Segezha Group is thinking about selling factories in Europe

Timber holding Segezha Group (part of AFK Sistema) wants to sell its businesses located in Europe. This was announced on December 9 by the company’s president Mikhail Shamolin.

According to the top manager, several offers have already been received from potential buyers and the holding is studying them. “We have always considered European assets not so much as an attribute of EBITDA, profitability, but as a sales channel for our paper on the European market. This channel has now closed, we are forced to redistribute our paper volumes to other markets <..>the asset is still in such a suspended state, ”Shamolin said (quote from Interfax).

The European subsidiary of the Segezha Packaging holding unites seven paper packaging plants in Germany, Denmark, the Netherlands, Italy, the Czech Republic, Turkey and Romania. The total capacity of these enterprises is 769 million paper bags per year. The enterprises became part of the Segezha Group in 2014.

Now the European plants of the company, according to Shamolin, continue to work, but are experiencing problems both with obtaining raw materials and with the sale of products. “Clients do not want to work with companies that have Russian roots,” he explained.

Therefore, as an alternative, according to the top manager, the creation of joint ventures (JV) based on Segezha Packaging with a minority share of the Russian company is being considered. In addition, the creation of new capacities for the production of paper packaging “in other regions of the world”, including in Turkey and Egypt, is being worked out, he explained.

The press service of the Segezha Group declined to comment further.

Segezha Group unites enterprises of the forestry, woodworking and pulp and paper industries, assets are located in 12 countries. The holding’s enterprises employ 13,000 people. Its revenue under IFRS for 9 months of 2022 increased by 28% compared to the same period last year, to 87.4 billion rubles, “due to the effect of the consolidation of the assets of NLHK and Inter Forest Rus”, the company reported on December 9. Net profit decreased by 37% and amounted to 7 billion rubles. OIBDA (operating income before depreciation) decreased by 7% to RUB 20.3 billion. due to “inflation on a number of production components and increased logistics costs”. EBITDA is not included in the report.

After the start of the NWO in Ukraine, which has been going on since February 2022, since July the EU has banned the supply of timber products from the Russian Federation, including paper, to its territory.

According to Shamolin, Segezha Group has already redirected supplies to other markets, including the CIS countries, China, Egypt, Turkey and Israel. He also complained about the sharp increase in logistics costs. In particular, according to him, the delivery of lumber from Irkutsk enterprises to China has increased from $20 to $70 per 1 cubic meter. m, from the Northwestern Federal District to Egypt – from $25-30 to $130-140, in China – from $50 to $120 per 1 cubic meter. m.

Independent industrial expert Maxim Shaposhnikov notes that Segezha Group’s European assets account for about 30% of revenue. “But the company itself emphasizes that their share of EBITDA is modest. Most likely, we are talking about a margin close to 10%, or 2-3 billion rubles. a year,” he continues. The value of assets, which in the current situation “clearly reduced their profitability”, Shaposhnikov estimates at 4-6 billion rubles, that is, no more than $100 million.

In his opinion, Finnish companies could be interested in the holding’s enterprises in Europe, “supplying similar materials and having similar logistics.” Shaposhnikov also draws attention to the attempts of American packaging manufacturers to increase their share in the European market, so they can also apply for Segezha Group plants. Igor Novoselov from WhatWood, a forest industry analytics agency, adds that the converting capacity “may be of interest to players from the pulp and paper industry, the packaging industry, and the end-use segment of paper bags.”