Brexit: Tactical and strategic actions for finance leaders

Amidst the initial challenges of Brexit — including border delays and new rules governing trade between Britain and Northern Ireland — an announcement in the automotive sector contained positive economic news for the UK.

Japanese carmaker Nissan announced in January that its Sunderland, UK, plant had a long-term future as a result of the EU-UK Trade and Cooperation Agreement struck on 24 December.

While UK car production declined 29.3% in 2020 — reaching the lowest level since 1984 — the year also saw the public announcement of £3.23 billion of automotive investment, according to the Society of Motor Manufacturers and Traders (SMMT). This figure includes £2.6 billion of investment by Britishvolt to build a battery gigafactory in the north-east of England.

Some economists, including Chris Williamson, chief business economist at IHS Markit, are suggesting that a double-dip UK recession is likely, although the current downturn appears to be smaller than that during the first lockdown in spring 2020.

January data from IHS Markit/CIPS showed that UK manufacturing had taken a smaller hit than the services sector: IHS Markit's Manufacturing Output Index fell from 55.9 in December to 50.3 in January, while the Services Business Activity Index dropped to 38.8 from 49.4 at the end of December.

Williamson said in a press release: "A steep slump in business activity in January puts the locked-down UK economy on course to contract sharply in the first quarter of 2021, meaning a double-dip recession is on the cards."

Williamson explained that manufacturing growth had almost stalled in January, due to "a cocktail of COVID-19 and Brexit". This had led to increasingly widespread supply delays, rising costs, and falling exports, he said.

Tactical and strategic action

Meanwhile, management accountants and finance teams have tactical — and strategic — opportunities to advise the business as a result of the Brexit agreement.

Wojciech Wieronski, FCMA, CGMA, general manager, finance, for Poland at European consumer electronics company MediaMarktSaturn Retail Group, told FM that "as true business partners", finance teams "will need to deeply analyse what real economic consequences for our organisations [the] Brexit deal will have". That means, he said, looking broadly not only at the additional costs it may trigger "but also [the] complexity it will bring to … companies either due to required compliance or more complex supply chain arrangements than before".

For companies operating across Europe, Wieronski said: "Bearing in mind that UK has been [an] export destination for many EU countries, we will need to help the business on both sides to understand implications of currency movements and what are the right hedging strategies to be applied in those circumstances."

Leadership

Wieronski also stressed the importance of leadership at this time. "We need to ensure we lead our teams through this time with a lot of confidence," he said. "We need to bring as much as possible clarity and professionalism, demonstrating that the human factor in this big change is taken into account as one of the highest [priorities]."

Ireland-based Kodzo Selormey, ACMA, CGMA, a member of the CIMA UK and Ireland Committee, said companies had faced a cost to analyse and comply with the new customs documentation requirements, including "significant investment in systems and resources".

Selormey said that from businesses' strategy perspective, "Brexit isn't done." He explained that as the Trade and Cooperation Agreement allowed for ongoing amendments to the terms of trade between the UK and EU, "management accountants should be looking at strategic actions focused on making their organisations resilient to future tariff shocks and regulatory changes that are implemented at short notice".

He highlighted three actions for finance teams:

• Look at strengthening the balance sheet to ensure that there is enough cash and lines of credit to handle increased product delays at short notice.
• Think about innovative ways to manage inventory availability with both customers and suppliers, perhaps through greater use of consignment inventory.
• Understand where you are doing business and why. Companies should answer the question, "Do you need to have EU and UK offices to do business under local regulations where possible?"

Northern Ireland businesses, he said, have "a unique set of strategic threats and opportunities given that they are in both the EU and UK domestic markets for goods".

He said this posed key strategic questions: "Do you need to reorient your supply chains and sales effort on EU sources rather than UK ones, given the additional frictions in trade? And is there room for growth [by] having access to the EU single market that your competitors may not [have]?"

The UK government made available a Brexit checker to give people and businesses a personalised list of actions to take.

— Oliver Rowe (Oliver.Rowe@aicpa-cima.com) is an FM magazine senior editor.