Interview with Mikhail Shamolin, President of Segezha Group

15 April 2021

The coronavirus pandemic in the timber industry overlapped with a sharp cyclical drop in prices in almost all segments. Mikhail Shamolin, President of the Segezha group, told Kommersant whether investments would decline amid falling demand, why it is so difficult to build a pulp and paper mill in Russia, and whether there is enough timber for everyone.

«Depending on the market conditions and debt to EBITDA ratio, in 2021 we plan to invest 20-25 billion rubles in the investment program. Taking into account the 3 level net debt to EBITDA ratio, which is considered to be a rather comfortable indicator by Russian standards and given low interest rates, Segezha Group can significantly increase the level of debt: we have defined a covenant of 4, max 4.5 debt / EBITDA.

We are in the midst of the Galich plywood mill construction with a capacity of 125 thousand m3 per year, which we plan to launch by the end of 2021. There, for the first time in Russia, we will produce the so-called maxi-format – a large 7×13 foot plywood used primarily for the production of vans and trailers.

Projects for the reconstruction of existing wood processing complexes – Onega and Lesosibirskiy LDK are also on the agenda. In the first case, we rebuild production by 80%, while the Lesosibirsk plant requires targeted investments, which will allow us to increase the volume of production as well as reduce the cost price by about 30%.

In addition, we are now working on a detailed project for the construction of a new paper machine at the Sokolsky Pulp and Paper Mill (Sokolsky PPM). Its design capacity is 100 thous tons of cellulose per year, but in fact we only produce 25 thous tons of parchment from it. So we want to install an additional 70,000 tonnes of paper machine to fully recycle the pulp without additional investment. And although the technology there is sulfite, it allows us to produce competitive paper. We estimate the investment in the project at 9 bn rubles.

We also plan to build a new plant for glued and wooden structures in Segezha, and by the end of the year we are launching the production of CLT panels at the Sokolsky woodworking plant.

In the future, our priority will be the construction of a new Pulp and Paper Mill – the “Segezha-Zapad” project. The volume of investments is 150 bn rubles. At the exit, its capacity will be 1.5 m tons per year.

Another important project is “Segezha-Vostok” for the construction of a Pulp and Paper Mill in the Krasnoyarsk region. But the simultaneous implementation of two projects arises the question of the credit burden, engagement of partners, and, last but not least, expertise. Therefore, we are carefully studying the situation, but the “Segezha-West” project is of key priority».