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Brexit: keep calm and carry on

10 November 2017

How are the smaller companies facing up to the uncertainties and risks presented to them after the morning of the 24th June 2016?

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Like many people, Richard Phillips, Sales Director at NovaCast, woke on the morning of the 24th June 2016 fully expecting the referendum on Brexit to have delivered a narrow victory for the remainers. And like many people, whichever way they voted, he felt a sense of bewilderment and even shock that we had actually voted to leave the European Union with the knowledge that all the key financial institutions had insisted that the Pound would significantly devalue.

It is now several months after Article 50 was triggered and the countdown to Brexit is well under way. Negotiations are proceeding at a glacial pace and political commentators are becoming ever more exercised about the rapidly diminishing timeframe for a workable deal with our European partners.

As ever, the interests of the largest businesses, banks, and various governmental departments are discussed at length in the media. Each of these organisations has the resources to plan, analyse risk and put in place contingency plans. But what of the smaller businesses that make up the bulk of the UK economy? How are they facing up to the uncertainties and risks suddenly presented to them on the morning of the 24th June?

For some, Brexit will make little practical difference but for other businesses, such as NovaCast, where international trade has become part of everyday life, then the effects have been little short of seismic.

NovaCast is a UK non-ferrous foundry that has operated successfully for over 37 years. Faced with a growing international customer base and rapidly increasing international competition, the management team, led by Sales Director Richard Phillips, set up supply-chain arrangements with foundries in the Far East. This allowed NovaCast to broaden the range of casting processes and alloys it could offer, and to maintain a competitive edge – particularly in the high-volume stainless steel and cast iron markets. This enabled the company to face both domestic and international competition head-on.

Today, in addition to operating a successful UK foundry, NovaCast imports castings from the Far East (mainly China) and exports fully finished cast components to North America and Europe with many also destined for the Middle East. For a relatively small business, grappling with the intricacies of international contracts, extended supply chains and hedging against foreign currency uncertainty has kept the management team fully occupied. So, the initial shock waves that hit the currency markets when the Brexit result became clear had the potential to undermine NovaCast and its trading partners.

For NovaCast, the biggest ever one-day fall in the value of the Pound followed by a sustained decline fuelled by uncertainty in international money markets, was at least in part mitigated by the foresight of the Directors in forward-buying the foreign exchange they needed for the following 6 months and increasing stocks in the weeks leading up to the 24th June. Contracts were in place with both customers and suppliers so the initial turbulence was not a threat to the viability of the business.

The impact of that day in terms of future trading conditions was, however, clear for all to see. Large international customers have been keen to mitigate their own risks by seeking to pass on the effects of exchange rate volatility to their supply chain through ever more complex costing exercises and contractual arrangements. In turn, NovaCast has been exerting whatever pressure it can on its Far Eastern suppliers to ensure they remain competitive.

For Richard Phillips, the most immediate impact of the Brexit vote has been a massive increase in his workload as he seeks to re-establish equilibrium while planning for a very different world than he was expecting just a few months ago. One of NovaCast’s strengths, and of many small and medium sized businesses throughout the UK, has been their ability to react to change, to innovate and look for new opportunities rather than dwell too long on the past.

As Ian Stuart, CEO of HSBC recently commented; “UK companies cannot afford to freeze their business plans and wait for uncertainty to lift. Companies are already finding new ways to break through post-Brexit stasis.”

After the initial shock there has been a sustained period of very hard work, lots of international travel to suppliers and customers, and continued investment in marketing to raise the company profile and attract new enquiries. As a result, NovaCast has emerged with new contracts and many new opportunities.

It is pretty obvious, however, that we have a long way to go before anyone really knows what environment businesses like NovaCast will have to operate in but it is encouraging to note that the entrepreneurial spirit that led to the creation of the business in the first place is alive and kicking, as confirmed by Richard Phillips. “Now isn’t the time to batten down the hatches and wait to see what happens. We have always been an outward looking business and have chosen to view Brexit as an opportunity. Who knows what risks and challenges we will be faced with in future but a positive approach and a willingness to engage with business partners from around the world has worked for us so far.”

Amidst all the doom and gloom, political hand-wringing and inter-party sniping, it is easy to imagine that manufacturing in the UK is in a state of limbo, holding its collective breath while the politicians decide our fate. The reality is that those operating in the real world are focused on finding practical ways through the challenges being faced every day. They are looking for new export opportunities while exchange rates are favourable and preparing as best they can in an uncertain world. Whatever your view of Brexit and the process leading up to it, it is encouraging to note that UK manufacturers are stepping up to the challenge of competing on world markets and doing what they do best – keeping calm and carrying on.


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