Russian companies are back in profit and having their best year in the last four years as they put the recession years behind them.

Corporate profits remained strong and stable in June, increasing by RUB1,297bn ($19.4bn) month-on-month, on a par with the previous months of this year, to a cumulative RUB8,040bn ($120bn) YTD, but well ahead of the same month in the previous three years.

While overall GDP growth remains anaemic with the economy expanding by only 0.9% in the second quarter after an even weaker 0.5% expansion in the first quarter, at a corporate level things are much rosier.

While the crisis years of 2014-2016 pulled down the economy as a whole, they also caused a consolidation in most sectors concentrating the earnings in the hands of the best companies. Management has changed its strategy from growing market share as fast as possible to turning inwards to cut costs, improve efficiency and increase profitability. That has led to the somewhat counterintuitive situation where profits have begun to rise strongly even though overall economic growth is weak.  

So far this year Russian companies have collectively earned just a bit less than RUB1,300bn every month except in April when they earned RUB1,593bn. In 2017 Russian companies earned more than RUB1,000bn in only three months of the year and in April 2017 they made only RUB523bn – a third of what they made in April this year.

The pace of growth in profits has also been accelerating. Profit growth took off in the middle of 2018. In the first half of that year profits were growing by around 10% a month y/y but from June 2018 they began to grow by 30% year-on-year and stayed at that level for the rest of the year.

This year the lowest increase in year-on-year profits was in January when they increased by 20% on January a year earlier, but in February and May they were up by c.40% and in March and April they were up by over 50% y/y.

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