Trentmann’s Perspective: CFOs Take Different Approaches to Profits in Russia

The CFOs of Western companies that continue to operate and sell products in Russia must decide what to do with the profits generated by these companies.

A month into the war, several companies have said they will donate profits from Russia to help humanitarian relief efforts in Ukraine, while others continue to count the profits as part of their global income.

These considerations will likely become pressing matters ahead of the quarter-end at the end of this month, as these moves are likely to come under scrutiny from shareholders and outside stakeholders. The war has also exposed how many global companies, large and small, have business ties with Russia.

“It’s something every company has to decide,” said Amit Khandelwal, professor of global business at Columbia Business School, referring to the issue of Russian profits. “A company has obligations to its employees, Russian and non-Russian, shareholders and customers,” he said.

A list of international companies, including Bayer HER

Nestle HER,

Danone HER,

Kimberly Clark Corp.

Unilever PLC and PepsiCo Inc.

say they continue to sell into Russia to provide essential supplies, including cancer drugs, baby food and diapers. These products also include potato chips, laundry detergents and air fresheners.

Nestlé said it was limiting products sold in the country to baby food, specialist veterinary meals and other nutritional products, adding that it would donate any profits to humanitarian aid organisations. The company said it does not yet know how it will report these donations to investors.

Consumer goods giant Procter & Gamble Co.

, which continues to sell products in Russia, said it is donating money and products to help Ukrainians. A spokesperson, when asked about the company’s plan for profits from Russia, said: “We do not disclose or discuss profits by business unit (geographic or product line).”

The pharmaceutical giant Pfizer Inc.

will continue to supply medicine to Russia but will donate all proceeds to support Ukraine’s relief efforts, chief financial officer Frank D’Amelio said. “Maintaining Russia’s drug supply does not mean that we will continue to do business as usual in Russia,” the company said.

Unilever, PepsiCo and Kimberly-Clark did not respond to requests for comment, while Danone and Bayer pointed to existing statements that do not mention their profits in Russia. AstraZeneca PLC declined to comment on what it plans to do with profits from its drug sales in Russia.

Some companies have said they have isolated their Russian operations, meaning profits will not flow into global profit and loss accounts. Dutch brewer Heineken NV said earlier this month that it would no longer accept any net financial benefits from its Russian operations and would stop the flow of royalties and dividends out of Russia. The company did not respond to questions about what will happen to the funds confined in the country.

Other companies may have a harder time giving up revenue and profits generated in Russia, especially if they have significant business interests in the country.

Subway HER

, a German wholesaler that generated about 2.4 billion euros in sales, or $2.64 billion, or 10% of its total revenue from its Russian business in the last fiscal year, said that he would continue his activities there. The company declined to say whether it would consider donating profits generated in Russia. “Salaries and invoices are processed by well-established international banks that are not subject to sanctions,” a spokesperson said.

A few companies say they do not break down revenue and profit by geography and that it would be difficult to separate profit from sales in Russia.

A German farm equipment maker who asked not to be named said all of its revenue flowed into a single pot, including sales in Russia. The company continues to sell machine parts to its Russian customers, with German customs authorities examining every shipment.

The company is transferring Russian income to Germany “as quickly as possible”, said a person familiar with the transactions. Despite sweeping Western sanctions against Russia, some financial transaction lines remain open, allowing companies to transfer funds out of the country, lawyers have said.

The depreciation of the ruble – which is down more than 20% against the dollar since Feb. 24 – and other currencies has made it easier for some companies to say it’s not worth the risk or the reputational risk of continue to make profits from Russia.

Lush Ltd., the Poole, England-based soap maker, said it will continue to sell in Russia while supplies last and plans to keep any revenue or profit from those sales in the country to pay employees. . “The ruble’s decline has made these decisions easier for companies,” chief executive Mark Constantine said.

Investors will likely learn more about how companies are handling their Russian earnings in the coming weeks, but the answers will be determined in part by factors outside the profit and loss statement.

“A lot depends on the industry a company is in, the size of the company in Russia relative to the rest, its attitude and whether the company is scrutinized by the media,” said Richard Wellmann, partner of the audit firm BDO. who heads the company’s Russia office in Germany.

Write to Nina Trentmann at [email protected]

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