The industrial sector is set to play a significant role in the UK’s economic recovery post COVID-19. However, many UK manufacturers have been negatively impacted by the coronavirus, resulting in stalled production, furloughed employees, and negative cash flows. Leaders from across the industrial sector are considering how best to survive the crisis, as well as how to rebuild as normality returns.
David Thomas, partner in Berwick Partners Industrial practice, and Amy Parkinson, associate partner in Berwick Partners Finance practice hosted an online, round table forum for industrial business leaders with a panel of three industry experts.
The panel included Richard Hill, head of automotive & manufacturing within NatWest Corporate & Commercial Banking Division; Cara Haffey, partner at PwC who leads the Corporate Finance Industrial/Manufacturing sector team nationally; and Charlie Frost, partner at Squire Patton Boggs in the Birmingham Labour & Employment Practice.
The speed at which the UK Government has launched the new financing schemes was recognised, alongside the efforts of British Business Bank, UK Finance and retail banks, however it was highlighted that guidance and implementation of these schemes has been challenging. The multiple amendments to the financing requirements have made it difficult for advisors to provide clear guidance and for financial institutions to interpret. Nevertheless, NatWest had been leading the way by allocating 70% of the volume and 51% of the value of government loans schemes issued by the 23rd of April.
Successful applications for finance have tended to come from companies with existing financing relationships in place, and experience of applying for debt. Richard Hill noted that banks have a duty to lend in a responsible way, and to do so businesses would need to provide assiduous financial information, built on robust strategic plans which demonstrate how the business would finance its return to growth. Cara Haffey reinforced this idea, highlighting that diligent cash flow forecasts were as essential to applying for bank financing as provision of the balance sheet and P&L.
Cara further suggested that businesses could consider other areas of financing such as research grants, as well as the VAT deferment to support their cash flow. Richard advised that banks were looking at businesses on an individual basis and could provide blended financing packages to support companies during this time.
Returning employees to the workplace
The business leaders were all naturally concerned about appropriately managing the return of their workforce. Some employees had expressed a reluctance to return to the workplace on grounds of health and safety. Charlie Frost advised that employers have a duty of care to provide a safe working environment for their people and urged MD’s to work with HR and health and safety to manage risks and develop safe working practices. Providing this has been done, companies could reasonably expect their employees to return to work. Charlie did caution about the negative PR consequences of ’forcing’ employees with genuine concerns and highlighted the importance of positive communication to garner goodwill.
The furlough scheme’s extension until the end of June has given companies some breathing space to assess their workforce planning. Now is the time to consider collective consultation, ensuring companies have appropriate workforce and trade union representation in place. Consultation should be viewed as a genuine opportunity for the business, employees and trade unions to collaboratively find the best long-term solutions for each business affected. This does not necessarily mean redundancies, simply looking at all options, for example shorter working patterns or salary reductions for a period of time. Charlie highlighted that the key to a successful consultation was for management to approach the process in a genuinely collaborative spirit, rather than from a view of ‘consult to implement’.
Attendees speculated on the shape of the recovery, with some confident that it would be ‘V’ shaped, with the structural soundness of the underlying economy giving us cause for hope. Brexit, ironically, may have given the UK an advantage. Not only has it encouraged building of stock but has also forced UK businesses to undertake detailed scenario planning. There was a genuine appreciation that the government, industry bodies, the banking sector and companies were working collaboratively, though not perfectly, and that continued collaboration was critical to our economic recovery.
The discussion lasted for an hour, with pertinent questions from the attendees but with one big question remaining - Tax. How will the UK Government seek to restore the public finances in the future? To address this issue Tahira Raja, associate partner in Berwick Partners Finance practice has arranged for Alan McLean to share his thoughts, via a webinar on the 13th of May. Alan is a highly regarded individual in the world of taxation and has been successful in influencing tax policy on a global platform. Alan is the vice-chair of the tax committee of the Business and Industry Advisory Committee to the OECD and a member of the Tax Committee of the 100 Group as well as being the executive vice president taxation and controller at Shell. We will be speaking to Alan about his views on the tax function of the future, the current crises and how corporations may be taxed as we look to re-build and recover.