According to official reports, the Russian economy is growing. Subjected with external sanctions, the country, as HSE professor Oleg Vyugin noted, “is turning into a cauldron,” closed from the outside and stuffed with big money. In these conditions, not everyone is doing well: business has become hostage to the wage race, many companies were left without external clients, showed losses and ultimately decided not to pay dividends to their shareholders.

Even in closely related sectors the situation is uneven. And if the oil industry is quite successful against the backdrop of high prices (as evidenced, for example, by Rosneft statistics), then companies already producing gas are in a much less attractive position. It is difficult to see the overall picture of the state of companies - with the beginning of the war, individual enterprises stopped publishing reports or provide them in a truncated form, international rating agencies left the country, and the global Forbes stopped including Russian corporations in its lists.

The Insider selected typical examples of problems with company profits from different (each with its own specifics) sectors of the Russian economy: a sudden reduction in profit, its loss or a long absence.

Gazprom is now an oil company

Gazprom is among the Russian companies most affected by the war, despite the fact that pipeline gas has not been targeted by sanctions. For the first time in 25 years, the corporation suffered losses, and large ones at once, amounting to 629 billion rubles. Not only was the loss of access to European markets due to the Nord Stream explosions affected, but also increased tax payments to the budget - approximately 600 billion rubles.

Moreover, it is the gas business of the concern that is unprofitable. China could replace Europe as a buyer, but this requires a new gas pipeline. Europe was supplied from Western Siberian fields, and China so far - from Eastern Siberian fields (through the Power of Siberia - 1 gas pipeline). The Power of Siberia 2 gas pipeline could connect these fields with each other, which Beijing is in no hurry to approve.

But, despite the sharp drop in sales on foreign markets, Gazprom supports domestic Russian consumption. Of the 359 billion cubic meters of gas produced in 2023, 215 billion cubic meters went to the domestic market.

Gazprom Neft, on the contrary, is profitable. “The oil business for Gazprom is now almost more important than the gas business,” Sergei Vakulenko, former head of the strategy and innovation department at Gazprom Neft, comments on the reporting. Gazprom has been unable to significantly reduce operating costs, despite declining production, because even idle infrastructure needs maintenance. The other part of the concern, Gazpromenergoholding, is also profitable.

That is, if we subtract the share of oil and energy from Gazprom’s entire pre-tax revenue, it will be almost two times less than that of Novatek, notes Valery Andrianov, associate professor at the Financial University under the Government: “In other words, the largest gas company in the country today is namely Novatek.

The country's largest gas company today is not Gazprom, but Novatek.

Liquefied natural gas (LNG), which Novatek specializes in, provides more opportunities for quickly changing sales markets. Thus, the company increased supplies to the EU when pipeline gas supplies fell. Its new Arctic LNG 2 project fell under US sanctions in 2023, the start of shipments from which has been postponed. But the main operating large-capacity Yamal LNG is not under sanctions and continues to operate. The company is profitable (463.03 billion rubles) and has paid dividends.

Gazprom refused to pay annual dividends for the third year in a row. Interim dividends were last paid in 2022: in the first half of the year, investors received a record 1.2 trillion rubles. Another refusal to pay dividends has affected the share price - in the last couple of months alone, they have lost 30% of the price. From the pre-war peak - a drop of more than three times.

Interestingly, the concern’s investment activity did not decrease. Capital investments in 2023 amounted to 3.1 trillion rubles compared to 2.8 trillion a year earlier. Without profits and new investments from shareholders, these investments can only be made through borrowing and eating through reserves. So the company's net debt jumped from almost 4 trillion rubles to 5.2 trillion rubles.

“After the release of Gazprom’s financial statements for 2023, a new joke appeared: since the property is national, its debts will be divided equally among the entire population. And this is just such a joke in which there is some truth...” notes Andrianov. Thus, the government has already decided to increase wholesale gas prices by 11.2% (tariffs for the population increased by 8%), which will increase the concern’s revenue by 130 billion rubles. A year later, another increase is expected, by 8.2%.

Russians will have to repay Gazprom's debts: wholesale gas prices increased by 11.2%, and another increase is expected in a year, by 8.2%.

The shocks for Gazprom do not end there. At the end of the year, its contract for pumping gas through Ukraine ends. If it is not extended, then Russia will be able to redirect only a small part of the shortfall in Ukrainian transit volumes to the Turkish Stream, due to its high congestion. In addition, another 600 billion increased production tax is expected from the concern. At best, Gazprom will be able to return to profitability and pay dividends only in two years, analysts say: it’s too early to bury it, but it’s scary to buy.

Aeroflot with debts and no bonus

The largest Russian air carrier was unprofitable even before the war. In 2023, losses, oddly enough, were reduced due to revenue growth. However, financial expenses, that is, debt payments, increased threefold (from 63 to 210 billion rubles). The airline itself explains the sharp increase in costs mainly by “negative exchange rate revaluation” of leased assets. In other words, due to the depreciation of the ruble, payments for foreign aircraft denominated in foreign currency are rapidly growing. Due to this, a net loss was obtained, although several times less than a year earlier. The company refrained from paying dividends.

Sanctions in the form of a ban on the supply of aircraft and their spare parts to Russia have become a serious problem, since domestic manufacturers cannot replace them. In two years, Aeroflot will miss five million passengers due to delays in the delivery of Russian aircraft, admitted the company’s general director Sergei Aleksandrovsky. In March, the Russian aviation industry once again delayed the delivery of new Russian aircraft, so that transportation could not provide an influx of money to cover payments on obligations. The company's debts already amount to more than 1.2 trillion rubles. Over the year they grew by 15%.

Aeroflot's debts increased by 15% over the year

Own capital remains negative due to accumulated losses. Moreover, short-term liabilities are growing rapidly - by 26% in 2023. These debts amounted to 354 billion rubles at the end of 2023, and at the end of the first quarter of 2024 - already 367 billion rubles, while current assets, through which these obligations can be repaid, amounted to 251 billion rubles at the end of last year, and by the end of the first quarters of the current year decreased to 237 billion rubles.

"Rusal" asks for help from the authorities

The UK and the US completely abandoned the import of Russian aluminum, copper and nickel, and in the spring they imposed sanctions on the trade of these metals on the Chicago Mercantile Exchange and the London Metal Exchange. The largest Russian aluminum producer, Rusal, then said that global supplies would not be affected - the company trades under long-term contracts, and traders work on the exchanges. Indeed, the company has quietly extended its contract with Swiss trader Glencore until 2025 and is increasing sales to China, where there is high demand for green aluminum. The company's revenue in China doubled to $2.8 billion in 2023.

True, at the same time, Rusal asked for government support - to purchase up to half of the total export volume for 2023 into the state reserve and to exempt non-ferrous metal enterprises from export duties. “We have high-quality aluminum, and I don’t think that the refusal of America and England to buy our aluminum, where we didn’t supply much anyway (one might say crumbs), will in any way affect the possibility of our supplies to other countries “,” Deputy Head of the Ministry of Industry and Trade Viktor Evtukhov commented then.

The aluminum concern's revenue decreased by 12% in 2023. Operating profit, which amounted to more than $1.3 billion a year earlier, gave way to a loss of $79 million (the company reports in dollars, since its securities are traded on the Hong Kong Stock Exchange). And only due to income from shares in other companies, net annual profit turned out to be positive, although 6 times less than in 2022: $282 million versus $1.8 billion. Rusal considers the reason to be global economic uncertainty, which weakened demand for aluminum , as well as “geopolitical tensions, including an unprecedented regime of external restrictions,” supply chain disruptions and a significant drop in metal prices.

Rusal will also not pay dividends, like its parent En+, but is considering the possibility of buying back shares. In 2022, the company paid interim dividends for the first half of the year, but the board of directors of Rusal also decided not to pay final dividends for 2022.

Norilsk Nickel brings copper to China

The second leader in the domestic non-ferrous metallurgy, Norilsk Nickel, also noted a decrease in net profit, for the second year in a row. Compared to pre-war 2021, it fell by more than half, to 253 billion rubles. Company President Vladimir Potanin explained the negative dynamics by lower prices and foreign political pressure. But in general, products are still supplied to world markets, and revenue remains the same as in pre-war times.

At the same time, production costs increased by 45% over the year, partly due to the wage race. The company began to spend one and a half times more on wages. In addition, due to sanctions and the depreciation of the ruble, the equipment necessary for production is becoming more expensive. Transportation costs have also more than doubled.

The problems are so acute that Norilsk Nickel plans to transfer the smelting capacity of the Copper Plant, the modernization of which has become more difficult due to problems with Western equipment, to China by 2027, Potanin said. The Russian plant was built under Stalin, it heavily pollutes the environment and produces 80% of the copper smelted by the company. The company believes that it will be more profitable to transport 2 million tons of copper concentrate annually to China along the Northern Sea Route.

Norilsk Nickel plans to transfer smelting capacity to China by 2027

Norilsk Nickel will also not pay dividends based on the results of 2023, although, however, it has already paid interim ones - for 9 months of 2023. Thus, the company will not pay annual dividends for the second year in a row - this is the first time in its history.

And who has it easier?

The list of losers goes on. For example, in the woodworking segment, Segezha is unprofitable, and Ilim receives only half of its pre-war profit. Not everything is great in the ferrous metallurgy: Mechel’s profit for 2023 is three times lower than for 2022, and the debt load continues to influence all the company’s decisions.

But the losses of large Russian businesses are not total. Some industry leaders are showing positive results and even growth. Rosneft, as well as Sberbank and the X5 retail chain, increased their net profit. Leaders in the ferrous metallurgy industry, for example, NLMK, have good results. Vladimir Lisin's company increased its net profit by 26% and paid dividends. Until 2024, it was not affected by sanctions, but the recently adopted EU Package 14 may worsen the picture. The European Union has introduced a ban on the import of Russian finished products and semi-finished steel products, which is important for NLMK, whose European plants will not be able to receive blanks from Russia and will be forced to rebuild their business model.

The largest gold miner, Polyus, also received more profit, whose management also explained the decision not to pay dividends for the second year in a row by the upcoming record investment program. VTB Banking Group was able to move from losses to record net profit at the end of 2023 - 432 billion rubles. The corporate sector helped to grow - companies actively took out loans, despite the high Central Bank interest rate. Despite the record, VTB did not pay dividends.

The economic difficulties faced by Russian businesses as a result of the war vary widely. Some (like Gazprom) have lost the most profitable sales areas, others (Rusal, Norilsk Nickel) suffer from suboptimal production and logistics schemes and rising costs, others (Aeroflot) have accumulated a heavy debt burden and have dim prospects for their service.

And the longer the war with all the accompanying circumstances lasts, the more acutely and widely all these problems will affect Russian business.