Ukraine War Has Limited Impact on European Food Stocks

We don't expect to change our fair value estimates for our European food value chain coverage list due to the recent Russia-Ukraine conflict. First-order effects (direct revenue exposure in Russia, Belarus and Ukraine) are relevant only for companies with global exposure in our list, which in their majority are global food brands and ingredient companies. Fast-moving consumer goods, or FMCG, companies' and food ingredients' exposure to the region is relatively small, accounting for a low- to mid-single-digit percentage of the industry's revenue, by our estimates. That said, second-order/longer-term effects from potentially higher inflation driven by elevated energy prices (key input in the production of fertilizers), and supply chain disruptions/higher prices for nitrogenous fertilizers (15% of global trade for Russia and 16% for Belarus), potash (17% of global potash exports), wheat, corn (Ukraine and Russia account for one third of global wheat exports and one fifth of corn trade) and other key agricultural commodities are still uncertain in our opinion. Within our coverage, Danone, JDE Peet's and Barry Callebaut exhibit the highest exposure to Russia (6%, 5% and 5% respectively), with JDE Peet's generating about 1% of sales in Ukraine (a small facility operating in the region was closed and its activities have been taken over by other sites in other countries, according to the company). In our discussions with Barry Callebaut, the company does not see any material impact and does not expect the current situation in the region to affect guidance. Nestle's exposure in Russia and Ukraine is lower (about 2% of group sales, CHF 300 million and three factories in Ukraine, CHF 1.7 billion and six factories in Russia), serving the pet food, confectionary, coffee and culinary markets in the region. Kerry Group's exposure is the lowest, at about 1%-2% of taste and nutrition's sales.

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