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March 9, 2022updated 10 Mar 2022 11:19am

German companies keep cards close to chest on Russia

Despite Germany’s robust response to Vladimir Putin’s war on Ukraine, nearly half of the 40 companies in the Dax stock index have either indicated they do not intend to pull out of Russia or have kept quiet about their operations there.

By Adrian Murdoch

Poking fun: a protest against Vladimir Putin and the Russian authorities in 2020. (Photo by Pavlo Conchar/SOPA Images/LightRocket via Getty Images)
  • Almost half (18) of the companies in Germany’s Dax 40 index have said they intend to remain in Russia or made no comment about their plans.
  • Automotive and aerospace groups are among those to have been quick to suspend business in Russia.
  • Big industrial firms BASF, Brenntag, Covestro, E.on, Linde and HeidelbergCement have declined to comment on their Russian exposure.

Germany may have suffered criticism for initially opposing Russia’s cut-off from the Swift global payments system after Vladimir Putin invaded Ukraine last month, but its approach has since been startlingly robust. The attack has sparked a U-turn in Germany’s pacifist post-Second World War foreign policy: German chancellor Olaf Scholz has increased military spending to more than 2% of GDP for the first time in 40 years and has taken a more muscular approach to Russia.

The shift appears to reflect domestic public sentiment. At the main railway station in capital city Berlin, crowds have been greeting Ukrainian refugees with offers of bed and board. At least 50,000 have arrived in the country since the war started.

The change in German policy reflects “a tighter unity amongst democratic nations” as a result of the Russian assault, the country’s former finance minister Natalie Jaresko tells Capital Monitor.

The German corporate world’s response has been less wholehearted, however, with a notable ambivalence towards cutting ties with Russia, even as the list of big businesses halting operations expands daily; joining it yesterday were Coca-Cola, McDonald’s and Starbucks.

Almost half (18) of the constituents of Germany’s Dax 40 stock index – comprising the 40 biggest companies by market capitalisation and liquidity listed in Frankfurt – say they are retaining their business in Russia or have not commented on their position. Capital Monitor contacted all 40 companies for comment and has set out their responses (see chart below). Only three – property companies Deutsche Wohnen and Vonovia, and Berlin-based e-commerce fashion company Zalando – have no Russian exposure.

Gerhard Schröder (centre, with Vladimir Putin) is retaining his strong ties with Russia. (Photo by Pool/Getty Images)

Former German chancellor Gerhard Schröder has arguably set a precedent by choosing to remain on the boards of Russian oil majors Rosneft and Gazprom. A long-term associate of Putin, he has been chairman of Rosneft since September 2017, of Nord Stream 1 – a Russia-to-Europe gas pipeline system – since December 2005, and was nominated to join the board of Gazprom last month.

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Driving ahead

On the other hand, some companies in Germany have been unequivocal in pulling back from Russia despite having substantial commercial exposure there – not least car manufacturers.

Hildegard Müller, president of the Berlin-based German Association of the Automotive Industry, last week condemned the war, even though German car manufacturers have a share of almost 20% of the Russian market.

Last year, they exported 35,600 cars to Russia while the German automotive industry – manufacturers and suppliers combined – maintains around 43 production sites in the country. German manufacturers produced 170,000 cars in Russia in 2021, most of which were also sold there.

Last week, BMW and Mercedes-Benz both said they had stopped the export of vehicles to the country and halted production in Russia.

They were joined on 9 March by car parts manufacturer Continental, best known for its tyres. The group has had a plant in Kaluga in western Russia since October 2013, but at its annual press conference chairman Nikolai Setzer said that it was suspending production there. “We've made this decision as a result of the war,” he said, adding that the company was currently looking at how to support local staff.

Daimler Truck went a step further. The commercial vehicle manufacturer not only said it had stopped the sale and production of its vehicles in Russia, but has also suspended cooperation with Kamaz, Russia’s largest truck manufacturer and said it was looking to sell the 15% stake it had acquired in the business in November 2019.

They were joined last week by Volkswagen. The company said in a statement on 3 March that it had decided to stop making vehicles in Russia until further notice and cease exports to the country with immediate effect.

Porsche, in which VW is a majority shareholder, announced that it too had stopped delivery to Russia. The sports car manufacturer has no production facilities in the country, but has 26 centres across 20 cities, which sold 6,262 vehicles last year.

Taking flight

Aerospace companies have also been relatively quick to move.

Leiden-based Airbus has suspended deliveries, support services and the supply of spare parts to the country, spokesman Stefan Schaffrath tells Capital Monitor. It employs 250 staff in Russia across an engineering centre and representation office.

Munich-based aircraft engine manufacturer MTU Aero Engines has stopped all deliveries, data transfers and payments to Russia. It has also halted all contract negotiations and will not sign any new contracts there “for an indefinite period”, says Matthias Spies, senior manager for investor relations.

Similarly, Munich-based industrial group Siemens on 2 March said all new business in and international deliveries to Russia and Belarus are now on hold.

Christian Klein, chief executive of Walldorf-based enterprise software group SAP, called the invasion “inhuman and unjustified” in a blog post and halted all business in the country. Essen-based RWE has published a statement in support of Ukraine and donated €1m to help Ukrainian refugees in Poland.

In November, the company signed an agreement with Russia’s second-largest gas producer, Novatek, to develop hydrogen trading between Russia and Europe. RWE has now put plans for the venture on hold, says spokesman Lothar Lambertz.

Hedging bets on Russia

The response from other German industries has so far been mixed.

Chemicals giant Henkel, after initially saying it would remain in Russia, on Friday (4 March) switched gears and said it would freeze future investment plans. “We have also stopped all advertising in state media and will cancel all sponsoring activities in Russia,” said Carsten Knobel, CEO of the Düsseldorf-based group.

Rival BASF, the world’s largest chemicals group, still appears to be hedging its bets. It has said it would not conclude new business in Russia and Belarus but would continue to conduct existing activities.

BASF had almost €800m ($869.8m) of sales in Russia last year. But on a conference call after the group’s full-year results at the end of February, CEO Martin Brudermüller said: “Russia and Ukraine are not really big markets for us.”

Building materials giant HeidelbergCement, which produces 4.6 million tonnes of cement in the country, has made no public statement about its Russian operation.

There has also been silence from Leverkusen-based Covestro, the plastics unit of Bayer, which has a chemicals plant in Moscow; chemicals company Linde, which is a major manufacturer of industrial, food, medical and special gases in Russia; and chemicals distribution company Brenntag. None of the three companies responded to Capital Monitor’s request for comment.

Amid announcements of withdrawals from Russia by international peers such as BP, Equinor, ExxonMobil and Shell as well as Germany's RWE, E.on has kept silent.

The Essen-based energy company owns a 15.5% stake in the Nord Stream 1 pipeline but has said little about the Gazprom-led project. In regional newspaper Rheinische Post at the end of February, a spokesperson for the company rejected pulling out of the project. E.on did not immediately respond to a request for comment from Capital Monitor.

Consumer company caution

The response from Dax-listed consumer companies has also been mixed.

Sportswear manufacturers Adidas and Puma – both based in Herzogenaurach – have pulled back from Russia.

Puma halted deliveries to the country on 2 March and this past weekend suspended operations at all of its 100 stores in Russia

Last week, Adidas suspended its partnership with the Russian Football Union with immediate effect and at the weekend suspended the operations of its 800-odd stores and e-commerce site in Russia until further notice while continuing to pay its employees.

So far there has been silence from Berlin-based HelloFresh, the world’s largest meal-kit provider, which reported €6bn in global sales last year. The company holds a 10% stake in Russian peer Chefmarket that it acquired in September last year. The company did not respond to questions about the investment.

Market response in Germany

Interestingly, whether or not companies have announced withdrawing from Russia – or when they did so – so far has had little obvious impact on share prices. Stocks have generally fallen alongside the Dax, which shed 8.4% between 24 February and 8 March (see also chart above). That is in line with overall de-risking by investors, as other major equity markets have posted falls in the past two weeks.

Some of the biggest early casualties were auto sector stocks, which have fallen by around 20% thanks not only to the war but also the knock-on effect it has had in pushing up commodity prices.

A Goldman Sachs note written ahead of the invasion had warned that the Dax might struggle because it made heavy use of Russian supplies. Germany is also more reliant on Russian natural gas than many countries.

It may be too early to tell what long-term impact the Ukraine conflict will have on German companies, but their actions can certainly help influence the war’s outcome in the short term. And, ultimately, being associated with the regime of a brutal dictator is not generally good for business.

Virginia Furness, Capital Monitor’s sustainable banking editor, contributed to this article.

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