After Russian forces invaded Ukraine in February 2022, companies in major G7 and European Union economies announced plans to cease commercial operations in Russia.
However, by the end of the year, very few had fully delivered on that promise, according to new research from the University of St. Gallen, in Swiss.
The report, released earlier this month, documented a total of 2,405 subsidiaries owned by 1,404 EU and G7 companies that were active in Russia at the time of the first military incursion in Ukraine.
By November 2022, less than 9% of that group of companies had liquidated their business in Russia and the team research noted that these divestment rates barely changed during the last quarter of 2022, as reported by CNBC and seen by Al Arabiya.net. .
“Confirmed exits of EU and G7 companies with ownership stakes in Russia account for 6.5% of total pre-tax earnings of all EU and G7 companies with active commercial operations in Russia,” wrote the authors of the studiothe professor Simone Event and Niccolò Pisani., 8.6% of tangible fixed assets, 8.6% of total assets, 10.4% of operating profit and 15.3% of total employees.
“These findings imply that, in mediacompanies that leave tend to have lower profits and a larger workforce than companies that stay in Russia,” they added.
Evenet and Pisani noted that more American companies have been confirmed to have exited Russia than those from the European Union and Japan, but the report found that fewer than 18 percent of operating American subsidiaries in Russia had been completely shut down by the end of 2022, compared to 15.% of Japanese companies and only 8.3% of EU companies.
According to it studiobetween the remaining EU and G7 companies in Russia, the research found that 19.5% were German, 12.4% were owned by US entities and 7% were Japanese multinationals.
“These findings raise questions about the willingness of Western companies to disengage from economies that their governments now see as geopolitical competition,” wrote Evennet and Bizani.
“The results of the studio they are a realistic examination of the narrative that concerns over national security and geopolitics lead to a fundamental deconstruction of globalisation,” they said.
The pressure to quit will only increase
Barclays highlighted Europe’s lag in pushing companies to divest from Russia in a note on Friday, Jan. 20, CNBC reported.
Consumer analysts for Europe at Barclays said that while most of the companies they cover are committed to exiting Russia, in part in response to ESG pressure from stakeholders and the threat of sanctions, so far few have managed to do so.” Several firms have also told Barclays that there are a number of challenges to a full divestment.
Barclays suggested that without an end in Given the conflict, the disconnect between commitments and outcomes will need to be resolved and will force companies to make some tough decisions.
“While exiting Russia with a near-fair valuation is very challenging (if not downright impossible), the choice companies face is either to exit with an unfair valuation (or indeed no valuation at all), or to stay in Russia,” analysts said. . “.
They added that companies that have suspended advertising and reduced product assortment, but still intend to stay in Russia, will face greater challenges from broader stakeholders as sanctions tighten.
Notably, Barclays named companies; CCH, Henkel, PMI, JDE Peet’s and Carlsberg are the companies with the greatest exposure to Russia in terms of sales within the European consumer goods sector.
Henkel, in turn, has repeatedly declared its intention to exit Russia and has been transparent with the investment community in about the potential impact, given that approximately 5% of sales and 10% of EBIT is already derived from Russia. Henkel’s forecast assumes no contribution from Russia throughout 2023 and beyond.
Of the 29 FMCG companies covered by the Barclays unit, 15 have committed to leave Russia.
Delisting does not mean selling
A new report from a UK think tank last week highlighted that some of the world’s biggest companies have announced plans of their own to write off assets rather than sell them, so most of them will be accounting adjustments rather than actual exits.
A clearing of activity means entering a value less than or equal to zero on an activity in that moment in the company’s books.
For his part, Mark Dixon, an M&A consultant who founded the Ethical Rating Agency Research Center in February after the Russian invasion, said: “It’s a paper value that can be reviewed in any time according to the owner’s wish”.
He added, “If the company’s business slows down long enough and doesn’t leave Russia, it can write value whenever the global situation changes.”
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