PMI Prefers to Hold its Russian Business

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

PMI CEO Jacek Olczak said, "It's completely irrelevant when I say whether I will leave or not because I tried it last year, and the reality is that I cannot decide on the matter."

Olczak emphasized the difficulties that companies seeking to divest their Russian assets face and the potential costs of abandoning the market. For tobacco companies like PMI, Russia is a lucrative market.

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

The Russian market is PMI's seventh-largest market, with the company's products holding a 27% market share in Russia.

As of December 31, 2022, PMI's total assets in Russia were approximately $2.5 billion (excluding intercompany balances), of which approximately $600 million were cash and cash equivalents primarily held in Russian rubles.

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

In addition to Marlboro, the company sells cigarette brands including L&M and Chesterfield, owns smokeless tobacco product IQOS, and recently acquired nasal snuff oral nicotine pouch manufacturer Swedish Match for over $15 billion.

"I know some people...think that we've made a decision not to leave, but we haven't made any decisions because we can't execute that decision," Olczak said.

PMI has reinstated Russia and Ukraine in its future revenue forecast this month, which implies that a sale is a distant prospect. However, it has paused new investments in the country and reduced the scale of its operations.

Olczak said that if PMI does indeed sell its Russian assets, he would likely ask for a buyback clause to have the opportunity to return after the war ends. But he noted that this goal has not slowed down the process.

Of the four major tobacco companies, only Imperial Brands sold its Russian business to a local partner, incurring an annual profit loss of $463 million.

Thumbnail: A PM Russian Factory at St. Petersburg | Source: Reuters

Reference: 

[1] Владелец сигаретных марок Parliament и L&M сообщил о трудностях ухода из России

[2] Tobacco group Philip Morris admits it may never sell its Russian business