Segezha made a boxed decision
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The timber industry Segezha Group was forced to sell its packaging production capacities in Europe due to sanctions, and also almost halved its investment program. The company intends to invest in existing assets, especially given that the purchase of new ones is questionable amid high prices. Experts believe that 2023 will still be difficult for the domestic timber industry, but expect a gradual recovery in demand, including from the largest consumer, China.
The largest Russian timber holding Segezha Group in 2023 intends to reduce the investment program by 41%, to 6 billion rubles, said the head of the company Mikhail Shamolin: this is almost four times less than in 2021, and 1.7 times less than in 2022- m. He explained that CAPEX will be seriously reduced until the situation is fully clarified and problems with logistics, goods, supplies and import substitution of equipment are resolved. “First, we will invest in what gives an immediate and quick effect, and then we will go into more strategic things,” Mr. Shamolin said. According to the top manager, first of all, we are talking about investments in cost reduction. The funds will go to the Segezhsky and Sokolsky pulp and paper mills, the Onega LDK, the Vyatka plant, as well as to Siberian assets.
According to the company’s annual financial statements under IFRS, the company directed the main investments to these same assets last year.
2 billion rubles were spent on the modernization of the Sokolsky Pulp and Paper Mill, 1.3 billion rubles were spent on expanding the plywood production capacity at the Vyatka Plywood Mill.
Mikhail Shamolin said that the company is considering assets entering the market, but is ready to buy them only if the price corresponds to the risks and prospects. The head of Segezha clarified that the deals that are now being concluded with the assets of foreign companies that have left the Russian market are actually going at the pre-crisis price, and the multipliers for them start from 7 to last year’s EBITDA, despite the state requirement for a 50% discount to the market value such assets to obtain approval for the transaction.
At the same time, Segezha Group in February 2023 sold its foreign packaging production structure – Segezha Packaging (combines seven factories in Europe and Turkey with a capacity of 704 million bags per year). This, Mikhail Shamolin said, is due to the inability to ensure their operational activities due to sanctions. Problems arose both with the provision of capacities with raw materials and with the sale of finished products. He did not name the buyer and the amount of the transaction, but, as he assures, it went through at the market price.
At the end of 2022, according to reports, Segezha’s IFRS revenue increased by 15%, to RUB 106.8 billion, mainly due to the consolidation of the assets of JSC NLHK and Inter Forest Rus.
As Mikhail Shamolin clarified, transportation costs doubled last year, to 16 billion rubles. In the fourth quarter, the negative dynamics accelerated: revenue fell by 20% to 19.4 billion rubles, a net loss amounted to 1 billion rubles. against profit of 4.1 billion rubles. a year earlier.
The WhatWood agency notes that the weak results of Segezha, among other things, are explained by a decrease in demand in the global timber industry market for almost the entire range of timber products. “We do not expect a sharp recovery in demand and growth in world prices in 2023, but we assume that the upward trend should peck this year,” they say. Experts explain that the hopes of the Russian timber industry are mainly tied to China, which, as everyone expects, should restore its economy after several years of turbulence due to covid restrictions. In any case, the agency says, if demand and prices start to recover, transport and logistics will remain the main “headache” for the domestic timber industry: how to find the best ways to deliver products to China and other markets and remain competitive in them. They expect a smooth market recovery in 2024.
Roslesinforge notes that, despite the difficult economic situation, the timber industry managed to pass the past year much better than expected, although it showed a decline in a number of sub-sectors. This year’s export figures show that Russia’s main foreign partners – Turkey, China and Uzbekistan – are increasing supplies, Roslesinforge points out.
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