Japan Tobacco and Philip Morris don’t want to leave Russia, but BAT looks set to return in the future
Last year, all Western tobacco companies announced their intention to leave their business in Russia, but so far only one of them has left. Companies admit that exiting the Russian market will cost them hundreds of millions and even billions of dollars. Most of the tobacco giants would like to leave in such a way that they either retain control of their Russian business or win everything back at the first opportunity.
The activities of foreign tobacco companies in Russia, which occupied almost the entire Russian market in the 1990s and 2000s, can be considered a symbol of an entire era. British American Tobacco has been operating in Russia since 1991, Philip Morris International since 1992, Japan Tobacco Inc. – since 1999. After the aggravation of the Ukrainian crisis, almost all of them thought about leaving the Russian Federation. However, at the moment, only one company has curtailed its work in our country – the British Imperial Brands (brands Maxim, Parker & Simpson, West, Davidoff, Gauloises, Style, JPS and Fine) left, having lost more than 600 million dollars.
The rest will have to lose much more, so their real actions to exit Russian assets do not look as cheerful as last year’s statements.
On February 22, Philip Morris International (PMI) CEO Jacek Olczak admitted that his company is experiencing serious difficulties trying to leave Russia. The top manager said that negotiations were underway to sell the business with three buyers. It must be understood that they ended in vain.
According to some estimates, the value of PMI’s Russian assets could be around $2.5 billion. It follows from the words of the head of the company that Russian structures were ready to purchase them at a low price. As we remember, according to the position of the Ministry of Finance of the Russian Federation, outgoing Western companies should sell enterprises with a discount of at least 50%. Apparently, cigarette manufacturers strongly dislike this disposition. Olchak says that Philip Morris International would “rather leave” the business in Russia than sell it on unfavorable terms.
In March 2022, the company announced that it was suspending investments in our country and would consider options for restructuring local businesses. At the same time, Jacek Olczak emphasizes that the decision to finally leave the country was not made.
Philip Morris produces Chesterfield, Parliament, Marlboro, L&M, Bond Street and other cigarettes in Russia, as well as tobacco sticks for heating Iqos. According to the data for the fourth quarter of 2021, the share of PMI in the Russian tobacco market was 31.7%. Last year, Russia and Ukraine accounted for 8% of the global company’s $31.7 billion in revenue.
British American Tobacco (BAT) produces Java, Kent, Dunhill, Lucky Strike and Rothmans in our country. The company does not seem to intend to linger in Russia after last year’s changes, but, apparently, it also cannot quickly complete the necessary procedures. Its representatives say that the transfer of assets in the Russian Federation is planned to be completed before the end of 2023. However, some experts do not rule out that the process may take longer.
The company’s chief executive, Jack Bowles, said in early February that negotiations were underway with a “local consortium of distributors.” Probably referring to the Russian group of companies SNS, which has been doing business with BAT for 30 years. In this regard, it is appropriate to assume that the deal will include the seller’s option to buy back the shares in the future. In communication with journalists, representatives of British American Tobacco neither confirm nor deny such a possibility.
Last summer, the management of BAT in Russia reported that if it left the domestic market, the company could incur losses of $1.2 billion. It is noteworthy that at the end of 2022, its revenue in the Russian Federation increased by 2.3%, and the forecast for this year shows that growth will be another 3-5%.
Japan Tobacco Inc. (brands Winston, LD, Camel, Sobranie) announced last spring that it was considering the possibility of selling the Russian business. However, as of February 2023, she has not left the country. It can be assumed that the corporation, which controls 40% of the Russian tobacco market, will lose much more than BAT and Imperial Brands combined when leaving.
There is a strange combination of facts, allusions and reticences. One gets the impression that the tobacco companies have no desire to break with Russia and are engaged in the transfer (sale) of assets only because of pressure from the West. After all, it will obviously be more difficult for them to return. In this scenario, it will turn out that the brands are gone, but the production has not gone away – among the largest suppliers of raw tobacco to Russia are entirely friendly countries: Brazil, Malawi, India. Therefore, in the future, new companies stamping cigarettes at the same enterprises will be able to produce both new and “old” brands with familiar domestic names for many.