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lloyds Bank, The Future of the UK and Europe – 5th edition January 2017

 

Not quite ‘business as usual’ In the six months since the EU Referendum, businesses have started considering how best to position themselves for an
uncertain future. We continue to receive feedback from a wide range of customers. Some concerns are felt generally across all sectors. Others may be very specific – to a sector, a region, or even a particular client. We invited some clients to share their thoughts on what the vote to ‘Leave’ has
meant to their businesses.

GENERAL THEMES – RESILIENCE
Not many organisations would have wished for the degree of uncertainty under which everyone is currently operating. However it’s clear that most clients are ‘just getting on with it’ – demonstrating a determination to thrive in a less benign environment.

FX IMPACT
The exchange rate changes were the main immediate impact of the Brexit vote. Some of the main implications were obvious, but others were less so.
The increasing cost of goods sourced abroad was felt very quickly and businesses struggled to either pass on the price increase or absorb them and compress their margins. The amount of variation in the duration and degree to which businesses had hedged their FX exposure also became evident. Indeed the true impact on many businesses’ underlying strength may still be masked by FX hedging which is still to roll off. One less obvious or possibly unanticipated FX impact is the number of UK businesses which have become potential acquisition targets for overseas buyers. Low terlingdenominated enterprise values combined with substantial private equity liquidity globally are pointing to more activity in this area. Consequently liquidity and access to capital are high on many companies’ agendas with CFOs needing to work more closely with the investor bases in order to be prepared to defend any unwelcome overtures.

DIVERSIFICATION
Although the shape of future trade restrictions or limitations is far from clear, many firms are already shifting their focus. They are concentrating harder and sooner on geographic diversification, not only considering the markets for their products, but also the sources of their materials and labour.

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