•  Richard Heath Chris Spedding Carly Burrows 
     

    Building Materials – Sector focus

    Authors: Richard Heath, Chris Spedding and Carly Burrows – Building Materials team
    Publication date: 01.08.2010

     
    Government plans to reduce the budget deficit through spending cuts will shape the course of the construction industry for years to come. Despite the fact that we have already seen the first signs of consolidation, we do not expect a flurry of M&A activity, as companies are likely to continue de-leveraging the balance sheet and optimising cash generation.

     
    There has been some positive news in construction during the second quarter of 2010. Worthy of note is the highest quarter-growth spurt since 1963, an increase of 6.6% compared with the 1.6% fall in Q1. Growth was boosted by a sharp turn in the inventory cycle as companies rebuilt stocks, as well as an increase in government expenditure.

     
    Rise in GDP tempered by knowledge of what’s in store 

     
    In fact, the construction industry’s recovery helped the overall UK economy record a 1.1% rise in Q2 GDP growth, almost twice the rate analysts had been expecting, and nearly four times the pace of growth in Q1. But this must be tempered by market sentiment that this may be as good as it gets, with spending cuts likely to have an impact on the next set of quarterly figures.

     
    All companies that play a part in the construction supply chain, from manufacturers to builders’ merchants, will be affected by the cuts. At Lloyds Bank Wholesale Banking & Markets we appreciate that trying to set the strategy for your company over the short to medium term is tricky, to say the least. Most recognise the fact that public deficit needs to be reduced, so the switch back to private-sector-driven demand will be critical.

     
    Three or four years ago we were experiencing a very positive trend in UK construction, but the past two years have brought the biggest contraction in living memory, both within the UK and globally. Although we believe we’ve seen the most severe part of the downturn, we accept that data is patchy and that there will inevitably be further bumps ahead.

     
    We can advise companies in the building-materials sector on how to best manage the financial risks they’re facing as a result of the current climate. This includes:

     
    • The prudent implementation of foreign exchange hedging contracts to mitigate further downside currency moves.

     
    • Working with clients to maximise their cost of funding.

     
    • Enabling customers to capitalise on the low inflation environment in which we continue to operate.

     
    Helping clients back to growth 

     
    Richard Heath, Chris Spedding and Carly Burrows lead the sector team at Lloyds Bank, which covers both house-building and building materials. The team has in-depth experience of the global building-materials market and the broader construction industry, and spearheads the bank’s interaction with all major companies in the building-materials sector.

     
    It is important to stay close to your bankers in times of economic uncertainty, and we are always on hand to give advice and support. We look forward to seeing the industry return to its path of strong growth, and as a bank we will seek to help facilitate this.

     
    Source: This article was first published in Lloyds Banking Group - Perspective Magazine Edition 2.
     

2/25/2018 1:44:09 AM