The current economic upswing has provided reason for many in the UK timber industry to look towards 2015 and beyond with optimism.

As we move forward, pursuing growth and new contract opportunities will be important, but companies must address the risks in the sector and protect themselves accordingly.

Macro-economic factors have provided healthy trading conditions for the UK timber industry at the start of 2015. While the current falling oil prices and strong pound are providing good conditions for UK traders, the global economy remains fragile meaning there are still some risks in the sector.

The current strength of the pound is continuing to drive UK imports and will no doubt have an impact on the home-grown timber industry.

In addition, the UK panel products’ sector has, until fairly recently, enjoyed a level of natural protection from European imports, and the slump in the Euro is increasingly making the UK a more attractive market for producers.

Commodity prices are also proving influential, with energy bill reductions set to have a positive impact on manufacturers in particular, with the added bonus of helping them to cut transportation costs.

In fact, lower spending on fuel and transport services should create a more buoyant UK consumer market, with approximately €4bn of additional consumer spending expected as a consequence.

Company margins (excluding nonfinancial organisations) should also see moderate improvement, expected to increase by 0.4% in the UK and 0.6% in Ireland. Although timber prices have been under increasing pressure during the latter stages of 2014 – which the falling oil price has helped to offset – underlying demand remains good as we move into 2015 despite no clear forecast for price rises in the short term.

However, such price conditions caught out many in 2007/2008 thanks to the additional stock risk, and companies must be extra vigilant to ensure a similar outcome is avoided this time around.

There is also the potential for cumulative impact as businesses nurse through the seasonally difficult winter period – fencing companies will be looking forward to stormy weather!

In addition, the New Year saw an abnormally pronounced increase in the number of repayment plan proposals to reschedule due debt. Seasonality certainly plays a part in this, as does excess stock and invoice discounting which can potentially be a very unsuitable form of financing when sales are volatile.

Performance was mixed across the industry during the recession, and against this backdrop, businesses are presented with variable amounts of sector risk in 2015. The outlook for timber frame is generally positive as we move through quarter one. Significant capacity has been taken out of the market and any growth will therefore benefit the remaining players.

The brick shortage, caused by the lengthy, costly revival of capacity among suppliers of materials and building products, is also likely to benefit the sector.

In a similar vein, timber merchants have fared reasonably well over the course of the recession as there tends to be assets on the balance sheet that provide banks with comfort to increase lending if required. In addition, there is often the generational family element to these companies which can create a stronger will to survive any difficulties that may arise.

Construction sector growth

From the perspective of structural timber, the increase in UK construction activity presents a real opportunity as output is expected to effectively out-perform UK GDP, certainly in 2015.

However, growth has arguably been a little one-dimensional with the main driver coming from residential housebuilding.

Despite this, there are signs of increased activity in both commercial construction and civil engineering – something that is necessary for a robust and sustainable economic recovery – thanks to a notable increase in the number of projects announced by the government for infrastructure development and house building.

However, with a forthcoming UK election, what will happen after May remains to be seen, but our current forecast is that overall public sector spending will reduce in 2016 as a percentage of UK GDP.

The construction sector is fraught with risk and has been characterised by a significant rise in insolvencies. The causes can be attributed to a combination of factors including rises in input costs, particularly with regards to skilled labour, a short supply of contracts and a pipeline of low margin work secured during the course of the recession. 2014 saw a high number of credit insurance claims made by businesses in the sector.

These issues can be seen in some of the profit warnings currently being reported and the concept of problem contracts is a real concern, certainly in the short to medium term.

In terms of addressing these risks and the challenges presented by the potentially volatile market, companies should maintain an attentive approach to their credit and working capital management