BSW Timber, Britain’s biggest sawmilling business, has highlighted the challenges posed for firms by the strength of the pound after recording a dramatic increase in profits amid the recovery in the UK construction market.

The Berwickshire-based group made £9.2 million pre-tax profit in the year to 31 March, up around 80 per cent on the £5.1m achieved in the preceding year, helped by strong growth in sales.

However, chairman Martin Gale said the current financial year is going to be more challenging for the privately-owned group given currency issues and changes in global demand patterns.

“The strength of the pound versus the euro and related currencies (particularly the Swedish Crown) has made imported timber more competitive,” said Mr Gale.

The comment provides a fresh insight into how the rise in the value of the pound against European currencies has been impacting on businesses in Scotland.

This has resulted in the price of goods imported from Europe falling in sterling terms.

While sterling has lost some ground in recent weeks against the euro, as fears about the Eurozone economies eased, it is still trading at well above the levels seen early in 2013.

Last month Linn Products, which makes high end music systems in East Renfrewshire, highlighted the problems caused by the strong pound for exporters. These face a choice between raising prices in foreign currency terms to compensate or getting less money for their products in sterling than they did before the rise in the value of the pound.

With the Bank of England expected to increase rates at some point, currency complications could persist for some time.

Mr Gale also noted that Scandinavian and Baltic sawn timber producers have been targeting the UK market following a fall in demand for their goods elsewhere.

He said BSW is facing pressure on profit margins because the price of sawn softwood timber has fallen significantly but the cost of the saw logs from which it is produced has increased.

“Management have this as a priority and are acting accordingly,” noted Mr Gale.

BSW reduced its reliance on external suppliers of logs in September when it bought the Tilhill Forestry tree harvesting business from Finnish paper giant UPM.

BSW’s chief executive Tony Hackney said then the acquisition was a key component of BSW’s vision for future development.

The deal reflected confidence in the long term prospects for the timber trade in the UK. Owned by the Brownlie family, BSW Timber has noted that expected growth in demand for housing in the UK will help support the market.

In September BSW Timber said it produced 1.2 million cubic metres of sawn timber each year, mainly for the UK’s construction, fencing and landscape market.

In the group’s accounts for the year to 31 March, directors noted: “The company is well placed to grow its market share with new products and markets being explored aligned with a continuing recovery in the UK.”

BSW increased turnover by 14 per cent annually, to £210m in the year to 31 March, from £185m in the preceding year.

However, sales to EU countries fell by around five per cent, to £12.2m.

Sales to other overseas countries fell by 14 per cent, to £9.6m.

The increase in UK sales was partly driven by the acquisition of Southampton-based RF Giddings, for £13.9m, in July 2014.

BSW has four sawmills in Scotland and three south of the border. It also has a mill in Latvia.

The company employs around 1,000 people, mainly in rural areas.

It paid dividends totalling £758,000 in the year to 31 March, up from £585,000 in the preceding year.

The highest paid director received aggregate emoluments of £339,000 in the year to 31 March, compared with £263,000 the previous year.

BSW Timber has doubled turnover since Mr Hackney took charge in 2008. Mr Hackney was named Scottish entrepreneur of the year in 2012 by accountancy firm EY, which said he had transformed BSW into a market leader.