Interactive Investor

More multinationals walk away from Russia

15th March 2022 16:02

Graeme Evans from interactive investor

From tobacco to auto distribution, companies are pulling out of Russia as sanctions continue to take effect. Our city columnist reports.

The untangling of business interests in Russia continued today, as Imperial Brands (XETRA:ITB) and Inchcape (LSE:INCH) announced their exits from the country and inter-dealer broker TP ICAP (LSE:TCAP) revealed a potential big hit after cutting exposure to sanctioned clients.

The move by FTSE 100-listed Imperial, which owns brands including JPS and Davidoff, has seen it begin negotiations with a local third party about a transfer of assets and operations.

Imperial employs 1,000 people in Russia in sales and marketing and at its factory in Volgograd. Having previously announced the suspension of operations in Ukraine, Imperial now expects full-year constant currency net revenue growth of around 0-1% this year, which is broadly in line with guidance in Novembers annual results for a little-changed performance.

Imperial shares rose 3.5p to 1554p, but are down 14% since hitting a two-year high in February. Its move comes after rival British American Tobacco (LSE:BATS) said on Friday that it plans to quit Russia, where it has run operations since 1991 and employs 2,500 people.

The country is the worlds fourth-largest cigarette market. Imperial says Russia and Ukraine represent around 2% of its net revenues and 0.5% of adjusted operating profit.

In the FTSE 250 index, Inchcape shares lost 10p to 692.5p after the automotive distribution and retail business said its ownership of interests in Russia was no longer tenable”.

Inchcape's retail-only operations in the country contributed £750 million of revenues in 2021, equivalent to about 10% of group sales and leading to some 5% of operating profit. It sells marques including Audi, BMW, Jaguar, Land Rover and Volvo.

The company, which trades in 40 global markets, last year offloaded its St Petersburg retail operations but booked £108 million of foreign exchange losses relating to its exit.

TP ICAP shares suffered one of the biggest falls in the FTSE 250 index today, declining 17.6p to 113.4p, after annual results revealed revenues from Russian clients at approximately 0.5% of the total and equivalent to a figure of just over £9.3 million.

The company says it has ceased trading with sanctioned clients, with the potential value of realised losses on failed settlements being £4 million at the end of last week. The group has also recognised potential unrealised losses of £9 million and written down trade debtors with sanctioned clients by £1 million.

In addition, the group has outstanding unsettled transactions in Russian financial instruments of around £12 million where neither counterparty has been able to settle at the current time and where no net loss has been recognised.

TP ICAP says: The war has resulted in sanctions against Russian individuals, entities and their subsidiaries and consequently we continue to actively manage our business and minimise our financial exposure.”

Profits for 2021 fell to £177 million but market conditions have been helped so far this year by the return of volatility to trading floors. Peel Hunt says the results were slightly ahead of forecasts, with a total dividend of 9.5p a share stronger than the Citys 9.3p forecast.

The broker has a price target of 210p, adding: A price/earnings rating of six times and prospective dividend yield of over 8% significantly undervalue the core business.”

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