After supposed Russian exodus, most major companies have yet to withdraw

After the Russian military invasion of Ukraine in February 2022, companies across the major G-7 economies and the European Union announced plans to stop doing business in Russia.

By the end of the year, however, few have fulfilled that promise, according to a new study from the University of St. Gallen of Switzerland.

The report published earlier this month documented a total of 2,405 wholly owned subsidiaries of 1,404 EU and G-7 companies operating in Russia at the time of the first military attack on Ukraine.

By November 2022, less than 9% of those companies had divested at least one subsidiary in Russia, and the team notes that these divestment rates were virtually unchanged in the fourth quarter of 2022. .

“Confirming the withdrawal of EU and G7 companies with shares in Russia accounting for 6.5% of the total pre-tax profits of all EU and G7 companies with active commercial activities in Russia, 8, 6% of tangible fixed assets, 8.6% of total assets, 10.4% of operating revenue and 15.3% of total employees,” wrote professors Simon Evenett and Niccolo Pisani.

“These findings mean that, on average, companies that leave tend to have lower profits and a larger workforce than companies that stay in Russia.”

Evenett and Pisani note that more US companies are confirmed to have left Russia than those based in the EU and Japan, but the report still shows that less than 18% of US subsidiaries operate in Russia. was completely divested by the end of 2022, compared with 15% of Japanese enterprises and only 8.3% of EU enterprises.

Of the remaining EU and G-7 companies in Russia, the study shows that 19.5% are German, 12.4% are American and 7% are Japanese multinationals.

“These findings raise questions about the willingness of Western companies to decouple from economies that their governments now view as geopolitical rivals,” Evenett and Pisani wrote.

“The findings of the study are a reality check of the narrative that national security and geopolitical concerns are leading to the fundamental dismantling of globalization.”

The pressure to withdraw will increase

Europe’s lag in pushing for Russia’s divestment was also highlighted by Barclays in a note on Friday, January 20.

While most of the companies they cover have committed to leaving Russia, this is partly due to pressures related to the move, say European consumer staples analysts at UK lenders. ESG from stakeholders and the threat of sanctions, a few have done it. Many companies told Barclays that there are many challenges to divest completely.

Barclays analysts note: “Aside from the lack of clarity on what properties might be worth, the list of potential buyers is short and the list of potential buyers exempt from sanctions is even larger. shorter”.

“There is also an opinion that the assets (including intellectual property) of companies leaving Russia will be nationalized.”

Barclays suggests that conflicts with no end in sight, the disconnect between commitments and outcomes will need to be resolved and will force companies to make some tough decisions.

“If leaving Russia at any value that reaches a fair valuation is very difficult (if not completely impossible), then the choice companies have to make,” the analysts said. face is whether to leave at an unfair valuation (or really get nothing) or stay in Russia.” speak.

“It seems very few commentators think the conflict may be coming to an end in the short term, and we suspect pressure to make good on withdrawal commitments may increase over time.”

They added that companies that have paused advertising and reduced product categories but still intend to stay in Russia will be increasingly challenged by broader stakeholders and tightening sanctions.

In particular, Barclays has the name CSKH, henkel, PMI, JDE Peet’s and Carlsberg is having the largest sales to Russia in the European staple consumer goods sector.

Henkel has repeatedly stated his intention to leave Russia and is transparent with the investment community about the possible impact, as about 5% of revenue and 10% of EBIT (earnings before interest and taxes) come from Russia. Barclays’ Henkel projections assume no contribution from Russia for both 2023 and beyond.

“While it is difficult to obtain country-level EBIT data, we believe that since most companies have stopped advertising in Russia, it is currently disproportionately profitable,” Barclays said.

“Henkel has been clear about the possible impact on earnings leaving Russia (5% revenue, 10% EPS) and this should be well known to investors, but we suspect that the dissolution Consolidation in Russia could be a cause of mixed profits elsewhere in Staples.”

Of the 29 consumer staples companies the unit includes, 15 have committed to leaving Russia, but only six Barclays analysts know of have actually done so.

Henkel, CCH, Carlsberg, JDE Peet’s and PMI did not respond to CNBC’s request for comment.

‘Deletion is not a sell-off’

A new report from a UK think tank last week highlighted that some of the world’s biggest companies have announced their survival plans by writing off assets rather than selling them, due to which gives “announcement of accounting entries instead of making Russian exits.”

“Many people think that when something is written off, it is lost. A write-off or write-off just means that the owner has set a value less than or equal to zero for an asset at that time. It’s worth the paper maybe Mark Dixon, a London-based merger and acquisition consultant who set up the Ethics Review think tank in February after the Russian invasion, said. .

“If the company persists long enough and doesn’t leave Russia, it could increase in value whenever the world situation changes.”