Page 70 - RusRPTJul19

companies have stopped opening new stores and have even begun to close some of the less profitable ones. Real income growth has been stagnant for five years, forcing companies to turn inwards and reform their efficiency and productivity as a source of profit growth, rather than simply selling more widgets at higher prices. At the same time as the capex falls after the expansion drive ends companies have more cash. With nothing to invest into they are choosing to share these profits with investors as dividends and Russian companies are now paying the highest dividends amongst all the emerging markets; Russia’s dividend yields are twice those of the benchmark MSCI EM average.
Finally, the austere economic environment means that the smaller companies are merging, folding or being acquired by their larger rivals. There has been a string of mega-mergers in the retail sector over the last year starting with the tie up between white goods retailer M-Video and Eldorado that also bought German rival Media Markt, and ending most recently with the takeover of Lenta by metals tycoon Alexey Mordashov. Companies have continued to grow their revenues, but through acquisition rather than via store openings.
The story is the same in several other sectors as the austerity is driving a broad-based consolidation amongst companies, albeit that the different sectors are at different stages in the process.
But all in all, Russian aggregate corporate profits rose to RUB2,472bn ($38bn) in February, adding RUB1,208bn to the profits made in January – the best result in at least three years. That brings the cumulative profits Russian companies earned in February well ahead of the RUB1,740bn they earned in the same period of 2018, which was already a strong year compared to 2017 and 2016.
70 RUSSIA Country Report July 2019 www.intellinews.com