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Unilever breaks pledge: profits in Russia doubled, advertising spending increased
Despite a solemn pledge to no longer benefit from business with Russia, Unilever has doubled its profits there over the past year. Cornettos and Magnums remain on the shelves, even though the company stated it would only produce ‘essential food and hygiene products’. Unilever has also increased advertising spending.
‘We have suspended all imports and exports of our products into and out of Russia, and we will stop all media and advertising spending. We will not invest any further capital in the country nor will we profit from our presence in Russia.’ That was the pledge made by Unilever CEO Alan Jope in a press release on 8 March 2022, two weeks after the Russian invasion of Ukraine.
However, Unilever would continue to supply ‘everyday essential food and hygiene products made in Russia to people in the country’. However, the CEO does not specify what products it considers essential. Jope also writes that Unilever no longer imports and exports to and from Russia.
One financial year and thousands of war dead, wounded and refugees later, it appears that the opposite is true. Unilever Rus has doubled its net profit, as can be seen in the Russian annual report for 2022: from 4.8 billion rubles (56 million euros) to more than 9.2 billion rubles (108 million euros).
Higher contribution to Russian treasury
Due to these high profits, the company has also contributed more to the Russian treasury. Unilever had to pay 3.2 billion rubles (38 million euros) in corporate tax in Russia. In 2021, that was still 1.2 billion rubles (14 million euros), according to the annual figures of Unilever’s Russian subsidiary.
Unilever's statement that it does not spend a penny on advertising is incorrect. In 2022, Unilever spent 21.7 billion rubles (259 million euros) on advertising costs. That is an increase of more than ten percent than in 2021.
Nor are there only ‘essential food and hygiene products’ in Russian stores. The supermarkets still sell Magnums and Cornettos, produced by ice cream factories in Tula, below Moscow and in Omsk, in Siberia. The cosmetics factory in Yekaterinburg is also still in operation.
‘We still believe that staying is the best option, to prevent our company from falling into Russian hands and to protect our people’
Mid-February 2023 Unilever issued a new press release, stating that the company provided more than 15 million euros in aid and food to Ukraine. In the text of the press release, Unilever no longer refers to the supply of ‘essential’ products to the Russians, but speaks of ‘everyday food and hygiene products’.
This statement does not say anything about not wanting to make a profit, but CEO Jope does explain the decision to stay in Russia. ‘We still believe that staying [...] is the best option, both to prevent our company from falling directly or indirectly into Russian hands, and to protect our people.’
Reinvesting profits
‘Unilever is not keeping its promises,’ concludes Andrii Onopriienko, head of Leave Russia, a research project at the Kyiv School of Economics that monitors the presence of Western companies in Russia.
He refers to the turnover that stayed the same when compared to the increased profit. It saw a capital growth of 37 percent, from 25.3 billion rubles in 2021 (23 million euros) to 34.5 billion rubles (31 million euros) in 2022. ‘They reinvested their profit, which is equivalent to investing in the country.’
‘331 million dollar in tax in the Russian treasury means Russia can produce 331 Kalibr missiles’
The KSE calculated that in 2021 Unilever Rus paid a total of 331 million dollars (302 million euros) in taxes to the Russian treasury. ‘Given their finances, that has to be the minimum in 2022,’ says Onopriienko.
‘Kalibr missiles cost 1 million dollars each. For us Ukrainians, an amount like this means that Russia can produce 331 missiles. So Russia can continue to kill our people and destroy our cities and infrastructure.’
For the KSE, the annual report is sufficient reason to change the status of Unilever Rus. The company behind Calvé and Dove was first listed as ‘leaving’, but that has now been changed to ‘staying’.
Unilever has reacted by saying that the increase in profit can be explained by the changing value of the ruble and inflation. Since the outbreak of the war, no more money has flowed to or from the Russian subsidiary. Unilever does not address the increase in advertising spending.
At the end of 2020, the original Dutch-British Unilever became fully British, with stock exchange listings in London and Amsterdam. The multinational earned 8.3 billion euros worldwide in 2022, almost 25 percent more than in 2021, on a turnover of 60.1 billion euros. Russian turnover is only 1.4 percent of the total, but Russia is a modest growth market for Unilever. Unilever Rus accounted for 2 percent of total profits.
The legal form of Unilever Rus, as the subsidiary is called, is an OOO. This legal form is similar to the Dutch BV, albeit with some differences. The two owners, called ‘participants’ in Russia, of Unilever Rus OOO are the German Unilever Deutschland GmbH (11 percent) and the Dutch Rizofoor bv (89 percent). Until 2020, Rizofoor still fell directly under Unilever nv, the Rotterdam parent holding company, according to group relations. Rizovoor did not publish its own annual accounts.
That changed at the end of 2020, when Unilever became a fully British company instead of half British-half Dutch. Since then, Rizovoor no longer fell under Unilever nv, but under Unilever South India Estates Limited, a British company that, according to the annual report, belongs to Unilever PLC, the parent holding company. From that year, Rizovoor resumed producing annual reports. The balance sheets of 2020 and 2021 show that the interest in Unilever Rus has approximately one billion euros on the books. That makes the value of the Russian subsidiary about 1.1 billion euros.
Unilever Deutschland is a subsidiary, which is ultimately owned by Unilever PLC through a Dutch company: Mixhold. It is remarkable that the ownership structure still runs through the Netherlands. After all, Unilever has moved to London. And because President Putin has terminated the tax treaty with the Netherlands, tax benefits for Russian subsidiaries ended on 1 January 2022.
‘I think Unilever itself moved, but the tax structure did not,’ says Rotterdam tax specialist and former trust office owner Leo Neve, who is well acquainted with former Soviet countries. ‘It looks as though they didn’t expect a dividend from Russia.’
It may also have to do with risk management and liability limitation, says a tax specialist specializing in Russia, who does not want to be named. Multinationals appreciate the legal certainty enjoyed in the Netherlands.
This is also well regulated in the United Kingdom. ‘Why the shares in the OOO were not transferred from the Netherlands to the United Kingdom, which still had a working tax treaty until the invasion of Ukraine, 'I can't explain,’ says the tax expert. ‘But if there is no income from Russia now, as Unilever claims, it doesn’t make much difference from a tax point of view.’
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