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European Countries Show Uneven Exposure to Ukraine Crisis

Economics

By FactSet Insight  |  September 24, 2014

The ongoing conflict in Ukraine threatens to further destabilize a shaky European economy. Companies headquartered in many European nations show a higher average revenue exposure to Russia and Ukraine than companies in most other parts of the world.

The broad-based, global FactSet Market Index shows that companies domiciled in Austria, Finland, and Poland have some of the largest average revenue exposures to Russia at 7.4%, 6.2%, and 5.6%. In addition, European countries with larger public markets, such as The Netherlands, United Kingdom, Gemany, and France, contain companies averaging several percentage points of revenue exposure as well (5.3%, 4.0%, 3.4%, and 3.2%, respectively). This compares to U.S. companies that have an average of only 1.4% of sales exposed to Russia.

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Revenue exposure is usually difficult to ascertain for portfolios or indices of companies because there is a lack of standardization in disclosures. Companies may specify country- or regional-based exposures, or they might not specify geographic exposures at all. Furthermore, companies’ lack standardization within their own statements—they may break down some revenues by individual countries and others by unique regional groupings. Fortunately, FactSet’s Geographic Revenue Exposure database standardizes each company’s individual disclosures with considerations of the economic size of countries within regional groupings.

Examining average country-level revenues derived from Russia shows that elevated levels are often driven by a handful of companies with concentrated exposure. For instance, the United Kingdom’s exposure is heavily influenced by Volga Gas, an independent oil and gas exploration and production company that operates in the Volga Region of Russia, Highland Gold Mining, a gold miner operating in Russia and Kyrgyzstan, and Raven Russia, a commerical real estate company. In addition, there are several other U.K. companies that don’t exclusively operate in Russia, but show significant sales exposure in the country. These include ITE Group, an international exhibition and conference organizer with 63% of sales originating from Russia, and Evraz, a steel, mining, and vandium business with 43% of revenue exposed to Russia. In addition, Petropavlovsk, a developer and producer of gold and iron ore, has a high potential for material Russian and Ukrainian exposure. The company declared all sales were derived from an undifferentiated collection of Russia and former Soviet republics (the Commonwealth of Independent States, or “CIS”) in the most recent fiscal year. FactSet Geographic Revenue Exposure estimates 76% of Petropavlovsk revenue is derived from Russia and 6% originates from Ukraine.

However, Austria, Poland, and Finland have higher average revenue exposure to Russia. Austria is bolstered by C.A.T. oil, an oil and gas field services provider that is traded on German exchanges, and Die Raiffeisen Bank International. C.A.T. oil disclosed 98% of sales derived from Russia and Die Raiffeisen Bank showed over 20% exposure to Russia; plus at least 10% to other countries in the CIS region. In addition, Poland is boosted by Getin Holding, a financial holding company with 23% revenue exposure to Russia and nearly 15% exposure to Ukraine. And, in Finland, the average is buoyed by Oriola-KD, a pharmaceutical company that disclosed 38% revenue exposure to Russia. Other Finnish companies, including Nokian Renkaat (a tire manufacturer) and ASPO (a logistics service provider), disclosed a third of sales originating from Russia and other CIS countries.

Ukrainian revenue exposure, on the other hand, is generally much lower in Europe and other parts of the world. However, there are some exceptions outside of the aforementioned examples of Getin Holding and Die Raiffeisen Bank. Serinus Energy, an upstream oil and gas exploration company with Canadian headquarters (but trades on the Warsaw Stock Exchange), and JKX Oil & Gas, a mineral exploration and production company with British headquarters, each showed approximately 80% revenue exposure to Ukraine.

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