Lithum Group, the former Russian branch of Norwegian paint maker Jotun, has become the largest coating manufacturer in the country after taking over the business of PPG and Hempel. The company pledges to gradually put capacities back into operation and eventually break out to foreign markets.
Jotun sold its Russian assets to Atomstroykomplex, a Ural-based construction firm, in August 2022 for an undisclosed amount.
The Jotun factory in the country remained shut since March 3, 2022, because, as Morten Fon, president and CEO, explained, it had become more and more challenging to operate in the country under the sanction regimes, and the company realized that the situation would not change in the near future.
Jotun Paints has passed through a re-branding and got a new name, Lithum, shortly after the deal was closed.
In July 2023, Atomstroykomplex acquired Hempel assets in Russia, though, as the Danish company pointed out, no active business was involved in the deal. Hempel closed its operations on March 1, 2022, and announced its intentions to exit Russia on April 6, 2022.
In September 2023, Lithum announced that PPG followed the same path and sold its Russian assets to the company.
Again, the terms of the deal, specifically the value and whether a buyback option was included, have not been disclosed.
Since the first half of 2023, foreign companies seeking to leave Russia started facing additional hurdles. All selloff deals involving capital from the countries deemed “unfriendly” by the Russian authorities must be cleared by a specially established government commission.
One of the key requirements for the deal to get a green light is that the selling price should be limited to 50% of the market cost of the involved assets. In July 2023, the Russian Finance Ministry unveiled that it had also imposed a rule, introducing a two-year option of buying shares back.
The Russian newspaper Vedomosti quoted a source close to the government as saying that the logic behind the adjustments was to make it harder for companies to exit.
Not playing by Moscow’s rules is not an option, which is evidenced by examples of the international dairy firm Danone and Danish brewer Carlsberg, whose assets in the country were seized by the authorities.
Playing the First Fiddle
The new company formed on the basis of the former Jotun, Hempel and PPG assets in Russia will become the largest player in the domestic coatings market, “setting the tone” for the entire industry, Lithum said in a statement following the PPG assets takeover.“At the very start, we saw one of Lithum’s key tasks as becoming the successor to Jotun, maintaining business processes, quality standards and, as a main priority, employees,” Andrey Druzhinin, general director of Lithum Group, said.
“Today, we face an even bigger challenge – to accumulate the unique experience of predecessor companies, without exaggeration, world industry leaders, and to introduce the best practices using the best personnel. In this case, the synergistic effect for the industry can be much stronger, and consumers will benefit from this,” Druzhinin added.
Lithum plans to consolidate its position as the leader of the Russian coatings market in the next five years, and eventually begin export sales.
Currently, the company owns coatings factories in the Leningrad region, Kolomna, Lipetsk and Ulyanovsk, with a designed production performance of around 100,000 tons per year.
R&D has become a vital aspect of the company’s strategy, the company said in the statement.
Lithum intends to implement an integrated approach, providing customers with not just paint in a can, but also protective coatings.
“Occupying a leading position in the market means setting the tone, creating trends. Based on the intellectual capital and resources of Litum, we plan to create a whole cluster of development and training,” added Druzhinin.
Back into Business
Lithum Lithum is working to put the acquired capacities back into operation, which looks to be a challenging task, given that Hempel and PPG factories stood idle for more than a year.Besides, the Russian coatings industry keeps experiencing difficulties in sourcing raw materials, as some of the Western suppliers severed their ties with the country.
Lithum, however, managed to keep its Jotun business intact, Vladimir Kravtsov, director of the Lithum marine coatings department, told the local press at the end of 2022. Aside from changed labels and banners, operations kept running as before, though the company needed to establish its own R&D department.
“Our product is identical to that of Jotun,” Kravtsov said, adding that the company renewed contracts with all Jotun raw material suppliers. On the other hand, last year Lithum did not utilize former Jotun production capacities at full.
“The takeover and the following re-branding took some time, during which we lost a part of our projects,” Kravtsov explained, adding that Jotun traditionally was the leader in the Russian marine coatings market, and the company hoped to gain back lost position in 2023.
Resuming operations at some factories will take more time than at others. In September 2023, Lithum signed an investment agreement with the Leningrad region, under which it plans to invest one billion roubles ($10 million) to resume operation at the former Jotun plant near the Annolovo village by 2026.
The factory is due to manufacture 26 million liters of liquid coatings and 6,000 tons of powdered products per year, the regional government reported.
The former Hempel factory in Ulyanovsk is due to resume operation by the end of the year, the regional government has recently disclosed.
Druzhinin said the factory would re-start manufacturing coatings for construction, shipbuilding, energy, oil and gas industries, and large infrastructure facilities.
He added that the same state-of-the-art technological lines and equipment transferred by the previous owner should be used in renewed operation.
During the outage, the employees of the Hempel factory were paid two-thirds of their monthly salary, which helped keep the staff, Lithum said. The importance of this achievement is hard to overestimate, as Russia has been facing a persistent labor shortage in the past couple of years, as reported by the Central Bank.
There is no clarity about the future of the former PPG factory in Lipetsk. Lithum and the regional authorities remained silent about its prospects, though there is speculation the company plans to put it back into business as soon as possible.
New Old Competitors
In In the meantime, it looks like the Russian coatings industry managed to replace Western coatings, at least to a certain extent.During the first nine months of 2023, Russia produced 1.3 million tons of polymer-based coatings, 11.7% up compared with the same period of the previous year, the Russian state statistical service Rosstat estimated. Production of other coatings totaled 448,000 tons, 14.8% more than in the previous year, the
service said.
Some Russian coatings manufacturers acknowledged that the mass exodus of Western businesses from Russia has benefited their sales.
As former assets of Western firms are on the way back to business, the competitive fight on the market is likely to
get fiercer.
“The temporary withdrawal of foreign manufacturers has spurred the interest of Russian shipping companies in domestic coatings,” said Alexander Gareev, director of the aviation and shipbuilding department of prominent Russian coatings manufacturer, Russian Paints.
“It is difficult to calculate in monetary terms how much we benefited, but there is no point in denying the fact that we saw positive dynamics. Nevertheless, we evidence that foreign coatings factors, bought by Russian companies, are gradually returning to the market and have already begun to manufacture products,” Gareev said, adding that this factor has not hurt Russian Paint’s business so far.
It is fair to say that gathering the former Russian assets of three of the world’s leading coatings manufacturers under one roof, is a significant development that promises major changes for the market in the long run.
