By Robert Wall, Saabira Chaudhuri and Art Patnaude
LONDON -- Fallout from Britain's vote to break with the European
Union cascaded through the boardrooms of the U.K's biggest
businesses on Monday, triggering profit warnings from two of the
country's best-known firms and forcing executives across Europe to
rethink investment and hiring plans.
Budget airline easyJet PLC warned that consumer and economic
uncertainty following last week's so-called Brexit vote would hurt
results for its third quarter ending June 30. London-focused real
estate agency Foxtons Group PLC said its 2016 earnings would be
significantly lower than last year's. It had been forecasting a
boost in London sales on an expected "remain" vote. That "is now
unlikely to materialize," it said on Monday.
Foxtons shares plunged more than 22% to GBP1.05 ($1.43), and
easyJet shares fell by a similar margin to GBP10.62. The profit
warnings follow one Friday from British Airways parent
International Consolidated Airlines Group SA.
Other executives were already charting strategic shifts and
defensive plays. In a weekend survey of more than 1,000 members by
the Institute of Directors, an organization for company directors
and senior business leaders, more than a third of those polled said
the vote would force them to cut investment.
"We can't sugarcoat this -- many of our members are feeling
anxious," said Simon Walker, the institute's director-general. "A
majority of business leaders think the vote for Brexit is bad for
them."
Michael O'Leary, chief executive of Dublin-based Ryanair
Holdings PLC, Europe's largest airline by annual passengers flown,
said he is rethinking how to deploy new planes across Europe after
the vote.
"We are taking another 50 aircraft next year. Would we place any
of those in the U. K.? It is highly unlikely," he said in an
interview. "We will pivot all of our growth into the European
Union."
Mr. O'Leary, an outspoken advocate for the remain camp ahead of
the vote, said "there clearly is going to be a hit to U.K. GDP and
to European GDP. There is three to four months of considerable
uncertainty. The pound has fallen through the floor. It has all the
feel and hallmark of another 9/11."
It wasn't all gloom and doom. Consumer-goods companies and
pharmaceutical giants, which sell a big chunk of their products
outside Europe, are relatively protected from the weakening pound
and euro. And big oil companies, which do most of their business in
dollars around the world, lured British investors fleeing other
sectors.
Still, a quarter of directors and executives polled in the IoD
survey said they would freeze hiring and 5% said they would cut
jobs because of the vote. Roughly 22% said they are considering
moving some of their operations outside of the U.K.
In British real estate, uncertainty over a possible Brexit had
already hit the housing market ahead of the referendum. Earlier
this month, property brokers were predicting prices would fall this
summer for the first time since 2012. After the vote, analysts were
widely predicting transaction volumes and values would fall
throughout the U.K.
"The outcome of the referendum will almost certainly have a
negative impact on both prices and transaction numbers," the Centre
for Economics & Business Research said.
There were some optimists among agents. Amid a fast-weakening
pound, David Adams, the head of John Taylor's real estate office in
London, said he has made verbal agreements on GBP50 million, or
about $66 million at exchange rates on Monday, in sales in the
three days following the vote -- more than his total since the
beginning of the year.
"One person bought without even seeing the property and another,
who hasn't seen it either, is about to sign," said Mr. Adams,
adding that all five people in his office worked all weekend.
Still, "buyers will expect a seriously good deal," said Roarie
Scarisbrick, partner at London buying agent Property Vision. "A few
of our clients have asked us to put a hold on the search until they
know what's going on, while an equal number have asked us to step
it up while they monitor their currency advantage."
Multinational, consumer-focused firms are among those likely to
go unscathed from a weaker U.K. currency. Unilever PLC and Reckitt
Benckiser Group PLC both sell their wares mostly overseas, so won't
see a big hit from the falling currency in their home market.
Unilever shares ended Monday up 1.2% amid the carnage
elsewhere.
Danone SA and Nestlé SA, both based in continental Europe, also
moved higher, as investors rushed into safe-haven plays like food
and drinks firms that do a lot of business outside Europe. RBC
Capital Markets analyst James Edward Jones said the U.K. is a
relatively small market for all of them, protecting them from
currency exposure and the impact of any slowing growth in Britain
or Europe. That is the same for the two big pharmaceutical
companies based here, AstraZeneca PLC and GlaxoSmithKline PLC.
Liquor giant Diageo PLC should benefits from any sustained
decline in sterling. All of its Scotch is made in Britain and most
of it is sold elsewhere. Cigarettes are often one of the last
discretionary-spending indulgences to go in a souring economy,
providing a consistent revenue stream for tobacco companies like
British American Tobacco PLC and Imperial Brands PLC.
Royal Dutch Shell PLC and BP PLC bucked the selloff, too. They
aren't exposed to sterling or the euro, since they do most of their
business in dollars. For the two, "what it comes down to is their
revenues are largely USD based," said Jefferies analyst Jason
Gammel.
The rapid depreciation of the pound against the dollar over the
last two days also makes the companies' dividends look more
affordable, attracting investors. "Right now if you're an investor
that has to have exposure to U.K. markets you're moving into names
with less perceived risk," Mr. Gammel said.
Write to Robert Wall at robert.wall@wsj.com, Saabira Chaudhuri
at saabira.chaudhuri@wsj.com and Art Patnaude at
art.patnaude@wsj.com
(END) Dow Jones Newswires
June 27, 2016 15:33 ET (19:33 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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