British American Tobacco expects to sell Russian business in 2023

British American Tobacco has said it is still working on a “complex” deal to offload its Russian business to a local partner this year, 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, almost a year after it first promised to exit the country following the invasion of Ukraine.

Jack Bowles, BAT’s chief executive, 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 pursuing a buyback clause for its Russian operations as part of negotiations, as Danish brewer Carlsberg admitted to this month.

“We are in a very different place than me speculating on the future of Russia,” said Kingsley Wheaton, BAT chief growth officer, in response to a query about inserting a buyback clause.

Commenting on the company’s slow exit from Russia, Wheaton added: “We said . . . this was a complex, challenging, and actually [an] unprecedented challenge, I would add a word to that now, which is sensitive.”

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”.