UK's exit from EU may end five-year boom in corporate profit and stock valuations. A new survey shows that firms that are engaged with Brexit are more confident about managing the impact, whereas 64% believe Brexit will reduce their profitability.
A new survey of 210 C-level executives, commissioned by Hogan Lovells, the international law firm, finds that companies that are planning, preparing and are proactively involved in the Brexit process are markedly more confident about the impact Brexit will have on their business outlook.
However, widespread uncertainty and pessimism does exist. Nearly ttwo-thirds (64%) of major global businesses believe that Brexit will reduce their profitability over the next five years, with 14% of these firms expecting the fall to exceed 5%. In the UK, the number of firms concerned that the country's exit from the EU will cut profits rises to 76%.
The findings form part of the first Hogan Lovells Brexometer, which gathered the views about Brexit from executives at companies with an annual turnover of at least $1bn, working across various sectors and based in seven jurisdictions.
"On the eve of the starting gun being fired on Article 50, the survey shows very clear concerns exist among business leaders about Britain’s exit from the EU, but also that business confidence can be built on proper planning and pro-active engagement", said Susan Bright, Regional Managing Partner of Hogan Lovells, UK and Africa.
The survey finds that:
- Firms are more focused on the risks of a bad outcome than the possible opportunities of a good one. 60% of respondents based in the UK, 53% of those in Germany and 73% of those in France, view Brexit as a threat to the UK, with only 7% of UK-based respondents viewing Brexit as an opportunity for their business. Concerns about the impact of Brexit are not just focussed on the UK however, with respondents saying that Brexit is a threat to non-UK businesses as well as to the EU as a whole. Brexit is not considered a business opportunity by respondents in France, Germany or Japan.
- The progress - or lack of it - of negotiations will have a major impact on investment decisions, hiring, M&A activity and strategic planning. 67% of UK companies will invest more in the UK in a best case outcome and 33% in the worst case. Outside the UK, the best case / worst case fall in UK investment is steeper – in the best case, 27% of German companies will invest further, in the worst case, just 3%. The difference between businesses' perceptions of best and worst case outcomes is vast, with the latter threatening a collapse in investment, new employment, and a total re-assessment of the UK by global businesses.
- A majority of British firms support some form of transitional agreement: just over half (53%) of UK companies would like to see a transitional agreement. However, the figure falls to 43% among other EU respondents, suggesting that a "let's get on with it" attitude persists among a significant number of businesses on both sides of the Channel — despite the concerns and uncertainty they have expressed about the impact.
- The economic and political ties between the UK and the US are long established and both Governments have talked up the chances of securing a bilateral trade deal. In this context, the research provided some interesting results. While companies in the US are more positive about potential trade agreements resulting from Brexit than other non-EU countries, only 33% believe Brexit negotiations will produce a satisfactory result for their company. No US companies believe that Brexit is a business opportunity for them and just over a quarter (27%) believe it is a threat. 63% of US companies believe that their annual profits will go down between 0% and 5% in five years’ time – the highest number of companies in all countries surveyed.
Susan Bright said: “It is fascinating to take the temperature of global businesses as we enter the next crucial phase of the UK's ultimate exit from the EU. While the UK Government has set out a bold vision for a post-Brexit world, it is clear that many businesses do not yet share such an optimistic view of what the UK and its trading relationships may look like in the future.
"However, it is certainly not all doom and gloom", she continued. "Our survey also tells a story of self-help; that business confidence is built on planning and pro-active engagement. The good news is that there is still time for businesses to engage with Government and policymakers and to shape Brexit positively for their own benefit and the benefit of their customers."
Respondents to the Hogan Lovells Brexometer were split evenly across seven countries and regions: Britain, France, Germany, 'Other EU', the US, Japan and China, and represented the following industry sectors: Automotive, Diversified industrials, Energy, Financial Services, Insurance, Life Sciences and Technology, Media, and Telecommunications.
