With the negotiations stalling on the terms of the UK’s exit from the EU, what is the uncertainty doing to the AV market? Paul Milligan canvasses opinion on how to deal with the consequences of a no deal-Brexit.
The UK has always prided itself on having one of the most stable democracies in Europe. As a result the British economy has always performed well (outside of the global recession seen in 2009) which has seen the country become one of the most successful AV markets in EMEA. This long-enjoyed political (and financial) stability was upended on June 23, 2016 however, when 51.9% of the country voted to leave the EU. What has followed is two and a half years of protracted Brexit negotiations.
As we rapidly approach the exit deadline of March 29 it seems the UK is still no closer to agreeing a deal with the EU, leaving many in the AV industry to have to address the worse possible outcome, that of no deal-Brexit. Depending on your chosen source of media,the outcome of a no deal-Brexit by March 29 is going to be either catastrophic or barely noticeable. In the UK there are daily stories about vital medicines and even body bags for dead bodies being emergency stockpiled in case of a shortage of supply post-Brexit. The only thing that is certain right now is more uncertainty.
We spoke to a selection of AV companies based in the UK to ask if it was possible to prepare for a no deal outcome and, if they were preparing, what it is they were doing. “We are now starting to put clauses in our quotes stating it is subject to changes in the economic climate, something we have never had to do before,” says Zac Coupe, MD from integrator Staged AV. “AVM is hoping for the best but planning for the worst,” said Mark Nisbet, managing director of distributor Audio Visual Material. “We have been working with several advisors to minimise any disruption to the business and ensure continued supply to our customers. This includes raising stock of faster moving items and purchasing fixed currency contracts. All we can do is plan as much as possible, batten down the hatches and hope for the best.”
It can be argued that the distributors will probably see the worse of whatever happens post March 29, with product supplies from the EU to the UK either being restricted or having tariffs or import taxes placed on them. All of which will have a negative impact on a distributor’s business says Nisbet. “The vast majority of products are imported, and the channel could end up being squeezed and/or the end user paying more.”
But as Ed Cook, CEO from AVMI points out, when you are global integrator with a UK HQ, Brexit is going to have a significant impact too; “We are anticipating huge disruption following March 29, even if a deal goes through or it’s a delay or another referendum or it’s a no deal crash out. Our approach has been to build up our international resilience so that whatever the outcome we are in a good shape.” AVMI has looked at all its projects post-29 March to see where they are located, to decipher where the kit needs to be in advance. Zac Coupe is concerned what a no deal scenario will mean to his business, as EU projects make up 30% of Staged AV’s annual turnover. “Quoting for work has become very difficult, right now we can freely move about Europe, in the instance of a no deal we are unsure what our travel costs will adjust to, or what the invitation implications will be. If we have a van full of AV equipment moving through Europe on different projects will we be subject to five weeks of import taxes?”
AV companies in Northern Ireland are facing the most difficult and fraught aspect of Brexit negotiations, the possible re-establishment of a hard border between itself and Ireland. The country has been at peace since the Good Friday Agreement was signed in 1998, and has thrived ever since. “From a practical point of view there is no border at the moment, it does not exist, it criss-crosses in something like 400 places, it's impossible to police, it always was, even when they were blowing up or blocking the road,” says James Conlon, MD from Belfast-based integrators Niavac. “As well as possible resumption of violence it will lead to massive smuggling there and back. From a business perspective Dublin Airport is 90 minutes away, how long will it take to get through a border when your vans are pulled over and checked like they used to be? Lorries were impounded for half a day, the disruption would be huge.”
Chris Lavery from audiovisual consultancy firm CL:AV is another based in Belfast who is worried about Brexit. “Divorcing two economies on the same land mass will be pretty unachievable in the short term and even in the event that a no deal occurs the amount of trade the Irish would like will ensure a bilateral agreement is struck in short order. The preference is that a deal is struck and Northern Ireland actually thrives as it can act as the landmass interface for many goods coming from the continent, with the already well established relationship we’ve had with the ROI it will be incredibly hard to not see the both Northern Irish/Irish people work around this, as resourceful as we both are.”
Lavery compares a possible solution for AV to that of another industry working across a border; “I think much like the financial industry is set between southern France and Switzerland I can continue to survive/thrive with the relative cost of living here in the north and deliver services across the border in ROI/EU after Brexit.My take on it is this, if you are in manufacturing, support the passthrough of continental goods or are dependent on supply chains then either re-architect them in as risk averse a manner as possible.”
With a no deal looming on the horizon, does it feel like everything is on pause right now in the AV world, waiting for a final decision/deal to be made? Is it stopping any plans for expansion? “It’s not on pause, but I would say some clients are still being very cautious,” says Christian Bozeat, director of consultants macom UK. “Having offices in Europe and the UK is really helping us at the moment as it is helping our clients feel confident in our continued ability to be able to work with them across regions. It may be a lot harder for those in our industry without a European address to continue to work there after Brexit. It has not stopped our growth plans although it is concerning, we have staff from Germany, Spain and Austria working in our UK office and traveling between our offices and it is still not clear what will happen if we leave with no deal, which is worrying for staff personally and for us from a business perspective.”
With so much uncertainty about a no deal scenario or even what the contents of any agreed deal will be, are we seeing projects being put on hold right now? “It is hurting the industry,” says Matt Harmon, director of AV design and consultancy group Contrast AV. “A lot of the bigger work comes from companies who are building or refurbishing offices and there doesn’t seem to be a great deal of that going on. The stuff that is happening now is projects that were committed to before the referendum vote took
place. I think we will only start to see the effects after no deal happens, and then it will take a few years to filter through.”
Projects are being putting on hold agrees Coupe, “We have seen many projects between Christmas and now where the client is saying we can’t commit, we are not sure what’s happening.” One strange by-product of this uncertainty is a (temporary?) uplift in projects being squeezed in before the March 29 deadline.
“We do very little main contractor work, which I can imagine is being put on hold. Our client base (international banks, FTSE 500 companies) is saying it might get difficult later, so let’s kit out our offices as quickly as possible,” says Cook. He is not alone, Nick Clark, chief exec of AV consultants Torpedo Factory Group has said so far Brexit has been a positive for his company, because of a rush to get projects completed before the deadline; “Larger clients who have installation projects underway have in the main part accepted our recommendation that we order equipment earlier than the delivery schedule requires, in case of delays or price hikes.”
Clark’s comment raises the issue of stockpiling kit, is it a prudent way for AV companies to protect themselves against possible tax/import rises post March 29? It’s something AVMI has looked into says Cook, but as it buys through the distribution channel he admits he is “going to leave that logistics headache to them” to sort out. “We have been talking to our distributors to make sure everything we need will be available over the next three months. Are we stockpiling? No. Are we buying kit a bit sooner than we normally would? Yes,” adds Cook.
For consultants such as macom, with offices both in the UK and Europe the issue of stockpiling kit isn’t directly relevant, but is still a worry says Bozeat. “As consultants we are not stockpiling kit, but it is concerning for projects. Without a European address you may not be able to sell some items and as tax and tariff change it may cost more to procure. If we leave are needed on products? What happens with the standards? And how much extra testing will be needed etc? The list here goes on.”
For smaller companies like Contrast AV that option isn’t possible, “We don’t have the space or capital to gamble on buying loads of products. We don’t know what the client will want, so there’s no point buying one hundred 55-in screens to find the client wants 32-in screens,” says Harmon.
Restrictions or added costs on the movement of equipment from the EU to the UK is often cited as a major downside of Brexit for UK companies. Additional import/export
taxes could make UK firms uncompetitive against an EU rival selling the same product or service.
But could restrictions on the free movement of people around the EU affect UK AV companies just as badly, if not worse? “If a job pops up in France or Germany we rely on the free movement to jump on a plane and go. If we have staff stuck at security, and you have to factor in two hours either side (of the border) then you have suddenly lost half a day,” says Harmon.
Equipment will be more of an issue thinks Harmon, “We can work with staff getting stuck for one or two hours at security, if kit gets held up at customs that can have a massive effect on delaying projects. We will have people on site with nothing to do, which all costs money.” The people issue is another one AVMI has been looking at, “We do send our people out pretty regularly across the world,’ says Cook. “We have a diverse workforce so we are identifying what people we have where, so if it does seize up in the next few weeks we know we have people who can get into Europe because they are EU nationals.”
One solution to issues caused by Brexit is to create a European office or hub, stocked with kit and EU nationals to run it. It’s something most of the companies we spoke to admitted to at least considering for now, and something AVMI is in the midst of making a reality. It is currently expanding its Dublin office in Ireland, to accommodate more people and kit. “Our plan is to use the Irish base as a central point,” says Cook. “There are strategic and business drivers for us to be in Dublin. Our main solution for the kit issue is to have the Dublin hub.”
Another UK company to do this is Press Red Rentals, a Telford-based rental company, which has just opened a subsidiary in the Netherlands. Business within the EU accounts for 70% of its turnover, leading Derek Tallent, MD of Press Red to acknowledge; “We would far rather be investing in jobs here in Telford, but we have to be pragmatic about our future and the effects of Brexit.”
Staged AV’s turnover is made up of independents and a few main customers says Coupe, if those main customers decide to relocate their headquarters to Europe from the UK, “We’d have to consider establishing a secondary office, registered as a European company, operated by EU citizens.”
So is Brexit all doom and gloom, or is there any light at the end of this deal/no deal tunnel? The overwhelming opinion seems to be business will carry on, because it has to. “It will be pretty irresponsible for the UK government to let it go into chaos. Am I 100% confident? No, but there seems to be enough of a drive from businesses and the corporate world to not let that happen,” says Harmon. “There could be real short-term disruption but if it lasts more than three months I’d be amazed,” says Cook. “We are quietly optimistic we will get through the short term pain and that common sense will prevail, and business will carry on as normal.”