Image: Photo by Jason Alden

A referendum held in the UK on 23 June 2016 resulted in one of the most important political changes in Britain’s post-war history. Fifty-two per cent of the voters decided that the country should leave the EU, and with the government promising to act on the wishes of the voters this means the UK will remove itself (through a very complex process) from EU laws and membership of the single market.

Even now we are nearing a year after the vote, much remains to be clarified. But what is certain is that the economic landscape is likely to change substantially as a result. For this issue of Personal Caremagazine, which is published the same month that incosmetics Global returns to London, we have asked some of the leading ingredient manufacturers, distributors and associations to put forward their views on Brexit and how it will affect the personal care industry in the years to come.

Ingredient manufacturers

Cark Maunsell – Managing Director, Oat Services (UK)

The major difficulty with Brexit surrounds the complete opacity of what arrangement will be in place in both the interim and the longer term together with a total lack of understanding as to the timing when changes may (or may not) take place. There are initial positive benefits for UK companies taking advantage of the lower Euro rate for exports, but this is countered by the volatility index for FOREX being at a ten-year high, resulting in real difficulties in giving long term price commitments to export customers.

For companies engaged in collaborative research there is already an initial negative impact in possible preclusion from new European-funded projects as UK companies will suffer from an unknown future status which may affect eligibility. However, there seems to be less concern over existing projects.

There is the potential for the complication of current intra-EU movements, including customs, phytosanitary arrangements, slower logistics leading to a rise in overall costs. There is also a potential for more cost in ensuring ingredients meet EU cosmetic regulation which may change without the UK being able to influence them. Supplier approval to manufacturing based in other parts of the world could become more complex if they are uncertain whether the UK and UK companies have homologation with all aspects of current EU requirements from environmental, labour, safety and manufacturing.

For global exports those companies currently utilising Approved Exporter under EC preference arrangements, will be hoping that the UK is able to negotiate advantageous trade arrangements, particularly with the ASEAN community to ensure we maintain or improve lower rates of tariff, and specifically these arrangements are in place before we are removed from the cover of the EU agreements. It is assumed, but not known, that the UK will continue to use the EU procedures and structures surrounding the harmonised system.

On a less tangible basis, there may be more potential to increase the ‘Grown or manufactured in the UK’ brand, as this will be more clearly separated from the current EU, which could help exporters to differentiate their products.

Alain Saintrond – Owner, The Innovation Company (France)

The British Empire was great, as it allowed the creation of a unique cultural and economic identity in a world of growing nationalism. That was the 19th century.

Fast forward to the 21st century and the Brexit vote is here. Of course since 1969 with De Gaulle, every politician knows that if they want an elegant way out of power, is to ask for a referendum. And that is the case of the UK, where a prime minister was no longer inclined to stay in power. Ask the nation a complex question, and expect a profoundly inadequate answer, in just a yes or a no.

And so where will our C&T industry be from 2017 to 2020?

As always the creative people will come out shining from this new twist of political and regulatory burdens. Those who do not move fast, well, will lose the most. Things to do:

> Create ‘Brexit and pride’ new formulas, based on the UK’s, or what is left of the Empire’s, raw materials. Time for whisky to make a splash in cosmetics…
> Make and export new EU formulas, based on the UK’s, or what is left of the Empire’s, raw materials. Time for whisky to make a real splash in the biggest unique world market
> Cover your tracks in getting around new regulations, in the UK added to those horrible EU ones (twice the trouble now) to ensure regular supplies at the best possible price
> Find at all speed regulations staff to meet new UK regulations, alongside EU and US regulations
> And of course, as always find creative suppliers, who have been swimming forever in the sea of Kafka madness that the world throws at us every year it seems now.

Distributors

Neville Prior – Chairman, Cornelius (UK) The UK Brexit referendum result came as a shock to many. It was obvious, the UK was better off in the EU, being able to influence and perhaps change a political and economic club that gave many advantages, but did not always listen to its citizens. Perhaps it was the last point that made all the difference, people felt they had to find their voice. The result is history, but the world has changed. Business now has to assimilate, understand and react to the consequences.

In the aftermath Sterling went through an immediate depreciation, which in essence has continued until today. UK importers faced large increases in the cost of goods purchased overseas, and raw material suppliers had little choice but to increase prices on their Sterling denominated sales. The corollary of this is that UK exporters immediately gained a currency advantage, coupled to a competitive advantage in overseas markets. The UK is starting to see the effects of both of these outcomes, through nascent inflation rises, coupled to increased exports.

For UK companies that purchase UK manufactured products, and sell solely within the UK, then the effects are minimal, beyond changes in UK economic performance and consumer sentiment and spending. For those companies that are exposed to the rest of the world, things are not so simple. Some questions to consider would be:

> What shape will Brexit take?
> What tariff and non-tariff barriers will emerge with regard to the EU?l How much freedom of movement of citizens will there be between the UK and the EU?
> What EU legislation will be enshrined into British law?
> What other Trade Agreements will the UK negotiate?
> What will be the actions of the UK and the EU to mitigate economic consequences and ensure their respective nations can attract internal and external investment?

At one extreme, the UK will negotiate a ‘soft’ exit from the EU. Free trade will remain in place, it will be relatively easy for citizens to move across borders and we will maintain many common aspects of legislation. For business, this is probably the dream, and would involve few changes in ways of working.

However, the mood music coming from the UK Government, suggests that control of immigration, along with the loss of supremacy of the European Court of Justice are lines in the sand. Conversely the EU indicates that without those, then free trade is unlikely. I can only imagine that the result will be a much less trade friendly outcome than business would like, and as a result, businesses should think about a number of points.

Companies trading internationally must ensure that their products are desirable to consumers. Innovation will be increasingly important in the battle to woo consumers and compete with domestic producers. Companies must ensure that they are compliant with legislation, which may, and likely will change. In particular pay attention to REACH, CLP and the relevant cosmetics legislation. Skills are a much spoken about topic, and many companies have addressed this by hiring EU or UK nationals in the past, if there are going to be curbs on this consider mechanisms to cope, should UK companies consider opening EU subsidiaries for instance.

Cornelius is both a distributor and manufacturer. Already we have faced many Brexit related issues and will continue to do so. We are UK headquartered, but already have a number of EU and non-EU based facilities. Many of the considerations above are part of our scenario planning, and we will be able to continue to serve our customers in the personal care sectors and others, but we are realistic and understand that we may have to make operational and other changes, as this situation becomes clearer over the coming years. We would urge other players in this market to take a similar approach. Know what is happening, be innovative and be nimble. One thing is certain, the UK is a big market of significant importance to the EU and vice-versa. A way will be found, both by business and politicians to ensure that trade will continue, not to do so would be too costly for us all.

Alan Eastwood – Managing Director, ProTec Ingredia (UK)

The vote to exit the European Union is one of the biggest political decisions the UK has made in recent history and was certainly a surprise to many. However, with so much of the debate in the run up to the referendum focused on immigration, I wonder how much those who opted to leave thought about the impact on trade and industry?

Our imminent departure from the European Union will have far reaching implications for the economy, employment laws and funding. There are lots of different takes on this, depending on which articles you read and to what side of the fence you sit, but one thing is for sure, few would have predicted such a dramatic overnight drop in the value of Sterling and the impact this has had on many industries, the personal care market being no exception.

A very high proportion of raw materials used for personal care are imported. Following the vote, many of these materials became 15%-20% more expensive to purchase. This means that price increases for end consumers are inevitable and certainly as a distribution company to which the industry is so dependent margins are completely eroded. Some companies made an early decision to immediately increase pricing but many others, ProTec Ingredia included, decided to wait to see if the market settled down and while there has been a small recovery the pound remains weak leaving the industry with very little choice but to raise prices.

With regard specifically to the personal care market, we are now starting to see the domino effect and the bottom line is, price increases have already reached the end consumer. Purchasing departments ran for the hills and quite frankly who can blame them as the plethora of price increases for raw materials and packaging came in like a tsunami. I certainly have every sympathy for them in what has been an extremely stressful period for both buyers and sales managers. However, any business has to make a profit and contractors and brands have little choice sooner or later to raise pricing. I personally would prefer to see more pricing agreements for larger contracts have a currency clause but few producers agree, but it can work both ways.

We also have to face the uncertainty of the next two years or so while we try to negotiate a soft or hard Brexit and during which any further implications on the Sterling remain largely unknown. Top analysts have completely different views on how the economy will react and in truth your guess is as good as mine as to what the next 24 months have in store for us. I very much hope that no manufacturing plants are forced to close or relocate to other plants outside of the UK as a result of Brexit. As an industry we have lost too many already.

Greg Barton – Director, Surfachem (UK)

The Brexit result initially created uncertainty for many individuals and companies. However, uncertainty is not new to our business.

Being involved in supplying the building blocks essential to everyday life, which are linked to global manufacturing and in many cases impacted by crude oil prices and changes in availability/price fluctuations of natural feedstocks, Surfachem Group, a 2M Holdings company is used to uncertainty and fluctuations.

We have seen increases in prices of imported raw materials and ingredients to the UK which resulted in our own product sales prices having to increase to maintain margins. Initially, there was turbulence in the market with different supply chains having some advantages over others resulting in some customers and suppliers being able to compete more effectively. This turbulence has now largely subsided and we are now in the ‘new’ normal.

Higher prices and input costs are a reality now and we now see this flowing through to consumers with a combination of higher priced consumer products and smaller pack sizes (same price but smaller content). How consumers will ultimately react will also be a driver for change and innovation.

Another dynamic we have begun to see is the initial signs of on-shoring of manufacturing back into the United Kingdom, more often than not with the intent of export sales. This is alongside an emergent trend for startup personal care businesses. These also present opportunities for a distributor with the thought leadership positioning, local and international reach in addition to global export capabilities of Surfachem. By working alongside brand holders as well as our traditional customer base, Surfachem works to support our whole customer base, whether they be indirect or direct clients.

Perhaps the biggest challenge we face presently as an organisation is the uncertainty that the vote to leave the EU has created for people, particularly with a view to specialised skills and knowledge. Surfachem has invested and will continue to invest heavily in these areas; our greatest asset is that of people. As a science-based business, with a very international outlook, having the right skills and outlook in our business, regardless of nationality, is crucial to our success, hence the ongoing investment from Surfachem and 2M in STEM programmes.

Associations Dr Chris Flower –Director General, CTPA (UK)

The future of the personal care market in the UK is consumer-led and, while we are not the experts in market analysis, we can say with confidence that consumers will always want cosmetics and personal care products. It is therefore the consumers who will drive the market and it will continue to grow accordingly. The question is whether post-Brexit their demands are met by UK companies, EU/UK, EU or Rest of the World. That will depend on whether companies have to deal with extra and unnecessary costs through regulatory duplication and where they choose to do business.

There are many challenges but ensuring administrative cooperation post-Brexit between the UK and the EU 27 Member States in enforcing a common regulatory approach for cosmetic products, as we currently have, will be essential. Avoiding a ‘cliff edge’ post-Brexit by agreeing a transitional arrangement for product already in the supply chain is also vital to avoid disruption to consumers and business.

In terms of what will happen to the European Cosmetic Regulations in the UK, this is unknown, of course, but it makes clear sense to ensure the UK legislation is aligned with that of the EU unless producers want to have to manage two different sets of laws and perhaps have to produce two different products with two different labels etc. For companies selling both in the UK and in the EU, there is a risk of duplication and unnecessary regulatory complexity unless the UK continues to apply similar regulatory rules to the EU and maintains administrative co-operation with EU Competent Authorities post-Brexit. It would therefore be important to ensure that products compliant with UK specific requirements can be freely sold in the EU and vice versa (formula, safety assessment, ingredients, labelling etc.)

CTPA has had discussions on this important issue with several departments at BEIS (Department for Business, Innovation and Skills) and other key Governmental contacts. CTPA members have access to a dedicated reference section and can track CTPA updates in order to remain up-todate on CTPA’s contact with all relevant Government departments as well as organisations such as the Confederation of British Industry (CBI), the Chemical Industries Association (CIA) and other national sector and European trade associations. This work is vital to ensure a common understanding of the issues involved in something as complex as the cosmetics manufacturing and distribution chain. The CTPA has published ‘Getting the Best from Brexit’ as a position paper and this is available to members and also to non-members on the CTPA public website under ‘What you need to know about Brexit’.