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One of Russia’s biggest natural paper production process from start them over the border for the cash they
to finish gives the company big cost advantages, says Aliyev.
“We have built a company that is both vertically and horizontally integrated,” says Aliyev. “We have everything included – from the forests to the efficient distribution channels – and so we seek to maximise the entire potential of each tree to maximise the profit. There is minimal waste.”
Business lines
Segezha has four main business lines: paper and packaging, forestry and woodworking, plywood and boards
and specialist products like construction materials.
The biggest of the four is paper and packaging. Segezha produces its own pulp, then converts that into paper, of which 35% goes into the production of its own packaging. The company is the second-biggest producer of packaging in Europe, with plants in Germany, Italy, Romania, Turkey and elsewhere. It is also the biggest producer of packaging in Russia with more than 60% of the market.
“In 2017 we invested RUB11.5bn (€154mn) into a new German paper- making machine that is the best in Europe. It makes very high quality paper,” says Aliyev.
Paper and packaging accounts for 60% of EBITDA. 30-35% of paper produced by the company is converted to packaging, but the company wants to increase this to 50% in the future, says Aliyev.
The next big business segment is forestry and timber. The company produces about 1.2-1.3mn cubic metres of timber in Russia and is also the country's number one sawn timber exporter.
In the wild days of the '90s logging for exports was a wildcat business, riven
by corruption. Firms could pay bribes
to local authorities and fell trees for the cash they earned from exporting them. The game in those days was simply to cut down as many trees as possible and get
resources is also one of its least talked-about – its 'green gold' – trees.
The country stretches halfway around the world, yet the bulk of the interior is devoid of people and one giant forest. Russia is home to one tree in four on the planet, and also three quarters of the earth’s soft wood that is ideal for making paper. But the business has lain fallow until recently; Russian company Segezha is in the middle of tapping this resource and has already made Russia a world leader in the paper, pulp and packaging businesses.
“In 2014 Sistema identified forestry as a high potential investment. Russia had not invested into the sector for many years, especially not into soft wood. Sistema set out to build a world-class company,” Segezha’s CFO, Rovshan Aliyev, said in an exclusive interview with bne IntelliNews.
Sistema began to acquire forestry companies and paper and pulp plants around the country, investing over $1bn, with the main facility being the Segezha paper and pulp mill in Karelia in Russia’s north-west.
With the attention slowly returning
to the climate crisis, Russia’s wood processing and timber business
is coming back into focus, as bne IntelliNews reported in a recent company profile of Segezha, predicting an IPO
of the company that is now expected to happen very soon.
Today the company is one of the largest vertically integrated paper, pulp and packaging producers in Russia, and one of the biggest in the world.
Russia is famous for its raw materials production, but while oil, gas, metals and diamonds catch most of the attention, Russia has one further huge reserve of a valuable but under-utilised natural resource: trees.
Segezha is also one of the largest leaseholders of forests, by hectares, in Russia, which is the resource the business is based on. Controlling the
generated. Things have changed a lot in recent years, as these corrupt schemes have been closed down and the forestry sector is regulated and has been put on a sustainable footing.
Segezha has an annual allowable cut
of 8.2mn cubic metres, which is bigger than its international peers, despite the fact that the majority of Russia’s forest resources are still lying fallow.
“We manage all our forest resources and run them on a sustainable basis. For every tree we cut down, we plant a new one,” says Aliyev, who adds that as of year-end 2020 83% of Segezha’s forest assets were Forest Stewardship Council- certified, the industry standard, which is high in comparison to certain global peers. “The problem with the soft wood market is that it can be volatile and is affected by many factors, including weather. Having our own resources means we are insulated to a significant extent against price fluctuations on the international raw timber market and so can protect profits, enabling us to create strong profitability.”
And the business is still growing fast as a result of these investments, which are ongoing. Production in some segments has been growing by double digits
in recent years, helped by ongoing investments into efficiency, says Aliyev. Plywood is another important product, and here Segezha has been investing not only to increase production but also to move up the value chain.
Already in the top five biggest producers of large birch plywood in the world, Segezha started work on a new factory this year that may raise it another two spots in the global production ranking when it is complete. The company focuses on high-quality plywood products that have stronger profit margins, according to Aliyev.
“The question we faced was: should we invest to double the production, but of low-quality plywood, or invest into lower production volume but of higher margin products. Given our cost structure, both options work. But generally we prefer
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