Russia’s war on Ukraine holds still more pain for European business


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When historians come to write about the lasting impacts of Russia’s invasion of Ukraine, they should leaf through the annual reports of European companies. 

The Financial Times reported last Sunday that Europe’s biggest businesses had so far taken a direct hit of more than €100bn to profits as a result of quitting or scaling back their Russian operations. In fact, this is merely a fraction of the true cost.

Of the 609 annual reports and financial statements we examined, 176 companies took one-off charges. But even in the statements of the 433 that took no charges, almost all mentioned the punishing hit to profits of either soaring energy and raw material prices or supply chain disruptions that followed Russia’s aggression last year. Many also mentioned a notable increase in cyber attacks. Others said consumers were moving away from environmentally sustainable products to save money at a time of record inflation.

Some were comprehensive in their descriptions. Dutch supermarket group Ahold Delhaize spoke of “rising costs across the value chain . . . supply chain delays and labour shortages”. These developments had hit “balance sheet valuations, results and cash flow. Increasing interest rates mainly impacts the Company’s lease liabilities, pension obligations and self-insurance provision, and rising prices increases pressure on the profit margins”. In other words, hardly a corner of the business was left untouched.

Quantifying the actual cost of those indirect impacts is almost impossible. But a few companies — especially those with little or no presence in Russia — tried to explain just how extensive the damage was. 

Saint-Gobain, the building materials group, said it had suffered a year-on-year rise of about €3bn in energy and raw materials costs as a result of the conflict. 

Telia, the Swedish telecoms company, said its energy costs had risen by SKr800mn ($74.5mn) in 2022. Ryanair estimated it would lose up to 2mn passengers in 2023 as a result of cancelling all flights to and from Ukraine. 

And Georg Fischer, the Swiss piping company, noted that the war had caused energy prices to rise by 100 per cent in 2022; an increase of just 25 per cent in its energy bill would result in about SFr17mn ($19.4mn) in extra costs, constituting “a critical financial impact”. 

None of these companies declared any one-off charges or impairments in their annual reports. But it is clear that the impact on many European businesses of Russia’s aggression will be deeper and longer-lasting than the costs of quitting what was a relatively minor market. Russia accounted for just 3 per cent of the global turnover of the listed foreign companies present in the country before the war, according to the Kyiv School of Economics. 

Yet whether or not a business was present in Russia, many are now preparing for long-term volatility and uncertainty. Russia accounted for about a third of revenues at Technip Energies, the French energy services provider. While the group has been able to replace much of the lost income by focusing on new geographies, chief financial officer Bruno Vibert says management now has to be much more flexible and agile. The Russian experience has also raised questions about the risks in other markets, such as China.

“There is more unpredictability and volatility,” he says. “We have to come to grips in the near future with very difficult driving forces.” 

Meanwhile, those with well-known brands are realising that they remain exposed in other ways. “For most companies the value of the brand is bigger than the value of any Russia assets,” says Nabi Abdullaev, partner at strategic consultancy Control Risks.

So what happens if their products are associated with senior Russian politicians or soldiers? Even if they have stopped supplying that market, well-known brands are still making their way to Russian shops through third-party importers. “If the media picks up on [President Vladimir] Putin using a western branded product, the damage to that company’s market value may be more than its Russian assets,” says Abdullaev. 

European companies have already taken a big hit to profits as a result of Russia’s invasion — and this is not the end of the story. Yet if Putin is to be stopped, this price must be paid. Successful businesses know how to adapt. It may be that the longest-lasting consequence of the war for European business will be to make it more efficient and competitive.

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Lisa Holden
Lisa Holden
Lisa Holden is a news writer for LinkDaddy News. She writes health, sport, tech, and more. Some of her favorite topics include the latest trends in fitness and wellness, the best ways to use technology to improve your life, and the latest developments in medical research.

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