The Russian government has seized control of Nestlé’s business in the country, placing it under temporary administration alongside French supermarket chain Auchan on Thursday.
Russian sales make up around 2% of the group’s revenue, though accounts for a higher proportion of its profits, according to estimates by investment bank Jefferies. Barclays attributed around 3% of the group’s earnings to its Russian operations.
Nestlé shares had fallen 2% by Friday afternoon, though analysts said investors had largely already priced in Russian action after warnings surfaced over summer.
The business’ Russian assets will be handed over to a holding company called AO L.E.V Menedzhment (Management), according to a decree signed by Vladimir Putin and published online. Such hand-overs have previously been the precursor to a forced sale or expropriation of local operations for companies, including for Carlsberg and Danone in 2023.
Forced sales have previously been made at steep discounts, with exit multiples around half of the business’ total sales.
Nestlé this morning said it had “taken note” of the decree, and was “assessing the situation and its options”.
“Nestlé is committed to taking all necessary steps to protect its rights and ensure continuity of business operations in the interests of all stakeholders, particularly its employees.”
“The risk of Nestlé losing the business looks materially higher,” said Barclays analyst Warren Ackerman, who called the precedents “not encouraging”.
While Nestlé has claimed to have significantly scaled back its Russian presence, and stopped all imports and exports apart from essential products such as babyfood, cereals and tailored nutrition, it has been criticised by independent groups and Ukrainian officials for maintaining a presence in the country. It was the subject of a claimed 2022 cyberattack for failing to sever ties with Russia.
The seizure may also include a substantial sum of cash, estimated by Jefferies at around CHF 1bn (£0.9bn) that Nestlé has been unable to repatriate since the beginning of the war.
If the business was removed from the group, it would have no result on Nestlé’s ‘real internal growth’ measure of volumes or organic sales growth, as Russia has been excluded from Nestlé’s core financial measures since 2022. But the loss would be “far from immaterial,” in real terms, and the “earnings hit could be relatively sizeable,” Ackerman said.
Some major consumer goods companies are still thought to supply in Russia. Reckitt Benckiser (around 1% of sales), L’Oreal (~1%-2%), Beiersdorf (est ~2%), Haleon (est ~2%) and Danone, potentially through some remaining supply of nutrition products, were all thought by Jefferies to supply into the country.
”There is likely to be some concern for the future prospects of retaining those operations moving forward,” its analyst David Hayes said.
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