Segezha sold factories in Europe

Segezha Group has sold seven paper packaging plants in Europe due to Western sanctions banning the import of Russian timber products.But these businesses accounted for about 1% of the group's OIBDA.

The Segezha Group holding, controlled by AFK Sistema, has sold its European subsidiary, Segezha Packaging, which unites seven paper packaging plants. Segezha Group President Mikhail Shamolin spoke about this at a briefing, answering a question from RBC. He did not disclose the amount of the transaction and other details, noting only that it was "market".

Segezha Packaging plants, which joined the group in 2014, are located in Germany, Denmark, the Netherlands, Italy, the Czech Republic, Turkey and Romania, with a total capacity of about 700 million paper bags per year. The capacity of similar Russian enterprises of the Segezha Group is about 1.8 billion bags per year, Shamolin specified.

The production of sack paper and paper packaging forms about 45% of all sales and 30% of the company's OIBDA, therefore it is a key segment of its activity, Gazprombank analysts noted in a report released in April 2022. Paper and packaging are used for packaged cement, dry building mixes, chemical products, as well as in the food industry, the production of paper bags and bags for retailers. The products of the factories located in Europe and Turkey were sold in the European, Middle Eastern and African markets, and the needs of the market of RUSSIA and neighboring countries are provided by Russian enterprises in Karelia and the Rostov region.

Segezha Group supplied European factories with paper, from which they produced bags and other packaging. But since July 2022, the EU has banned the import of Russian timber products under the fifth sanctions package. “It was impossible to physically support their activities. We could not supply them with paper due to sanctions restrictions, on the other hand, these enterprises could not buy paper on the European market, because manufacturers refused to supply them with it and customers refused to buy finished products (paper bags), because the owner of European assets - Russian company,” explained the HEAD of Segezha Group. In this situation, it was unprofitable for the company to support the activities of European factories. At the same time, in December last year, he said that these enterprises continue to work,

According to Shamolin, the contribution of Segezha Packaging to the OIBDA (earnings before depreciation and amortization of fixed assets and intangible assets) of the entire group is only €5-7 million per year, or about 1%. The company saw these mills primarily as a sales channel for its paper in the European market, rather than as a source of profit. Now all the paper that was supplied there, as well as the rest of the timber products (sawn timber, glued beams, CLT-panels, etc.), the company redirected to other countries. “In 2022, we did a great job of redirecting products from our traditional markets, because the entire western contour of the Segezha Group was built and created with the European market in mind, first of all,” he said. — We have reoriented all these products to the markets of Southeast Asia, the Middle East, Africa, partly Latin America, Malaysia, SOUTH KOREA, Israel and the CIS countries. At the same time, the company's logistics costs almost doubled in 2022, to RUB 16 billion, the top manager added. This was one of the reasons for the group's OIBDA decrease by 16% to RUB 24.7 billion.

Segezha Group's revenue last year increased by 15% to RUB 106.8 billion, mainly due to the effect of the consolidation of the assets of the Novoeniseysk timber and chemical complex and Inter Forest Rus, which became part of the group in the second half of 2021. The OIBDA margin decreased from 32% to 23%, while the net debt/OIBDA ratio increased from 3.3 to 4.1. Net profit decreased by 60% to 6.1 billion rubles. following a decline in operating profit and an increase in interest expenses.

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