After the supposed Russian exodus, a lot of the large corporations have but to tug out

The logo of German consumer chemicals giant Henkel is seen at the company’s factory in Duesseldorf, Germany January 18, 2016.

PATRIK STOLLARZ | AFP | Getty Images

After Russian troops invaded Ukraine in February 2022, companies in key G-7 and European Union economies announced plans to cease operations in Russia.

By the end of the year, however, very few had fully delivered on that promise, according to a new study from Switzerland’s University of St. Gallen.

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The report, released earlier this month, documents a total of 2,405 subsidiaries owned by 1,404 EU and G-7 companies that were active in Russia at the time of the first military invasion of Ukraine.

As of November 2022, less than 9% of this pool of companies had disposed of at least one subsidiary in Russia, and the research team found that these disposal rates changed little in the fourth quarter of 2022.

“Confirmed exits of EU and G7 companies that had equity investments in Russia account for 6.5% of the total pre-tax profit of all EU and G7 companies with active operations in Russia, 8.6% of fixed assets, 8, 6% of total assets, 10.4% of operating income and 15.3% of total employees,” write Professors Simon Evenett and Niccolo Pisani.

“These results mean that leaving companies tend to have lower profitability and larger workforces, on average, than the companies that remain in Russia.”

It was confirmed that more US firms left Russia than those based in the EU and Japan, Evenett and Pisani found, but the report still found that fewer than 18% of US subsidiaries operating in Russia by the end were fully divested in 2022, compared to 15% of Japanese companies and just 8.3% of EU companies.

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

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

“The study’s findings are a reality check on the narrative that national security concerns and geopolitics are leading to a fundamental unraveling of globalization.”

The pressure to exit will build up

Europe’s status as a latecomer in efforts to sell Russia was also highlighted by Barclays in a statement on Friday 20 January.

The UK lender’s European consumer staples analysts said that while most of the companies they cover had pledged to leave Russia, partly in response to ESG-related pressure from stakeholders and the threat of sanctions, few have so far managed to do so. Various companies told Barclays that there were a variety of challenges to fully divesting themselves.

“In addition to the lack of clarity about what the assets could be worth, the list of potential buyers is short and the list of potential buyers exempt from sanctions is even shorter,” Barclays analysts noted.

“There have also been suggestions that the assets (including intellectual property) of companies leaving Russia will be nationalized.”

Barclays suggested that without an end to the conflict, the gap between commitments and results will need to be resolved and will force companies to make some difficult decisions.

“If exiting Russia at anywhere near fair valuation is very difficult (if not impossible), then companies must choose between exiting at unfair valuation (or indeed nothing at all) or staying in Russia,” the analysts said said.

“Few commentators appear to see the likelihood of an imminent end to the conflict, and we suspect pressure will build over time to fulfill promises to exit.”

They added that companies that have stopped advertising and reduced product range but still intend to remain in Russia are increasingly being challenged by broader stakeholders and heightened sanctions.

Specifically called Barclays CCHHandle, PMI, GO to Peets and Carlsberg as having the largest sales exposure to Russia within the European consumer goods sector.

Henkel has repeatedly stated its intention to exit Russia and has been transparent with the investment community about the likely impact, given that around 5% of sales and 10% of EBIT (earnings before interest and taxes) come from Russia. Barclays Henkel forecasts assume no contribution from Russia for the full year 2023 and beyond.

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

“Henkel has specifically addressed the likely impact on earnings of an exit from Russia (5% sales, 10% EPS) and this should be known to investors, but we suspect the deconsolidation of Russia is a source of headwinds in margin mix elsewhere at Staples could be .”

Of the 29 consumer staples companies covered by the unit, 15 have committed to exit Russia, but Barclays analysts are aware of only six that have actually done so.

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

“Writing off is not selling out”

A new report from a British think tank last week highlighted that some of the world’s largest companies have announced their planned existence by writing down assets rather than selling them, thereby “making announcements of bookings rather than Russian exits”.

“A lot of people think that if something is written off, it’s lost. Depreciation or depreciation only means that the owner placed a lower or zero value on an asset at the time. It’s a paper value that can be revised at any time at the whim of the owner,” said Mark Dixon, a London-based mergers and acquisitions consultant who founded think tank Moral Ratings Agency in February after the Russian invasion.

“If the company has been on its heels long enough and doesn’t leave Russia, it can write up the value whenever the world situation changes.”