• Lathams’ profits were £3.2m and turnover £62m in the six months to September 2008.
• The company does not expect the economy to pick up before April 2010.
• Last year it opened its first depot in Scotland and moved to better sites in Dudley and Fareham.
• This year it will continue to roll out modern racking to its sites.
• It has planning permission to expand at Hemel Hempstead.
• It is still looking for opportunities to expand its depot network.

In 250 years of business, James Latham plc has seen every market cycle going, but that doesn’t mean it’s taking the current downturn lightly. It acknowledges that 2009 will be a bumpy ride for the UK timber trade.

At the same time, chairman Peter Latham maintains that the business has the structure and strategies to come through recession in as good a shape as any and he also sees potential bright spots in the short and longer term. It’s not unmitigated gloom.

The company’s latest results, for the six months to September, were respectable enough. Profits fell around £1m to £3.2m, but this was attributed partly to the costs of launching a base in Scotland in April and also, said Mr Latham, had to be set against the equivalent period in 2007 when margins were “particularly strong”.

Turnover for the half rose 4.3% to nearly £62m, boosted in part by the development of the depot network and with growth in joinery and shopfitting offsetting declines in sales to national merchants and the transport sector.

In the two months following the results announcement the story was different. Some sectors held up better than others, but overall trade deteriorated. “The general uncertainty pervading the UK economy resulted in less business and we now believe the three months from November over the New Year, traditionally a quiet time in any event, will be particularly hard,” said Mr Latham. “In fact, we’re not really expecting the economy to recover much before April 2010. We’re looking at another difficult 15 months.”

The trade has also been hit by the recent fall of the pound against both the dollar and the euro.

“With the demand downturn, the weakness of the currency is going to make it difficult for the trade to get prices up to replacement values,” said Mr Latham.

The company would like to see the government taking more steps to kick-start the economy. “If I was chancellor, I wouldn’t be fiddling around with VAT and tax rates, which will only have marginal and longer-term effects,” said Mr Latham. “I’d focus more spending on getting the housing sector moving. That would get money into the economy right now.”

But where the government is getting it right, he added, is in pushing on with healthcare capital investment. “This market is still busy for us and, hopefully, activity in school repair and maintenance and construction will also start to accelerate. School spending was held up by the government’s raid on capital funds for teacher salary increases, but signs are that the tap will now be turned on.”

Market advantage

Meanwhile, a positive for Lathams, specifically in the current climate, is its broad customer base.

“We’re not overly dependent on national merchants or big construction companies – in fact we don’t sell much directly into the building market,” said Mr Latham. “Overall our top 10 customers only account for 10% of our sales, with the rest spread over a large number of small to medium-sized businesses and our average invoice being in the mid-hundreds. Individual orders are getting smaller and lead times shorter, but we’re managing this and keeping lorries full. We also have customers who are still very busy, in the joinery sector for instance, and we’re focused on identifying these and pro-actively supporting them.”

The company’s customer spread also leaves it less exposed to the recent squeeze on credit insurance.

“We only insure against losses over £50,000 and, as the bulk of our invoices are well under this, it is less significant for us,” said Mr Latham.

Lathams also sees its supply chain relationships as critical in the current climate.

“In a recession it’s more important than ever to back key suppliers,” said Mr Latham. “It’s in everybody’s interests.”

Naturally, the company is also looking at costs, but, it maintains, enters the downturn already a “lean operation”.

“We have high sales per capita relative to the industry generally and a tough stock regime,” said Mr Latham. “Each branch is fined or rewarded according to whether they meet their stock turnover target.”

Areas where savings have been made include handling equipment, with Latham finding it more economical to buy rather than lease. There is also scope to trim distribution costs without affecting its transport fleet as contract hauliers handle 30% of deliveries. But one cut it aims to avoid is in its workforce.

“There are positions we haven’t re-filled, but we haven’t had redundancies and we hope to keep it that way,” said Mr Latham. “Strong staff morale is an integral part of our competitive advantage and we don’t want to lose it.”

Range development

Lathams also believes its product range development programme should stand it in good stead for a more difficult market. The main thrust here has been to bring in lines that deliver a better margin, work together – allowing customers to bundle purchases – and that differentiate it from the competition.

A clear expression of the strategy came at the recent W8 wood technology show where Lathams dedicated its stand exclusively to LG HiMacs, the acrylic stone worktop and panel material. This was not, Mr Latham, insists, the company turning its back on its timber heritage, but consistent with its move into complementary and value added product areas.

“LG HiMacs straddles so many markets we serve – including education, health, shop-fitting, and furniture – so it enhances our ability to provide product packages,” he said. “It also fits with our policy of offering products that bring special customer benefit. This is increasingly important. The worst place to be in a recession is commodities, where someone will always try to be cheaper than you by fair means or foul!”

Other value added and niche areas Lathams has been developing have been engineered wood products, including Woodex laminated door and window components, Flamebreak lightweight, slimline door blanks, Moralt Lamincore door blanks and Stellac thermally-treated softwood cladding. It has also unveiled its own engineered and solid wood flooring line, Finesse, which, in another first for Latham, is on sale online.

Lathams’ policy on Chinese plywood further highlights its desire to move away from ‘me too’ products. “We decided we’d drop Chinese commodity plywood and now focus on one mill that delivers consistent quality, CE-marked product,” said Mr Latham.

Although the UK market for environmentally-certified timber continues to be a slow burner, Lathams sees this as another area of opportunity, even in a difficult economic climate.

“Still relatively little timber is specified as certified, but it is increasing” said Mr Latham. “Last year it was about 5% of our orders. Now it’s 8% and rising. We are focused on growing the business and, for example, flag all customers in computer records who specify certified so we can develop links and communication with them on certified products and issues.”

Here, too Latham aims for market differentiation.

“We don’t want to be seen simply offering FSC or PEFC timber, but our own FSC or PEFC specification,” he said.

The company’s capacity to provide certified material, backed, of course, by chain of custody, was one factor that won it a place on the 16-strong timber supply panel for the 2012 London Olympics – and the Games are another silver lining Mr Latham sees to the current economic storm clouds.

“There have been media stories about how the recession will affect the Games, but, however much London mayor Boris Johnson squeals, the money will be found!” he said. “And it will be good for the wider industry, not just the supply panel. The Games may not include an iconic timber building, but timber will be visible in exterior cladding, joinery, interiors and other applications. It will be a good advert for wood.”

Underlining Lathams’ longer-term confidence, the company plans to continue to invest in 2009. There’s nothing on the table as major as last year’s projects. Besides the launch of its first Scottish base near Glasgow, these included the relocation of its Eastleigh sheet materials operation to bigger premises in Fareham, which enabled it to bring in solid timber, and the transfer of the Dudley depot to a new site with higher-eave warehousing capable of taking 8m racking. But this year Latham will continue its programme of installing this type of modern narrow aisle racking to other sites and it also has consent to extend warehousing at its Hemel Hempstead HQ, which would enable it to increase stocks of melamine-faced panel products.

“We will also continue to look at product areas we can bolt on and opportunities for increasing our depot network to fill remaining geographical gaps,” said Mr Latham.