Business Leader brought together a panel of experts to discuss how opportunities exist for those who are prepared to seize them.
Key Account Business Development, Infinity International Foreign Exchange
Managing Director, UK Corporate Lending Business, Shawbrook Bank
International Tax Partner, Menzies LLP
Managing Director, Europa Worldwide Group
Partner, FRP Advisory
Managing Director, Armour Home
Sometimes when you are living through a seminal moment in history you do not fully appreciate its impact or gravity; and for many this is how the last twelve months have been. Certainly, for many entrepreneurs and professionals, it has been a case of doing what entrepreneurs and professionals do – and powering through, trying to innovative, trying to support customers and employees and looking for a brighter future.
Sometimes though, it is important to stop and reflect about the now and look to how the future will be shaped. The history makers will naturally look back in years to come and rightly package this period of our lives in stories of heroism and change, but for those in business the near future is just around the corner and it is up to them to create it.
To find out more about what is next for the business world and to answer this big question, Business Leader partnered with Shawbrook Bank and Infinity FX to debate subjects as broad as tax policy, international trade, leadership and what the new normal means.
Brexit, Brexit, Brexit
In a perverse way, the pandemic shunted the Brexit conversation to one side and its airtime declined but its impact most certainly did not and in combination with the pandemic, it has put a microscope on international trade and the FX market.
Sarah Billingham, who is a Key Account Business Development Manager at Infinity International Foreign Exchange, had this to say on how Brexit and the pandemic is impacting markets.
She comments: “Brexit is having an impact on businesses from a currency risk perspective for sure. Such things as changes to international supply chains or export locations will, amongst other things, cause an increase to related costs and revenues due to the associated currency risk. Tariffs, as well as delays to transportation and increased transportation costs may also introduce currency risk.”
On the wider FX volatility, Sarah said: “The GBP/USD and the GBP/EUR exchange rates fluctuated significantly over the last year and this meant businesses may have experienced difficulties in controlling costs and revenues and so felt a greater impact on profitability from FX moves.
“FX providers often expect SMEs to pledge cash as security against forward hedges and as FX moves became greater over the Summer, providers may have called for more cash to satisfy this and of course this resulted in more pressure on businesses.”
Continuing the trading and international theme, Andrew Baxter – who is MD of Europa Group, a logistics business – said that he is optimistic about the future and what it holds for businesses, despite the headwinds of the pandemic and Brexit.
He said: “We’re prepared for 2021 and working with our customers in the framework of this new reality. I remain positive and think it will be broadly OK and not as dramatic as some people think. We have a deal now but to be honest, whether we had a deal or no deal, did not really make much difference to the movement of goods – it only made a difference to the level of duty that is paid.
“There are some types of goods where you might have had higher levels of checks if there was a no deal, but these are limited types of goods. Overall, though, the deal was more favourable as it will preserve trade.”
For those businesses trading internationally, it has undoubtedly been a challenging period and for many of these – and companies that only operate domestically – accessing funding has been crucial to helping them navigate this time and unlock growth.
Amongst these lending options has of course been those offered by government and Coronavirus Business Interruption Loan (CBILS) is now a term etched into business consciousness – like furlough and lockdown.
Dave Edwards is a Partner at FRP Advisory and heads up the debt division, and he says he is cautiously optimistic about the future for UK firms.
He said: “My view is that the debt landscape is confused now to say the least as you have around 100 accredited lenders for the government schemes and hundreds of different ways of applying for the schemes. Some businesses have re-financed existing borrowing onto the CBILS scheme, which is quite a defensive move, but some have used this debt as an opportunity to win new business and get new lending by providing incremental finance.
“You’ve also seen businesses use other support mechanisms instead of CBILS, such as deferring VAT of PAYE and they have built debts and liabilities that aren’t interest bearing.
“Where that takes us going forward is going to be interesting as you have questions such as is CBILS transferrable? That is an open question, and some lenders will say it is, but some lenders will say you have to stay where you are.
“Ultimately though, I’m optimistic about the future as there is velocity in the market and the will of entrepreneurs and business leaders to build a bright future.”
Certainly, there is a feeling that the pandemic has suspended both reality and the economy, as before it struck the UK was on a positive trajectory – which, despite the tough times currently, explains the sense of optimism that many businesses feel.
Echoing Dave’s point, Nick Leitch – who is head of corporate funding at Shawbrook – is also optimistic and believes accessing the right funding will help to ensure businesses remain on track.
He said: “The key challenge is getting a handle on visibility and trading and seeing where the opportunities might be and how this translates into order books and contracts, and what may require cash and capital. It has been spoken about a lot, but adaptability has of course been important too. Some businesses hit a brick wall and had to pivot and there is a cost associated with that.
“The big unknown is the greater question around the economy and how macro issues will ripple through into businesses. It is about ensuring those businesses have the funding they need to deal with what is in front of them.”
The Future is Bright
In addition to many businesses finding the correct funding aligned to their requirements, another huge challenge has been macheting the thick jungle directly in front, to plan the future and understand what the economic roadmap will actually look like.
George Dexter, who is MD of Armour Home – a business with three offices in the UK and Hong Kong – says that the government have helped on some degree.
He comments: “Anyone faced with the current problems the government has with a pandemic, there is nothing you can do right, and everything will be wrong. I look at what is going on in Hong Kong and China and there is some good stuff, but would you want to to live in such an authoritarian environment? Sure, the government is going to get policy wrong but I’m happy it’s them making the decisions and not me; it’s too easy to criticise.
“On reflection, I would say that the furlough scheme has been critical too because it made sure that businesses didn’t go into a major cost cutting process where you had to make people redundant and then re-employ in five months’ time at a huge cost.”
On the future and the economic outlook specifically, George also said: “I’m optimistic generally across whole economy. I feel we will recover quicker than people think, and I mean within the next twelve to eighteen months. I also want to talk about the ‘new normal’. I believe it is going to be very much like the old normal. People like to talk to people face to face. Zoom and remote working is great, but it does not work for everybody and I don’t believe office working is dead at all.”
Covering the point about the economic future for the UK, Andrew Baxter said that the mix of government intervention and business spirit is a powerful combination that should see the UK recover quicker than some people may expect.
He said: “I’m optimistic and I believe we’ll recover quicker than is expected. It has been a complex time for policy makers, but they have done quite well with the furlough scheme and other initiatives. They have done this to fill the V-shape recovery and to get to the other side of this without too much economic damage.”
Could the future mean more M&A activity?
However, the economic recovery is shaped, the tremors being felt by the pandemic and Brexit coupled with looming tax changes are making some business owners consider whether to sell their company and exit; as well as inspiring others to look at acquiring competitors that may complement their offering or spur growth.
On whether an increase in M&A activity is likely, Dave Edwards, from FRP Advisory, comments: “Many businesses will want to consolidate, change and merge because of the crisis and this will only increase, but we also must remember that may sectors have performed well during this period too. What I would say is that if you are looking to exit or sell – let people in the market know.
“Equally, there will be many business leaders who are forced into this scenario not though choice but because the business is performing underneath it’s plan.”
In answering this question, Nick Leitch, from Shawbrook Bank, added: “We’ve seen a lot of transactions from people looking to buy and acquire just stall. They have not gone away but just gone into neutral, which is frustrating as most people would like to get on. This is partly because predictability of revenue is impacting how businesses are valued and what values shareholders can expect. We hope to see more daylight soon though.”
Is tax coming back?
As touched on earlier in this article, the government intervention to tackle the Covid-19 pandemic has been unprecedented and the levels of borrowing have reached parity to those seen during and after World War Two.
Which raises the question about how it will eventually be paid back and what levers government may pull to do this – and what this means for businesses in the future.
Nick Farmer, who is International Tax Partner at Menzies LLP, comments: “Government is shelling out lots of money and the music will stop at some point; we’ll need to raise some money in the future by looking at tax and we’re seeing some signs of where this may go. Rishi undertook a Capital Gains Tax review earlier in 2020 and the outcome of that was potentially to increase income tax rates.
“There has also been an inheritance tax review, with a view to make this more like an estate tax. And on the international stage, lots of countries are introducing a Digital Services Tax. If you look back at the 2008 finance crisis, tax was headline news and I believe this will happen again and we’ll start to have debates around how this should be paid back, with many pointing the finger at the big multi-nationals and those top earners.”
At the time of writing, Business leaders will be battling a third national lockdown and continuing to face the challenges and realities that this brings. Last March, we had the summer to enjoy – and last November we had Christmas and the onset of a New Year. Now, it seems the light at the end of the tunnel for many will be the roll out of the vaccination, and the impact this will have in bringing us back to ‘normal’.
In summary, it seems that what is next for the business world is much more of the same – the innovation, hard work and never give up attitude that defines UK business leaders will continue with cautious optimism as we build for the future, whilst navigating today.