Brexit is looming and time is running out for Irish businesses

Clever companies putting in place contingency plans to deal with the many threats

Manufacturing at the Combilift Forklifts. Ahead of Brexit, Combilift is applying to the Revenue  for authorised economic operator status, which allows for a quicker passage through checkpoints. Photograph: David Sleator

Manufacturing at the Combilift Forklifts. Ahead of Brexit, Combilift is applying to the Revenue for authorised economic operator status, which allows for a quicker passage through checkpoints. Photograph: David Sleator

 

Many Irish businesses were caught in the fallout from Brexit almost as soon as UK voters chose to leave the world’s biggest trading bloc, in June 2016.

Sterling tumbled, making goods manufactured in the Republic but sold in Britain and Northern Ireland more expensive at a stroke.

Martin McVicar, chief executive of Monaghan-based forklift maker Combilift, which sells 25 per cent of the vehicles it assembles to the UK, recalls that the company hedged against this by buying as many components as it could from British suppliers, thus using cheaper sterling to cut costs, offsetting the impact of the more expensive euro on the price of the finished trucks.

Combilift changed that policy a year ago as a hard Brexit – that is the UK crashing out of the EU without a deal – seemed more likely.

“We are very purposely looking for suppliers outside the UK,” he says. “We are still dealing with UK suppliers that we have always dealt with, but now we are looking more on mainland Europe. The last thing we want to be doing is paying import duties.”

If we can develop more innovative products, we can charge more of a premium from our UK customers and we can still have a viable business there

A “no-deal” Brexit would leave Combilift’s customers paying 4.5 per cent tariffs on the forklifts they buy, while the company itself would pay the same on components that it imports from the UK. McVicar says that while the number does not seem high, it’s a “massive” difference for both his company and its customers.

Currency volatility and tariffs are just two of an array of challenges that Irish business potentially faces when a jurisdiction that is simultaneously a big customer and supplier leaves the EU in March.

Many are planning ahead as few can afford to wait to see if the UK crashes out or leaves under the terms of the deal that British prime minister Theresa May struck in Brussels, which will be put to a vote of the House of Commons on December 11th.

New markets

For Combilift, that includes finding new markets, not just beyond Ireland and Britain, but even beyond the EU. McVicar is just back from southeast Asia and travels to India next month. The company has always focused on selling abroad; it exports to 85 countries. “But we have intensified those efforts – even if there is a Brexit deal, it is still the right thing to do,” McVicar argues.

That does not mean that the forklift maker will desert the UK, which will remain an important market, albeit a tougher one that demands a new approach to competing for business. Another strand of Combilift’s strategy is to ensure it is selling something there that no one else has.

“Over the last 18 months we have really increased our investment in research and development,” McVicar explains. “If we can develop more innovative products, we can charge more of a premium from our UK customers and we can still have a viable business there.”

Chasing new customers and developing new products requires cash. The State-controlled Strategic Banking Corporation of Ireland (SBCI) and the European Investment Bank (EIB) are launching a new scheme for businesses investing to counteract Brexit’s impact through such measures.

They are aware of what’s going on, but a lot of them have done no planning on the ground

According to the EIB vice-president, Irishman Andrew McDowell, the scheme guarantees up to €300 million for small and medium-sized companies looking to borrow cash over eight to 10 years. The domestic banks, who must front 20 per cent of the guarantee, will loan the money. The SBCI will administer the scheme and take on a further 20 per cent of the guarantee, while the EIB will step in for the remaining 60 per cent.

McDowell estimates that this could see the release of up to €450 million in total for Brexit-related investment. The key stipulation is that the companies are actually borrowing the money for this purpose. He believes food processors and tourism-related businesses will loom large among applicants. “But all SMEs from across the economy will be eligible for this,” he says.

While new customers or new products will be potential solutions for some, new suppliers will be a problem for others. Brexit threatens parts of EU-wide supply lines that have for convenience tied Ireland to British distribution centres.

Ian Martin, chief executive of Dublin company Martin Services, which distributes first aid and hygiene products, says he has discovered it is not always possible to find a European provider. “You cannot switch on a supply line in France to supply the Irish market – that’s a three-to-five-year plan from a manufacturing point of view,” he explains.

Where he does find a continental alternative, he faces extra shipping costs. “I can bring in a pallet from the UK for €95, but the same one from Germany costs €180,” he says. Martin observes that he could be better off paying tariffs in a hard Brexit. Although just what those charges would be is not clear to either him or his British suppliers.

“If you ask them about tariffs, one company has said there are no tariffs, others are saying they don’t know and others are saying that there could be 30 per cent tariffs,” he says. The question becomes even more complicated for products featuring different components subject to varying charges.

Nor are those suppliers well prepared for Brexit itself. “They are aware of what’s going on, but a lot of them have done no planning on the ground,” Martin notes. Part of the problem is that the UK companies are subsidiaries of multinationals based elsewhere, and someone further up the food chain is responsible for Brexit planning.

Tariffs are less of a problem for some. John Teeling, founder of the Great North Distillery in Dundalk, argues that businesses in his sector are already used to handling different excise charges across multiple jurisdictions, so can at least manage the administrative side of new import duties with ease.

At the same time, Irish whiskey is a premium product so does not sell much in Britain. “South Africa is a bigger market,” Teeling says.

New risk

A new risk that has just emerged for Irish companies is that they may have to pay VAT on goods from the UK at the point of entry. Martin warns that this could leave his and many other businesses facing a squeeze on cash flow. This is one of several problems looming for Susan Dempsey, director and co-founder of Sweetspot Sourcing.

Based in Naas, Co Kildare, the operation supplies companies with gifts and materials used in marketing and promotional campaigns. Sweetspot sources products globally, going as far away as China, where it has an office, and supplies them to customers here and in other countries, including Britain, where it also buys goods.

Sales run at about €1 million a-year and it employs five people. Dempsey calculates that Brexit will cost Sweetspot €15,000 extra per year. “We will get nothing for it in return, it’s simply to keep trading,” she says.

The company is considering opening a British office that would ease some logistical difficulties it will face when it deals with suppliers and customers there. The company already has a sterling bank account.

Different jurisdictions

Ridding Britain of the shackles of EU regulation was one of the Brexiteers’ catchcries during the 2016 referendum campaign. However, the rules make trade possible between the different jurisdictions as they mean everyone adheres to the same standards.

Figures such as UK environment minister Michael Gove continue to suggest that the jurisdiction could depart from at least some of them if it wanted, creating another barrier for commerce between it and the bloc and a whole new set of problems for Irish business.

McVicar says that it has only just emerged that the UK will continue to accept EU standards for off-road industrial vehicles, many of which are forklifts, finally clarifying the position for Combilift.

Dempsey points out that as Sweetspot deals with a wide variety of products it could have to manage myriad changes in technical and safety standards if the UK decides on taking its own approach after it leaves. “Are they going to have their own set of regulations? Nobody knows,” she observes.

New subsidiary

The prospect of the UK putting itself outside EU regulations is good news for some. PJ Moloney, founder and managing director of clinical analysis specialist Eirechrom, says he is now more focused on a new subsidiary, P4ML, which his company established to take advantage of opportunities that Brexit will offer.

After the UK’s departure, rules such as the General Data Protection Regulation will prevent EU members sending material there for testing.

“There are 22,500 specimens being sent from here to the UK for testing, that is a market worth close to €8.5 million,” he says. Moloney estimates that his Clonmel, Co Tipperary, business can create up to 25 new jobs over two years by targeting this business.

This could be a starting point for P4ML, which develops its own technology, as it has just been accepted on to Dubai’s accelerator programme, giving it quick access to a key middle-eastern market as well. In fact, Moloney argues that instead of fearing Brexit, many Irish companies should be looking at the new business it could potentially bring in its wake.

One regulatory quirk could reopen an old business. The EU banned duty-free sales for those travelling between member states in 1999, denying them cheap booze, tobacco and perfume.

This could make a comeback after next March. Ferry operator Irish Continental Group has reserved duty-free shop space on its newest ship, the WB Yeats, in case this becomes a reality. State company DAA, operator of Cork and Dublin airports, also believes it could return for those travelling between the Republic and UK, boosting revenues for its retail tenants.

Bright spots

However, that may be just one of the few bright spots about something that DAA chief executive, Dalton Philips, agrees is a negative. While it is no surprise that Brexit could pose challenges to an airports company, a report from Government agency New Era shows State enterprises generally are quite exposed to Brexit. Electricity grid manager Eirgrid owns its opposite number in the North, System Operator Northern Ireland, while Gas Networks Ireland imports fuel from the North Sea via Scotland.

Companies are planning for the fact that Brexit could throw up numerous barriers to products moving between the UK and EU

Forestry company Coillte sells 72 per cent of its products to Britain. It has begun stockpiling wood in UK warehouses in one of the more radical examples of an Irish company seeking to avoid customs problems in the event of a hard Brexit. The company is also hedging nine months of sterling requirements against a normal three to six. In all, it is spending €500,000 on measures to offset the potential impact of the UK’s departure.

Nightmare

Originally regarded as an unrealistic nightmare scenario, the return of customs checks, with their attendant long delays, is now a possibility. There are few ways around queues, but Combilift is applying to the Revenue for authorised economic operator status, which allows for a quicker passage through checkpoints. This involves adhering to standards that govern entire supply chains set out by the World Customs Organization, including having goods kept in a controlled facility.

Companies are planning for the fact that Brexit could throw up numerous barriers to products moving between the UK and EU. Food group Glanbia and partner Leprino recently announced plans to spend €130 million building a mozzarella cheese-processing plant in Portlaoise.

The Kilkenny-based organisation, Europe’s biggest manufacturer of mozzarella, already has similar facilities in Wales and Magheralin, Co Down. As both will be outside the EU after Brexit, the Portlaoise plant will ensure this element of Glanbia’s business will still have access to the bloc once the UK has left.

Another food processor, Lakelands, hopes that its pronounced cross-Border presence will actually ensure that it avoids the worst of any Brexit fallout, although it has repeatedly said that it wants the UK to stay in the EU.

Milk

The company handles 1.5 billion litres of milk a year, with suppliers split 50/50 North and South. It also has manufacturing plants either side of the Border.

This element of its business is more focused on the North, with 700 million individual products coming from its facility in Newtownards every year. Lakelands though has a large spread of markets, and is looking at expanding in the far and middle east, Africa and the US over the next few years.

British voters ignored the Border in the Brexit referendum. Nevertheless, it became the crunch issue in May’s negotiations with the EU. That is not surprising as the consequences of a hard border are far reaching for Ireland.

McVicar points out that of the 550 people working for Combilift, 58 live in the North, while a similar number from the Republic travel across the Border to get to work every day.

“More or less 100 employees live in the North or travel across the Border – that’s 20 per cent of our workforce,” he says. “They had a big concern at the time the vote took place.”

Subsequent developments have only partly alleviated those fears. McVicar warns that it is as crucial for those men and women as it is for his business that the border remains open. Few businesses south of the Border would disagree with that sentiment.

BREXIT: The Facts

Read them here
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