Segezha Group (SGZH RX: U/R) reported 4Q21 revenue growth of 28% y/y (-6% q/q), while OIBDA declined by 10% y/y on one-off factors. Prices remained at record highs despite a seasonal cooling down of demand in the construction industry. In 1Q22, Segezha expects positive trends in market pricing driven by an increase in demand for sack paper, industrial packaging, sawn timber, plywood and glulam. In our view, Segezha’s business profile remains solid, as potential negative developments in Western markets amid sanctions risk may be fully or partially offset by strengthening the company’s Eastern leg as a result of recent acquisitions of NLHK and InterForest. In terms of the investment program, most of the current projects are in the final or very advanced stages, which indicates limited risk to the company’s strategic capacity expansion plans. No decision has been made on the Segezha West project.
Pricing environment remained advantageous. Prices for Segezha’s products remained very solid in 4Q21, reflecting confident demand as well as the long-term nature of contracts. The average EUR-based realized prices (ARP) of paper and paper sacks advanced 2-6% q/q, 18% q/q on fiberboards and 68% on home kits. In sack paper, prices were supported by supply shortages and logistical constraints in Europe and China. Prices of sawn timber, plywood and glulam showed a 12-24% decline from peak levels seen in 3Q21, reflecting a seasonal cooling down of the demand in the construction industry. Overall, prices on sack paper (EUR782/t), sawn timber (EUR230/m3), plywood (EUR830/m3) and glulam (EUR536/m3) were at record highs in 4Q21 (22-101% above 2018-2020 average levels).
- Paper and packaging: strong revenue trend, OIBDA under pressure from one-offs. The segment showed a 7% and 51% q/q increase in production and sales of sack paper and a 16-8% q/q decline in paper sacks. 4Q21 revenue grew by 51% y/y and 16% q/q to RUB11.3bn. At the same time, OIBDA (RUB0.6bn, -75% y/y, 5.3% margin) suffered from one-off factors such as scheduled shutdowns for capital repairs at Segezha PPM and one-off accruals of impairment allowances.
- Forestry Management and Woodworking reports an exceptional 69% margin on a one-off gain. Sawn timber production volume declined 7% q/q, however, sales surged by 29% q/q. In 4Q, the segment delivered revenue of RUB8.4bn (+62% y/y, flat q/q) and OIBDA of RUB5.8bn, implying a 69% margin (up from 59% in Q3). OIBDA in the segment was positively affected by a gain from the revaluation of NLHK for RUB3.7bn gain. Excluding this one-off effect we estimate quarterly OIBDA at RUB2.1bn with a 25% margin.
- Plywood and Boards results remains solid. Plywood production grew 4% from 3Q21, but sales showed a 12% seasonal decline. In fiberboards, output and sales rose 14-23% q/q. The segments’ revenue in Q4 almost doubled y/y to RUB2.8bn (-35% q/q) and OIBDA rose by 27% y/y to RUB1.4bn (-46% q/q). The Q4 OIBDA margin of 49% deteriorated from the 57% posted in Q3, amid lower demand due to seasonality as well as a decrease in veneer log prices, as favorable weather conditions in 4Q21 allowed for a sufficient harvest.
- Seasonal trends prevailed in glulam and home kits. In 4Q21, glulam and the prefabricated housing market was characterized by a downward market trend amid a decline in construction activity in the winter season. Production and sales dropped 28-57% from 3Q21. The segment’s revenue and OIBDA declined by 16-25% q/q (+67-125% y/y). OIBDA margin was strong at 56%, 15pp higher.
25% capex/sales in 2021, leverage growing to 2.1x. Net debt increased from RUB34.3bn as of 30 September 2021 to RUB61.1bn as of 31 December, implying an OIBDA based leverage increase from 1.1x as of 3Q to 2.1x. The company has to repay c.RUB18bn in debt in 2022 and RUB31bn in 2023-24. 54% (19%) of the debt due in 2022 (2023-24) is presented by EUR-based obligations, which, however, are matched by the company’s predominantly EUR-based revenue (exports accounted for 74% of revenue in 2021). 4Q21 capex was RUB30.4bn (incl. RUB20.2bn allocated to M&A, including the acquisitions of NLHK and Inter Forest Rus). 2021 capex excluding M&A came in at RUB23.1bn (of which 12% was for maintenance and 41% was invested in capacity expansion projects), implying 25% capex/sales. Segezha recorded a negative FCF of RUB30.2bn in 2021.
Figure 1. Segezha Group 4Q21 financials, RUBmn
Source: Company data, Alfa-Bank
Figure 2. Segezha Group financials by segment, RUBbn
Source: Company data, Alfa-Bank