British American Tobacco exits Russian, Belarusian markets in wake of sanctions

• British American Tobacco has announced the sale of its Russian and Belarusian businesses.
• BAT complies with local and international laws in the sale.
• BAT will have no presence or financial gain in Russia and Belarus.

British American Tobacco (BAT) has officially announced the sale of its Russian and Belarusian businesses, marking the end of an 18-month-long process.

This move comes in response to BAT’s commitment to exit the Russian market, the world’s fourth-largest cigarette market, after Moscow’s invasion of Ukraine in March 2022.

The sale to a consortium led by BAT’s Russian management team signals another Western firm’s withdrawal from Russia amidst the ongoing sanctions imposed on Moscow.

However, this decision also raises questions about potential repercussions, as the Kremlin has previously seized the assets of exiting foreign companies.

British American Tobacco, a major player in the tobacco industry known for brands like Camel and Lucky Strike, had a significant presence in the Russian market, controlling just under 25% of it. The company emphasized that the sale was executed in compliance with both local and international laws.

“Upon completion, BAT will no longer have a presence in Russia or Belarus and will receive no financial gain from ongoing sales in these markets,” the company said in a statement, adding that the deal is expected to close within the next month.

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Following the sale, the businesses will be rebranded as ITMS Group, with the consortium taking ownership of BAT’s trademarks, including both traditional tobacco products and newer alternatives like Vuse vapes.

Notably, the announcement did not disclose the financial terms of the sale or whether BAT has an option to repurchase the business in the future. Unfortunately, BAT was unable to provide further details on these aspects.

British American Tobacco decision follows similar moves by other tobacco giants. Imperial Brands sold its Russian business in 2022, while Japan Tobacco and Philip Morris International have suspended investment and marketing activities in Russia but have not yet exited the market.

Beyond the tobacco industry, Western companies in various sectors have been leaving Russia due to the economic and political challenges posed by the ongoing sanctions. For example, Heineken and Volkswagen exited the market, and restaurant operator Amrest sold its KFC restaurants earlier this year.

Russia and Belarus accounted for approximately 2.7% of BAT’s revenue in the first half of 2023, with a slightly lower proportion of its adjusted profit from operations. Despite this exit, BAT remains confident in delivering its full-year guidance.

However, the company has already incurred costs related to this transition, including a £612 million ($763.04 million) impairment charge in its 2022 financial year and an additional £17 million in associated costs in the first six months of 2023.

It’s worth noting that British American Tobacco employed approximately 2,500 people in Russia. As part of the deal, the employment terms for its staff in Russia and Belarus will remain comparable for at least two years, ensuring a measure of job security during this significant transition.