DGB Brexit: The Interviews – Neil Evans, Sales Director VEKA Group

Following on from the first DGB Brexit: The Interviews piece by Joe Martoccia, I am pleased to say that Neil Evans, Sales Director at VEKA Group has agreed to take part in this special series of posts.

The same ten questions, his unique answers. Read, digest and discuss in the comments section below.

Neil Evans – Sales Director at VEKA Group

1. How did you vote in the EU Referendum and was the result what you thought it might be?

I voted to remain on the basis that there was simply too much uncertainty on which to make a leave decision and that our economy was still in a fragile state whereby any further uncertainty, creating even small negative shifts in consumer behaviour, could have significant economic impacts.

I am not sure that I thought the decision would be to leave but I certainly knew it was a good possibility, mainly because emotion seemed to be filling the void of good information or facts that could have helped individuals understand what it could really mean for them.

2. What are your thoughts on how the negotiations have progressed and do you think a deal will or won’t be done in time?

The basis of any good negotiation is that both parties go in with the intention of achieving a win/win outcome and both place value on achieving that. I also suspect that most negotiations succeed when they are not played out in public! It is usually best that what has already been agreed is then ring-fenced so that it is no longer conditional on other elements of the negotiation. That is especially relevant as it is claimed that 80% of the proposed deal has been agreed. Included in the areas outstanding is the unique nature of the Irish border which is a massive political, social and economic factor. It is vital that is resolved.

Commentators suggest that it will be impossible to negotiate an agreement on the future relationship within the two-year window provided by Article 50. That window closes on March 29th 2019 and given that most EU trade agreements take more than five years to negotiate (the EU-Canada agreement took over ten years in total), a consensus is emerging that a time limited transition agreement is needed.

During that period, the two parties can negotiate the terms of a comprehensive agreement for their future relationship. But there is still disagreement about what such a transition agreement will look like, adding further complexity to an already complicated process.

3. How has the EU referendum vote and it’s effects impacted on your business?

In the immediate aftermath of the vote we have seen significant increases in raw material prices, partly driven by exchange rate. The day of the referendum the pound could buy you €1.31; it dropped 7% the day after and now sits around 17% lower. So, without doubt, that introduces significant impact on costs/margins when as much as 60% of our purchases are linked to the €. And only so much of that then gets absorbed by customers.

We operate in a town which is effectively at full employment and the availability of a skilled and engaged workforce, whether migrant or not, is vital. Anything that contributes to a reduction in the available pool of people is not good for business.

In terms of demand, we are in an industry that already has very low expectations of growth (now forecasting decline) and increasingly sees consumers’ switching their discretionary spend from possessions to experiences.

We are not sitting around waiting to see what happens and have accelerated our investment in our UK production, including the £1.5M acquisition of premises to extend our site and support the creation of a dedicated lamination plant. We also put in excess of £1m of cash into increasing stock levels to support all year long market leading OTIF on our whole offer.

4. How would you say your business has performed since the time of the vote?

Operationally we have performed very well this year, and ongoing investments will help secure and build on that position. Margins have taken a significant hit from the high point of 2016 but we continue to hold a high share of the available market. We’ve been manufacturing in the UK for 32 years. We plan to be for a very long time.

5. With Brexit day just a few months away, what plans, if any, have you put in place to ensure a smooth transition on March 29th?

We have taken discussions with key raw material suppliers to understand their plans and help them understand our requirements. We have a plan that will enable us to cope with any short term disruption that could occur beyond March 29th. We have never been afraid to commit to stock as part of our long term commitment to be the best partner for our customers and we are not afraid to make short term investments to provide our customers certainty of supply as Brexit happens.

6. Putting aside your own voting preferences, do you see a path forward where your business and the UK as a whole can still continue to be prosperous?

You have to. There is no point in being pessimistic. But of course we are dependent on knowing what the new rules under which we operate will be. Our only export market is Ireland and, like so many other businesses, we will need to make any new requirements work.

We can only control what we do. Great businesses prosper in difficult times. That’s what we have to be. We have got great stability of ownership, a unique focus on pvc-u window and door systems, scale, and a level of reliability that will be vital during the transition.

7. Would you like to see a second referendum on the terms of any final deal, inclusive of an option to go back to EU membership?

No. Irrespective of the fact that the vote did not go the way I wanted, and that some of the “realities” of the vote may now concern us all, I don’t think the referendum to vote to remain or leave had a promise of “don’t worry we will come back to you just to check you are OK with how we do it”. We voted as a democratic country based on what we knew (which of course was very little). If I don’t have enough information to help me see that the potential reward would justify taking a big risk then the chances are I will stick with what I know. As a country not enough people either felt that or they were lured by a vision that my own roulette wheel did not include.

8. Should there be another General Election after Brexit day, given the precarious nature of the current Government?

I think there will be. Either because the final deal on paper is much better than the current headlines and the Conservatives will look to press home that advantage or, with anything less as an outcome, the noise from the opposition will be deafening. If it happens I think it will at least create clearer political space, removing the recent history of coalitions. Either way it will be another distraction.

9. What do you think the biggest impacts of Brexit are going to be on the UK fenestration industry in the years to come?

The most obvious impact is driven by the wider economic future. Does Brexit really result in us being in control of our own economic destiny without the constraints of Europe, and help us nudge GDP by 1%+ ahead of what we would have achieved, or does it nudge it down by 1%+ and take us into recession. These are fine margins and I believe either outcome is perfectly possible. Recession would likely impact the players in the fenestration industry to a greater degree than 2008 did. That’s because some are not as strong as they were because they never fully recovered from 2008.

We are largely in the area of discretionary spend and it is the 1st thing to go when budgets tighten. As I mentioned earlier, individuals have a greater propensity than ever before to put discretionary spend on experiences. That’s a trend I would see continuing.

A further weakening of the pound to a point of parity with the Euro would have significant impact on material costs throughout the supply chain.

We might see a lag in innovation as investments are cut and we need to somehow ensure that, at a time when the industry already faces skills shortages, we can attract new talent in. And we might also see the anticipated increase in those businesses looking to exit struggle to secure the value for their business that they might have hoped.

That said fenestration will still be a huge multi-billion pound market with many opportunities to secure business and improve the overall offer.

10. Should the UK fenestration sector see this as an opportunity to help grow it’s own domestic industry i.e. fabrication, training and apprenticeships, exports etc.

We should be doing that anyway. Act on what you can control and don’t worry about what you can’t. Market consolidation is already at play, will continue and likely accelerate.