Polish Furniture Outlook 2013

Tomasz Wiktorski Ogólnopolska Izba Gospodarcza Producentów Mebli Międzynarodowe Targi Poznańskie Poznań International Fair January February 2013

Polish Furniture Outlook 2013 The study was prepared in January and February 2013 by B+R STUDIO Tomasz Wiktorski on commision of and Poznań International Fair. Prepared by: Tomasz Wiktorski D.Sc., Milena Dorozińska M.Sc. Advisory: Marek Adamowicz D.Sc., Michał Strzelecki M.Sc Composition and text breaking: B+R Studio Cover photo: Collection 4You.VOX furniture /with permission/ www.meble.vox.pl Copyright by: B+R Studio Tomasz Wiktorski Distribution: Office of The. Al. Stanów Zjednoczonych 51, 04-028 Warszawa Ph +48 22 5177839, fax +48 22 517 77 19, e-mail: michal.strzelecki@oigpm.org.pl, www.oigpm.org.pl Copying and distribution of the report with any technique require of the consent of The Polish Chamber of Commerce of Furniture Manufacturers. All calculations, estimations and forecasts were prepared by B+R Studio on the base of official data, in case of missing data it was supplemented on the base of experts enquires. All sources are mentioned below in tables, pictures and diagrams. B+R Studio is not responsible for use of the data and particularly forecasts presented in the report. Despite of all efforts to present a real scenario of the future there is no certainly that such a scenario will take place. B+R Studio Tomasz Wiktorski Kietlin, ul. Słoneczna 3 97-500 Radomsko www.brstudio.eu brstudio@brstudio.eu 2013 Page 2

Introduction Despite of difficult situation of the global market, the size of the export in polish furniture industry in 2012 probably achieved a record-breaking value. We are estimating, that if we include micro companies, the export will constitute about 28 bln PLN! In spite of such record breaking results, the situation in polish furniture industry is very diversified. Share of big and medium sized companies in the structure of the sold production value has constituted about 80% for a long time. These companies mainly state about potential of the polish furniture industry. Because of difficult situation on the domestic market and crisis in the European Union, polish furniture manufacturers are interested in other markets ( i.e. Brazil, Mexico, Turkey ). There are not big sales increase on these markets, but we predict that interest in foreign markets will increase. What will 2013 bring? Critical events from the last few years, will still have a great influence on economic situation of furniture companies. Market uncertainty will become more noticeable because of further curb investments. What is more, the main factor that determines profitability ratios of furniture industry is PLN rate. It is hard to say, how will exchanges rates behave in 2013. It is very important for entrepreneurs to have to predict ability and quick adaptation to dynamic market conditions which are still changing. Another important element of Polish furniture development is its international promotion. The Furniture Industry Promotion Program is realized by the consortium which has been set by The and also by our trusted and long standing Partner Poznań International Fair. It is great project in the interest of polish furniture manufacturers, which brings a lot of international optimism about the future, because the furniture industry received a financial support for the promotion for the first time. That is why this project is so popular among polish furniture enterprises. Marek Adamowicz D.Sc. OIGPM Director Page 3

From the author Polish Furniture Outlook 2013 report is the best source of knowledge about polish furniture industry. This year edition contains new elements which show complexity of the situation. Follow the opinion of people who work with the report, we concentrate on things connected with our industry and resign from introducing of polish economy context. In the present edition of Polish Furniture Outlook report, I would like to pay your attention on things below: new subsections which describe retails of financial results of the industry and markets feeling; longer and updated list of the largest furniture manufacturers 39 companies which incomes are higher than 100 million PLN, and about 500 companies with detailed overview of production profile, used materials and contact details; forecasts of the production value, import and export for 2013; data about individual clients market for 2013 based on B+R Studio and OIGPM own research, which has been conducted on representative group of adult Poles. information about intercompany accounts, formulated for the first time; information about purchasing potential of voivodships, increasing and decreasing directions of export; average prices of individual furniture groups in international trade. The report gives you practical tools and arguments to prepare to the SB meeting, trade negotiations, location for distribution networks, estimation of your company situation or contractor s potential and to prepare or create a target list. Polish Furniture Outlook 2013 report allows to minimalize the investment risk, so that is why it should be on the desk or in the tablet of every manager. Tomasz Wiktorski D.Sc. Page 4

Production of furniture Production of furniture in Poland is very important element of economy and has a greater significance than the EU average. If we compare the value of furniture sold production to the value of polish and EU GDP, we can say that furniture industry is four times more important to polish economy than to EU economy. Table 5 The importance of furniture industry in Poland and the EU. Specification 2011 GDP 1 tln 522 bln 700 million PLN Poland furniture sold production-fsp 31 bln 700 million PLN share of FSP/GDP 2,1% GDP 12 tln 600 bln 000 million EUR EU 27 furniture sold production-fsp 74 bln 000 million EUR share FSP/GDP 0,5% Based on CSO, Eurostat and own estimation. From industry point of view the worrying fact is that the dynamic of development is lower than the whole industry and as a result of this is the lower percentage share of furniture industry in the sold production of industry. Between 2008 2011 the dynamic of furniture industry development was 7 % lower than the average in industry. This phenomena is a consequence of base effect (significant participation of polish furniture export in the European furniture market), but also a business model chosen by many companies - realization of the production by way of the subcontractor. Table 6 The share of furniture production in sold production of the Polish industry. Entity 2008 2009 2010 2011 2012* Dynamics of development according to whole industry 2011/2008 The share in industry % 2,9 3,0 2,6 2,7-93,10 9 Value of furniture sold production bln PLN 26,4 27,2 26,9 31,7 29,4 120,0 Based on CSO data. This model allows to realize a large output volume, but also can cause the low value added of production and its low creativity. Because of cost increases and wage rise, this type of model will be hard to keep for a long time. For that reason it is important to have contracted productions and to develop companies own mark, which should become known to traders and clients on domestic and international markets. The importance of polish furniture industry in a worldwide context is explained by a high place in the ranking of value (9,12 bln USD) and volume (2,7 million tons) of the furniture export. 10 Valuably in 2011 Poland was behind China, Germany and Italy. In the export volume ranking, only China had a greater amount of exported furniture. Despite the fact that Poland mainly goes into contract jobs, this ranking confirms that Poland is important country on the global furniture market. Page 12 9 Industrial average = 100 10 Apply to goods from group CN 9401-CN9404, including furniture, car seats, medical furniture, sleeping bags and bedding elements.

50 45,19 Ranking of furniture export leaders 2011 value 40 30 20 10 0 13,67 11,64 9,12 6,99 4,91 3,89 3,02 2,81 2,60 China Germany Italy Poland USA Mexico Canada France Billion USD Czech Republic Sweden 16 14 12 14,98 Ranking of furniture export leaders 2011 volume million tons 10 8 6 4 2 2,71 2,08 1,95 0,74 0,70 0,63 0,57 0,54 0,53 0 Figure 4 World ranking of furniture export leaders value and volume 2011. The source: UN The structure of production according to size of companies and their location 24 thousand entities are involved into production of furniture in Poland. About 100 of them belong to large sized group of companies which employ more than 249 employees, 350 belong to medium sized group of companies (50 249 employees), 1500 belong to small companies and about 22 000 belong to micro companies (less than 9 employees). Table 7 The structure of companies size according to Regon registry Size class Entity 2010 2011 2012 Balance 2012-2011 Balance/2011 Total No. of entities 24 840 24 157 23 810-347 -1,4% yr/yr 1,00 0,97 0,99 Micro No. of entities 22 546 21 939 21 817-122 -0,6% yr/yr 1,06 0,97 0,99 Small No. of entities 1 781 1 725 1 544-181 -10,5% yr/yr 1,01 0,97 0,90 Medium No. of entities 405 385 349-36 -9,3% yr/yr 0,99 0,95 0,91 Large No. of entities 108 108 100-8 -7,4% yr/yr 1,00 0,93 The source : REGON registry. Page 13

Studying the data about the number of companies acting to the end of the 2012, we can see a significant reduction of companies in different size categories. It is not absolute companies liquidation, but in some parts it is the result of reducing employment. As a consequence of this is the companies moving from upper classes to lower classes. That is because of furniture industry s difficult situation and the fact, that not every company is able to face up to the cost pressures and competition in the condition of economic slowdown. The value of sold production of the furniture industries in all classes was estimated on 29,4 bln PLN in 2012, that corresponds to a decline of almost 7,3% as compared to 2011. Micro companies Small companies Medium sized companies Large sized comapnies Page 14

List of content Introduction... 3 From the author... 4 Main conclusions... 5 Polish economy... 6 Basic macroeconomic data... 6 Population. Size and structure by territory division.... 8 Production of furniture... 12 The structure of production according to size of companies and their location... 13 Structure of production according to groups of furniture.... 18 Financial indicators of furniture industry.... 21 Business tendency in furniture production.... 26 Furniture sales in Poland.... 31 The real and the apparent consumption.... 31 Structure of furniture trade, stores and chain stores.... 32 Dynamics of changes in prices and margins.... 34 Foreign trade... 35 Export of furniture... 35 Geographic structure of export.... 36 The structure of export value by furniture groups.... 39 Export volume by groups of furniture.... 41 Import of furniture.... 44 The geographic structure of import.... 44 Value structure of import by furniture groups.... 48 The structure of import volume by furniture groups... 50 Foreign trade prices.... 54 Indicates and rankings... 56 Assignments of the NACE/PKWiU codes to main groups of furniture... 56 List of tables... 60 List of figures... 61 Page 60 List of tables Table 1 Basic macroeconomic indicators of polish economy.... 7 Table 2 Forecasts of the population in Poland 2008-2035.... 8 Table 3 Basic demographic data for Poland... 9 Table 4 Population structure by voivodship and sub regions according to CSO.... 10 Table 5 The importance of furniture industry in Poland and the EU.... 12 Table 6 The share of furniture production in sold production of the Polish industry.... 12

Table 7 The structure of companies size according to Regon registry... 13 Table 8 Value of furniture industry sold production by entities size classes in 2011.... 15 Table 9 Sale incomes and employment in the biggest Polish furniture companies.... 17 Table 10 Value of furniture production and its forecasts on 2012 according to main groups of PKWiU.... 18 Table 11 Quantitative structure of produced furniture.... 21 Table 12 Price index of sold production in furniture sector.... 21 Table 13 Profitability of sold production in furniture industry.... 23 Table 14 Capital expenditures in furniture sector.... 24 Table 15 Changes in costs structure in furniture sector.... 24 Table 16 The value of furniture market for individual customers.... 31 Table 17 Value of trade on Intercompany market.... 31 Table 18 Furniture trade, chains, showrooms and malls.... 32 Table 19 Chain complete: hypermarkets, supermarkets, discounts.... 33 Table 20 Index of products and services prices.... 34 Table 21 Development of Polish export in the period of 2007-2012 according to Eurostat.... 35 Table 22 The value and geographic structure of furniture export in 2009-2012 period.... 36 Table 23 The structure of export value by furniture groups.... 39 Table 24 The structure of export volume by group of furniture.... 42 Table 25 Import of furniture to Poland according to Eurostat.... 44 Table 26 The geographic structure of furniture import in 2009-2012 value in EUR million and percentage shares.... 45 Table 27 The structure of import by groups of furniture.... 48 Table 28 Import volume by groups of furniture.... 51 Table 29 The prices of furniture imported to Poland in 2009-2012.... 54 Table 30 The prices of exported furniture in 2009-2012.... 55 Table 31 Assignment of main furniture groups to PKiW and NACE codes.... 56 Table 32 Classification CN and assignment to major groups of furniture.... 58 List of figures Figure 1 Real GDP growth rate of percent change according to 2012.... 6 Figure 2 Population of selected European countries.... 7 Figure 3 Age pyramid of the population of Poland.... 8 Figure 4 World ranking of furniture export leaders value and volume 2011.... 13 Figure 5 Location of furniture manufacturers according to REGON registry.... 15 Figure 6 Changes in number of entities according to REGON registry.... 15 Figure 7 Quantity structure of furniture companies on the third quarter of 2012 according to REGON.... 16 Figure 8 The structure of furniture industry sold production according to entities size classes.... 16 Figure 9 Changes of incomes for certain furniture companies in 2011.... 16 Figure 10 Value of furniture production and its forecast on 2013 according to main groups of PKWiU 18 Figure 11 Changes in production structure according to CSO.... 19 Figure 12 Structure of furniture production value in Poland according to Eurostat.... 19 Figure 13 Structure of furniture production in Poland according to NACE v2 in polish zloty and Euro.. 20 Figure 14 Structure of production furniture volume according to Eurostat.... 20 Figure 15 Index price of furniture industry sold production in 2009-2012 period.... 22 Figure 16 Incomes and costs of furniture industry from sales of products, goods and materials in 2009-2012 period, according to quarters.... 22 Figure 17 Gross financial results of furniture industry and its taxation in 2009-2012 period, according to quarters.... 23 Page 61

Figure 18 Sales profitability of furniture.... 23 Figure 19 Costs structure of furniture industry in 2008-2012 period.... 25 Figure 20 Financial liabilities of furniture companies in 2009-2012 period, according to quarters.... 25 Figure 21 General climate in business tendency.... 26 Figure 22 Current and expected index of general economic situation.... 26 Figure 23 Production and expected production indices... 27 Figure 24 Current and expected ability to regulate financial liabilities in 2009-2012 period.... 27 Figure 25 Receivable level index in 2009-2012 period.... 28 Figure 26 Current and expected index of orders received, period 2009-2012.... 28 Figure 27 Stocks index of finished products in 2009-2012 period... 29 Figure 28 The expected employment index, period 2009-2012.... 29 Figure 29 Expected selling prices of products index, period 2009-2012.... 30 Figure 30 Number and location of companies with PKD 4759 according to REGON registry.... 34 Figure 31 Index of furniture prices and interior design elements.... 34 Figure 32 Furniture export from Poland in the period of 2007-2012 according to Eurostat.... 35 Figure 33 The value of Polish furniture export to selected countries in 2012.... 36 Figure 34 Changes in the ranking of the directions of Polish furniture export.... 37 Figure 35 Changes in the ranking of main furniture receivers in 2010-2012 period.... 37 Figure 36 The dynamic of furniture export to selected countries.... 38 Figure 37 Changes in the markets importance within the structure of export in 2012.... 38 Figure 38 The structure of export by furniture groups in 2009-2012 period.... 40 Figure 39 Percentage shares of furniture groups in export 2009-2012.... 40 Figure 40 The dynamic changes in export by group of furniture.... 41 Figure 41 Changes of the importance in export structure for particular groups of furniture.... 41 Figure 42 The changes of shares in structure of export volume by group of furniture.... 43 Figure 43 The structure of export volume by furniture groups.... 43 Figure 44 The dynamic of export volume changes for particular group of furniture.... 43 Figure 45 Polish import of furniture in the period of 2009-2012... 44 Figure 46 Import of furniture to Poland in 2012.... 45 Figure 47 Ranking of furniture import directions in 2008-2012.... 46 Figure 48 Changes in the ranking of furniture suppliers.... 46 Figure 49 Changes in share of main markets in import structure in 2011-2012.... 47 Figure 50 Dynamic of furniture import to Poland in 2010-2012.... 47 Figure 51 Changes in import structure in EUR.... 49 Figure 52 The value of furniture groups imported in period 2009-2012... 49 Figure 53 The dynamic changes of import by group of furniture.... 50 Figure 54 The dynamic in changes of import in groups of furniture by weight.... 50 Figure 55 Percentage shares of import volume by groups of furniture in 2009-2012.... 52 Figure 56 The weight of imported furniture by groups in 2009-2012.... 52 Figure 57 Changes of shares in import by groups of furniture 2011-2012.... 53 Figure 58 Average furniture prices in import.... 54 Figure 59 Average furniture prices in export.... 55 Page 62