Knauf Leaves Russia After 30 Years: Building Materials Business Handed to Local Management

Summary: Knauf, the German producer of building materials and one of the largest in the world, announced its exit from Russia after thirty years of operations and the transfer of its Russian business to local management, with jobs preserved for more than four thousand employees, TASS reported citing the company's press release. The Russian representative office confirmed the information without disclosing details; the deal still awaits regulatory approval, and analysts estimate the total value of the German group's Russian assets at roughly one billion euros.

The announcement

The April 22, 2024 announcement closes a thirty-year chapter for Knauf in Russia. The company said it will hand the business to local management while preserving employment for more than 4,000 staff. The press service of the Russian representative office confirmed the information to Kommersant but did not disclose details. The transaction has not yet been approved by regulators, which last year tightened requirements for the transfer of foreign businesses to Russian management, making approvals harder, experts stress.

The structure of the Russian business

The Russian perimeter of Knauf includes several companies in St. Petersburg and the Leningrad region: Knauf Petroboard (paper and cardboard production, Kommunar, Gatchina district), Knauf Gips Kolpino, Knauf Penoplast (Kolpino) and KG Stroy Systems (paint and varnish production, St. Petersburg). The group's main legal entity is registered in Krasnogorsk in the Moscow region. Combined revenue of the St. Petersburg and regional production sites exceeded 31 billion rubles in 2023, with net profit of 4.37 billion rubles.

Asset list

Knauf Petroboard — paper and cardboard production, Kommunar, Gatchina district of the Leningrad region.
Knauf Gips Kolpino — gypsum-based building materials, Kolpino.
Knauf Penoplast — foam plastics production, Kolpino.
KG Stroy Systems — paint and varnish production, St. Petersburg.
Main group legal entity registered in Krasnogorsk, Moscow region.

The regulatory backdrop

In 2023 the Russian government tightened requirements related to the sale of foreign businesses, and the tightening largely affected deals in which assets are transferred to Russian management, notes Mikhail Burmistrov (Mikhail Burmistrov), chief executive of Infoline-Analitika. A cashless transfer to management requires serious approvals and is effectively only the first part of a deal, he warns: the second part is a corporate restructuring in which the owners of the business actually change. The transfer of Leroy Merlin to Russian management followed roughly this scheme, he recalls. Burmistrov estimates the total value of Knauf's Russian business at about €1 billion; in reality, he reasons, the deal will most likely happen with a significant discount, but for now that is not on the table.

Brand, market position and the price of losing the name

Knauf is currently one of the largest investors in the production of building materials in the country, Burmistrov says. The company's products have become generic names for some materials: gypsum board, where the producer holds the leading position by output, and dry mixes, where Knauf is one of the production leaders. If the company is forced in one form or another to stop using the Knauf brand, a certain loss of market share will be unavoidable, the Infoline-Analitika expert believes.

The context of the exit includes the November 2023 decision of Ukraine's National Agency on Corruption Prevention, which added Knauf to its list of international "war sponsors"; in 2022 the company had stated it would continue operating in Russia.

The labour record

The primary trade union organisation of Knauf Petroboard confirmed to Kommersant that over the past two years the company had no staff reductions and no production downtime. The enterprise fulfilled all obligations to workers, and salaries were indexed, as evidenced by the acts of collective agreement execution, a union representative said.

Contact

Knauf Group, Germany; Russian business entities in St. Petersburg, the Leningrad region and Krasnogorsk (Moscow region). Media enquiries are handled through the corporate website https://www.knauf.com.