Carlsberg to SocGen Feel Russia Fallout on Ukraine CrisisKatarina Gustafsson and Fabio Benedetti-Valentini
Companies including Carlsberg A/S and Societe Generale SA said business in Russia is more challenging, as tension over the Ukraine standoff and a falling ruble hurt a market that has been a pillar of European growth.
Carlsberg, the biggest brewer in Russia, cut earnings forecasts for this year because demand will shrink more than anticipated as political turmoil weighs on the company’s biggest market, the Danish company said today. Societe Generale, among the largest foreign banks in Russia, reported a 13 percent decline in first-quarter profit after writing down goodwill at its Russian unit, citing the decline in the ruble.
“We see uncertainties in the Russian economy and are more pessimistic on market development,” Carlsberg Chief Executive Joergen Buhl Rasmussen said today on a conference call. Still, the brewer’s business in the Ukraine has been operating with very limited disruption despite the political turmoil, he said.
Russia, a major trading partner for European companies from engineering firms Siemens AG to carmakers and consumer corporations, is accused by NATO of contributing to a destabilization of Ukraine, where where the government in Kiev is waging an offensive against separatists in the country’s east and south. The ruble has lost 6.2 percent per dollar this year, the third-worst performance among 24 emerging-market currencies tracked by Bloomberg.
The ruble gained 1.1 percent to 35 versus the dollar and traded 1.2 percent stronger at 48.7865 per euro, after President Vladimir Putin said his country pulled back troops from Ukraine’s border and he urged separatists to delay a referendum to ease tension. Russia’s Micex Index jumped 3.1 percent to 1,360.01, the biggest increase since March 18
Ukraine’s government and its U.S. and European allies accuse Russia of fomenting unrest in eastern Ukraine and have imposed sanctions on people and companies close to Putin. A continued decline in the ruble would further hurt an already troubled Russian economy, which slowed to 1.3 percent growth last year from 3.4 percent in 2012.
European Union companies sold 152 billion euros ($210 billion) in goods and services to Russia in 2012, up 14 percent from the previous year, European Commission data show, highlighting the importance of a neighboring export market as their domestic economies emerge from a three-year recession.
Anheuser-Busch InBev NV said today that the Russian beer market remained weak, with volumes down about 10 percent, partly as the brewer seeks to push into the higher-priced segment.
“The Russian market will struggle in 2014 from continued regulatory pressure and the Ukraine crisis, but Carlsberg is well positioned from a competition standpoint,” analysts at DNB Markets said in a note today.
Imperial Tobacco Group Plc said its share in growth markets dropped slightly in the first half, citing conditions in Russia, where volumes remain weak and the industry remains difficult.
Societe Generale will keep its liquidity exposure to the Russian unit, currently 1.2 billion euros, “manageable” in part by funding the business with local deposits, Chief Executive Officer Frederic Oudea said on a call with journalists. The unit has no commitments in Ukraine, he said.
The French bank is seeking “satisfying profitability” in Russia in 2016, Oudea said.
Emirates, the world’s biggest international airline, said this week that it’s newly created Dubai-Kiev route isn’t meeting company expectations, though the airline doesn’t have plans to suspend the service for now. Deutsche Lufthansa AG canceled its daily Munich-Donetsk service through May 12, the company said.
Oriflame Cosmetics SA, the Swedish beauty products retailer that generates about half its sales from the former Soviet Union. said local currency sales in Russia declined 8 percent in the first quarter, while the situation in Ukraine had a substantial negative impact on consumer sentiment.
“With sharply devaluating currencies and challenges of exceptional nature in our two largest markets Russia and Ukraine, there is no doubt the company is facing very tough conditions,” Chief Executive Officer Magnus Braennstroem said.
Continental AG, the German maker of car tires and auto parts, said this week that business in Russia was weaker in the first quarter, though local production in Kaluga, Russia, helps against the falling ruble.
The economic fallout from the political tussle over Ukraine is likely to play a central role at the St. Petersburg Economic Forum starting May 22. Siemens Chief Executive Officer Joe Kaeser, whose company has done business in Russia for 160 years and employs about 3,120 people there, said today that he’ll skip the forum because he’s preoccupied with a company overhaul.