The prospects for 2017 and beyond
The tangible outcomes of Brexit to date
David Murray kicked off the discussion with the question that has been taxing most of the UK’s companies over the past few months: “Have there been any tangible changes to your businesses post-Brexit?”
Fourfront chairman Aki Stamatis opened with the view that some property projects had been deferred in the lead-up to the referendum at the start of 2016 and these had yet to be reinstated. This was part of a cooling in the market that had been apparent pre-Brexit.
Managing director David Bloxham echoed this sentiment in respect of some long-term recruitment projects which had also been cut or put on hold pre-referendum, resulting in a 15-20% drop-off for a few months since “recruitment is very much sentiment-based”.
Bloxham added: “Since August though, business has come back strongly, with our international businesses flying and the UK bouncing back in every sector. It’s important to remember that for some industries, such as technology, the world is their marketplace, not just the EU; for example, if you sell an app on the Internet, your reach is instantly global.”
Mike Davis, head of open programmes at Henley Business School: “I agree – the first thing that tends to get cut in the training and development sector is headcount. We talk to organisations the whole time. However, we know that we can’t be complacent; we recognise that we work in a very competitive marketplace, competing against consultancies and training providers, not just other business schools. So, in conclusion, it’s difficult to gauge at present as nobody has yet formed a coherent view, but we hope to have a better outlook by our next summit in February 2017.”
Legal corporate recovery partner Nicola Kirk said that for Gateley plc Brexit had not changed the way the firm runs its business as it had already assessed the trading environment in the medium term and concluded that it was not going to be a stellar environment for corporate work in a sector which is over supplied and where margins are tight. To combat this the firm took the decision to float and became a plc in 2015 as it considered this would create a platform for continued growth even anticipating a continuing challenging environment. “This innovative way forward suited the needs of our business. As such the firm was already committed to a course of action by the time of Brexit and at present there has been no EU referendum impact immediately visible in our business.”
On the macroeconomic front, the fall in sterling should not have come as a surprise following the ‘leave’ vote. However, senior banker Nick Hicks pointed out that some companies had failed to position themselves for such an eventuality and were now suffering the consequences, albeit not to the same extent as those whose business models had been fundamentally changed, such as parallel importers. Hicks went on to stress that the consequential rise in the FTSE, should not be taken as a tangible measure of
business confidence, given that the FTSE is dominated by global companies and hence driven more by exchange rate movements than any resilience or expression of confidence on the part of UK companies.
The general consensus in the room was that 2015 had been a very good year for business, and that 2016 had continued this trend, with no tangible slowdown yet evidenced post-Brexit, although it was still early days.
2008 was a wake-up call for industry
“Clients are now more agile, better prepared with stress-testing, and more equipped for coping with uncertainty than they were in the run-up to financial crisis almost 10 years’ ago”, noted accountancy partner Miles Hewitt-Boorman.
This point was echoed by Davis, who agreed that, given the number of shocks the UK economy had been through since 2008, “uncertainty is now the new certainty”.
Kirk added that as the process of Brexit was going to be prolonged companies would have to adapt to changing conditions but agreed that companies are in a better position to do so than in 2008.
Head of finance Alec Stevens: “A lot of our current senior staff weren’t in senior positions during the UK’s recessions in the late 1980’s, so the 2007 financial crisis was a new experience. We downsized and this was a particularly difficult period. Since then, we have put all our senior team through the Henley Business School leadership training programme, and they are all fully conscious of, and armed to deal with, the economy we’re now working in.”
Hicks added that from a banking and credit control perspective, the events which usually ‘wrecked businesses’ tended to be outside normal forecasting parameters, rather than the usual 10-20% stress-based variance scenarios. Hence, in the long-term, the businesses able to thrive would always be those able to keep reinventing themselves and adapting to ever-changing business environments, Brexit being just one of those challenges.
Kirk expanded on this ‘out-of-the-box’ thinking, explaining that while the legal profession was not renowned for its innovation, Gateley was entrepreneurial and was the first full-service commercial law firm to float. The firm had always been a financially resilient business having previously relied largely upon internal funding for expansion. The change in status had made it possible for Gateley to move quickly in response to new opportunities, hence the opening of its new Reading office in 2016. Furthermore, Gateley’s new plc status had enabled it to acquire complementary non-legal services, such as Capitus which provides tax advisory and consultancy services in relation to capital allowances, international tax depreciation, investment incentives and R&D tax reliefs and Hamer Associates a leading specialist in the fields of easements, wayleaves, compulsory purchase and compensation, in order to diversify its revenue streams and sales reach.
Head of business space for the Thames Valley at Vail Williams, Charlie Nicholson agreed with Kirk, pointing out that Vail Williams had also elected to diversify recently, the purchase of a rating specialist to open up new opportunities being a case a point. Nicholson also noted that the way Vail Williams approached the property market had also changed over recent years, becoming far more consultative-based as opposed to transactional-driven, so as to react to both landlords’ and occupiers’ needs and to help plan and design workspaces to help businesses attract and retain staff.
Bloxham added that for multi-national companies, international diversification was also a bonus, pointing out that any UK slowdown had been more than balanced out by growth in GCS’s other global offices, particularly the US and Ireland.
Davis: “We also operate in the Middle East and Asia, which are proving to be growth areas for us.”
Strong leadership, not cheap money is required
Everybody was in agreement that strong leadership would be required from the Government to promote long-term confidence in the economy and ease the fears of investors who might seek to delay longer-term CAPEX and investment infrastructure decisions. Stamatis wanted to see a strong Autumn Statement from the new chancellor (due November 23, 2016), with Hewitt-Boorman agreeing that it was vital for the chancellor to set the right tone for the business community.
Given that the business vote in the South East had leant towards ‘Remain’, there was some discussion as to how much planning and forethought had been put in place in the event of a ‘leave’ vote?
Bloxham suggested: “The Government led us into a situation which most businesses didn’t want.”
Stamatis responded: “I’m not sure I would say we were led into Brexit. This was an emotional decision, with logic being used in hindsight to explain it. Where Brexit will go in the future, nobody really knows, but we are now dealing with the ramifications of that decision and have to get on with it. At least there appears to be some leadership from the top, but it will be interesting to see what happens over the next six months.”
Bloxham ventured that the Government might even look to cut corporation taxes, in order to send out the message that the UK was looking to do business on the world stage: “We need to make the UK as attractive as possible as a global hub.”
However, for the Government to merely ensure the continued supply of cheap money, propped up by the Bank of England was not felt to be a sufficiently robust response to Brexit.
Again, the needs for consistency, planning, and communication between government and business were cited as pre-requisites for ensuring the continuation of post-Brexit growth.
Bloxham: “We know what it’s been like when funding has been difficult in the past, so we have to assume that the Government will make it as easy as possible for us to continue funding growth.”
Hewitt-Boorman did sound a note of caution on this point: “Many companies over-borrowed in the past and got themselves into difficulties. We’re now starting to see price expectations rising again; 2008 was a long time ago …”
Murray asked whether this meant businesses should look at selling now, if the assumption was that things were only going to get worse?
Hewitt-Boorman: “It’s two sides of the same coin – for every buyer, there’s a seller, and you want to marry the two sides together to get best price. As we’ve already discussed, there is likely to be more complementary diversification, as businesses look to offer more services to the same client to gain a greater share of the same wallet.”
Kirk agreed and said that Gateley would grow the complimentary services that it could offer.
Outward thinking, rather than inward looking?
Stamatis posed the interesting question: “By voting for Brexit, are we positioning ourselves as anti-EU or pro-world?”
Hicks wondered: “Have we ever felt very European?”
The biggest immediate risk was felt to be that the UK would no longer be seen as a gateway to Europe. Hicks noted that there would be a tangible cost as some jobs moved over to Europe out of necessity (eg certain banking functions), and an opportunity cost, as some international companies elected to invest in Europe rather than in the UK.
Bloxham commented that GCS Recruitment had seen a material pick-up in its Dublin-based business post-Brexit with a lot more Europeans now interested in working there.
Labour mobility and the young
Another risk discussed was that of the labour market, with the need for clarity from the Government sooner rather than later on this issue, because, as Bloxham pointed out: “There’s business planning, but there’s also life planning.”
Already, there were apparently signs of unrest amongst employers who relied upon lower-skilled and specialist-skilled foreign labour, and who could see their business models under future threat.
The group discussed the human element of Brexit, and particularly the disaffection that the younger age groups were now feeling, having voted overwhelmingly to stay in Europe.
Stamatis: “Both of my kids grew up attached to Europe, but we are now no longer attached – what message does that send out to them?”
Davis suggested that Brexit had ‘knocked us back’ in the rest of the world’s eyes, especially the US, who had always viewed the UK as one of the most multi-cultural societies. Stamatis added a story about his son, a 24-year old working in Sydney, and now seeing and hearing about the UK from the Australians’ point of view. There was apparently a lingering resentment over there that still pervaded to this day, about being ‘dumped’ when the UK joined Europe back in the 1960s. The question now being asked by Australians was: “Is Britain now saying we want to join the world, or by making this decision to leave the EU are we indicating we are wanting to withdraw from it and become more insular?”
Once again, the point was made that the UK needed to be looking outwards, rather than inwards.
On the positive side, the UK will have bargaining power as a significant importer of European products, from Irish produce to German cars.
Moreover, from an export point of view, the EU remains a low-growth region, with its ability to sell on a wider stage not best served by collective agreements between 28 disparate countries.
Bloxham: “We need to push the UK out to the global market – to be considered influential to the rest of the world.”
Hewitt-Boorman: “We now have to do something; we can’t just rely upon the EU. I’d like to think that we can become more positive and more entrepreneurial-looking now that we’re no longer in a club of 28. This, however, will depend upon the mindset of the politicians in terms of how it is presented to businesses and entrepreneurs – it’s a sentiment thing.”
Stevens added: ”Pre-Brexit, expansion to Europe was Plan A, but we’re now evaluating deeper; in other words, where in the rest of the world it might be easier and more profitable to expand to.
Davis agreed: “That’s a positive – to push organisations into global regions where they wouldn’t otherwise have been.”
Hicks aded: “For businesses not currently doing business in Europe, it remains a frontier. The region is struggling with low growth and a huge debt burden and will continue to do so for the foreseeable future.”
Kirk added that Gateley was committed to investment in the UK with key international relationships. English law had always been a very popular choice for parties doing business worldwide and the UK’s exit from the EU should not have any effect on the willingness of contracting parties to choose English law as the governing law of a contract. As such England would remain a key legal jurisdiction. Economic volatility can promote the need for legal advice – for example in the areas of contract redrafting, changes in the work force, uncertainty from an employment law perspective, asset disposals, balance sheet restructuring and can promote litigation. Gateley offered the full range of legal services so was well positioned to advise on any of these areas.
The Thames Valley continues to be attractive
As far as the Thames Valley is concerned, the room expected that the post-Brexit outlook would be driven by an even more pressing need to reduce costs and increase productivity.
Nicholson: “Robust measures will continue to be required on cost bases. For example, about 10 years ago, there was an average of 1.0 to 1.25 desks per person in office buildings; now it’s closer to 1.5 – 1.75 people per desk, as practises such as flexible working and hot-desking continue to gain in popularity.”
Stamatis agrees: “Businesses will continue to examine their building cost base very closely – these costs feed right through to the bottom line.”
Many firms have already been encouraged to set up offices in the Thames Valley, attracted by the availability of office space and talent. Furthermore, it was felt that the advent of Crossrail would prove a major boost for the region’s attractiveness, once the possibility of travelling door-to-door from places such as Farringdon in Central London to Reading in one hour became a reality.
Hewitt-Boorman: “We see the potential for more growth in the Thames Valley than in London – the impact of Crossrail will be huge, and then we’ll start to really see that shift out of London.”
Kirk added, as a business which had only just recently moved into the area, opening an office in Reading earlier in the year, “we feel that the Thames Valley has been a really good strategic move – there is a high level of confidence in the region and we strongly believe that this will be a platform for future growth alongside our other regional offices”.
The Thames Valley’s growing reputation as a hotbed for technology and research was also felt to be a potential attraction to employers and investors, especially given the potential for technology microbusinesses to achieve massive growth in a short period of time on a global scale.
Investing in people is essential
The room agreed that there had been a change in mindset compared to 20 years ago, when university education was free. Nowadays, young people were wary of graduating £50,000 in debt, hence the emphasis on getting into the right discipline early on, with the option of undertaking a vocational degree further down the line.
Davis: “Remember that the Apprenticeship Levy is coming soon, and that could be a big opportunity to change people’s mindset. We are likely to see businesses looking for people with multiple skills.”
Hicks: “We need to invest in apprenticeships and build on that investment, not just chuck people into university for a degree which has very little value at the end of the day.”
Murray asked whether this was likely to result in a change in recruitment strategies?
Bloxham: “Clients are already asking us what they are able to do for school leavers and local colleges; they are keen to get the talent in quicker and train them up with ‘their’ skills.”
Conclusion – be proactive and see the glass as half-full
The common consensus in the room was that it was too soon to identify any tangible outcomes from Brexit, since these would only become apparent when more precise terms of the UK’s exit were known, something that would not happen for at least a couple of years.
However, in the meantime, there was a need to ‘seize the opportunity’, to see the glass as being half-full rather than half-empty, and to make things happen.
Hewitt-Boorman: “Brexit or no Brexit, we need to look at where competition is coming from globally and adapt to it – we can’t be insular.”
David Bloxham: Managing director, GCS Recruitment Specialists
Mike Davis: Head of open programmes executive education, Henley Business School
Miles Hewitt-Boorman: South east region director, EEF – The Manufacturers’ Organisation
Nick Hicks: Area director Thames Valley & Surrey, HSBC
Nicola Kirk: Corporate recovery partner, Gateley plc
Charlie Nicholson: Head of business space Thames Valley & Heathrow, Vail Williams
Aki Stamatis: Founder, Fourfront Group
Alec Stevens: Head of finance, Peter Brett Associates
David Murray: Managing director of The Business Magazine, chaired the discussion.