Get updates on European companies for free
Receive a daily email with the latest news on European companies in a myFT Daily Digest.
When future historians analyze the impact of Russia’s invasion of Ukraine, they should review the annual reports of European companies.
Last Sunday, The Financial Times reported that Europe’s largest businesses had already suffered over €100 billion in profit losses due to their withdrawal or reduction of operations in Russia. However, this figure represents only a fraction of the true cost.
We examined 609 annual reports and financial statements, revealing that 176 companies experienced one-time charges. Even among the 433 companies that reported no charges, nearly all mentioned significant profit decreases caused by soaring energy and raw material prices, as well as supply chain disruptions resulting from Russia’s aggression. Many also noted an increase in cyber attacks and a shift by consumers toward cost-saving measures amid record inflation.
Some companies provided comprehensive descriptions of the impacts they faced. Dutch supermarket group Ahold Delhaize, for example, reported “rising costs across the value chain, supply chain delays, and labor shortages.” These developments affected multiple aspects of the business, including balance sheet valuations, results, and cash flow. Increasing interest rates primarily impacted the company’s lease liabilities, pension obligations, and self-insurance provision, while rising prices put pressure on profit margins.
Quantifying the exact costs of these indirect impacts is nearly impossible. However, a few companies, particularly those with minimal or no presence in Russia, attempted to illustrate the extent of the damage. Saint-Gobain, a building materials group, saw its energy and raw material costs increase by approximately €3 billion. Swedish telecoms company Telia reported an €800 million rise in energy costs, and Ryanair estimated a loss of up to 2 million passengers due to flight cancellations to and from Ukraine. Swiss piping company Georg Fischer stated that energy prices had risen by 100% in 2022, with just a 25% increase in its energy bill resulting in nearly SFr17 million in additional costs.
None of these companies reported one-time charges or impairments in their annual reports. However, it is evident that Russia’s aggression will have a deeper and longer-lasting impact on European businesses than simply the costs associated with exiting a relatively minor market. According to the Kyiv School of Economics, Russia accounted for just 3% of global turnover for listed foreign companies operating in the country prior to the war.
Regardless of their presence in Russia, many companies are now preparing for long-term volatility and uncertainty. For instance, Technip Energies, a French energy services provider, derived approximately one-third of its revenues from Russia. While the company has managed to offset much of the lost income by focusing on new geographies, its chief financial officer, Bruno Vibert, emphasizes the need for greater flexibility and agility in management. Additionally, the Russia experience has raised concerns about risks in other markets, such as China.
“There is more unpredictability and volatility,” Vibert acknowledges. “We must come to terms with very challenging driving forces in the near future.”
Meanwhile, companies with well-established brands are realizing they remain vulnerable in other ways. “For most companies, the value of their brand exceeds the value of any Russian assets,” explains Nabi Abdullaev, a partner at strategic consultancy Control Risks.
Even if companies have ceased supplying the Russian market directly, their well-known brands can still find their way onto shelves through third-party importers. Abdullaev emphasizes the potential damage to a company’s market value if the media highlights the use of western-branded products by Russian politicians or soldiers.
European companies have already suffered significant profit losses as a result of Russia’s invasion, and this is just the beginning. However, paying this price is necessary to deter Putin. Successful businesses understand the importance of adaptability. Ultimately, the war may have a lasting impact on European businesses by making them more efficient and competitive.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
