Fri, Dec 08, 2017 - Page 10 News List

Companies prepare for disorderly Brexit

Reuters, LONDON

Big companies are stepping up their plans in case Britain crashes out of the EU without a deal as British Prime Minister Theresa May struggles to get talks back on track after a major setback.

Senior executives in the UK’s financial services sector, which accounts for about 12 percent of the economy, said May’s efforts to secure a transition deal had come too late and that they had no choice but to start restructuring.

Big supermarkets such as Tesco PLC and Sainsbury’s PLC have been working with suppliers to identify potential delays, shortages or price rises.

They have lined up alternative providers, suppliers and sources in the industry said.

The uncertainty is particularly painful for the manufacturing sector as low margins make it risky for them to restructure unless it is essential.

They have been holding off on investment, but are preparing for new certification that would allow them to sell in Europe if there is no deal.

“The delay is so great and the uncertainty is so great that companies have no choice but to start triggering their plans,” the head of one of Britain’s largest companies said.

Britain and the EU are working to get talks back on track this week, but executives of one large international bank had decided to plan for the worst, the company’s chairman said in a conference call on Tuesday.

“The question is no longer whether we are moving [operations to the EU], it is a question of how big those moves are,” he said.

The bank has started discussions with customers about rerouting client activity to European hubs, including rewriting thousands of contracts, the chairman said.

Senior employees were told last month if they had to relocate to Europe, he said.

Another senior executive at a large US bank said that he was increasingly concerned that May’s government could collapse after the Brussels talks broke down over a dispute about the Irish border, adding to the uncertainty.

“We are at the maximum point of danger,” he said.

The financial sector needs extra time to make sure its clients are prepared. For instance, a British bank opening a subsidiary in Europe might need its clients to adopt a new sort code throughout their own supply chains.

In other sectors, companies are making smaller changes that would enable them to operate in Europe after Brexit, from preparing compliance changes to drawing up shadow supply chains and looking for additional warehouse space.

Food retailers are lining up alternative suppliers in Britain or outside the EU in case delays at borders or new tariffs disrupt deliveries. About 30 percent of Britain’s food supplies come from the EU.

Ireland provides almost 70 percent of UK beef imports, or 270,000 tonnes a year. Were tariffs or border delays to make Irish beef less competitive, supermarkets could look further afield, for instance to Argentina.

Many manufacturers are unwilling to sign off on new plans until they know how Britain will trade in the future.

The drugs sector has been among the first to move so that they can comply with EU regulations. GlaxoSmithKline PLC and AstraZeneca PLC have already set up new facilities in mainland Europe to test batches of drugs made in Britain.

Auto and aerospace firms are focusing on certification.

Some companies are considering applying to the European Aviation Safety Agency for a status that would enable them to sell in the EU if Britain was no longer a member state, said ADS Group Ltd, the aerospace and defense trade body.

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