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products, including decorative laminated- faced chipboard. With the market at such a low ebb, the stronger venture capital presence in the UK merchant sector is causing unease. These firms paid “top dollar” for their investments and the higher interest rates are putting them under pressure. Several contacts commented that some private equity-backed companies have had their credit insurance reduced. “Some insurance companies have reduced credit ratings, or say they will continue to cover what they have but won’t give any new cover,” one contact told TTJ, adding that the situation was worrying when the market was weak and interest rates were likely to stay around 5%. “A lot of venture capital companies take on debt and finance it for periods of time. Some of that is coming up for review so where they were basing it on 0.5% or 1% interest, now at 5% they’re looking for another 4% but there aren’t the profit margins there to pay it.” He believed some were in danger of failing and the concern was who they’d “kick and bruise on the way down”.
“When they’re desperate they’ll do desperate things because they have to sell stock to turn it into cash,” the contact said. A consolidation in the merchant market would benefit some, but suppliers could be caught up in the fallout.
“Something has to give,” the contact said. “If the market picks up and something happens to float all boats, they’ll be alright, but if the tide doesn’t come in, they’re going to be left high and dry.”
The Labour government’s pledge to build 1.5 million homes over the next five years provides optimism for an uplift in demand for timber building products – and pricing – in the longer term but in the shorter term the consensus is there is little hope of an improvement in P5 until the end of Q1 next year. “People talk about things getting better but I don’t see it in any figures yet. I don’t think there will be a lot of upswing over the rest of the year, but the market won’t go down either,” a manufacturer said.
A merchant contact also thought there would be no improvement in the chipboard market until the end of Q1. “We have the government’s autumn statement in October, which will be drastic, so people are waiting to see what’s happening there,” he said. “We’re getting reports that architects and designers are not getting the level of enquiries they were a year ago, so clients aren’t as active doing renovations and repairs.”
He acknowledged that the government’s ambitious housing policy was ultimately good news for the timber industry but that it would take some time to implement.
“It will have an impact but it’s one very big Above: Worktop sales have been “pretty steady”
www.ttjonline.com | September/October 2024 | TTJ
super tanker. Once you turn the tiller it will probably take a year before it even starts to move,” he said.
A manufacturer agreed, but he also felt that despite the current market stagnation, the political and business mood was more positive.
“Mood is important, and I think mood is getting better; the reduction in interest rates, even if small, it all helps and signals that interest rates are coming down. Everybody expects better so perhaps that’s enough to make it a bit better,” he said.
While the government sets the mood music, any increase in housing starts really relies on the will of housebuilders. “They are never keen to build too much if it reduces house prices but there’s such big demand for houses I think the UK can build a lot more without a negative effective on prices,” the manufacturer said. One contact was keen to emphasise that the slowdown was not unique to the UK. “This isn’t just a UK problem; everybody has to remember that. It’s not that we’re a basket case; we’re in a good position in comparison to many other European countries, such as Germany, which is in recession,” he said.
This fragile European market is reflected in Egger’s results for the 2023-2024 financial year, which were published in August. The company reported a group-wide turnover of €4.13bn – 7.1% below the previous year. EBITDA amounted to €493.6m, down 18.1% on the year. Market and price pressure was considerable in the company’s Building Products segment (products for wood construction and flooring) where unconsolidated turnover fell by 22% to €704.9m.
In the Decorative Products segment (products for furniture and interior design), the plants in western and eastern Europe were well utilised, the company said, but the core markets in central Europe had been challenging, with the German-speaking region in particular experiencing extremely high market and price pressure.
Since the beginning of 2024, the introduction of the Egger Decorative Collection 24+ provided “positive momentum and positive levels of new incoming orders”. The Decorative Products segment generated an unconsolidated turnover of €3.62bn, down 3.8% on the year.
Egger now has 22 production plants after acquiring the Rauch Group chipboard plant near Würzburg last year. It is now investing in the factory to enable the use of recycled wood and upgrade to laminated chipboard. Chief financial officer Thomas Leissing said the company was “not entirely satisfied with the results”. “At the same time, we are proud that we have been holding our own in this very difficult environment. We are clearly focused on the future and are delighted to have been able to initiate far-reaching strategic developments. Thanks to our very solid financial basis and long-term strategy, even considering the fragile market situation, we are taking steps towards growth, and are growing despite the market situation,” he said in a statement.
Egger is not expecting a sudden improvement in market conditions. “The overall economic outlook remains extremely cautious, characterised by fragile markets, the resulting price pressure and geopolitical crises. The turnover and earnings expectations for Egger are correspondingly cautious,” it said.
Chief sales officer Michael Egger Jr said the effects of the economic slowdown were felt to differing degrees in the individual product areas. “People in the vast majority of our markets have to deal with high inflation, the higher cost of living and more difficult construction conditions. All of this has led to a low propensity to consume and significant decline in construction permits – and ultimately to a low demand for our products,” he said. Despite the slower market, however, Egger’s production of wood-based materials and timber increased from 9.6 million m3 2022/2023 to 10.4 million m3
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