Philip Morris Admits Reluctance to Sell Russian Business

On February 23rd, Philip Morris International (PMI) acknowledged in an interview with the Financial Times that it would rather keep its business in Russia than sell it according to the Kremlin's strict terms.

Jacek Olczak, CEO of PMI stated, "Whether I leave or not is completely irrelevant when I say so, as I attempted it last year and the reality is that I am unable to decide on the matter.

Olczak emphasized the difficulties that companies seeking to divest their Russian assets are currently facing, as well as the potential costs of abandoning the Russian market. For tobacco companies such as PMI, Russia is a profitable market.

I cannot lose patience and leave. This is their (shareholders) money, not my money, and I am managing it for them," said Olczak. "If I had a buyer who could execute a transaction, yes, we would do it - but it doesn't exist and there is no hope that it will appear... so I prefer to continue to stay in Russia.

It is known that the Russian market is the seventh largest market for PMI, with the tobacco company's products accounting for 27% of the market share in Russia.

As of December 31, 2022, PMI's total assets in Russia amount to approximately $2.5 billion (excluding intra-group balances). Of this amount, about $600 million is held in cash and cash equivalents primarily denominated in Russian rubles.

Photo credit: Reuters.

Due to high smoking rates and consumer willingness to switch to e-cigarettes and heated tobacco products, Russia has always been a huge market for big tobacco companies. Together with Ukraine, it accounted for 8% of PMI's $31.7 billion revenue last year.

In addition to Marlboro, the company also sells cigarette brands including L&M and Chesterfield, owns the smokeless tobacco product IQOS, and recently acquired Swedish Match, a manufacturer of nasal snuff and nicotine pouches, for over 15 billion US dollars.

I know some people who believe we have made a decision not to leave, but we have not made any decision yet because we cannot implement it," said Olczak.

Philip Morris International (PMI) has included Russia and Ukraine back into its future revenue forecasts this month, which implies that selling the business is no longer a remote possibility. However, the company has put new investments in these countries on hold and reduced its business operations there.

Olczak stated that if PMI does indeed sell its Russian assets, he would likely demand a buyback clause to have the opportunity to re-enter the market after the war ends. However, he noted that this objective has not slowed down the process.

It is understood that, among the four major tobacco companies, only the Imperial brand sold their Russian business to a local partner, resulting in an annual profit loss of $463 million.

Meanwhile, Japan Tobacco Inc. has no plans to leave, while British American Tobacco (BAT) is constantly striving to push for cross-border sales, despite announcing earlier this month that it is in talks to sell its Russian business.

Reference/sources:

The owner of the cigarette brands Parliament and L&M reported difficulties in leaving Russia.

Philip Morris, a tobacco company, has confessed that it may never be able to sell its Russian division.