European companies fight bankruptcy after sanctions on Russia

The 600 pairs of shoes lay untouched inside an Italian warehouse: red sandals, stilettos and gold flats that would go to Russian boutiques are trapped in a limbo of sanctions and economic upheavals from Russia’s war in Ukraine.

Sergio Amaranti, the Italian shoe company saddled with a mountain of unpaid goods, is among thousands of European companies battling an ever-widening reaction to the conflict.

“It’s scary,” says Moira Amaranti, who runs the company founded by her father and uncle.

She says she feared the sudden financial loss could destabilize the 47-year-old company, which supports 20 former employees and their families.

“Russia is half of our business,” she says. “And now we have a problem.”

Russia’s month-long war against Ukraine is affecting Europe’s economic recovery from the Covid-19 pandemic, threatening its recovery with huge job offers. Manufacturers and retailers that were benefiting from renewed growth adapt to sudden swings in business conditions that have injected new uncertainties into economic decision-making.

Sanctions aimed at punishing Moscow for its invasion of Ukraine are affecting companies in unexpected ways, undermining confidence and their ability to plan. Small companies like Sergio Amaranti face a murky future when exports to one of their main markets come to a halt. Large multinationals moving away from Russia weigh the risk of asset confiscation or nationalization.

The war’s repercussions on rising energy, food and commodity prices are causing even greater problems, forcing turbine manufacturers, glass factories and zinc mills to slow or pause production. Growing congestion in logistics and supply chains has added to inflationary pressures, prompting retailers to pass on rising costs to consumers and to find alternative supplies. Annual inflation in Europe hit 7.5% last month, the highest in 40 years.

As the disruptions put pressure on European companies and their workers, the governments of France, Spain and neighboring countries are reviewing spending priorities and pledging huge subsidies to make up for the problems, on top of the hundreds of billions already spent to keep them afloat. during the pandemic.

The European Commission has authorized companies affected by sanctions against Russia to receive up to 400,000 euros (R$ 2 million) in state aid. European businesses and consumers are receiving government discounts at the gas pump and on their energy bills.

“The longer the war lasts, the greater the economic costs and the more likely we are to end up in more adverse scenarios,” warned Christine Lagarde, head of the European Central Bank, on Wednesday.

On the same day, Germany, Europe’s biggest economy, cut its 2022 growth forecast by more than half to 1.8%.

Cogemacoustic, a family business that employs 50 people in Limoges, in south-central France, did not expect a war to have an effect on it. The company, which specializes in giant industrial fans used in tunnels and mines, secured contracts for the first time in Russia last summer to help offset a business slowdown due to the pandemic lockdowns, said Marion Oriez, its chief executive.

Russian sales quickly rose to 5% of business and were expected to double this year — until Russia invaded Ukraine. Russian customers were unable to pay €90,000 for ventilators already delivered because of sanctions on Russian banks, Oriez said. Another 20 fans, the size of small trucks, destined for Russia, are sitting at the factory – a sunk cost of 350,000 euros.

The company was already dealing with supply shortages and rising raw material and energy costs when the war cut Ukraine’s steel needed to make the fans, requiring Oriez to find new sources and slowing production at the factory.

“Our situation is still difficult,” said Oriez. “There is a lot of uncertainty for the company.”

At Sergio Amaranti, based in the city of Civitanova Marche, among a large group of shoe manufacturers with long ties to the Russian market, managers faced difficult decisions about continuing to produce despite lost orders.

Moira Amaranti said she met with her family and officials to decide whether to stop making another 500 pairs of summer shoes that Russian traders had ordered. It would likely be impossible to deliver them anytime soon, and seven large orders from the country had already been cancelled.

In the end, however, they decided to go ahead with production because they had already purchased the leather and sole.

“I’m very worried,” said Amaranti, whose priority is to find solutions that keep her workers paid. “A businessman carries the weight of many families.”

For the Eichbaum brewery in Mannheim, Germany, losing its Russian export market was just the beginning of the war’s problems.

Germany’s third-largest beer exporter, the company was already suffering from two years of damaged sales as the pandemic closed bars and canceled festivals, in addition to the tangles in the supply chain. Now, the price of hops and other grains used in brewing beer has more than doubled, driven by scarcity fears related to the expected loss of this year’s crops in Ukraine, known as Europe’s breadbasket, said Uwe Aichele, head of international sales for the company. brewery.

These problems have been compounded by the shortage of aluminum cans and glass bottles – both produced in Ukraine – along with the high price of energy plaguing Germany.

“The longer this goes on, the worse it gets,” Aichele said.

Retailers need to look for less desirable substitutes for goods that are suddenly out of stock, upsetting customers. A British company, Iceland, is among countless European supermarket chains facing a shortage of sunflower oil from Ukraine, which, along with Russia, accounts for 70% of global supply.

Iceland has had to start using palm oil again to make various food products, after cutting it back to fulfill promises of environmental sustainability, managing director Richard Walker said in a message to customers on Iceland’s website.

Mercadona, Spain’s largest supermarket operator, has introduced a limit of 5 liters of sunflower oil per consumer. At San Ginés, a century-old cafe in Madrid famous for churros — a crispy dough fried in sunflower oil — Pablo Sánchez, the manager, said he may have to pass on a 20% price increase to consumers.

“We’ve just come out of the nightmare of the pandemic and now we’re facing this war, so these are really times when you have to show extreme resilience to survive as a company,” he said.

At Vetropack, a Swiss manufacturer of glass storage containers with factories across Europe, Chief Executive Johann Reiter braces himself for the possibility that Russian aggression could extend beyond Ukraine.

Nearly 600 workers at the company’s factory near Kiev were forced to suddenly stop production when Russian tanks invaded the country. About 300 tons of molten glass were left to solidify inside the site’s furnace, rendering it unusable.

The Ukrainian factory produced 700 million beer bottles, jam jars and other containers last year, and without that, Vetropack’s revenue is expected to drop 10%. The company cannot make up for lost production because its other factories are running at full capacity. Managers consider whether to change their product mix.

Reiter has his eye on neighboring Moldova, where he operates another Vetropack factory. The company is preparing for the worst-case scenario — where Russia extends the war there — by implementing evacuation and shutdown plans, as well as backup generators and satellite phones for managers to keep in touch.

“It’s probably the most difficult period of my time as CEO,” Reiter said.

Translated by Luiz Roberto M. Gonçalves