Challenged to ‘right-size’ and diversify in a competitive market, Timbmet has switched to Lloyds commercial banking for a flexible £20m package "with headroom to grow".
As TTJ reported earlier, hit by the UK construction sector recession, Timbmet had seen a fall in activity and profitability, and more than halved its payroll from 2007 levels. It also closed loss-making depots and has more recently significantly remodelled its management and operational structure.
The decision, at the same time, to switch its entire transactional, clearing banking and trade finance portfolio to a new provider was clearly no small step. It had been with its incumbent bank since its launch in 1942. But, said chief executive officer Paul Rivers, it needed new flexible facilities to realign its operation, diversify its product range and position itself to exploit new markets.
The company talked to several banks about refinancing existing banking facilities but, after careful evaluation, decided that Lloyds provided the best package and best fit with the business. Its solution was configured so Timbmet could borrow against both its stock and its debtor book, comprising a £5m term loan to refinance core debt, a £12m invoice finance facility and a £3m stock funding facility.
"It was partly the flexibility of the package that appealed, the ability to draw down against stock and debtor balances as required, but also the terms of the facilities," said Mr Rivers. "The arrangement fees and interest rates charged were very competitive too." Before everything fell into place, however, having evaluated what various banks had to offer it, Timbmet itself was closely scrutinised by the Lloyds team.
"They undertook financial and legal due diligence and a stock evaluation exercise," said Mr Rivers. "It was the same as other lenders proposed, but a very rigorous, costly process."
Once Timbmet successfully passed this stage, Lloyds appointed Richard Colclough of its Thames Valley team as its relationship director for the £5m term loan and the company’s normal banking arrangements.
"We also have a dedicated bank relationship director on the Lloyds Bank Commercial Finance side for our stock and debtor lending facilities," said Mr Rivers. "They now have regular meetings with us to review progress, and are supportive and constructive."
Timbmet’s business strategy now includes focusing on increasing its sales of timber and wood products to the Middle and Far East.
"The construction sector there is comparatively buoyant and they’re markets where we’ve carefully cultivated relationships and which we hope will grow steadily from today’s base of £8m – about 10% of total sales," said Mr Rivers.
Agreeing that these overseas opportunities are significant, managing director Nigel Cox also stressed that the main thrust of Timbmet’s business remains in the UK, where, as a consequence, it has pushed through significant change to underpin long-term prospects.
"While hardwood remains core to the business, in order to hit a far greater section of the market we’ve introduced innovative engineered products and greatly extended our panel product range," he said. "We’ve focused on the supply of decorative panels, such as veneered and melamine boards, concentrating on the kitchen, bedroom and bathroom market, but with the range designed to suit both the fast-changing fashions of housing refurbishment and retail/shopfitting markets."
Strong position
The combination of these "more sustainable, added-value products", he said, coupled with a remodelled depot and distribution infrastructure, put Timbmet in "a very strong position as the UK economy slowly emerges from austerity". The Lloyds facility, said Mr Rivers, provided the financial backdrop against which Timbmet could make these changes.
"We’ve had to right-size the company to reflect business realities, but we’re trading profitably now," he said. "Lloyds gave us the flexibility we needed. The bank’s team showed a clear appreciation of the underlying strengths of our business and proved highly responsive.
They also understood how enthusiastic we are about growing over the next five years and how well placed to do so. Consequently, the facility supports organic growth with significant potential to extend the current working capital requirement. It gives us headroom to grow by 20-30%, with the capacity to flex and expand to accommodate that." Lloyds is equally positive about the partnership.
"Timbmet has come through a tough period very well," said Mr Colclough. "As a management team, they have sensibly focused on margin growth, restored the core business to profitability and are going forward on a secure footing. It’s a great turnaround story in an unquestionably tough sector, and a significant component in redirecting the business has been our flexing of their banking facilities."
Timbmet has now fully drawn down the £5m term loan from Lloyds, and the £3m stock facility from LCF was effectively fully used since it was set up. The invoice facility of £12m is adjusted each day to reflect new invoicing and cash collected, but has "never been close to being fully drawn". As the company starts to grow and increase sales, it says, this will provide the necessary support. It can draw down more of the facility to ease the working capital required as its debtor book expands .
Overall, said Mr Rivers, Lloyds has given both the "certainty of future funding" and more options as to how it is drawn down.
"The term loan is for five years and the two working capital facilities are for an initial period of three, but can be rolled on thereafter," he said. "Clearly we’re hoping that this will be a long-term relationship."
