Tobacco firm BAT sells Russian business to local management

By Emma Rumney

LONDON (Reuters) -British American Tobacco said on Thursday it would sell its Russian and Belarusian businesses to a consortium led by its Russian management team, ending an 18-month long process.

The maker of Camel and Lucky Strike cigarettes committed to exit Russia, the world's fourth-largest cigarette market, in March 2022, following Moscow's invasion of Ukraine.

BAT, which controlled just under 25% of the Russian tobacco market, said it had now formally agreed to sell the business and expects the transaction to complete within the next month.

"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," it said in a statement.

Following the sale, the businesses will be known as ITMS Group, BAT continued. The consortium will own the trademark for BAT brands, including both traditional tobacco products and alternatives like its Vuse vapes.

BAT had been in talks with its local distributor, SNS Group of Companies, and referred to discussions with a management-distributor consortium at its full-year results in February.

However, Thursday's release said only that the consortium was led by BAT Russia's management team. It also did not disclose a price for the sale, or whether the terms allowed BAT to buy the business back at a later stage.

BAT said it could not provide further details.

Cigarette maker Imperial Brands sold its Russian business in 2022. Other rivals Japan Tobacco and Phillip Morris International, have suspended investment and marketing or scaled down some activities, but have yet to exit.

Other recent exits include beer brewer Heineken and automaker Volkswagen, while restaurant operator Amrest also sold its KFC restaurants in the country earlier this year.

Others however have struggled, with the Kremlin seizing the assets of some firms looking to join the exodus.

BAT's successful extraction should free the company up to focus on other strategic issues, Davide Amorim, an analyst at AlphaValue said, adding that more information was needed to understand any potential loss for the company.

Russia and Belarus accounted for around 2.7% of BAT's revenue in the first six months of 2023, and a slightly lower proportion of its adjusted profit.

It has already recognised 629 million pounds ($784 million) in impairments and associated costs related to the sale.

It employed some 2,500 people in Russia. BAT said the employment terms of its staff in Russia and Belarus will remain comparable for at least two years as part of the deal.

Its shares were up 0.3% on Thursday.

($1 = 0.8021 pounds)

(Reporting by Emma Rumney in London and Yadarisa Shabong; Editing by Sherry Jacob-Phillips and Sharon Singleton)