Brexit: What impact are IROs feeling so far?
This article was produced in association with ELITE Connect. It was originally published on the ELITE Connect platform.
It’s now been three months since the UK public voted to leave the EU and, with little sign of an imminent Brexit date from government, IROs face the challenge not only of uncertainty in terms of a leave date itself, but also what the impact will be when it finally happens.
John Dawson, director of IR at Rolls-Royce, observes that this waiting game is a hot topic for investors, but that there has been little effect so far on the company. ‘Clearly, Brexit is coming up in conversation, mainly to clarify likely impact and timescales,’ he says. ‘For a large UK-centric industrial business like Rolls-Royce, the impact will not be felt immediately. Indeed, we’re largely protected through hedging from the short-term fluctuations in currency, although reported profits will obviously benefit from a weaker pound in the near term.’
A senior retail IRO who attended a recent IRO discussion focusing on the implications of Brexit also finds that uncertainty is one of the main themes, but observes that different industries face different challenges: ‘The general view from the IROs is that it has certainly increased the level of uncertainty for many investors across the market, but that the precise implications are quite industry-specific. As a specific example in the retail sector, while it would be wrong to second-guess exactly what the outcome of various changes to the free movement of goods and labor might be as a result of Brexit, it could be helpful to provide more insight into the underlying drivers – for example, the percentage of products sourced from overseas.’
Dawson agrees that uncertainty around Brexit is a challenge and that investors are already thinking ahead about specific industry issues. ‘The key near-term issue is uncertainty, particularly around trade structures that can be very problematic in this industry because export controls and counterparty considerations are very important,’ he explains. ‘As a result, while unlikely to change long-term behavior, the overlay of extra work and discussion could be burdensome. Looking ahead, investors are interested in the likely impact on investment, competitive advantage and, longer term, government support for R&D and order book trends.’
For the time being – and until IROs have a date and timeline to work to – less can be more in terms of communication and speculation, as David Walker, head of IR at Hays, observes: ‘I don’t think much has changed for IROs post-Brexit. Certainly in our case, we’ve seen a major share price move and a significant increase in investor demand for dialogue. But for us, it continues to be the case that we are open and responsive to all of these demands, and we are telling people like it is.
‘The danger in such a short-term business like ours, though, is the temptation to over-communicate, to extrapolate long-term trends and guidance from very short-term business patterns. It is still very early days, so this could prove misleading (either positively or negatively) and would be inappropriate and ultimately, unhelpful.’