This update should be read in conjunction with our previous announcements in June 2018 and February 2019. As outlined therein, since the United Kingdom (UK) referendum result on membership of the European Union (EU) in June 2016, Croda has been working to assess and mitigate the likely impacts of ‘Brexit’ on its customers and suppliers under a variety of potential outcomes. Given the continued uncertainty around the overall shape and timing of Brexit, we have continued to focus our efforts on preparing for a “no deal” or “hard” Brexit.
Our fundamental objective is to ensure that we offer continuity of service and supply to our customers, wherever they are, and this update is provided to reiterate to our customers and supply chain partners how we plan to achieve this objective.
We are a global business headquartered in the UK. 5% of our sales are made to UK customers. We have 29 manufacturing sites, of which four are located in the UK, and over 4,300 employees, with 1,000 based in the UK. We have a small number of EU nationals working in the UK and vice versa.
As outlined in our previous statements, our initial risk assessment identified a number of key areas of focus for a potential Brexit impact. We continue to focus on those areas that could have the most direct impact on our ability to service customers, specifically:
Our established Brexit project group has fully assessed each area, likely impacts have been evaluated and we are now putting concrete mitigation plans in place We continue to play an active role on the Brexit sub-committee of the UK Chemical Industries Association.
Since our last update in February, uncertainty over the eventual Brexit impact has, unfortunately, not diminished. We have thus continued in full contingency planning mode with a view to ensuring business continuity under a “no deal” Brexit. We continue to hope that a business-friendly deal can be reached but we remain of the belief that our ability to do business with customers and other partners will not be materially affected, even under the harshest exit.
We are continuing to refine our internal trading model within Europe to ensure that our ability to move UK manufactured product onto the continent and vice-versa is not at risk. In addition to the changes discussed in earlier updates, we have been working hard to ensure that we have a fully compliant model from a VAT, duty and tariff perspective. We continue to do everything we can to ensure that customers or suppliers are not significantly affected by the changes.
Since February, we have been further developing our contingency plan to ensure supply continuity in the event of a hard Brexit and the likely resulting confusion and delays at borders. We have a comprehensive warehousing and stock build programme in place, both for finished goods and raw materials, and are continuing to work directly with customers and suppliers to address any specific concerns they may have.
The major regulatory impact of a hard Brexit is that UK-held REACH registrations will no longer be valid for sale of products in the EU.
In the short term, we will be mitigating this risk by holding sufficient inventory of UK-manufactured goods on the continent on Brexit day. Behind the scenes, we have completed the transfer of registrations of overseas-manufactured product from our UK based Only Representative to an EU-recognised sister company and we have started the transfer of registrations for UK-manufactured products (the process for UK-manufactured goods can only be finalised once the UK leaves the EU).
We also have well advanced plans relating to the import of EU-manufactured product into the UK.
By building the right buffer stock in the EU and the UK, and having the right plans in place to quickly transfer registration of our products, we anticipate protecting customer service levels as we navigate through the first weeks and months of Brexit.