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Ukraine Crisis Starts to Bite into German Profits

VW's Martin Winterkorn thanks a satisfied customer. Source: DPA
VW's Martin Winterkorn thanks a satisfied customer.
  • Why it matters

    Why it matters

    Entire German industries including cars, energy, arms, and healthcare are suffering as new projects and investments are put on ice amid tit-for-tat sanctions between the European Union and Russia.

  • Facts

    Facts

    • Since the fall of the Iron Curtain 25 years ago, the Russian market has played an ever-increasing role for German businesses.
    • The healthcare company Stada earned €113 million in Russia last year – 45 percent of its total profits.
    • In the first half of 2014, German business revenues from Russia dropped almost €3 billion compared to the previous year.
  • Audio

    Audio

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The jubilation still seems so fresh. In July, German exports reached €101 billion ($130.5 billion). Never before had Germany shipped more than €100 billion in goods in a single month. It seemed as if last year’s export record of €1.1 trillion ($1.4 trillion) stood to be beaten in 2014.

Of German exports last year, Russia accounted for only a modest 3.3 percent. So the feeling was that Germany’s overall economy didn’t really need to fear great losses from retaliation by Russia President Vladimir Putin after the European Union slapped sanctions on Moscow for meddling in Ukraine.

But that’s only the view from above. At the cash registers of German businesses, there is much to fear – especially for companies like the wholesale retail giant, Metro, and Stada, which specializes in healthcare. Russia is their most important foreign market. According to the Swiss bank UBS, Stada earned €113 million ($146 million), before taxes and interest in Russia last year – 45 percent of its total profits.  In 2013, it reported 22 percent growth in Russia.

Stada makes pharmaceutical and generic products and is based in Bad Vilbel, just northeast of Frankfurt am Main. In spring, the company lowered its forecast for the year as tension mounted over fighting between Ukraine government forces and Russian-backed separatists. Investors reacted with shock. In just 10 months, the company’s market value had fallen by a half-billion euros, or about 25 percent.

German companies in Russia

Another German company, Bionorica, is watching and worrying. The company produces plant-based drugs and generated earnings in Russia last year of €78 million ($100 million) – 33.5 percent of its total sales. “Russia is and remains for us one of the most important trading partners,” said the head of the company, Michael Popp. “It would be helpful not to aggravate the situation through additional trade barriers.”

Like Stada and Bionorica, 6,400 German companies sell their products in Russia. Since the fall of the Iron Curtain 25 years ago, the Russian market has played an ever-increasing role for German businesses, especially for industries like consumer goods, cars and mechanical engineering. And their position has been in danger ever since the conflict in Ukraine flared.

Volkswagen stopped all production for two weeks at its Kaluga plant south of Moscow as the trade war escalated. The company cited a “highly uncertain situation” as the reason. By July, VW sales had dropped 16 percent in Russia compared with last year. Up to now, the company’s head, Martin Winterkorn, had called Russia VW’s “number-one growth market in Europe.”

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