How Prysmian has dealt with its Brexit exposure

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This article is part of the FERMA/AIRMIC joint Brexit Newsletter which is designed to give risk professionals unique insight into Brexit related risks and mitigation strategies. 

Alessandro De Felice is the Chief Risk Officer of Prysmian, a leading player in the industry of high-technology cables and systems for energy and telecommunications, with sales of some €11 billion. It is a truly global company, with subsidiaries in 50 countries, 112 plants and 30,000 employees.

As a Chief Risk Officer, Alessandro is primarily responsible for facilitating the Prysmian Group Enterprise Risk Management process, proposing the risk management framework including areas like risk engineering and loss prevention, risk financing and claims management.

For Alessandro, the result of the Brexit vote in June 2016 triggered first an emotional reaction mixed with some disappointment and concern. But overall, he remained optimistic that the outcome of the negotiations would be positive.

More than two years later, the prospect of a no-deal is giving real concerns and the group has taken concrete action to mitigate the impacts on the customs process, logistics and deliveries.

From a risk management standpoint, the topic was raised during the annual risk mapping activities. After monitoring the negative development of the negotiations, in December 2018 and January 2019 Prysmian took two actions in case of a no-deal Brexit. The risk management team of the group interfaced with other departments to coordinate these actions.

Steps in managing a no-deal Brexit

The first step was a business impact analysis, based on the business model and related to the operations in the UK. It took into consideration the legal and logistics changes to expect and assessed whether the current model was still appropriate.

It is important to note that Brexit will not affect critically the business model of the group because it is a local-to-local model. The UK market consists of 3 production plants in the UK with around 2700 employees that sell their products in the UK.

The next step was an evaluation of the shortages to expect for production, in particular because of possible delays in importing some materials and semi-finished goods from and to the UK.

The results were reported to board and management with the conclusion that the main issue following a hard Brexit would be a shortage of semi-finished goods and materials. The initial assessment revealed a potentially important economic impact which, after mitigation action, was managed within the risk tolerance agreed at Prysmian.

Among the measures decided was an increase in the holding of spare parts, which led to an increase of circulating capital and increased inventory stocks.

As regards the attitude of Italian authorities, various ministries have issued statements since Italy is a large exporter (€23 billion a year to the UK). Although the costs of maritime shipping have increased since a few months ago, the ports of Genoa and Trieste are mostly used for shipments to Asia and America. Trucks and trains remain the main method of transport for Italian exports to the UK.

Brexit did not change much about the way Prysmian manages political risks. managed. The group has always maintained a strong focus on monitoring the worldwide evolution of protectionism.

In principle for Prysmian, protectionism could be even turned into an opportunity since the business model has always been structured as local-to-local. The challenge lies more into consolidating the group and securing the coordination between the holding company and the local branches.

 

Read related articles from the FERMA-Airmic Brexit newsletter:

https://www.ferma.eu/business-after-brexit-a-checklist/

https://www.ferma.eu/brexit-and-what-it-teaches-us-about-political-risk/

https://www.ferma.eu/brexit-an-update-on-contract-continuity/

https://www.ferma.eu/the-impact-of-brexit-on-cyber-security-law/

https://www.ferma.eu/brexit-a-wake-up-call-in-an-unstable-global-trade-environment/

 

Access all the other articles from the FERMA-AIRMIC Brexit Newsletter

 

Tags: brexit

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