Brexit Readiness Checker helps firms examine their preparedness

Companies with any lingering doubts in relation to their state of preparedness for Brexit should avail of the free Enterprise Ireland Brexit Readiness Checker. The online form takes less than 15 minutes to complete and at the end of the process you get a personalised Brexit Readiness report which highlights any gaps in your preparations, identifies priority areas for attention, and gives details of where to find help and support.

The Brexit Readiness Checker comprises 25 very straightforward questions divided into the key areas of customs, finance, strategic sourcing, and serving your UK customer. It also covers other important aspects such as potential GDPR exposure and EU citizens’ rights.

The Customs section covers EORI registration, customs codes, country of origin, potential tariffs, the appointment of customs brokers or agents, movement of products of animal origin, customs and tariff payments, and administration issues.

The Finance & Currency Management section looks at the financial and operational impacts of Brexit. These include the impact of exchange rate changes on the bottom line, the cash flow implications of the new trading environment, the potential requirement for additional working capital, and VAT implications.

Strategic Sourcing addresses the percentage of supplies coming from or through the UK, reliance on UK suppliers, overall security of supply, and supply chain disruption mitigation measures.

Serving your UK Customer looks at strategic issues, such as giving your customers confidence that they will not face any disruption arising from your business, the potential to improve the reputation and value your business can bring to its UK customers, and the possibility of establishing an in-market presence in the UK.

The final section looks at issues such as the potential for GDPR breaches as a result of the export of data to the UK after 1 January 2021, the possible requirement of non-Irish EU nationals to travel to the UK in future, and whether such EU citizens employed in the UK have ‘settled status’ allowing them to continue to live and work there.

The simple act of completing the questionnaire will quickly highlight areas requiring attention, but the personalised report adds real value both in terms of its presentation and content.

The readiness state of your business in relation to each area and question is assessed and given a rating of red, amber or green. With red meaning that urgent action is recommended and green meaning the business is a step closer to being ready for the end of the transition period on 1 January 2021.

In each case where action is recommended the report identifies resources to assist and offers signposts to where they can be found. Taken as a whole, the report adds up to an implementation plan for companies to follow in the run-up to the UK’s (excl NI) final departure from the EU Customs Union and Single Market.

For example, where a company hasn’t identified who will manage the customs procedures and paperwork, the report provides a commentary to explain the importance of this and why urgent action is required:

“The movement of goods to, from and through the UK (Excl NI) will require the submission of customs declarations to customs authorities in advance of the goods departing from Ireland/the UK. There are also pre-boarding notification requirements for goods moving by ferry to or from the UK. This will pose difficulties for new importers and exporters as they seek to understand and implement customs processes for the first time. Companies have two options: (1) Seek out a customs intermediary or ask your logistics provider to do this work on your behalf. Businesses should budget for approximately €50 per declaration in this scenario; (2) Build the capability in-house. Training is key, along with the identification of a software system and the people required to make the declarations. Allow 3–4 months approximately for recruitment and training. When insourced, companies should budget between €7 and €8 per declaration, along with the associated salary and training costs. Each company should examine its own business case in detail before making any decisions.”

In addition, it points to sources of assistance:

Enterprise Ireland > Insights > Deciding to insource or outsource customs clearance

Enterprise Ireland > Customs Awareness Training

SkillNet Ireland > Building customs capability internally

Similarly, where a business hasn’t identified how much additional funding it will require to deal with the new trading environment, the report offers the following commentary and advice:

“When looking at the impact on cash flow when trading with an evolving UK, factors like extra customs charges, advance purchasing and funding to explore new markets come into consideration. The first step is to develop a robust forecasting model to understand how much additional funding, if any, is required to support a company’s action plan and when it might be needed. Along with internal measures to support cash flow, e.g. a deferred payment facility from Revenue or efficient credit controls, companies can also look at a range of external financing options. The Strategic Banking Corporation of Ireland (SBCI) has available a Brexit Loan Scheme and a Future Growth Loan Scheme to support working capital and longer-term strategic investment respectively. These funds are delivered through the main Irish banks and are worth considering if finance is required to fund business plans.”

By following each piece of advice and availing of the supports and resources identified in the report a business can, in a relatively short period of time, make significant progress towards being ready for Brexit on 1 January.

Click here for the Brexit Readiness Checker 

Ready for Customs grant – Emerald Freight Express

 

Securing Enterprise Ireland’s new Ready for Customs grant helped ensure Emerald Freight Express, one of Ireland’s leading freight forwarders, was fully prepared for the UK leaving the EU.

For Emerald Freight Express it’s likely to be a busy time, moving goods for client companies all around the globe, including into and out of the UK, says Anna Barden, Financial Director. Securing the grant from Enterprise Ireland helped bring the company to this position of strength.

“We’re a one-stop-shop for air, sea and road, import and export, including warehouse and 3PL or ‘third party logistics’”, she explains.

The company has a highly trained team of 28 and has been a certified Authorised Economic Operator (AEO) since 2011. As a trusted provider of freight forwarding services, it helps its clients to ship their goods ar ound the globe. Right now, however, all eyes are on the UK and what 1st of January will mean for goods being shipped to, from and through the UK.

Keeping focused

Not alone is Emerald Freight Express set to provide new customs services to new customers, it has expanded the customs services it offers existing ones too, she points out.

To ensure it could continue to provide a premium service to all customers, Emerald Freight Express had to invest heavily in personnel, office space, and IT systems.

“When the Brexit vote happened, we had a huge volume of enquiries from people panicking about what they were going to do,” says Anna Barden.

The team worked with each caller, helping them to determine the decisions they needed to make about things like who was going to handle customs clearances and the need to get an EORI (economic operators’ registration and identification) number or register for UK VAT.

“Unfortunately, this has been a very challenging year for all of them because of Covid, but it is important to stay focused and put the right processes in place. There is still a little window of time in which to do it but everybody needs to have their house in order before 31st December,” she explains.

The fact that trade negotiations between the UK and EU are still going on makes no difference, she points out. New customs procedures will still apply regardless of what happens in terms of tariffs and duty.

“From 1st January customs declarations and POOs, or Proof of Origins, will be required,” she points out. Importers and exporters will have to be fully compliant with the new requirements.

Securing a Ready for Customs grant from Enterprise Ireland helped Emerald Freight Express to make the internal changes it needed to make in order to be Brexit ready.

One of the first steps we took was to set up a new customs brokerage department, to handle client queries. It redeployed two key employees to manage this specialist division and hired four new recruits to staff it.

It then hired two new staff to fill the vacancies caused by the redeployment of managers, upgraded its IT systems and invested heavily in training, so that every single member of the team could develop the new skills required.

At the same time as Emerald Freight Express was making these investments, it had to expand its offices to cope with Covid-19 social distancing requirements.

Challenging year

All in all, it has been a hugely challenging year. “With recruitment costs, IT costs and training costs, we have had an enormous outlay in terms of getting ready for Brexit. But it was really important to ensure we continued to service our existing clients, and new ones, to the highest standards,” says Anna Barden.

“This was an investment we had to make. The Ready for Customs grant allowed us that cushion we needed to get it done.”

While there will be a steep learning curve for everyone in January, as well as, most likely, delays, the management team at Emerald Freight is already looking beyond the challenges to the new opportunities Brexit will give rise to.

For a start, clients for whom it previously looked after only Far East or US freight are now coming to it to handle their UK business as well.

“With every challenge comes opportunity,” says Anna Barden. “At the same time, you have to be able to stand over what you promise and be able to deliver on what you say. We now have the talent, the systems and the tools in place to do just that.”

She recommends other businesses looking to get ready for customs should check out Enterprise Ireland’s new Ready for Customs grant, which provides up to Euro 9000 for every new full-time staff member employed to handle customs or half that amount for a new part-timer.

“The application process for the grant was very straight forward and we got confirmation of approval within two weeks,” says Barden.

“We have the skills and the systems in place now to deal with anything that is going to happen on 1st January.”

 

Learn more about The Ready for Customs grant here

Financial management and Brexit

Director of Artemis Consulting Moira Creedon is working with Enterprise Ireland advising companies on financial management and Brexit.

 

“Irish businesses need to assess how Brexit could impact their business and how bad that impact might be if there is no free trade agreement between the EU and the UK at the end of the transition period. That conversation usually triggers immediate action though responses range widely depending on the degree of exposure. For some companies this conversation kickstarts a general upgrade in financial and operational management to drive better profitability and reduce risk, which is always a good idea. For other companies Brexit demands root and branch strategic change”.

 

Currency fluctuations

The most obvious Brexit exposure where financial management can help is currency volatility. For a company with a cost base primarily in euro, and revenues primarily in £, negative movements in Sterling will quickly erode profit margins.  In a tight margin business this can easily trigger losses.

Use the Currency Impact Calculator to estimate the impact an adverse change in exchange rates would have on your business profitability.

 

Use a simple strategy if possible

There are several ways of addressing this. Moira advises starting, if possible, with the simplest strategy – invoicing clients in Euro. Not all UK clients will accept this, but many will be exporting to Europe and may even need to increase their percentage of euro costs, in which case they will be more than happy to oblige.

 

Is it possible to increase price to the UK market to cover the drop in sterling?

Companies are often afraid to raise this with UK clients on the assumption that they will end up uncompetitive compared to UK competitors. Whether this can work or not depends on the sector. In many sectors such as food and construction materials, your UK competition are buying the raw materials in a global market place and their costs in £ have increased.

Keep a tight eye on your sector dynamics, you may find your UK competition are also forced to increase price.

 

Natural Hedge

Natural hedging means getting the percentage of Sterling costs in line with the percentage of Sterling revenues by purchasing more in the UK, for example outsourcing manufacturing to the UK, paying UK based staff in sterling or buying materials in the UK.

Moira worked recently with a company with 90% of their revenues in the UK: “Initially, I was naturally concerned, but then realised that roughly 90% of their cost base is in UK pounds. So they are automatically, naturally hedged. If the pound crashes, their costs and revenues crash so the margin is maintained. Equally any increase in sterling will increase the cost base but will be compensated by the revenue increase”.

 

Hedging – Forwards and Options

Hedging using financial contracts is basically an insurance policy so your business will not be adversely impacted by a collapse in Sterling.

Banks and other specialist FX risk management companies offer forward contracts so you get a guaranteed exchange rate now for sterling inflows in the future. These contracts are relatively simple and cheap, so apart from the initial set up paperwork, the main downside is that if the UK £ shoots up you are locked in at the agreed rate.

This creates a market demand for ‘options’. These contracts are similar in that you agree an exchange rate in advance but very different in that if currency values move in your favour you can tear up the contract. So you can “have your cake and eat it” – you are covered against a drop in Sterling but you can still benefit if sterling shoots up. But of course there is no free lunch, these contracts are more expensive. Talk to your bank  – explain your exposures and see what they can offer.

It is important to understand that setting up good hedging cover means you have to have accurate forecasting in place so you can see what is coming in and going out by currency – so you may need to improve your financial forecasting processes.

Application processes and deposits required to set up hedging cover can be onerous. It is well worth approaching one of the Foreign Exchange risk management  services companies, for example Irish providers gaining traction in this space include AssureHedge, Fexco, Transfermate and CurrencyFair.

 

Long term competitiveness and the impact of a drop in sterling

Financial contract based hedging is only a short-term insurance policy: “If the competitiveness of your product is being eroded in the long run, hedging alone is not going to save you”.

For example Moira is working with an ROI based client near the border in the hospitality sector who is experiencing a collapse in cross border guest trade from Northern Ireland. Weaker sterling means overnight ROI hotel prices in euro seem very high so guests are staying put in Northern Ireland. No hedging contract can help in this scenario. Market diversification is critical, you need to offer a clearly differentiated offering and get out to reach your target market segment in other markets.

 

Wider financial risks

There are many other financial Brexit exposures facing Irish companies, from tariff imposition, cashflow impacts from border VAT, border delays and the need to stockpile, regulatory impacts facilitating cheaper competition in UK, sourcing exposures and the sheer cost of the paperwork required to get goods through customs. Dealing with these may often require a full rethink on strategy, for example opening new markets outside of the UK, transferring manufacturing facilities to or from the UK.

Moira advises that no matter what changes a company makes in response to Brexit it is critical that it improves its overall financial management for example to get better visibility on which products are delivering profits. Businesses should also forecast the full financial impact of their chosen Brexit strategy to make sure it adds up and that support is available from all stakeholders.

 

Enterprise Ireland support

Enterprise Ireland has developed a range of supports to assist companies in their preparations for Brexit.

Before meeting with a company, Enterprise Ireland experts will request information in advance to make the engagement more worthwhile and to have a better idea of what to discuss with the business. Moira says: “We ask for information in advance and this gives us a pretty clear handle on to what extent the company’s revenue is exposed to the UK”.

Learn more about the Brexit: Act On Initiative and how Enterprise Ireland can support your business to strengthen its capabilities and best prepare for Brexit.

 

 

Brexit and managing currency risk

Although the final outcome of Brexit is uncertain, the sterling and euro volatility remains a key concern and challenge for Irish businesses

 

Enterprise Ireland’s Brexit Unit is supporting companies to better understand the financial implications of currency fluctuations on their business and take the necessary actions to mitigate against this risk. The following questions cover the key issues related to the management of currency risk and are addressed by John Finn of Treasury Solutions.

 

I’m an Irish company exporting to the UK. How can I analyse the impact of movements in sterling/euro on my business?

For Irish companies exporting to the UK, the Enterprise Ireland Currency Impact Calculator can help you understand the effect of movements in the sterling/euro exchange rate on your business. This online tool is freely available and demonstrates what an adverse change in exchange rates would have on your business profitability.

 

Will my bank permit me to hedge my foreign currency exposures?

For an exporter to hedge its currency risk, in the first instance, it must first have a foreign exchange line of credit from the bank. This must be formally sought in advance prior to its use and, from the bank’s perspective, it is the equivalent of making a loan application i.e. it requires credit approval.

 

What instruments will the bank permit me to use to manage foreign currency risk?

For the most part, this is restricted to either spot or forward transactions. The former implies selling sterling at the current market rate.

As a general rule, spot deals settle in two days’ time ie agree a rate on Monday with funds transferring on Wednesday. In the case of forward foreign exchange contracts, a rate can be agreed today to apply to receipts on a future date.

The advantage of this instrument is that an exporter can bring certainty to the amount of euro that it will receive in return for a specified amount of sterling at this stated future date.

The primary disadvantage is that there is no opportunity to share in any upside in any currency movement.

In order to achieve that objective, it is possible to purchase an instrument known as a foreign exchange option. However caution is urged; it is an extremely useful instrument to utilise in managing foreign exchange risk, but it needs to be constructed appropriately. In essence, it is an insurance product for which the purchaser pays a premium and which protects it against a worst possible (defined) outcome whilst permitting full participation in the upside should it arise.

Some banks sell a combination of an option and forward contract called a participating forward. This allows participation in a fixed percentage of the upside. However it does have a cost. Again, these should not be purchased without full knowledge and understanding of what is involved.

 

How far forward can I hedge?

Most banks will have a maximum time period for which they will sell forward contracts to their customers. This needs to be ascertained now. In general, most banks will not provide forward contracts for periods beyond 12 months.

 

What terms and conditions apply?

In some cases, the banks may require security to be provided in the form of charges over assets or guarantees. If the exporter is already a borrower, it is probable that the bank would simply extend any security that it already had over the foreign exchange line. It may also monitor the extent to which the currency contracts are showing a “profit” or “loss” at a point in time and either limit this or seek some collateral, which may include cash, if the loss – although only theoretical – extends beyond the defined amount.

Finally, some banks may require the completion of what is known as an ISDA agreement. This is quite a complex document to complete for the first time, and proper advice should be taken in its construction and prior to signing it.

One final point to note in hedging foreign currency risk is that there are non-bank providers of such services who tend to be less prescriptive in their dealings. However, many borrowing agreements now specify that the borrower may only conduct foreign currency transactions with the lender.

 

What are the wider financial implications associated with currency risk?

The obvious effect of weakening sterling is adverse consequences for both profitability and cash flow. Immediate actions that could be taken include:

  • Calculation of the exchange rate at which UK sales are no longer profitable
  • Rerunning financial forecasts at current exchange rates and assessing the projected outcomes
  • Where financial covenants are part of your borrowing agreement, ensure that adverse foreign exchange moves do not materially and negatively impact on compliance with them

Please note that where companies with material amounts of UK exports intend to refinance their banking facilities in the coming months, a significant amount of sensitivity analysis will be required in any financial projections provided to banks.

I would strongly urge paying close attention to the terms and conditions attaching to any new borrowing agreements, as I would expect banks to tighten up significantly in this area as a consequence of the UK vote to exit the European Union.

Email BrexitUnit@enterprise-ireland.com with your queries on currency fluctuations.