Bitter reality: Major investments were followed by a market slump

Holzkurier: Mr. Ziegler, it was very surprising that you bought two sawmills in Sweden and announced the acquisition of HS Timber’s sawmill in Sebes last year after the announced €400 million investment in Upper Palatinate in 2022. How did that come about?

Stefan Ziegler: We have massive demand for lumber for exports, and in-house processing capacities keep increasing. At the same time, smaller volumes of spruce are available in our catchment area. As a result, we need more sawing capacity, spread across more production sites.

In mid-2022, I approached Gerald Schweighofer because I had always wanted to expand into Eastern Europe. I wanted a sawmill that is surrounded by raw material. Sebes was a good fit for us because it is optimized for logs with lengths of 3 m. In fact, those logs account for 75% of production. In Germany, we cut everything from 4-meter goods to long logs.

Germany, Sweden and Romania should enable us to accept practically any order at a global level. Thanks to Sebes, we were able to tap into the Japanese market for the first time.

There are known raw material problems in Romania, though. You recently had environmentalists climb the façade of your office building in Plößberg.

Supply is not a problem if you involve the Romanian forest owners. Romania has strict log harvesting regulations. In addition to the state system SUMAL, which records all deliveries, we have also established internal control mechanisms. This ensures that the log deliveries meet the highest standards in terms of legality and sustainability.

Trains loaded with log wood are said to have traveled from Plößberg to Romania already last autumn. Is that true?

That’s true. That was temporarily stored log wood. At the time, we didn’t have any log wood in Sebes yet. We’ve been in Romania for a year now. In 2023, we weren’t able to cut at full capacity for supply reasons. Currently, though, we are processing 80,000 m³ a month. HS Timber managed to cut a maximum of 120,000 m³.

Plößberg is the biggest single sawmill in Europe. For many years, it benefited from its proximity to the Czech Republic. Is the location a curse now that you are running out of damaged wood there?

We are still located in the middle of the most densely forested region in Europe. In 2018 and 2019, 80% of the log wood came from the Czech Republic. Currently, it is 5%. We buy the raw material in Germany and process more pine logs. Plößberg is always at 100% utilization, i.e. 2.4 million m³ a year. Plößberg is the perfect location. We can process every order there. We have nine planing lines, each of which is specialized, and we also own the nearby train station.

How do the Swedish sawmills fit into your corporate strategy?

The purchase of the two Swedish sawmills in 2022 was not planned. They were offered to us and, after inspection, proved to be a good fit for our overall strategy. They primarily produce lumber for the domestic market. We buy visible-quality laminations from there for our CLT plant in Hermsdorf. 15 to 20% of their production output comes to us.

Within just one year, you built a wood fiber insulation board factory, which started production in 2022. Since last year, there have been rumors that it’s going to be sold. Is that true?

The factory itself is running great. The plant design fits – we can make changes flexibly without having to let the machines run empty.

However, we’re having sales problems due to the slump in the construction market and because we don’t have all the certifications for the plasterboard production yet. For the latter reason, it’s difficult to serve the market.

The calculations are in place for full operation, but not if there are no orders coming in. That was already foreseeable in early 2023. Therefore, we got in touch with business partners to examine possibilities for cooperation. I need a solution for this investment and that’s why I’m still in talks with everyone.

How high is the capacity utilization of the insulation board factory?

It’s between 40 and 50%. The situation is difficult at the moment, but the market is recovering.

When do you think the construction market in Germany will pick up again?

I think that that will happen in 2026 at the earliest. I share Dr. Stephan Lang’s view here. For us, it’s important that the global market recovers first, thereby taking pressure off of the German domestic market.

The major investments and acquisitions were immediately followed by a market slump. Will the banks now determine the group’s future actions?

The financing of all of our activities is secured. We will handle the growth and bring a new structure to the company. Of course, I have to do my homework.

Do the banks check your homework?

We’re financed by banks and they do, of course, impose certain guidelines we have to follow. 2023 hit us hard. Like many other companies, we were in the red. Everything we bought incurred costs without generating any revenue. That is different this year. Since January, we have had revenue from all our acquisitions and investments.

Before 2021, the Ziegler Group had achieved margins of around 5% each year, then 20% in 2021 and 14% in 2022. What results do you expect in the future?

Our goal is an EBITDA margin of 12 to 14%. We should be able to achieve that. Our industry is capital-intensive and requires a lot of pre-financing – so we also need sufficient working capital.

It will be very difficult to achieve such a margin in the coming years – it might take longer.

Back in 2021, you announced a major project in Tirschenreuth, including two CLT lines, each with a capacity of 75,000 m³ a year, and a house construction line for up to 3,000 houses a year. Is that still coming?

Given the complexity of the permitting process and the current market situation, this project has been reassessed. First of all, we will build a production facility for modular construction in the large-volume construction segment instead and secondly, the time line has been extended into the future. We won’t build 3,000 houses, but 3,000 residential units. We switched to large-volume, commercial construction. One example of where we want to go is a new 150-room hotel in Passau. There, 60 3D modules will be assembled to form a hotel. These modules are prefabricated and equipped with all installations and furnishings. The current production in Naila is testing the overall concept: planning, production, sales, construction site logistics.

In a perfect world: When will production start in Tirschenreuth?

We are currently in the consolidation phase. As soon as it is completed, we will continue to invest in modular construction. This should be the case by 2030. Then, our core business areas will be wood processing and woodworking with a strong focus on modular construction.

You can argue about the type and size of our group, but not about the basic philosophy and strategy at its core, i.e. a closed system from the log to the finished house.

Our sawmills produce up to 10,000 m³ a day. Even with 3,000 residential units, our timber construction business requires a maximum of 150,000 m³ a year. So, we’ll always need the global markets.

This year there have been many changes at the management level of the group. In September, Andreas Sandner, your right-hand man, will leave the company. What are the reasons for these changes?

Andreas Sandner is leaving us of his own wish. He announced this decision in the spring and we have agreed on a transitional strategy together. The other personnel-related changes are aimed at creating an organizational structure that suits the new size of the group.

We are still looking for a replacement for Andreas Sandner. Maximilian Holzfurtner, who has been with the company for four years, will become the new head of sales. Wolfgang Thurner supports me directly in management. Dr. Herwig Kohla is responsible for all matters regarding glued timber, CLT and modular construction. These are all managing director positions.

In top management, I still want to fill two or three positions. With this team, we will be a major player in modular construction and things will soon be heading in a different direction again.

How high are the Ziegler Holding’s liabilities?

The liabilities correspond to the size of the company and the growth of the past few years.

How is 2024 going so far?

This year, everything is a little easier. The markets have stabilized compared to last year. The sales market is not back to its full strength yet, but that’s a problem everyone is faced with. All of our acquired sites are producing this year.

As for 2025, no new production sites or capacities will be added. We are now focusing on internal consolidation. In five or six years, we will be a group with very good returns.

One last question: Have you made mistakes?

No! Some of the decisions we made were right at the time, others later turned out to be difficult. However, nobody could have foreseen a halving of the residential construction sector.

Would I do it again? Yes!