did not pledge to leave.
BAT has written down the value of its Russian and Belarusian business by £554mn as part of an impairment charge in its company filings, but still valued its assets held for sale in the two countries at £752mn.
In its full-year results on Thursday, BAT reported a 2.3 per cent rise in revenues to £27bn and a 4.3 per cent uptick in operating profits to £12.4bn on a constant currency basis in 2022, compared with the year before.
BAT said revenues at its vaping and heated tobacco business grew 37 per cent to £2.8bn, adding that it now expected its new-generation products portfolio, which includes Vuse vapes and glo heated tobacco sticks, to become profitable a year earlier than planned in 2024.
Shares in the London-listed group were down nearly 5 per cent to £29.42 in early morning trading.
Rae Maile, an analyst at Panmure Gordon, described BAT’s decision not to launch a fresh share buyback programme to reward shareholders as “at best strange, at worst disconcerting”.
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