Japan Tobacco’s CEO has said the company will keep its “lucrative” Russian business to satisfy investors after reshaping its supply chains to comply with sanctions, reports The Financial Times.
JT is diverting some business through Turkey and has transferred key personnel to Hong Kong as ties with Russia have come under pressure in the wake of its invasion of Ukraine, Masamichi Terabatake told the Financial Times. The company, 33 per cent owned by the Japanese state, had originally said it would consider selling its Russian business afer the onset of war in 2022. However, it decided to cease all investment and marketing activities in Russia. The country accounted for about 20 per cent of the company’s overall profits, Terabatake said. Investors were concerned about any potential decline in profits, he said, adding that he would be breaching his fiduciary duty if he closed a business that he could continue to run at a profit. “If I said for example that we are going to quit the business, investors may face the risk of losses. If worse comes to worst, there is even the risk of a shareholder lawsuit if we were to discontinue a business that we are able to continue,” he said.
JT is one of the largest foreign companies remaining in Russia, with more than 4,000 employees and four factories. The company’s overall profits in 2023 amounted to JPY 482bn (USD 3bn. The EU, Japan, the US and other western countries have imposed far-reaching sanctions on Russia to curb flows of money and goods. Speaking at JT’s headquarters in Tokyo, Terabatake said the company had created a new structure for its Russia unit and supply chain to comply with the sanctions. This includes sending employees to Hong Kong to monitor sourcing channels and inventory, he said. “There are various things we need to be careful of from sanctions — what kind of people can be involved or not in decision-making, excluding people from unfriendly countries for Russia’s management . . . to putting people unrelated to sanctions in places such as Hong Kong,” said Terabatake. “But otherwise, it’s business as usual.”
Japan Tobacco was criticised by investors for the potential impact on the company’s reputation as it continues to operate in Russia, but Terabatake said those concerns had receded. “It’s true that initially there was a question about reputation in regards to continuing our business but more recently it’s less of an issue,” he said. “There are fewer occasions where people are demanding to know why JT is continuing its business [in Russia].” Investors have yet to get an answer from the company on how it plans to get those profits out of the country and back to shareholders, the report said. No dividend has been paid to date by the Russian entity from its 2022 and 2023 financial results. Despite his insistence that it was “business as usual” in Russia, Terabatake said he is still prepared to spin off or sell the unit “in the worst-case scenario”. However, he does not believe that this is necessary under the current sanctions regime.