One of Russia’s biggest natural resources is also one of its least talked about: its “green gold:” Trees.
The country stretches half way 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 plant, 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 a 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 paper production process from start 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.”
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.