British American Tobacco Plc said Friday it has decided to exit the Russian marketplace in response to the military invasion in Ukraine.
The manufacturer, which owns Reynolds American Inc. of Winston-Salem, said in a statement that “we have concluded that BAT’s ownership of the business in Russia is no longer sustainable in the current environment.”
Russia is the fourth-largest cigarette market in the world, according to Forbes magazine. BAT has a 23.5% market share, according to Cowen & Co., trailing Japan Tobacco at 36.7% and Philip Morris International at 31.7%.
BAT did not provide a timeline for completing the exit.
“Today, we have initiated the process to rapidly transfer our Russian business in full compliance with international and local laws,” BAT said.
People are also reading…
“Beyond continuing to pay our 2,500 employees, we will do our utmost to safeguard their future employment.”
BAT’s Ukraine operations are based in Kyiv, and its Russia operations are based in Moscow. BAT said it has 1,000 manufacturing employees in Pryluky, Ukraine, and 2,500 in St. Petersburg, Russia.
BAT said the decision to exit Russia came after a two-day “review of our presence in Russia. The context is highly complex, exceptionally fast-moving and volatile.”
On Wednesday, BAT said it would continue to operate in Russia, but halt all planned capital investments and new product introductions.
Barclays analyst Jain Gaurav said BAT likely accelerated its decision once Russian president Vladimir Putin announced Wednesday he was backing a plan to nationalize assets of western companies exiting Russia.
"On Friday, the Russian prosecutor generals office said that companies pausing operations need to comply with labor laws," Gaurav said. "We think this likely led to BAT's decision and revised guidance."
BAT said in its statement that “we join together as one company to call on all leaders and governments to find a peaceful and sustainable resolution to this tragic conflict through the power of dialogue and diplomacy.”
The decision comes with a financial cost, though not as significant as what could face Philip Morris International and Japan Tobacco if they make a similar decision.
Russia is among nine key markets for BAT’s heated cigarette product glo, which has not been approved for U.S. usage by the Food and Drug Administration.
The decision to exit Russia and suspended Ukraine operations led BAT to revise its full-year financial guidance.
In 2021, Ukraine and Russia accounted for 3% of group revenue and a slightly lower proportion of adjusted profit from operations.
“We now expect constant currency group revenue growth of 2% to 4% and mid-single figure constant currency adjusted diluted earnings per share growth," the company said.
On Feb. 11, BAT projected mid-single figure adjusted earnings per share growth, “reflecting continued COVID-19 impacts.”
Other responses
On Wednesday, Imperial Brands Plc said it had suspended operations in Russia and Ukraine in response to Russia’s invasion of Ukraine.
Imperial, which owns ITG Brands LLC of Greensboro, said in a statement it has halted all production at its plant in Volgograd, Russia, as well as ceasing all sales and marketing activity in Russia.
It also suspended its operations in Ukraine, where it has 600 employees.
Imperial said both countries comprise combined about 2% of its net revenues and 0.5% of adjusted operating profit for fiscal 2021.
Philip Morris International, which has the largest manufacturing presence in Russia, said Wednesday it has suspended all capital investments in the country, which includes “all new product launches and commercial, innovation, and manufacturing investments.”
The manufacturer also said it has “activated plans to scale down its manufacturing operations in Russia amid on-going supply chain disruptions and the evolving regulatory environment. We will continue to monitor the situation as it evolves.”
Philip Morris International has about 800 employees in Ukraine. It said it would continue to pay salaries to all Russian and Ukrainian employees.
A third major tobacco supplier to Russia and Ukraine, Japan Tobacco, said Thursday it has suspended operations in Ukraine, as well as all new investments and marketing in Russia.
It also halted the launch of its heated cigarette product Ploom X in Russia. Japan Tobacco has about 1,000 employees in Ukraine.
Russia is one of Japan Tobacco’s largest markets with four manufacturing plants and nearly 4,000 employees, which is 6.7% of its overall workforce of 58,000. The company said all employees in Russia “will be retained for the foreseeable future.”
BAT, Japan Tobacco and Philip Morris International had drawn criticism in the past two days from U.S. anti-tobacco advocates questioning why they were still doing business in Russia when other international manufacturers had exited.
For example, the Campaign for Tobacco-Free Kids claimed the three manufacturers were “showing once again that they lack a moral compass and always put profits before lives.”
“These companies have issued press releases with slippery language that they are ‘scaling down operations in Russia.
“But empty PR gestures cannot disguise the fact that these tobacco companies continue to do business in Russia, boosting both their own profits and Russia’s economy as it continues its brutal assault on Ukraine.”
BAT and the other tobacco manufacturers are demonstrating “the geopolitical risks of global businesses,” said David Sweanor, an adjunct law professor at the University of Ottawa and the author of several e-cigarette and health studies.
“From a health standpoint, the move to buying locally owned cigarettes in place of foreign ones makes no difference.
“But Russia and Ukraine were big markets for reduced risk products, especially the heated tobacco category, and losing access to these products will invariably lead to substitution by lethal cigarettes,” Sweanor said.