European Companies Count Over €100bn in Losses from Russian Operations Since Ukraine Invasion

European corporations have faced substantial financial setbacks in Russia, with direct losses amounting to at least €100 billion since the full-scale invasion of Ukraine by President Vladimir Putin last year, according to a comprehensive analysis.

The assessment, based on an examination of 600 European companies' annual reports and 2023 financial statements, reveals that 176 of these businesses have incurred asset impairments, foreign exchange-related charges, and other exceptional expenses due to the sale, closure, or downsizing of Russian operations.

It's important to note that this aggregate figure does not encompass the broader macroeconomic consequences of the conflict, such as elevated energy and commodities expenses. Amidst this turmoil, oil and gas corporations, as well as defense companies, have witnessed increased profits. Notably, Moscow's recent actions, including the takeover of Russian assets belonging to Fortum and Uniper, followed by the expropriation of Danone and Carlsberg, indicate that further challenges may lie ahead for European entities operating in Russia.

Despite the significant losses incurred by companies that have exited the Russian market, those who have chosen to remain face potentially even larger risks, according to Nabi Abdullaev, a partner at strategic consultancy Control Risks. Abdullaev stated, "It turns out that cut and run was the best strategy for companies deciding what to do at the start of the war. The faster you left, the lower your loss."

The sectors most deeply impacted by these losses are those most exposed to the crisis. In particular, oil and gas companies have experienced substantial writedowns and charges. BP, Shell, and TotalEnergies, for instance, collectively reported charges of €40.6 billion. However, these losses have been outweighed by the surge in oil and gas prices, resulting in significant aggregate profits of around €95 billion ($104 billion) for these firms in the past year. Additionally, defense companies have seen a boost in their stock prices due to the ongoing conflict.

Utilities companies have taken a direct hit of €14.7 billion, while industrial sectors, including automakers, suffered losses of €13.6 billion. Financial institutions, encompassing banks, insurers, and investment firms, recorded writedowns and charges totaling €17.5 billion.

Although certain companies have faced substantial financial blows, the average writedown appears manageable for the broader range of businesses due to their limited involvement in the Russian market. According to Simon Evenett, an economics professor at the University of St. Gallen, Russia constitutes a mere 3.5% of the total outward investments for European companies, even considering global investment flows.

BP swiftly announced a $25.5 billion charge, indicating its decision to divest its 19.75% stake in the state-owned oil group Rosneft just days after the invasion. In contrast, TotalEnergies reported a total cost of $14.8 billion over a longer period, and Shell absorbed a $4.1 billion charge. Other companies, such as Equinor and OMV, reported charges of €1 billion and €2.5 billion, respectively.

Various automakers collectively took a significant €6.4 billion hit. Renault, for instance, wrote off €2.3 billion following the sale of its Moscow plant and stake in Russia's Avtovaz. Volkswagen reported a €2 billion writedown, with the Moscow government subsequently approving the sale of its local assets.

In the financial sector, Société Générale made a strategic exit by selling Rosbank and its insurance activities to Vladimir Potanin, an ally of Putin, resulting in a €3.1 billion hit. Although several Western banks with Russian subsidiaries have not yet exited the market, Moscow-imposed constraints have played a role in their continued presence.

Despite these losses, some companies, such as Raiffeisen and UniCredit, remain in Russia. Raiffeisen, the largest Western bank in the country, has incurred €1 billion in writedowns and other charges. UniCredit, which has expressed its intention to divest its local business, recorded a €1.3 billion hit.

However, analysts warn that companies still operating in Russia are taking substantial risks. Moscow's heightened exit restrictions have increased the likelihood of expropriation, and extracting dividends from these businesses has become exceedingly difficult. According to Anna Vlasyuk, a research fellow at the Kyiv School of Economics, businesses remaining in Russia might be better off writing off their losses entirely, given the uncertain environment. Vlasyuk questioned the rationale behind actions like the appropriation of Carlsberg, suggesting that national security concerns may not fully justify such measures.

By fLEXI tEAM