Think outside the risk box
Brexit could have fundamental implications for the way global companies finance themselves, access liquidity and guarantee deposits, but too few are addressing this indirect impact through their Brexit planning says Joe Cassidy, Brexit Financial Services Lead.
Indirect Brexit impacts on your business could be costly and brand-damaging. Paul Crayford, Operational Consulting Director, highlights the hidden risks – and opportunities – for suppliers and buyers.
One UK business is opening up its Brexit planning for everyone to see
Exactly one year to go until March 2019. Although a transition deal has now been agreed, CEO Maria Clark knows it's still vital to keep planning, in case no final deal eventually emerges. She's happy that FutureGauge (FG) is in good shape in terms of Brexit. The senior team discusses it regularly and they’ve come up with a Brexit response plan.
Everything looks good… until procurement expert Jerry Jones suddenly flags up an issue no one had thought about. None of their EU contracts with suppliers and customers contains appropriate incoterms. These stipulate issues such as who would pay duty charges or carry the cost of price fluctuations.
How many other unpleasant surprises are lurking out there in the supply chain? Maria calls an emergency board meeting, where it quickly becomes clear that this may well be the tip of the risk iceberg.
Jerry and Maria set to work assessing which of their suppliers are most critical to the business, according to how specialist they are and how much and how often FG spends with them.
They contact these companies to find out more about their Brexit resilience. It turns out that one, Godfreys, a Hastings-based family business that supplies micro dials, is in financial difficulties, thanks to the hit to sterling post-Referendum.
Another, a 3PL provider called Vitesse, based in Calais, has already committed warehouse space to one of FG’s competitors. They need to act – and fast.
FG needs to do a deeper dive into their Brexit exposure than they had previously realised. Their own customers rely on FG to deliver products and services on time: their brand reputation is at stake.
As well as undergoing an indirect tax impact assessment, Jerry and his team look at other options, such as whether or not they should unbundle some of their supply deals, separating out parts and services. After all, if one of their specialist manufacturing machines develops a problem, it may be not be so easy after Brexit to fly one of the supplier’s expert engineers and his bag of spare parts in from Dusseldorf.
One answer could be to draw up temporary contracts to tide them over in the immediate aftermath of Brexit – but, if so, the work on that needs to start now.
With some uncertainty still hanging over any final UK-EU deal, despite the recent transition agreement, FG has heard that some businesses have already started stockpiling spare parts.
The board weighs up the practicalities and working capital implications of doing this – and also whether they will need to lock in some of their specialist suppliers, or in the case of Godfreys, offer financial support, to ensure continuity of supply.
Brexit isn’t as easy to ring-fence as the FG management team had previously assumed.
The latest Brexit insights from across the KPMG network
A survey of 280 CEOs and CFOs from medium and large size UK companies commissioned by KPMG reveals that legal certainty on transition agreed quickly is of greater value to business than a more comprehensive future deal agreed later on.
Come back to see what you need to do with just 9 months to go.
Vice Chair and Head of Brexit
Partner and Brexit People & Immigration Lead
Partner and Head of People & Change
Partner and Brexit Tax & Location Lead
Partner and Brexit Supply Chain & Procurement Lead
Director and Brexit Customs & Indirect Tax Lead
Director, Public Policy
You may not be familiar with the name but if you have travelled by train, plane, road vehicle or ship, a FutureGauge (FG) product will probably have played some part: we manufacture and distribute precision-engineered components for the transportation sector.
Headquartered in the Midlands and focusing most of our manufacturing there, 65% of our sales come from continental Europe. Two-thirds of our suppliers are UK-based with the remainder split between Europe and SE Asia. We employ 8,000 people in 18 countries - almost 7,000 of them in the UK - and last year recorded sales of £500 milllion.
We believe in investing in the communities in which we are located, including building next-generation skills through apprenticeships. Twenty five percent of our workforce is made up of EU nationals, employed in both skilled and unskilled positions.
We believe that Brexit represents both a significant challenge, but also an opportunity for us.
How do we navigate Brexit and build a new future?