Profits drop, but corporate Russia remains in the dark
Moscow’s decision to defy a second wave of coronavirus and keep its economy running has helped the nation’s largest businesses book a strong end to the year and solidify their recovery from the initial blows of the coronavirus pandemic, according to the analysis of the company’s results.
Over the whole year, corporate profits of large and medium-sized Russian companies fall about a quarter, according to data from the Russian official statistics agency (Rosstat).
While the total amounted to 12 trillion rubles ($ 162 billion), having fallen by over 50% last spring, it was a better performance than the most optimistic estimates. In fact, nearly half of all Russian corporate profits were recorded in the fourth quarter, as the country removed the tightest restrictions on coronaviruses and global optimism over vaccines helped bring back the global energy prices above their pre-coronavirus levels.
The turnaround of Russian companies was celebrated by Rosneft CEO Igor Sechin in a to boast to President Vladimir Putin on his company’s performance at a recent meeting – a perspective 12 months ago, oil prices fell below $ 20 a barrel.
“Unlike a number of other large international oil and gas companies including ExxonMobil, Chevron, Shell and Total which ended the year with losses, we were the only global company to be profitable,” Sechin told Putin face to face. -Meeted face last month.
Earlier in the pandemic, Rosneft had become a poster child of Russian business woes when he recorded a $ 2.1 billion loss in the first quarter of the year. It closed the year with an annual profit of $ 2 billion – 80% less than in 2019, but pushed into the dark by a turnaround in oil prices and a multibillion dollar sale of a stake in its extensive Arctic Oil initiative in recent weeks.
With oil prices now above their pre-coronavirus levels, analysts say the outlook for Russian energy majors is relatively bright. Investment bank VTB Capital recently received a “strong buy” rating across the industry.
Sberbank – Russia’s most valuable company – is another testament to the company turn around Russia experienced in the second half of 2020. After profits collapsed during the country’s nationwide lockdown last spring and monthly profits approached zero, the bank rebounded sharply, recording a windfall of $ 10 billion for the whole year.
The lender started this year where it left off, breaking profit records in January and February, and Andrey Mikhailov, senior analyst at Sova Capital, estimates that the bank is “on course to make around trillion rubles ( 13.5 billion dollars) in 2021 ”.
The International Monetary Fund (IMF) also recently highlighted the strength of Russian banks through the pandemic at a press conference on the state of the Russian economy.
“Whenever you have a crisis, the health of the banks is very important because if the banks weaken, it could trigger a much worse recession,” Jacques Miniane, IMF chief of mission in Russia, said in a statement. “Fortunately, Russian banks have entered the crisis from a position of strength and it seems that the bank capital for the system is more than enough to absorb the losses,” he added, referring to the growth of borrowers at problems triggered by the coronavirus. “Its very important.”
Data from Fitch Ratings shows that the Russian banking sector even increased its profits in 2020 in ruble terms – from about 1.3 trillion in 2019 to 1.6 trillion ($ 21 billion) in 2020. Only three of the 83 The country’s largest lenders tracked by the rating agency posted a loss last. year, and early evidence suggests bad debts are lower than expected, which should boost bank profitability.
While banks and energy companies have been successful in weathering the coronavirus storm, the performance of other companies has been even stronger.
“The crisis in the Russian economy has not affected all sectors of the economy equally – negatively. As in every crisis, certain industries have taken an advantage, ” mentionned Lyubov Arapova, assenior analyst at the Center for Strategic Research.
“Food retailers were among the main beneficiaries of Covid-19 in 2020,” wrote Artur Galimov, senior analyst at Sova Capital in a recent report. While growth in the sector as a whole fell at its slowest pace in a decade to 1.7%, “favorable winds linked to coronaviruses and changing consumption patterns have created an extremely benevolent environment for large chains. , leading to an acceleration of their market consolidation, ”he noted. .
This performance is clear in the annual trading updates.
Total sales of Russia’s largest retailer, X5 – the holding company behind supermarket chains Pyaterochka and Perekrestok – grew by more than 14%, while online grocery orders soared 3.5 times, the pandemic having led to a long-awaited breakthrough for Russian e-commerce. industry.
Rival Magnit, which has the largest regional supermarket network and mainly focuses on discount offers, saw its profits more than double compared to 2019.
While Russians dramatically cut spending on services such as dining out, vacations abroad, and trips to the movies, other domestic retail chains such as consumer electronics company MVideo and the Children’s store Detskiy Mir have also reported significant increases in revenue and sales, thanks to the shift to online shopping. . Overall revenue grew 14% at Detskiy Mir and 19% at MVideo, while e-commerce revenue more than doubled in both cases.
Russian tech companies also posted strong annual results. Search giant Yandex and rival tech conglomerate Mail.Ru saw revenues soar by more than a fifth. While Mail.Ru took a hit on profits, Yandex more than doubled profits and now has over $ 3 billion in cash on its balance sheet, which it is expected to leverage the development of an in-house fintech unit and the financing of the expansion of its online retail division.
While the coronavirus may have left a little more than a few bruises on those at the top of Russian companies, further down the pyramid there are plenty of scars.
For businesses already struggling, the pandemic has taken its toll. The number of loss-making companies increased by only about a tenth in 2020, according to Rosstat data, but the magnitude of their combined losses has more than doubled.
National and international organizations have also noted this discrepancy.
IMF mentionned that if the government support program was “more effective in maintaining the viability of enterprises relative to the [support programs] implemented in advanced and emerging European economies, “Russian small businesses were still three times more likely to face cash flow constraints than large businesses.
The economists of the Central Bank of Russia also sharp to the “clean-up effect” of the pandemic – or to the wiping out of the country’s “low productivity” businesses in a recent working paper. In principle, this could be a good thing for the Russian business sector, diverting more workers and money to the fastest growing companies, the authors said. But in practice, they saw a decrease in entrepreneurial activity and said that “even the most successful companies face limitations in growing their businesses” in the current business climate in Russia.
The success of Russia’s largest supermarket chains could attest to this trend. In a global food market that grew at its slowest pace in a decade, Gilmov of Sova Capital noted that the impressive performance of X5 and Magnit came at the expense of their smaller rivals. “The lockdowns have been a blow to non-chain stores … [which] has crowded out many of the market, ”he noted.
The dichotomy is also present in the minds of business leaders, various surveys suggest. A recent survey of 6,000 companies by the Center for Strategic Research revealed increased business optimism and uncertainty for the coming year.
About two-thirds of companies are expected to operate at pre-coronavirus levels within 12 months.
But another fifth was not sure they will experience this success again.