Keebles Manufacturing Special Report - May 2019

Special Report Manufacturing

May 2019

“The Sheffield City Region rightfully has a long, proud and internationally recognised history as a leading manufacturing centre.

Traditionally that reputation stemmed from the production of cutlery, tools and agricultural implements, all forged from local iron and steel and all stamped with the mark of quality that is ‘Made in Sheffield’. Although the names and processes may have changed over the years, Yorkshire is still as crucial to manufacturing as it always has been. Today our region is a trailblazer in advanced manufacturing and has provided a new home to world-class companies in materials technology, aerospace, the creative and digital industries, food production and biomedical and healthcare technology. As one of the region’s leading independent law firms we have worked alongside manufacturers of every size and of every type for decades. The understanding we have built up over that time means we know exactly how to design and deliver the practical, affordable legal solutions that manufacturing businesses like yours need to operate efficiently and continue to grow. This special report brings together some of the advice we regularly offer the growing list of manufacturing clients we work with. We trust you will find it useful as you look to take your manufacturing business forward.”

Paul Trudgill Partner and Head of Keebles’ specialist manufacturing team

Specialist corporate and commercial advice for manufacturers

The corporate and commercial solicitors in our manufacturing team are:

Paul Trudgill Partner t: 0114 290 6298 e: paul.trudgill@keebles.com

Matt Ainsworth Partner t: 0114 290 6205 e: matt.ainsworth@keebles.com

How can manufacturers make themselves more desirable to buyers and investors?

Whilst recent data suggests the global mergers & acquisitions (M&A) market has remained relatively flat during 2017/8, the UK is still a prime target for overseas investment despite the uncertainty surrounding Brexit.

One of the most attractive targets for overseas investment is the manufacturing sector (a statistic borne out by the fact Keeble’s corporate team has acted in an unprecedented number of sales to and purchases by buyers from continental Europe, the US and China). In fact, the favourable exchange rates we are seeing at the moment are arguably boosting our manufacturers’ attractiveness as lower rates make UK assets appear more keenly priced to buyers and investors in other countries. In addition, the continued desire to adopt new technologies, processes and materials is also helping to make UK manufacturers more desirable internationally. The world’s most innovative businesses are increasingly trying to identify the potential acquisitions – often start-ups and early stage businesses - that will not only enhance their operations and processes but also bolster their intellectual property portfolio, the asset which arguably provides the most effective way to drive up a company’s market value. When you think about both of these factors together, there is much for manufacturing and tech businesses to work with in terms of maximising their valuation. However, this doesn’t mean we’re sitting on the cusp of an indiscriminate ‘feeding frenzy’. While there is a strong appetite to secure advancing technologies and tomorrow’s breakthroughs, investors and buyers are still cautious so here are 4 proven steps that should help you make your business more desirable for those investors or buyers who are ready to take the next step: 1. Protect and maximise your data, intellectual property and know-how and have proper processes in place to make sure they stay protected and continue to make the highest possible commercial contribution.

2. Ensure your key people are incentivised to remain within the business after you sell as their skills and knowledge are invariably what the purchaser/investor will want to secure to maintain financial performance. Lock in your key employees in with loyalty incentives (share options and attractive reward packages) and introduce robust employment contracts with stringent covenants to deter competitors. 3. Be able to demonstrate all of the growth your new automation processes actually deliver and, just as importantly, their growth potential as this will deliver even greater long-term value. 4. Systemise your due diligence so it is easy for potential buyers or investors to build the right post-integration plan. An investor attracted by automation or technological capabilities will expect high tech systems behind those capabilities and if they can see them, they’re likely to see a faster and smoother transition into the next stage. Putting these measures in place is never easy but advice from a team who has helped a long list of business in similar circumstances build their desirability will definitely help. If you would like to discuss how to make your manufacturing business more attractive to a potential investor or buyer, please call Paul Trudgill on 0114 290 6298 or email Paul at paul.trudgill@keebles.com.

Specialist property advice for manufacturers

The property solicitors in our manufacturing team are:

Paul Russell Partner t: 0114 252 1409 e: paul.russell@keebles.com

Clare Darwood Associate t: 0114 290 6266 e: clare.darwood@keebles.com

Licenced for growth: how manufacturers can avoid crippling penalties

Although advancing technologies now enable manufacturers to review the efficiency of their production/logistics spaces virtually, we would still urge tenants not to make any actual improvements without performing some careful checks first.

Leases of any commercial space usually prohibit or restrict the tenant’s ability to alter the property in various ways. This protects the landlord from a tenant making changes that may have an adverse effect on the value of the property or the ability to re-let it in the future. One way to get around this is to make sure the terms of the lease allow tenants to apply to the landlord for a licence to make the alterations they want. The Landlord and Tenant Act 1927 states that, where these are put forward as an “improvement”, consent cannot be unreasonably withheld. When applying for a licence the tenant must set out their proposals clearly. This will help the landlord make an informed decision as to whether they should consent or reasonably refuse. The reason we bring this up is the financial penalties for making alterations without a licence could be crippling for a manufacturer. Not only would the tenant be forced to bear the wasted expenditure of making the alterations, they could also face the possibility of their lease being forfeited and/or the landlord demanding the property be returned to its original state. However, securing a licence to adapt manufacturing spaces can take time. It is also a costly process. Many innovative businesses find it unreasonable to have to apply for a licence every time they need to change the layout or undergo a complete reconfiguration of their premises so that they can improve their operational efficiencies. Moreover, when preparing a licence, the tenants usually have to pay their landlord’s legal and surveyors’ fees. With so many manufacturing, engineering and tech operations developing their businesses at a rapid rate, these types of alterations will become ever more expensive, eating into profits and potentially slowing progress.

There is a growing opinion that manufacturers should be able to alter their property without consent if it means progress. But, how can they avoid being hampered if all they’re looking to do is modify their space to improve their productivity and profitability and enhance the service they provide for their customers? One answer could be to streamline the process by agreeing an over-arching licence to make improvements. Although these licences are seldom used, they are expected to become increasingly popular within manufacturing circles. This type of licence could set out a framework that would allow manufacturers to develop their premises as and when the need arises; it would detail the types of alterations that might be required, any reasonable limitations to making those changes and the tenant’s responsibilities should the lease be terminated for whatever reason. Complying with the rules on alterations to a leased workspace whilst achieving maximum operational efficiency is a balancing act that even the most experienced manufacturers find challenging. If you’d like to discuss how you could alter your premises to meet your exact requirements please contact Paul Russell on 0114 252 1409 or email Paul at paul.russell@keebles.com

Paul Russell Partner t: 0114 252 1409 e: paul.russell@keebles.com

Specialist advice for manufacturers trading across borders

The commercial legal director in our manufacturing team is:

Carys Everitt Legal Director t: 0114 252 1485 e: carys.everitt@keebles.com

Tips and traps for manufacturers looking to source materials from overseas suppliers

Sourcing suppliers and materials from abroad has never been easier for manufacturers.

Integrated global communications and massive improvements to electronic trading platforms have made shopping internationally the first port of call for many of the UK’s manufacturing businesses and the advantages are there for all to see. Lower manufacturing costs in many regions often contribute to reduced unit prices and the potential access to world class technology, different manufacturing processes and previously hard to find raw materials offer their own benefits.

However, there are also disadvantages and some manufacturers are running the risk of falling foul of the law.

Firstly, it’s never safe to assume that the same rules will apply overseas as in the UK, particularly when dealing with countries outside the European Economic Area. In addition to the obvious issue of language barriers, the inherent commercial differences which could include country-specific import or export restrictions at either end of the transaction, different technical or industrial standards or even unstable economic or political climates.

Another key consideration for manufacturers is the cost of getting goods from A to B.

Very early in the process, buyers should be asking themselves who is bearing not only the cost of transporting supplies but also the cost implications of any additional insurance cover that might be required.

Check the country specific import/export restrictions

Consider who will bear the additional transportation and insurance costs

Don’t assume the same rules apply overseas

Many of the answers to these questions will come from more prudent use of the ‘Incoterms rules’. These universally agreed templates have become an intrinsic component of international trade. As such, they should be incorporated in contracts for the sale of goods worldwide and be used to provide an agreed set of regulations and guidance to importers, exporters, lawyers, transporters and insurers. Where import charges are an issue, Incoterms will determine who pays for them and will put a framework in place to ensure the correct tariff codes are used for goods so the risk of potential customs clearance problems is minimised. When considering a supply agreement, manufacturers should also be asking themselves whether they’ll need a quality certificate or a certificate of source/country of origin. These are critical documents and could have a significant effect on import charges or even on whether import into the UK will ultimately be permitted. Another important consideration is currency. Does your agreement specify the currency the transaction is to be conducted in? And does it clearly set out the exact payment terms? Finally, a buyer will need to take a view on the risk of their exposure to fraud or other criminal activity. Devising a robust governance and quality assurance policy – i.e. demanding to see product samples before an order is dispatched – can be the difference between a successful deal and a transaction that may end in costly and potentially damaging litigation.

Ensure your compliance with critical documentation such as quality certificates

Consider the risks of fraud

Clarify which currency the transaction will be conducted in

or other criminal activity

Ensure compliance with the legislative and regulatory demands of digitalisation

Be aware of the changes in the political landscape

Avoid these traps with a

tightly drafted supply contract.

By far the most effective way to prevent any deal going bad for any of these reasons is to start every new relationship with a well-drafted, tightly written supply contract. That contract will establish both parties’ responsibilities and indemnification at the outset and help to head off any potential disputes further down the line. And finally if Brexit has taught us anything it is that the political landscape sitting beneath global trade is in a constant state of flux. Any geo-political change can alter the playing field very quickly. It is therefore vital that companies constantly review the way they manage their trade relationships so any changes won’t catch them out. In a nutshell, digitisation may have radically simplified the mechanics of sourcing the materials and supplies a 21st century manufacturing business needs but you must make sure you are always in step with the current legislative and regulatory demands if you’re going to take full advantage.

If you would like to discuss how to progress your plans to source as safely as possible from overseas suppliers please call Carys Everitt on 0114 252 1485 or email Carys at carys.everitt@keebles.com.

Carys Everitt Legal Director t: 0114 252 1485 e: carys.everitt@keebles.com

Specialist employment and HR advice for manufacturers

The employment partner in our manufacturing team is:

Catherine Wilson Partner t: 0114 252 1414 e: catherine.wilson@keebles.com

How will the rise of the robots impact on employment in the manufacturing sector?

Rarely a day goes by without a new report forecasting the growth of artificial intelligence (AI) and the robots required to make AI a reality.

Many of these opinions are understandably focused on the threat both may pose to millions of livelihoods as the manufacturing sector, in particular, is revolutionised.

Fear of more sophisticated and increasingly automated production methods is nothing new.

In the 19th Century the Luddites were a group of skilled workers who destroyed machinery in England’s cotton and woollen mills as they believed it would threaten their jobs. More recently these fears have resurfaced as mechanisation and computerisation are reducing the need for manual workers in manufacturing environments, forcing job opportunities to move from manufacturing to more skilled positions in the creative and digital industries. The latest predictions indicate this threat is only set to grow with those at most immediate risk from the new wave of automation being the unskilled and semi- skilled.

So what, employment law-wise, are the responsibilities of manufacturers?

We’d suggest the 2 key points every business owner needs to consider would be:

1.

Redundancy

When automation or computerisation is introduced into the workplace, the legal position is relatively straightforward.

Workers who are no longer needed because of the new technology are likely to face redundancy. The definition of redundancy includes a scenario where the employer requires fewer employees to perform the type of work in question. The fact that the work is still there to be done but doesn’t need to be performed by people does not affect that position. However, while employers are entitled to dismiss redundant employees, they must do so ‘fairly’ and ‘fairly’ means consultation, fair selection and genuine attempts to redeploy those at risk. Any employer considering making people redundant must look at reassigning the affected workers to other vacancies within the organisation although there is, of course, no requirement to “create” jobs that are not needed. Similarly although a modest level of retraining should be offered, an employer is not obliged to invest substantial time and money on reskilling redundant workers if they are unsuitable for the vacancies that exist.

Many employers making redundancies face claims of unfair dismissal because they have not complied with these requirements by:

• Failing to consult their employees adequately • Picking “the wrong people” • Selecting from those at risk on an irrational or arbitrary basis instead of a reasonable and logical one

2.

Changing terms and conditions

Another possibility for employers may be to change employees’ roles and responsibilities, for example requiring them to perform new duties, operate in different locations or work different hours or shift patterns. The new roles may be more specialised ones that require retraining (e.g. cyber security and threat detection) or more routine duties like installing hardware or ironing out software bugs. Whichever type of job is offered, the law is already clear that employees have to adapt to their new position without additional remuneration. In cases where employers are seeking to change the terms of employment, they must normally do it by consent. If agreement is not achieved and all else fails, it is possible to dismiss employees and re-employ them on the new terms. However this can be a difficult process which must be undertaken very carefully, with the benefit of legal advice and after proper consultation with the workforce.

If your manufacturing business is facing the difficulties of making any redundancies for whatever reason, please protect yourself against a costly and time-consuming claim of unfair dismissal not to mention repair any reputational damage by speaking to Catherine Wilson on 0114 252 1414 or emailing Catherine at catherine.wilson@keebles.com.

Catherine Wilson Partner t: 0114 252 1414 e: catherine.wilson@keebles.com

Specialist legal advice for manufacturers looking to take advantage of Industry 4.0

The Industry 4.0 experts in our manufacturing team are:

Carys Everitt Legal Director t: 0114 252 1485 e: carys.everitt@keebles.com

Paul Trudgill Partner t: 0114 290 6298 e: paul.trudgill@keebles.com

Giles Searby Partner t: 0114 252 1423 e: giles.searby@keebles.com

What can you do to avoid Industry 4.0 disrupting your business?

What can you do to avoid Industry 4.0 disrupting your business?

As a South Yorkshire firm, we’ve always worked closely with manufacturing businesses.

However their profile has changed as the region’s advanced manufacturing capabilities continue to attract world-class companies in materials technology, aerospace, the creative and digital industries, food production and biomedical – and healthcare technology We are now looking forwards to the next generation of businesses and, more specifically, to the widespread changes Industry 4.0 is set to impose on the manufacturing sector. If you’re not 100% clear on exactly what Industry 4.0 is, it is the name that’s been given to describe the way advanced automation and data utilisation is developing within the manufacturing world and reflects experts’ belief that we are currently experiencing the fourth industrial revolution. While many technological advancements – including the ‘Internet of Things’, ‘Big Data’, virtual technologies and artificial intelligence – sit underneath the Industry 4.0 umbrella, one of the main opportunities for the manufacturing industry lies in the potential to create a ‘smart factory’ based upon successful cyber-physical cooperation between humans and technology. It appears that these technological advancements will impact positively on profitability and efficiencies. It is also apparent that as our lawyers become more involved, there are 4 key legal issues manufacturing (if not all) businesses will need to consider before they embrace the benefits of Industry 4.0:

1. Review the liability clauses within your commercial contracts

The way businesses interact – particularly if they are planning to share data and/or confidential information – will change. As a result you will need to look closely at the way you engage with both your partners and your customers and review any agreements involving liability clauses so they reflect the changing nature of those relationships. You will be required to agree exactly who within your supply chain will be liable for faulty goods and in what circumstances they have failed to deliver those goods as agreed. You may also want to consider putting new contracts in place in case your systems fail or suffer an attack.

We also recommend redrafting your standard terms and conditions to reflect your operational changes and acknowledge the technologies you’ve adopted.

2.

Review your use of data

Since the new data protection regulations (GDPR) came into force on the 25th of May 2018 compliance has become a priority for every type of business.

‘Big data’ (the output of machines connected to each other, linked to the Internet of Things and stored in cloud-based systems) will be fundamental to Industry 4.0. This means that the collection, interpretation and dissemination of that data will present a raft of new legal challenges. We suggest you take advice to make sure you comply with any regulatory developments while continuing to take full advantage of the benefits of the new technology you’ve implemented.

3.

Review your contracts and terms of employment

Any new technologies you adopt could have implications under current employment law as their implementation is likely to lead to wholesale reorganisation or even redundancies. Consulting with your employees and their representatives at the earliest opportunity is vital. From a more positive perspective, Industry 4.0 looks likely to lead to more flexible working models and create new roles that may require upskilling or retraining for certain employees. Again, the sooner you can explain these changes to your employees, the easier the transition will be.

4.

Review your Intellectual Property rights

Industry 4.0 will dramatically impact how intellectual property (IP) is utilised and protected. As the traditional means of protection are likely to be substantially different, staying on top of these changes is paramount to ensure you maintain ownership of your IP and prevent competitors taking commercial advantage of your R&D, ideas and business processes. Similarly as Industry 4.0 takes hold we expect a sharp increase in disputes around who owns/can use particular intellectual property rights. Having access to lawyers who are experienced in resolving potential disputes to avoid potential disruptions to your business is a priority.

If you would like to discuss how to make the legal issues linked to Industry 4.0 help rather than hinder your progress, please call Giles Searby on 0114 252 1423 or email Giles at giles.searby@keebles.com.

Giles Searby Partner t: 0114 252 1423 e: giles.searby@keebles.com

T +44 (0)114 276 5555 keebles.com

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