Russian firms suffering major profitability drops this year

Rosstat figures show that the net profit of the corporate sector, i.e. combined profits and losses of Russian firms, fell by half in the first four months of this year. In March, companies on balance posted more losses than profits. In April-May, the net profit was down by about 40 % from a year earlier. The last time net profit of the sector fell below zero was at the beginning of 2015. On the other hand, the net profit of the corporate sector in 2018 and 2019 was quite good relative to sales. This year’s drop in profits is also nowhere near the profitability collapse experienced in 2009.

Among individual branches, the net profit of the corporate sector was mostly driven down by fuel wholesale which saw a sharp drop in net profits. Net profit of crude oil production and related services was down considerably, and profits in oil refining and chemical industry evaporated altogether. In the metal industry, profits were down by more than half.

Profitability in all these sectors has been hit by lower export prices and for the oil sector, a sharp drop in domestic prices. The ruble has also depreciated notably less this year than in the 2015 recession, so now profitability in the export sectors has not received a ruble boost of the same magnitude.

Amidst the corona recession, only some branches have experienced higher profits. These very few segments include retail food sales and the pharmaceuticals industry.

Despite lower profitability, the number of companies officially terminating their activity is down considerably this year. Existence of companies has been propped by the government restrictions on corporate bankruptcies introduced with the advent of the corona crisis. The restrictions on bankruptcies are an additional element to various government support measures aimed at preserving stability in the country.

The coronavirus downturn has affected profitability of Russian firms

Sources: Rosstat and BOFIT.