Supply chain and business interruption are some of the challenges that Alessandro De Felice, chief risk officer at the Prysmian Group and Ferma board member, is trying to mitigate as he prepares his business for the UK’s departure from the EU
When the UK voted to leave the EU back in 2016, very few people thought that a ‘no deal’ Brexit was a realistic possibility.
But over the past year, UK prime minster, Theresa May, has been unsuccessful in getting her deal passed in parliament, making a cliff-edge Brexit look ever more likely. And as a result, many companies are beginning to prepare for this eventuality.
One such company is Prysmian, an electric power transmission and telecommunications cables and systems manufacturer, headquartered in Italy.
Chief risk officer, Alessandro De Felice explains: “Back in 2016, we were expecting, that in the end, there would be a deal. As with many other countries that are not part of the EU, and where we have local business, a Brexit should not have affected our business model at all.
“But in the last six to eight months, the issue was raised, when it started to look like there might be a possibility of a hard exit and undefined plans.”
Since then, Prysmian has been preparing to make sure that if the UK does crash out of the EU – the business can continue to thrive.
The organisation began by conducting a thorough evaluation of the risks involved. De Felice says that three main dimensions were considered.
The first was whether a ‘no deal’ Brexit would affect the company’s business model. This included asking questions like whether the dividends of UK-based entities could still be paid to the holding company in Italy; or whether there were any major problems with the business’ centralised finances.
The second consideration relates to issue of tariffs and whether the existing import and export model would be sustainable or needed to be modified.
Back in 2016, we were expecting, that in the end, there would be a deal. As with many other countries that are not part of the EU, and where we have local business, a Brexit should not have affected our business model at all. But in the last six to eight months, the issue was raised, when it started to look like there might be a possibility of a hard exit and undefined plans.
The final consideration was the impact that a hard Brexit might have on logistics, specifically whether predicted border delays could cause issues. This included an examination into the company’s current practice of importing semi-finished goods from the EU to the UK and the import of raw materials in the other direction.
Both the evaluation process and the subsequent mitigation planning were carried with involvement from several areas of the business, including the UK chief finance officer, the logistics department and the IT team. The various departments conducted a bottom-up assessment and then De Felice and his team consolidated the information and used it to carry out an impact assessment.
This impact assessment showed that Prysmian faced a moderate risk from logistical interruptions and so the business decided to act and change the way in which it operates to mitigate this risk.
In practise, this meant increasing the organisation’s circulating capital and making sure that there was extra stock available in the UK.
Because the suppliers are largely inter-company, De Felice needed to look at the average normal UK stocks and work out how much they needed to be increased. This was calculated to prepare for a heavy granted protection time of three or four months, the average timeframe considered to be the delay of goods in case of a hard Brexit.
The company also imports some materials from the UK, so plans needed to be made to ensure that this supply remained uninterrupted.
De Felice says: “We import raw materials, particularly lead that is used for the production of cables, and in this case we have a supplier that has signed a special agreement for increased stocks in continental Europe, again to mitigate the risks that shipment may be delayed, even though it is not truck it’s by sea.”
It worked as it should in an ERM framework, when a risk is increasing or modifying… We have a good consolidated ERM policy and this is working and demonstrates that there is a risk and response and an action
Of course, Prysmian is not the only company to have started stockpiling in case of a ‘no deal Brexit’. Creating such buffer means that the UK is already experiencing delays to the flow of goods in and out of the country.
“The logistical chain to and from the UK is already full and therefore already we are experiencing some delays in shipping,” says De Felice.
Indeed, early preparation has paid off for companies like Prysmian– even if the UK eventually passes a deal.
The ERM model
De Felice puts the early preparation down (in part at least) to the organisation’s enterprise risk management model. Brexit risk has been reported to the risk and cultural committee at board level, with all other company risks as a part of general risk reporting.
When ‘no deal’ started looking more likely, issues were raised, and the company decided to do a full risk assessment investigation and put into place the necessary mitigations.
“It worked as it should in an ERM framework, when a risk is increasing or modifying… We have a good consolidated ERM policy and this is working and demonstrates that there is a risk and response and an action.” says De Felice.
And as the ERM framework continues to monitor the situation closely, it means that Prysmian can adapt its strategy if the situation changes and it looks like a deal will be passed.
This is useful, since among the risk management community at least – there is still a lot of optimism that the UK will end up with a deal.
De Felice concludes: “In the end, common sense will prevail on both sides, particularly in the UK where it’s mainly a political battle. Th economic interests are so important that at the end there will be a way to a deal - no one wants to come to another irresponsible conclusion.”