The plight of the supply chain – Zane Mersich CEO Novomatic UK Limited

Zane Mersich Novomatic UK Limited Supply Chain
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If you want to take the temperature of the industry, then look no further than Novomatic UK. The global gaming giant, with its huge presence in the UK market, is concerned that the gaps in the government’s Covid support measures could jeopardise the size of the manufacturing sector, investment in the industry and the future of many businesses in the supply chain. CEO Zane Mersich leads off Coinslot’s in-depth analysis on the Plight of the Supply Chain, taking us through the real effects on businesses due to the lack and inconsistency of assistance, and what’s needed to bring the supply chain back to life.

 

The supply chain has been unable to access many of the government’s support measures. What impact is this having on the sector?

The sector carries a significant fixed cost base in relation to rent, business rates and other establishment costs. In addition, there is a skilled workforce required for research and development, design and manufacturing of gaming machines.

The only support available for manufacturing firms to date has been the furlough scheme and with the high skilled workforce required a number of employees are above the £2,500 cap for reclaiming all of the salaries.

While our customers have been closed then we have supported them to the greatest extent possible through reduced fees therefore our revenue has been significantly reduced while the costs base has continued.

This will inevitably lead to a reduction in the size of the manufacturing industry, whether through a reduction in investment within existing companies or unfortunately some companies no longer being viable.

Enforced closure of our AGC and Casino customers in Tier 3 restrictions has been the greatest issue, followed closely by those businesses being caught by the curfew where they can open.

We fully support the fight to suppress virus transmission, but there is no scientific reason why AGCs and casinos, with their excellent Covid measures, should be shut when shops are open.

How have businesses in the supply chain managed to function in the absence of these measures?

Unfortunately, the answer is either barely, or in some cases not at all.

The key phrase here is that it is a supply chain, with each entity reliant on the previous links in the chain right the way back to raw materials.

In addition to agreeing favourable terms with our customers we have also had to agree exceptional terms with our suppliers, as we endeavour to support each other through this crisis.

What measures are required to protect the supply chain over the coming year?

In the current environment sales are non-existent, have been for many months and inevitably will be for some time; even when our customers are permitted to reopen there will be pressure on expenditure likely to impact the industry for years to come.

Without fair and equitable governmental support to sustain the supply chain through the pandemic, there is a very real danger that the impact on the industry and the wider economy will be far greater than it needs to be, with the fallout of a broken link in that chain felt both above and below the link, potentially with far reaching consequences for all the businesses involved.

“The basic economics of the supply chain are relatively simple, if there’s no money coming in at the top of the chain, then there’s no money to sustain the many companies further down….”

The supply chain has not been recognised as part of the industry when it comes to support measures. Why is there a blind spot to the supply chain, and how can this be changed?

The economy of the industry is a large and complex mechanism with multiple layers, however the basic economics of the supply chain are relatively simple, if there’s no money coming in at the top of the chain then there’s no money to sustain the many companies further down.

Companies that have received government support are using this to sustain their own businesses, there is no capital to invest and so no consequential benefit to the supply chain. Although furlough has offered some very welcome support, it is unfortunately not a panacea and with the impact of Covid 19 now undoubtedly to be felt for a considerable period, it is time for the supply chain to benefit from the support that has been offered to other businesses.

Eligibility criteria has been introduced for more targeted support of the hospitality and leisure industries, which could be applied to other sectors. For example, allowing access to support for businesses where revenue has reduced by a minimum of 30 percent, or whose main customers have been subject to mandated closures and therefore revenue has reduced.

The government response has been to point to other business support measures available. What are your views on:

•Government support for for self employed directors paid through dividends?

Clearly the support offered should have been in line with that available to those who are employed. Self-employed directors are often the heads of small to medium sized businesses that form the backbone of the UK economy.

•Bounce back loans: are they lifeline or another long term debt?

Bounce back loans have supported many businesses during this time and were introduced swiftly with minimal barriers for applicants to access funds. The terms are generous, which is what was required. Ultimately, however, they are loans that will need to be paid back. We would call for the payback period to be extended, so as to afford businesses greater security to get back to their pre-COVID trading levels.

• What measures are needed to get businesses through the next five months if they are not able to trade at all?

Business rates holiday to be extended and include the supply chain based on revenue impacted

• VAT reduction to be extended for the leisure industry to stimulate investment

• 20 percent MGD rate to be reduced to 5 percent in line with the VAT reduction for a limited period

• Gaming income is exempt for VAT purposes resulting in low input VAT recovery rates for the industry. An effective way to encourage investment in the industry would be to allow recovery of input VAT on capital investment of Gaming Machines. This would lead to additional investment from operators therefore supporting games machine designers and manufacturers following an extremely challenging period, where targeted support to the leisure sector has not benefited the supply chain

• The current moratorium on forfeiture and other enforcement action for non-payment of rent expires at the end of March 2021 and an extension until the end of September is needed to allow businesses to survive. Businesses must be allowed time to build up cashflow after trading re-starts.

• Delay to the increase of national minimum wage and national living wage. Businesses simply cannot afford more costs at this time. They have been doing everything possible over the past year to avoid making redundancies and an increase in NMW/NLW might push them into having to do that very thing.


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