Fuel tanks sit at a Rosneft facility outside the town of Neftegorsk in Russia's Samara Region. At the outset of the Ukraine war, Calgary’s Calfrac Well Services had been selling its services in Western Siberia to government-controlled PJSC Rosneft Oil Co.ALEXANDER MANZYUK/Reuters
More than two years after Russia’s full-scale invasion of Ukraine, some Canadian companies still have operations in Russia despite pledges to exit the country or statements of support for the Ukrainian people.
While many companies rushed to get out within weeks of the outset of the war – sometimes at great cost – a Globe and Mail review found that some continue to own businesses or joint ventures in the country. The review looked at Canadian-based companies identified in news reports in March, 2022, as having operations in Russia.
CCL Industries Inc., CCL-B-T a Toronto label maker that is in the S&P/TSX 60 Index of large companies, still owns 50 per cent of a Russian-headquartered joint venture called CCL-Kontur.
Calgary’s Calfrac Well Services Ltd. CFW-T says it’s trying to find a buyer for its Russian operations but is recording more revenue and profit from Russia than it did in 2021.
Restaurant Brands International Inc. QSR-T has cut its ties and stopped collecting revenue from 800 Burger King franchises in Russia, but those franchisees still operate under the Burger King brand.
There is no blanket ban on conducting business in Russia. Canada’s sanctions involve a ban on business dealings with specific individuals and companies. In addition, Ottawa has banned the export of certain products and services to Russia, particularly technology; the maritime transport of Russian oil at certain prices; and the import of Russian diamonds.
Instead, it’s more of a moral issue, part of an international campaign – minus the support of countries such as China and India – to stop conducting business in Russia and supporting an economy that, in turn, supports the Russian war machine. After the invasion of Ukraine, companies rushed to tell the world what they were doing to pull out of Russia.
“Russia is such a pariah that companies find it difficult to speak plainly,” said Mark Dixon, the founder of the Moral Rating Agency, which tracks companies’ efforts to extract themselves from the country. Mr. Dixon says it’s difficult to nail down exactly how a company has approached its Russian investments simply by looking at their disclosures.
He said he looks for verifiable statements that operations have been closed or sold, as opposed to a company promising it will not make “further investments” in Russia.
CCL Industries said in March, 2022, it would “suspend future financial support to its investment in Russia,” where it had five plants, 428 employees and $70-million in sales. In its 2023 annual report, CCL said its subsidiary Innovia suffered the “loss of the entire Russian market, following the Ukraine conflict, to Chinese producers.”
But CCL still owns 50 per cent of CCL-Kontur, which operates four of the five plants it had at the time of the invasion. CCL says in its annual report that CCL-Kontur “posted record sales for 2023.” It reports its share of the profits in a segment that also includes earnings in another joint venture and said that segment contributed $17.9-million to a total of $530-million in 2023 profits.
In its disclosures, CCL says its equity partner in the joint venture “has management control of the Russian operations.” It adds that it has ”suspended all future financial support by way of equity injection or additional debt financing.”
CCL makes no mention in its disclosures of trying to sell its stake in the joint venture, and company executives did not return e-mails and calls seeking comment.
The company’s website features a “Support for Ukraine” tab that details employee efforts to collect clothes and supplies for refugees, as well as housing that CCL provided in Poland, Austria and Germany.
Calfrac is a provider of equipment and crews to oil and gas companies. At the outset of the war, it had been selling its services in Western Siberia to what its disclosures call “Russia’s largest oil producer,” which is government-controlled PJSC Rosneft Oil Co.
Calfrac says it’s trying to find a buyer for its Russian operations and consequently lists its Russian results as “discontinued operations” in its financial statements. In the meantime, however, the company is pulling in more revenue and profit from Russia than it did in 2021.
It recorded revenue of $134-million in 2023, compared with $122-million in 2021. The company reports just revenues and expenses from the Russian operations, rather than a full accounting. The excess of revenue over expenses was $21.9-million in 2023, compared with $13.3-million in 2021.
Calfrac recorded an impairment of $42.8-million on June 30, 2022, to write down the Russian division’s assets to the value Calfrac expected it would eventually recover from a sale. The company also doesn’t expect to pull a material amount of its cash profits out of Russia, the company’s chief financial officer, Mike Olinek, said in an e-mailed response to questions.
“Since the first quarter of 2022 Calfrac has been, and remains, committed to selling its Russian subsidiary,” he said.
He said the company’s attempts to divest have been significantly hampered by Russia’s new laws governing exits of foreign investors – a response to Western sanctions. In Calfrac’s case, he said, “there is a requirement that the sale of our Russian business be approved by an order signed by President Vladimir Putin.”
“Although we are not at liberty to disclose the specific details, Calfrac continues to work with its external advisors to responsibly complete a sale as soon as possible,” he said. “I can confirm that Calfrac has invested significant time, energy and resources into its divestment effort and has made significant progress toward a divestiture of the Russian business.”
Mr. Olinek said that since June, 2022, the Russian subsidiary, CWS International, has operated independently of Calfrac, directed by its local Russian management. It receives no financial, management, technical or other business services or support from Calfrac or its affiliates, he said.
Restaurant Brands International Inc., the franchiser of several chains, including Tim Hortons, had 800 Burger Kings in Russia at the start of the invasion. The company had a deal with what’s called a sub franchisee, which in turn awarded stores to individual franchisees, spokesperson Mary Lowe said.
Ms. Lowe said that meant the sole financial relationship was Restaurant Brands collecting sales royalties from the sub franchiser. It did not sell food or supplies – a means of making money from Canadian franchisees – to the Russian restaurants, she said, and has now stopped collecting royalties.
But the restaurants still operate under the Burger King name. Ms. Lowe said Restaurant Brands determined it could not terminate its franchise agreements owing to the misdeeds of a government, rather than the franchisees themselves.
Many other Canadian companies were able to quickly exit Russia and close or sell their operations – sometimes at great cost.
Kinross Gold Inc. may be the most striking example of paying the high price of leaving – and the complications of dealing with the Putin regime. On April 5, 2022, about six weeks after the invasion, Kinross said it had agreed to sell its Russian assets for US$680-million in cash to the Highland Gold Mining group of companies, an outfit based in the island nation of Jersey whose business model is building a portfolio of Russian gold mines.
After a Russian government review, however, Kinross was forced to cut the sale price to US$340-million. In connection with the sale, Kinross recognized an impairment charge of US$671-million.
PHX Energy, like Calfrac a provider of drilling and other energy-services equipment, divested Russian subsidiary Phoenix TSR LLC on June 30, 2022, recording a $14.1-million loss to do it.
Global real estate company Colliers International Group discontinued its operations in Russia in March, 2022, by selling its controlling interests to local management for “de minimus” proceeds, the company said in financial disclosures, recognizing a loss of $26.1-million.
Other operations took longer to unwind. Auto parts maker Magna International Inc. took until 2023 to sell all its investments in Russia, recording a loss of US$16-million. In 2022, the company recorded a US$376-million impairment charge, writing down the value of the business “as a result of the expected lack of future cashflows and the uncertainties connected with the Russian economy.”
Alimentation Couche-Tard’s Circle K convenience-store chain announced on March 7, 2022, that it would suspend operations at its 38 stores in Russia. Spokesperson Amine Ndamama said the company “worked to find the right way to exit in a safe and responsible manner,” including working with Russian authorities.
Circle K managed to terminate the agreement for the use of its brand, and the name was removed from the stores, Mr. Ndamama said. That August, he said, the company sold all its shares in the Russian Circle K entities with the approval of Russian authorities.