RUSSIA: Ruble, Business and Sanctions Hits Non-Russian Companies

Russia’s political travails are taking a toll on stocks beyond its borders, from a Finland tiremaker to a U.K. event organizer and a German drug company.


Nokian Renkaat Oyj, ITE Group Plc and Stada Arzneimittel AG are among 29 non-Russian companies worldwide that count the country for at least 10 percent of sales, financial filings from companies that disclosed any revenue breakdown from the country compiled by Bloomberg show. Their stocks have slumped 21 percent on average this year in dollar terms, compared with a 2.3 percent gain in the MSCI All-Country World Index and an 8 percent drop in the STOXX Europe 600 Index.

 
Investors are dumping the stocks as the ruble weakened by 22 percent in the past three months against the dollar amid sanctions imposed by the U.S. and its allies tied to the conflict in Ukraine. The U.S. and European Union have sought to punish Russian President Vladimir Putin for supporting pro-Russian rebels in eastern Ukraine.

 
“There are certain things that you’d put off limits because the outcome is difficult to predict and one of those areas is Russia,” Nicholas Reitenbach, a New York-based international fund manager at Wilkinson O’Grady & Co., said in a telephone interview. The firm oversees about $2 billion. “I’m very uncomfortable with the whole situation in Russia. I’m staying away.”

 
Fighting, Sanctions

 
Conflict in Ukraine intensified last week after the government in Kiev accused separatists of undermining peace efforts by holding elections in Donetsk and Luhansk.

 
Ukraine’s military said its forces killed as many as 200 rebels in fighting in Donetsk as dozens of tanks and other military vehicles crossed the border into Ukraine from Russia.

 
The outbreak of fighting stoked concern that the U.S. and its allies will toughen sanctions that already hurting Russia’s $2 trillion economy. There is a 70 percent chance the country may fall into a recession over the next 12 months, according to the median forecast of 27 economists surveyed by Bloomberg.
Nokian Renkaat, a tire manufacturer based in Nokia, Finland, dropped 1.8 percent last week after posting five straight monthly declines. The company, which gets about a third of its revenue from Russia, forecast the country’s tire sales volume will fall as much as 10 percent in 2014.

 
“We have been fighting this year to compensate the negative impacts from the effects of the Russia-Ukraine crisis,” Ari Lehtoranta, president and chief executive officer for Nokian Renkaat, said in an Oct. 31 statement when announcing the company’s third-quarter results. “The purchasing power started to fall. This made consumers buy less and cheaper products.”

 
Little Effect

 
ITE Group, a London-based organizer of conferences and exhibitions, derives about 60 of its business in Russia. While the company said in an Oct. 1 statement that economic sanctions have had “little direct effect” on its business, the shares have lost almost half their value this year.

 
Among the 29 stocks tracked by Bloomberg, three have posted gains in 2014. Turkiye Sise & Cam Fabrikalari AS, Turkey’s biggest glassmaker, has advanced 30 percent amid asset sales while Evraz Plc, a steelmaker based in London, and Turkish builder Tekfen Holding AS, are up at least 9 percent.

 
Stada, Germany’s biggest maker of generic drugs, gets more than a quarter of its sales from Eastern Europe, Russia and former Soviet republics. The stock dropped 6.1 percent last week and is down 20 percent this year.
The Bad Vilbel, Germany-based company in March said it wouldn’t meet its sales and profit forecast for the year, citing weakness in the ruble and the Ukrainian hryvnia and the crisis in Ukraine.

 
Stada Sales

 
Stada’s sales in Russia slid 16 percent to 163.5 million euros in the first half, with much of the drop resulting from the declining value of the ruble. At constant exchange rates, sales in Russia fell 2 percent.

 
CEO Hartmut Retzlaff told analysts on an Aug. 7 conference call that, while sales to consumers in Russia were holding up, wholesalers weren’t building up their inventories, and in fact were reducing them.

 
“We regret all this, but we can’t change it,” Retzlaff said when asked about the sanctions. “We have to cope with this situation.” He predicted a “strong” fourth quarter in Russia because wholesalers would again build up inventories.

 
Stada reports earnings Nov. 13 and can’t comment on business trends before then, a spokesman said.

 
Outside Europe, AirAsia X Berhad, the long-haul arm of Malaysia’s low-cost airline with Russia accounting for about half of its sales, have lost 19 percent this year. Jerusalem Economy Ltd., a real estate developer from Israel, is down 26 percent. The company gets 18 percent of its revenue from Russia.

 
Source: BLOOMBERG / Nov. 10, 2014

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