Insight & Analysis

Brexit fallout: one SME’s story

Published: May 2021

Negotiating the consequences of Brexit and new custom rules on shipments from mainland UK to Northern Ireland for Shipley-based aerospace manufacturer Produmax has been a headache. SMEs with small treasury teams have felt the brunt particularly.

Person drawing a red line between UK and Ireland

For Shipley-based aerospace manufacturer Produmax, Brexit fallout remains an enduring headache, none more so than grappling with the new duties and costly customs paperwork now needed for its exports to Northern Ireland. Although the bulk of the SME’s flight control components go to markets outside Europe, 20% go to Northern Ireland, home to customers like the former Bombardier factory now owned by the US’s Spirit AeroSystems.

“Having a border within a country is nuts,”says Produmax’s Owner and Financial Director, Mandy Ridyard. “My customers pay to pick the goods up from me, but ultimately, whether I pay or the customer pays, there is a charge that makes the costs of my goods more expensive. Currently, we are in a position whereby goods shipped within our own country have become more expensive because of Brexit.”

She estimates it will cost the salary of half an employee annually to fill in the required paperwork. And although Produmax’s worldwide trade means the team are well versed in the complexity of export form filling, she says the SME would have benefited from having a unique point of contact at HMRC like large corporates have. “Even though the government has put in lots of help, there is nothing like a relationship. We have spent a long time sitting on helplines and talking to someone generic,” she says.

For example, processing relief became a minefield because of unknowns around whether sales to Northern Ireland counted as an export. “One of the things we couldn’t get to grips with was if we could use our inward processing relief for what we ship to Northern Ireland – we didn’t know if we were transferring the duty. The rules on Northern Ireland were written at the last minute and it was complicated.” Fortunately, she has been able to draw on key support from her customers – something she links particularly to the close-knit aerospace sector. “In aerospace, you typically have lots of small companies supplying one big customer; our customers are close to what is going on.” She also valued the expertise of the sector’s trade body. “You need to make sure as a business you are invested in your trade body and that you have good relationships with your customers.”

Although Brexit hasn’t resulted in any delays in essential flows and components into the factory from EU suppliers, it remains to be seen if this is due to reduced trade flows because of the pandemic. “When you don’t have customers screaming for parts it doesn’t matter so much – there is more time to get things through.” Moreover, the UK hasn’t’ introduced import checks for goods from the EU yet, raising fears of even more bureaucratic problems when that happens next January.

Cash and freeing up working capital is also a priority at Produmax. As a consequence of both pre-Brexit planning and now pandemic overhang, the manufacturer has been left holding much more stock than usual. The company increased its stock before Brexit, then COVID hit, demand fell away, and orders got pushed back, explains Ridyard. “For a small company, it is a bit of double whammy,” she says. “Our working capital requirements have escalated because we held stock for Brexit. On the other hand, customers haven’t been taking the orders we expected, and we are holding finished goods waiting for payment.”

At Produmax, strategy is focused on diversifying sales into new markets – in stark contrast to recent years in the aerospace sector when Ridyard has struggled to meet demand. “We have too much capacity for the orders we have now,” she reflects. Investment has also been toned down. Produmax is running a “tight ship” in terms of cutting its usual investment spend, but the company is still investing in a key new satellite factory in Silverstone. “Our investment strategy is specifically focused on increasing our ability to sell. This factory is not a general investment – we have put a lot of stuff on hold.”

Navigating the dual impact of Brexit and the pandemic has meant treasury and finance solutions have played a central role at Produmax. Ridyard is constantly scenario planning and running budgets in a proactive strategy to ensure she has a finger on the pulse, or as she puts it, instant recall of her P&L balance sheet and sales ledger. “I have never run as many scenario plans as I have now,” she says, listing forecasts spanning raising more finance to scenarios on slowing down depreciation on machine tools which have lain idle during the pandemic. Elsewhere she has looked at moving the year end and modelled outcomes on R&D tax credit to release cash.

Pushing finance centre stage for an SME is more challenging than at a big company which has in-house experts. “We have had to learn and upskill really quickly. Especially around things that we wouldn’t have considered in the past because they are quite technical.” Quite an achievement for only a five-strong finance team of whom only herself and one other are at the “top end of treasury.”

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