Pfleiderer in new Polish deal

Poland based wood based panel maker Pfleiderer Grajewo SA has announced the signing of a major contract which is estimated to be worth some PLN306.3m (€71m). Under this latest deal, the manufacturer is to supply HDF and particleboard to Polish furniture producer Forte, Pfleiderer Grajewo said in a statement.

"The deal was signed for the period from January 1, 2015 to December 31, 2016," the company said. Forte operates a furniture production facility in Ostrów Mazowiecka, in the country's central region of Mazowieckie, and boasts revenues of some PLN592m (€137.2m) in the first nine months of 2014 and a net profit of PLN68.5m (€15.9m) for the same period, according to figures released by the company.

Pfleiderer Grajewo SA is a local offshoot of Germany's Pfleiderer group and was set up in Poland in 2001. To carry out the contract, the Poland-based subsidiary signed deals with two other companies which are part of the group, Pfleiderer MDF sp zoo and Pfleiderer Prospan SA, according to the statement.

The Grajewo plant that was taken over by Pfleiderer has been active in Poland's wood based panel industry since 1974, when it was established as part of the state-owned Zaklady Plyt Wiorowych (Particleboard Manufacturing Plant). Following Poland's transformation into a free market economy in 1989, the factory was privatised in 1994, and in 1997, Pfleiderer Grajewo was listed on the Warsaw Stock Exchange (WSE).

The group's eastern Europe division consists of three production facilities in the Polish market, organised into three independently-operating Business Units (BU), headed by the listed Pfleiderer Grajewo SA.

These include the wood based panel factories in Grajewo, Wieruszów, and Silekol and a local glue manufacturer based in Kedzierzyn- Kozle. All Pfleiderer's production facilities in Poland are located in the country's western region.

"The main customer of the group's output is the furniture industry, to which we supply close to 100% of our sales," Pfleiderer Grajewo said in a statement.

In addition to HDF, the firm's product range in Poland includes HPL, particleboard and melamine faced particleboard, according to data released by Pfleiderer Grajewo. The group says that its facility in Grajewo has an output capacity of about 670,000m³ of various products and 250,000m³ of MDF and HDF per year, while its factory in Wieruszów has an output capacity of a further 690,000m³ of various products per year, totalling 1.61 million m³ of aggregate output capacity in Poland.

On a related note, the latest contract with Forte follows earlier announcements by Wojciech Gatkiewicz, the former chief executive of Pfleiderer Grajewo, who was replaced by Michael Wolff, the former chairman of the firm's supervisory board, in the second half of February 2015. He said that, in 2015, the company is aiming to expand its output capacity by between 6 and 7%, as well as investing about PLN 120m (€27.8m) in expanding and modernising its production facility. This will follow Pfleiderer's expansion of its Poland-based output capacity in 2014, when the completed investments allowed the firm to raise its capacity by some 6%.

In addition to this, Pfleiderer is aiming to carry out projects which will allow the manufacturer to boost the energy efficiency of its plants, according to the chief executive.

"We have authorised a project under which we will implement an energy investment at the Wieruszów plant, worth close to PLN30m, which will, following its completion, allow us to save about PLN10m per year," Mr Gatkiewicz told local business news site Wnp.pl.

With the planned investment, the Polish factory will be fitted with a biomass-powered heating facility.

Of the PLN120m (€27.8m) in planned projects, the company will earmark some PLN50m (€11.6m) for modernisation projects at the plants in Grajewo and Wieruszów, comprising between PLN10m (€2.3m) and PLN15m (€3.5m) for expanding the MDF plant, with the remainder going to the glue manufacturing plant in Kedzierzyn-Kozle, according to the chief executive.

While Pfleiderer's operations in the Polish market have been impacted by the ongoing conflict between Ukraine and Russia, as have a number of other businesses active in Poland, the firm's financial results for 2014 are positive. Last year, the Grajewo-based producer increased its revenue to a total of PLN778m (€180m), an increase of 12%, and its EBITDA to some PLN94.9 (€22m), a robust increase of 67% compared with a year earlier. As to the company's net profit for 2014, it tripled from about PLN15.1m (€3.5m) to as much as PLN49.9m (€11.6m), as shown by figures from Pfleiderer Grajewo.

Despite the impact of the Ukrainian crisis, in the first half of 2014, Pfleiderer Grajewo used its output capacities at close to 100%, which was unprecedented in the last few years of its operations.

"With a strong foothold in the domestic market, the Grajewo plant exports a significant share of its output, mostly to eastern markets," the firm says, indicating that a significant share of Pfleiderer's output which is made in Poland has been exported to eastern European markets, which include the three Baltic States (Lithuania, Latvia and Estonia), Ukraine, Belarus and Russia.

Meanwhile, company representatives say that the company is facing a number of strategic decisions which could determine its future on the Polish market. At the turn of 2016 and 2017, Pfleiderer Grajewo will need to decide whether it aims to set up a new particleboard production facility in Poland, or upgrade its two existing facilities in Grajewo and Wieruszów to enhance their output capacities, according to its chief executive.

"We will definitely want to expand the production of MDF but, regarding the production of particleboard, a decision is yet to be taken by the company," Mr Gatkiewicz said.

The final outcome of the ongoing decision process is likely to be impacted by Poland's economic forecast for the coming years. The latest macro-economic forecast for Poland, published by the European Commission in February, shows that the country has shown a strong economic performance over the last few years. In spite of the Eurozone crisis, it also states that the Polish economy has good prospects for the forthcoming period, according to the analysis.

From 2013 to 2014, Poland managed to almost double its GDP growth, from 1.7 to 3.3%. This year, the country's economy is forecast to grow by slightly less, at some 3.2%, and growth is expected to return to its upward path in 2016, with 3.4%, according to figures released by the European Commission.

"Poland weathered the economic crisis and its aftermath very well. Real GDP has increased cumulatively by 19% since 2008, which is unparalleled in the EU. In 2014, economic activity recovered from a temporary slowdown in the two previous years, as domestic demand picked up again, replacing external trade as the main growth driver," the analysis says. "Private consumption is expected to remain strong in the near term, supported by solid employment and real wage growth."

Regarding planned investments in Poland's industrial sector, the ongoing recovery of credit growth, coupled with declining financing costs and increasing profit margins, is expected to provide additional support for private investment, which however, remains hindered by deficiencies in the business environment.

This said, new greenfield investments seem to have significant potential in Poland, whose "good economic performance in the past 25 years relied strongly on competitive labour costs," according to the European Commission.

With regard to the firm's shareholder structure, Pfleiderer Grajewo's largest shareholder is German-based Pfleiderer Service GmbH, with a 65.11% stake in the Polish offshoot, followed by local private pension fund Aviva Ofe Aviva BZ WBK, with 9.93% of the shares, and another local private pension fund, ING OFE, with a further 5.32% stake in the Grajewo-based producer, according to data from Pfleiderer.