Japan Tobacco adapts supply chain to navigate sanctions in Russia

Japan Tobacco’s chief executive, Masamichi Terabatake, has announced that the company will continue its operations in Russia despite the ongoing conflict in Ukraine and the resulting sanctions imposed on the country. Terabatake stated that the decision to maintain the business in Russia was made to satisfy investors, as the country accounted for about 20% of the company’s overall profits.

In response to the sanctions, Japan Tobacco has reshaped its supply chains, routing some business through Turkey and relocating key personnel to Hong Kong. The company has suspended all investment and marketing activities in Russia but has decided to keep its operations running to ensure profitability.

Terabatake emphasized that shutting down the Russian business would pose a risk to investors and could potentially lead to shareholder lawsuits. He highlighted the importance of fulfilling fiduciary duties by continuing to run a profitable business, even under challenging circumstances.

Despite facing scrutiny over the reputational impact of operating in Russia, Japan Tobacco has decided to stay in the country along with other foreign companies such as Philip Morris. Terabatake assured investors that the company has put in place measures to comply with sanctions and ensure business continuity.

While Terabatake remains prepared to split off or sell the Russian unit in the worst-case scenario, he believes that under the current sanctions regime, such drastic measures may not be necessary. Investors are eagerly awaiting updates on how the company plans to repatriate profits from Russia back to shareholders, as no dividends have been paid out from the Russian entity’s financial results in 2022 and 2023.