More multinational companies look to distance themselves from Russia

British American Tobacco and Bridgestone are the latest to announce plans to stop business operations in Russia, whilst paper company Mondi says it is still assessing its options.
British American Tobacco announces plans to exit business operations in Russia. Image: REUTERS/Stefan Wermuth.

JSE-listed British American Tobacco (BAT) PLC is the latest multinational company to announce plans to halt business operations in Russia, saying the current climate in the country has made operations unsustainable. 

The announcement from BAT comes as Russia’s invasion of Ukraine enters its third week and follows several large corporations like Shell, BP, McDonald’s, Apple and Toyota exiting the country.

“Today, we have initiated the process to rapidly transfer our Russian business in full compliance with international and local laws,” the company said in a Sens statement.

BAT says the company will officially cut ties with Russia once the transfer is successful. The company — which has 2 500 employees in Russia — committed to safeguarding the future employment of those affected by the move.

BAT decision has been looming

In a statement the company issued on Wednesday (March 9) BAT alluded to plans of exiting Russia by first announcing the suspension of capital investments to the country. 

“We have suspended all planned capital investments to Russia and will focus on our portfolio of locally-produced tobacco products — including our heated tobacco products.

“Furthermore, we are scaling our business activities appropriate to the current situation, including rationalising market activities.” 

BAT, which also has business operations in Ukraine — and employs about 1 000 people there — has already suspended all manufacturing operations in the country.

Impact on revenue

As a consequence of leaving Russia, BAT says it will have to revise the group’s guidance on revenue growth and earnings per share growth for the 2022 financial year.

“We now expect constant currency group revenue growth of 2% to 4% and mid-single figure constant currency adjusted diluted EPS growth.

“In 2021, Ukraine and Russia accounted for 3% of group revenue and a slightly lower proportion of adjusted profit from operation,”  BAT added.

In February the group’s preliminary results for the year ended December 2021 anticipated group revenue growth for 2022 to come in at between 3% and 5%.

The group, like many others, called for a resolution to the conflict: “At BAT we pride ourselves on our values and our ethos. We join together as one company to call on all leaders and governments to find a peaceful and sustainable resolution to this tragic conflict through the power of dialogue and diplomacy.” 

Bridgestone also exits

Tyre company Bridgestone on Monday also announced its plans to suspend manufacturing activity in Russia from Friday March 18. The company says it will freeze new investments to Russia and halt export to the country as well.

“Bridgestone has been carefully assessing the impact of this challenging situation. As a result, we decided to suspend our manufacturing activities in Russia, until further notice.”

The company — which has a passenger tyre production plant and a sales office in Russia supports a staff complement of more than 1 000 people. 

“As the situation further unfolds, Bridgestone’s global and regional management will continue to closely monitor the situation and flexibly adapt plans when needed. We expect manufacturing output outside Russia to remain stable in the coming weeks,” Bridgestone says.

Mondi assessing its options

JSE-listed packaging and paper company Mondi on Friday said it was assessing all options for the group’s interests in Russia, one of which could be a “form of legal separation” amid heightening geopolitical tensions.

However, the group which has had operations in Russia for over 22 years, said in a statement: “This does not mean, or imply, that Mondi is planning, or initiating, any liquidation or bankruptcy proceedings in relation to any of its Russian subsidiaries or assets.”

The group did however suspend production at its paper bag plant in Ukraine, affecting 100 if its employees in the country. 

Mondi says its businesses in Russia that include a paper mill called Syktyvkar mill – which does not receive any direct funding from Mondi – as well as three converting plants contributed 12% to the groups revenue in 2021. The businesses have also over the last three years generated 20% of the groups underlying Ebitda (earnings before interest, tax, depreciation and amortisation).

The mill located in the Komi Republic operates an integrated power plant that provides some of the states energy demand and is the primary source of heat and warm water for the Ezhva district of  Syktyvkar, which has a population of more than 60 000 people.

According to Mondi: “The mill is legally required by the Russian authorities to provide the energy supply.” 

Due to Russia’s continued attack on Ukraine and mounting global sanctions on Moscow, the group said it has started to experience operational challenges. 

“Syktyvkar is currently operating, but the mill is starting to see a number of operational constraints, including in the importing of process chemicals, spare parts and other critical supplies.” 

“While difficult to assess the ramifications in what remains a fast-moving situation, this may significantly impact the operation of the mill,” Mondi says.

Read:
Toyota and Honda join growing corporate retreat from Russia
BP to exit its 20% stake in Russian oil giant Rosneft
Apple, Nike and Hollywood spurn Russia, isolating Putin

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Well done BATS. As a shareholder in your company, I applaud your decision and action.

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