Lucky Strike maker BAT takes $1.2 billion hit from Russian exit

By Eva Mathews

(Reuters) - British American Tobacco said on Wednesday it took a 957 million pound ($1.15 billion) impairment charge related to the transfer of its Russian business, pushing half-year earnings of the Lucky Strike cigarette maker 25% lower.

The London-based firm, which also makes Pall Mall and Dunhill cigarettes and controlled almost a quarter of the Russian market said in June it was in advanced talks with its distributor in the country to sell the business.

No agreement to transfer the shares has been entered into, BAT said.

A string of big corporations including Coca-Cola and McDonald's have pulled out of Russia, following its invasion of Ukraine, while consumer goods giants such as Nestlé and Unilever have continued to supply essential items there.

BAT reported a 25% drop in profit from operations to 3.68 billion pounds ($4.44 billion) for the six months to June 30 as a result of the charge.

The 119-year-old company, however maintained its full-year guidance after reporting better than expected first half revenue and adjusted operating margins on the back of booming demand for its vaping and oral nicotine products and higher prices.

First-half revenue of 12.87 billion pounds on adjusted operating margin of 43.9% beat company-compiled estimates of 12.62 billion pound revenue and 43.5% operating margin.

New category revenue, that includes sales from its cigarette alternatives and brands, such as Vype, Glo and EPOK rose 45% to 1.28 billion pounds, as the company aims to hit 5 billion pounds in the segment's revenue by 2025.

(Graphic on, BAT's cigarette alternatives gain ground: https://graphics.reuters.com/BAT-RESULTS/akvezwwmjpr/chart.png )

BAT shares were up 0.3% at 0945 GMT after gaining 0.7% in early trade.

"For now, the bulk of BAT's sales still come from traditional tobacco products, with ethical issues leaving the industry an untouchable sector for many investors," Keith Bowman, analyst at Interactive Investor said.

"But further increases in government regulations and duties cannot be dismissed, while the uncertain economic outlook warrants consideration."

Executives said the company was in a "good position" to manage macroeconomic pressures.

($1 = 0.8293 pounds)

(This story corrects paragraph 4 to say Nestle and Unilever are still supplying essential items in Russia)

(Reporting by Eva Mathews and Yadarisa Shabong in Bengaluru; Editing by Sherry Jacob-Phillips, Uttaresh.V and Tomasz Janowski)