The Production of Parquet is Affected by Everything Bad Happening in the World

The value of a company can be analyzed according to many indicators. We live in a time when investors and observers have many parameters available to assess how a company is performing. However, there is also a piece of data that is easily overlooked, yet accessible to everyone without much searching and analysis – durability over time. If it is among the larger ones compared to other comparable companies and in combination with good results, this characteristic is the best indicator that it is a solid company, most likely family-owned. Such is PPS Galeković (PPS – sawmill, parquet, carpentry) from Mraclin, a place near Velika Gorica, a company that has continuously operated in the wood industry since 1956 and does not falter, but changes in accordance with the demands and challenges posed by time while simultaneously developing.

One Owner of Two Companies

He had been operating primarily in the form of a craft for a longer time. Until 2019, he changed five crafts, and he also had the companies Drvo Galeković and Lignum to facilitate the export of products made in the craft. Before the nineties, recalled Mladen Galeković, pater familias, owner of PPS and procurator, exporting was not that simple. Initially, this type of sale went through craft cooperatives, and then Croatian craftsmen worked through Exportdrva and Drva Rijeka; Slovenes, for example, sold with the help of Lesnina, and those from Bosnia and Herzegovina through Šipad. With the establishment of PPS Galeković in 2019 and the closure of the craft, the family decided to break away from that legal form of business to ease administration in tax payments, but also to eliminate liability with their own property, which puts craftsmen in an extremely unfavorable position compared to any form of company, including the simple one. This was preceded by an investment in the wood industry in Majur, which was a turning point for the Galeković family. The plant in Majur was destroyed and closed during the war, and today it is equipped with two chambers for thermal treatment, a parquet plant, and those for the production of other wood products.

– It really started from nothing. The wood was growing there all the time while the territory was occupied; these were huge logs. We started from scratch. The roofs were damaged, we changed everything, everything was overgrown with brush. My friends, when I brought them there, I must say, could not believe it. My wife told me to start it, to employ people because I have that ability. We really managed to get it going. Today, 110 people work in the Majur plant, and another ten in the hotel in Hrvatska Kostajnica – Galeković told us.

It should be noted that PPS Galeković and PPS Majur do not operate formally under the same umbrella, but are two companies in the same industry connected by owner Mladen Galeković, so in the case of business unification, their results would be even better. This legal detail is important for the overall picture, as is the fact that the company has faced a series of challenges in recent years, from the COVID-19 pandemic to earthquakes, which caused damage in the Majur plant, a transformer station burned down, and one hall collapsed, to a fire in 2023 in which a quarter of the plant in Mraclin burned down, and one worker died.

Pellets as a Byproduct

The market in which PPS Galeković operates may initially seem ideal. It supplies quality timber, logs of oak, ash, or other high-quality types of wood from Hrvatska šuma, which takes care of the proper and legal management of this public good. The wood should, therefore, be processed and turned into a product, which is a job that people have been doing since time immemorial. However, the dissatisfaction of the wood industry with the way wood material is distributed is well known. Difficulties are also caused by modern geopolitical changes as a large part of wood products from Croatia is exported abroad, and for the production of certain products, it is also necessary to import raw materials from insecure areas. Therefore, it is not surprising that the activity of sawing and planing wood, in which PPS Galeković operates, in 2024, with a total revenue of €952.4 million and a healthy average annual growth of almost 11 percent over a five-year period, recorded a net loss of €7.1 million and a net loss margin of one percent. There is no dominant market leader in the industry. The leading one is Drvni centar Glina with €50.3 million in revenue and a share of 5.3 percent, while PPS Galeković is in tenth place with €19.1 million in business revenue, corresponding to a two percent share.

– In the five-year period, the total revenues of the Company grew on average by 12.4 percent per year, and in 2024, they were €2.5 million or 14.7 percent higher compared to the previous year. According to revenues and profits in the last five years, the golden year was 2022, with €25 million in revenue and €4.2 million in net profit – noted Lider’s financial analyst Nikola Nikšić, owner of the consulting company Konter.

In the parquet factory in Mraclin, the boards arrive already sawn from the company’s four sawmills, located at sites near the production facilities. At PPS Galeković, they do not rely too much on external small sawmills because they realized that they know best how to adapt logs to their needs. The incoming wood then goes further for processing into solid parquet, multilayer floors with a lamella, three-layer floors, solid boards, underlays, and facade cladding. Waste is not discarded. The chips are ground in a mill that grinds between 100 and 120 tons of material per day, of which about 60 tons are ground for energy needs, i.e., for the boiler room, and the remaining ground material is further processed to be suitable for compression into pellets. These pellets are sold almost immediately as they are usually made from oak, which is calorific, and have the highest energy rating.

A Problem Created Overnight

Regardless of the demanded and quality pellets, the main business of PPS Galeković is parquet and floors, which are mostly exported. Last year, 31.2 percent of PPS’s revenue came from exports, and in the record year 2022, the share of exports in revenues was over half. Its main markets are, of course, Germany and Italy, which, incidentally, demand the most parquet in Europe, and it also exports to Scandinavian countries, France, Canada, and the USA. It has worked on large projects in New York and recently won a job on such a project in Florida. While tariffs in America create uncertainty, Germany has significantly reduced orders as the construction sector is ‘on pause’.

– We will see how things will go with those tariffs. In the end, it seems that for us it will be that fifteen plus five percent. That will be the worst for America, and it seems to me that the market there has started to understand that. We cannot cover the cost of those tariffs because such margins on which that would be possible are rarely obtained even on large projects. The favorable thing is that Croatia has not stopped construction. Moreover, the expansion is even stronger, and we are very present there and cooperate excellently with construction companies. We work all over Zagreb, all types of facilities – said Filip Galeković, Mladen’s son who has been the director of PPS Galeković since 2019.

In the process of creating a new geopolitical order, events in Russia and China also influence the parquet business in Croatia. The war in Ukraine has created difficulties with the import of birch plywood from Russia and wood from Ukraine, which has caused shortages and raised prices, while China’s economic expansion poses problems for the domestic wood industry in the flooring market. Chinese parquet is, in fact, so cheap that the European Union had to impose special high tariffs on it to financially penalize its import.

– With three-layer parquet, or multilayer floors, we started in Russia and we were really growing a lot there. We imported all the plywood for such floors from that country because Siberia has the largest forests and the best birches. We literally created a huge problem overnight, so we had to look for a new market, and we found it in Poland. But prices are now higher, and the quantity of goods is limited – the company’s director tells us.

Since 2022, Filip Galeković has been the president of the Wood Processing Industry Association at the Croatian Chamber of Commerce and a member of the board of the European Federation of Parquet Manufacturers (FEP). He supported the branch initiative for the introduction of anti-dumping measures against Chinese manufacturers in that role because, thanks to state subsidies for the import of raw materials and the export of final products, they could achieve significantly lower prices unfairly. However, the problem with the Chinese has not disappeared as they are looking for new models and relocating their operations to countries bordering the European Union, such as Serbia, from where they are trying to place their product with minimal processing through small channels into the common European market.

And There Are Domestic Problems Too

The challenges in doing business in that market are not only external; there are also internal ones. The wood processing industry sources domestic raw materials through Hrvatska šuma, and the distribution of timber is determined by a so-called letter of understanding that sets out the principles and models for selling materials to industry players for transparent criteria, so that every player knows the rules and criteria for sale. This is a non-binding document that, however, in practice serves as the basis for purchase and sale contracts, and after complaints from part of the industry, the letter has also become the subject of a legal dispute.

– The idea of the letter of understanding was good, the concept was good and positive. The most problematic thing is whether it is controlled, whether the rules are respected, and whether there are sanctions when they are not respected. The idea was to encourage those who invested and produce final products to receive more timber – Filip Galeković told us.

The Croatian economy has other internal problems as well, which do not end only with the models of raw material distribution. For example, domestic wood processors will soon have to obtain geolocation data for products they sell in the EU, for which they are waiting for an initiative from Hrvatska šuma. However, perhaps the key problem that regularly recurs in articles about companies; in fact, which has generally been a recurring theme in Lider and other media in recent years. It is, of course, the shortage of skilled labor caused by demographic problems. At one time, Mladen Galeković started vocational schools in Hrvatska Kostajnica from which his companies received thirty to forty interns a year trained by their masters. But now the book has literally come down to two letters, which is why the Galeković family has started hiring foreigners. There is not much luck there either – currently, ten foreigners work for them, mostly Egyptians.

Ready for Extraordinary Situations

This situation, however, due to the decrease in exports, which we have already mentioned, is being resolved on its own – by reducing the number of employees. Despite this, the average salary in the company has increased, from €1435 in 2023 to €1583 in 2024. The business results from the first half of 2025, as explained by Filip Galeković, indicate recovery as greater demand has been recorded from the German market. As Nikola Nikšić noted, the business indicators of PPS Galeković are generally good despite the decline in revenue compared to the best year, 2022. The most optimism that the company will continue on a good path can be found in the data that it retained almost €19 million in profit over the observed five-year period and invested €12 million in equipment, machinery, and vehicles. Considering that it has low financial debt, it can be concluded that it can overcome some extraordinary problems through short-term borrowing.