Executives Anticipate Brexit Effects in Quarterly Reports
The U.K.’s vote to leave the European Union has sown confusion in corporate executive suites, and so far it’s had a greater effect on pricing and planning than on profitability.
Engineering giant ABB Ltd., publisher Daily Mail & General Trust and appliance retailer AO World cited rising uncertainty in their quarterly profit reports on Thursday, the busiest day for earnings announcements since the June 23 referendum. However, consumers are still buying cars, handbags and ice cream, bolstering companies like Daimler, Hermes International and Unilever.
In one of the clearest examples of Brexit hitting a company’s business, low-cost airline EasyJet said Thursday that the drop in the pound was one of several factors, including recent terrorist attacks, that were making travellers uneasy. That has hurt fare revenue at the carrier.
“Currency volatility as a result of the U.K.’s referendum decision to leave the EU as well as the recent events in Turkey and Nice continue to impact consumer confidence,” EasyJet Chief Executive Officer Carolyn McCall said in a statement.
General Motors Co. also quantified the impact, saying the plan to exit the European Union could cost the company $400 million in the second half of the year. “We are facing strong headwinds at the moment, particularly in our largest market — the United Kingdom,” Karl-Thomas Neumann, the head of GM’s European division, said in a video published on his Twitter account. “The Brexit decision is not a good omen.”
While second-quarter earnings include only one week of results after the referendum, executives expect an impact in coming months. In a survey by the Bank of England this week, around one-third of respondents said they expected “some negative impact” over the next year. But the report showed more question marks over the future than any clear evidence of a marked slowdown.
The biggest effect of the decision is reduced visibility over the future as the U.K. negotiates its EU exit, which could affect investment plans, companies say. ABB, based in Oerlikon, Switzerland, said orders were generally strong in Europe in the latest quarter except in the U.K., where they dropped 34 per cent because of uncertainty surrounding Brexit. “The vote will put a dampening effect on business activity in this part of the world,” CEO Ulrich Spiesshofer said on a conference call.
The Confederation of British Industry on Thursday urged the government to quickly form a plan and timetable for withdrawal. It said the future strength of the economy would be dependent on the government’s ability to retain access to the single market and to ensure any curbs on immigration didn’t deprive companies of skilled workers.