The timber sector is currently facing difficult times. Despite that, says Simmo Soomets, CEO of Thermory, the company is investing in new technologies to improve efficiency and reduce costs.

What are the challenges confronting the timber industry, strategies businesses can employ to remain financially viable in difficult periods, and the future outlook for the sector, shared Simmo Soomets, CEO of Thermory.

How do you assess the current situation of Estonia’s timber sector? What are its biggest challenges?

The timber sector consists of various companies, and depending on their specific focus, they face different challenges at different times. Generally speaking, in the past couple of years, most companies have seen an apparent decline in turnover and a sharp drop in profits.

Companies have previously invested heavily in expanding production, but demand is clearly below supply. As a result, margins have shrunk and making sales requires significant effort. The rise in input prices in Estonia is also noticeable – energy, labour, raw materials, and now taxes. Currently, investments are primarily focused on replacement investments rather than increasing capacity.

The sector expects an overall economic recovery, particularly a rebound in construction volumes.

What developments do you foresee in the timber industry in the coming years?

The overall situation in Estonia’s entire industry has become more complicated in recent years, and the timber industry is no exception. Energy costs are high, and confidence in the future is low. The recent high inflation has also pushed wage expectations very high. Companies must focus on continuously lowering production costs, automation, and digitisation to survive this period. This is precisely what we are focusing on right now.

“We are investing in new technologies, such as automated production lines, lifting equipment, cameras, X-ray machines, and machine-readable data, to improve efficiency and reduce costs.”
Simmo Soomets, CEO of Thermory

In addition to construction materials, we are increasingly focusing on progressing in the value chain – our portfolio now includes indoor and outdoor saunas, barrel saunas, sauna products, and tiny houses. In the value chain, we have moved both ways – increasing investments in sawmills and getting closer to the end consumer with our products. I believe it is important for Estonia to add more value to wood rather than simply exporting logs or low-value-added timber.

Considering that 90% of your production is exported, which international markets do you see as the most promising for Thermory, and are you planning to expand into new markets?

When the war started, the European market immediately became very conservative. The impact has begun to ease somewhat, but European markets remain challenging. Timber sales depend on the construction sector’s performance, and construction activity is still low.

The most promising markets are distant ones, where we have increased our exports. Among the neighbouring markets, Finland is the most important for us, as it is the primary market for Siparila (mainly painted cladding) and sauna materials. Among distant markets, the USA is essential for us, as we also have a subsidiary with warehouses and a large sales team. Additionally, we see growth in the Australian and UK markets.

How would you describe the current global demand for thermally treated wood, and how has it impacted Thermory?

Thermal wood is gaining recognition and being used more widely because it performs well in extremely hot and cold climates. When the temperature changes, the wood doesn’t shift as much in its dimensions and is well-suited to withstand the weather. However, this has also brought more competitors to the market—for instance, during the COVID-19 pandemic, there were significant investments in production capacity worldwide.

Currently, supply is exceeding demand, as many players are in the market. Thermory’s turnover has also decreased, although the quantities sold have increased. This is because consumers are looking for cheaper solutions – in recent years, more pine and spruce have been purchased, which are more affordable.

The general trend, however, is moving towards the increased use of wood as a renewable resource. The more thermal lumber is used, the better it is for the planet. It requires less timber to be felled, and CO2 is locked into wood products for longer. We also see that architects are using thermal wood to balance and positively influence the environmental footprint of buildings, particularly in reducing the use of concrete and glass.

How does Thermory compete internationally, especially considering the growing competition and demand for certified and environmentally friendly wood?

Thermory‘s competitive advantage lies in our extensive experience in product and production development. We know how to process wood grown under different conditions to consistently produce high-quality results. We can compete internationally because our product and its characteristics are well-known, and we guarantee stable deliveries to our distributors.

Many can produce brown wood, but Thermory is known for making genuinely durable products. Secondly, we have invested a lot of financial and time resources into building premium brands. For example, we have repeatedly encountered the term “Thermory wood” as a synonym for thermal wood in the US market – this is the highest compliment to our work. Auroom, on the other hand, is becoming very well-known worldwide as a premium sauna manufacturer, and nearly 100% of our production is exported there. Next year, we will be producing around 5,000 saunas.

How do global environmental and sustainability trends affect Thermory’s operations, and what steps have you taken to enhance sustainability?

Thermory’s main product is thermally treated wood. Using only heat and steam makes wood’s physical properties more durable. As a result, the wood lasts significantly longer in outdoor conditions than untreated wood. Our company slogan reflects this: “Leave a lasting impact.”

“The most important current influence for us is the legislative side. An exceptional amount of certification, proof, and testing is required.”
Simmo Soomets, CEO of Thermory

In our operations, the trend is moving towards the use of sustainably produced and longer-lasting products. However, this varies from country to country—while Scandinavia is a leader in this respect, the rest of the world is following more slowly.

The most important current influence for us is the legislative side. An exceptional amount of certification, proof, and testing is required. For example, in Europe, wood that has been treated in any way can no longer be considered wood – it must be proven that the original properties of the wood were not compromised during processing.

When constructing new buildings, the carbon footprint of the building is calculated very precisely, so our materials must be equipped with various certifications. These include origin certificates (FSC, PEFSC), environmental labels (Swan label), carbon footprint calculations (EPD), and certifications for production quality, environmental standards, and workplace safety (ISO). Architects also need BIM files (digital files containing building project information and models to aid design, construction, and maintenance). Therefore, significant preparation work is required in the office.

We are constantly taking steps to increase our sustainability. We have several programs in place to create new products from production waste. We are also investing in new technologies, such as automated production lines, lifting equipment, cameras, X-ray machines, and machine-readable data, to improve efficiency and reduce costs.

GOOD TO KNOW:

• Name: Thermory
• Founded: 1997
• Industry: Timber industry
• Main activity: Thermally treated wood products
• Brands:
  • Thermory: Sustainable and durable wood products
  • Siparila: Nordic exterior and interior solutions
  • Auroom: Design saunas
  • VMS Timber: Barrel saunas and glamping houses
• Employees: 742 (2022); 684 (2023)
• Turnover: €149.27 million (2022); €122.3 million (2023)
• Profit: €10.13 million (2022); €343,649 (2023)
• Key export countries: Finland, USA, Netherlands, Latvia, Germany, Sweden, Denmark, Belgium, France
• thermory.com

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