Switzerland’s ABB said Monday that it would assess its business in Russia after “questionable practices” forced the company to increase reserves to protect against possible charges.
“ABB has initiated an in-depth review of its Russian operations, and various tax audits have been conducted by the local tax authorities,” ABB spokesman Thomas Schmidt said after the firm reported that it will increase charges related to “the challenges of doing business in Russia.” The company didn’t elaborate on the hurdles that it faces.
It was too early to say whether ABB, the world’s biggest supplier of power grids, would pull out of Russia altogether, but the group was looking at all options, he said.
“The overall impact of the financial situation in Russia has had a triple-digit-million dollar financial impact on ABB over the past several quarters,” he said.
Demand for ABB’s products has crumbled in Russia, with sales falling 50 percent in the first six months of the year due to a drop in spending on infrastructure. Russia accounted for $1 billion of ABB sales in 2008, while the group posted total sales of $35 billion.
The changed stance contrasts with ABB’s more upbeat assessment of Russia in the past. Russia offers “tremendous opportunity” because the country is upgrading infrastructure, chief financial officer Michel Demare said in April 2008. ABB generated revenue of $1 billion last year in Russia, where it sells mainly transformers and substations and operates a cable factory. In 2002, sales from Russia were $126 million.
“Reviewing the business model certainly goes in the direction of compliance,” said Richard Frei, an analyst at Zürcher Kantonalbank. Abandoning operations in the country is unlikely unless something “really very bad” occurs, he said.
(Bloomberg, Reuters)
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