Summary
• Lloyds TSB sees signs of improvement in UK construction.
• Banks are willing to finance businesses with clear strategies and strong management.
• A close relationship between bank and business is essential.
• Cash reserves and the right staff are more important than ever in a downturn.

Global economic events of the past two years have had a huge impact on the financial markets. Everything from the price of commodities to the price of cars and the housing sector has been affected. Yet, increasingly, financial commentators are talking of a recovery and identifying areas of growth in UK industry.

The building materials sector, like most, has seen tough trading conditions over the past 18 months. The majority of our customers in the industry remain cautious as we head into 2010, although there is a sense that we are starting to turn the corner as the downward spiral in product demand levels off and the wider construction sector shows signs of improvement.

Despite the challenging economic climate, we have seen customers in the timber trade, such as Pontrilas, John Brash and Hanson Plywood continue to take advantage of business opportunities to expand and grow and we’ve remained committed to supporting their funding requirements.

Hanson Plywood, a leading UK supplier of panel products, has worked in partnership with Lloyds TSB Corporate Markets for a number of years and we have supported the company’s ongoing growth and expansion. Most recently, having outgrown its original offices, Hanson Plywood has developed a new 40,000ft² warehouse and offices built on land adjacent to the existing property, with support from Lloyds TSB. Our ongoing relationship with this company meant that the decision to help fund this development was quickly put in place.

Securing funding

There is still a perception that securing funding from banks remains challenging, but the reality is that we are willing to support businesses in tough times as well as good. A number of well-established banks have made a commitment to businesses in the UK and are willing to provide the funds they need to thrive throughout the economic cycle.

As ever, before lending, banks encourage businesses to meet certain requirements, but these have altered very little. Banks are keen to see clear strategic direction from companies with strong management teams who can demonstrate a prudent management of costs and working capital. However, most importantly, banks and their customers need to develop close working relationships so that businesses receive the guidance and support they are seeking.

Looking to 2010, we expect to see a continued stabilisation of the economy supported by interest rates, which are forecast to remain low throughout the year. We do expect to see growth in the wider UK economy, although it is likely to be moderate and constrained by ongoing readjustments.

Customers, such as Bristol-based Taylor Maxwell, have felt the impact of the economic downturn this year but are cautiously optimistic at its close. We have worked in partnership with the company for 40 years, during which time we have supported its considerable expansion though various economic ups and downs. Taylor Maxwell now has 24 branches nationwide and a turnover in excess of £130m.

Companies like this, with experienced management teams, are well placed to take advantage of new opportunities that improving trading conditions may afford. Those seeking to secure the financial support they require to realise their ambitions should bear the following points in mind.

• Maintain a good balance sheet. Listen closely to what your customers tell you, adjust your own forecasts accordingly and hold costs back in line with anticipated revenues. Being anything less than honest with yourself is counter-productive, and allowing yourself to slip into a position of low margins – or no margins – means you won’t be well-placed to take advantage of opportunities as they present themselves.

• Preserve cash. Paper profits are of no use if you are not preserving and collecting the actual cash. Invest only in areas that are required by your short-term business needs, and save the rest. Once again, without cash reserves, you won’t be well placed to take advantage of new business opportunities.

• Keep your best staff, and keep an eye out for new talent. These are the people from whom growth will come. You may need to consider introducing incentives to attract or retain them. These needn’t be pay rises: some salary sacrifice schemes have proved popular this year, and you might introduce a performance-related bonus.

• Listen to good advice. Your accountant, your lawyer and, of course, your banker are able to give you an independent view of your business. Non-executive directors and business partners do the same. Banks and professional services firms work with scores of businesses and can use their wide-ranging experience to support and help you grow your business. Good ones act as trusted advisers and pride themselves on the relationships they build and maintain.

As we move into 2010, with the right enterprises and investments there is no reason why the timber sector cannot emerge from the downturn in a good position, and be better placed to tackle tough times in future.