AFR Weekendhas been speaking to a cross-section of the Australian business community in Britain, and – to our surprise – found a significant amount of old-fashioned Aussie optimism. Companies are quietly making what sound like pretty rigorous preparations, while the senior sages of the expat business network are confident the storm – if there is one – can be ridden out.
The most irksome aspect of Brexit, most of them say, is that nobody knows when it will happen, or how.
“The only certainty about this is the uncertainty. Nobody knows what happens next or how this story ends,” says Adelaide-born Bill Muirhead, a founding director of advertising agency M&C Saatchi.
Phil Aiken, an Australian company director who chairs Britain’s biggest construction company, Balfour Beatty, sees the uncertainty and distraction as a bigger concern than the actual arrival of Brexit itself.
“There will be some issues at the ports, I expect, but I don’t think the world will end the day after Brexit,” he says. “My biggest concern is uncertainty. My other big concern is that the government is paralysed – parliament is spending all its time on Brexit, and important decisions are not being made.”
Dick Porter, a London-based company director who founded STA Travel, fears there could be a post-Brexit recession, but expects Britain will demonstrate its usual grit and resilience in the face of adversity.
But he worries, as does Aiken, that the downturn could usher in a government led by socialist Opposition Leader Jeremy Corbyn. “It’s the political disruption that concerns me, really – who will be in charge if there’s a hard Brexit.A lot of people are frightened of Corbyn, they are making plans accordingly.”
That scenario aside, Porter says his conversations with fellow countrymen have been relatively upbeat. “I’d say Australians remain fairly bullish. We’re quite arrogant, we believe in ourselves and see the potential opportunities irrespective of Brexit – in education, defence, infrastructure, technology, especially fintech,” he says. “We’re seeingsignificant numbers of young Australians coming over here in the tech area. I can’t see that slowing up.”
Michael Wallin, a partner at law firm Minter Ellison’s London office, says that if Britain sees Brexit as a chance to deregulate and become more competitive than the EU, then ultimately the impact “could quite possibly end up just being a rounding error, with some opportunity”.
But he warns that Australian companies do have to take steps to prepare themselves. Some exporters who ship to Europe from a British hub may have to reconsider where their landing point is for Europe-bound goods.
Winemakers, who bring £2.2 billion of wine into Britain each year in bulk and then bottle it for European export, are alreadymulling their longer-term logistics options.
“The UK has traditionally been a great launch pad for access to European markets. That might change a little bit. New entrants from Australia might reflect more on where their ultimate markets are,” he says. “But there are so many other factors to consider, like tax rates and employment law in those countries.”
Elizabeth Ames, executive director of the Australia-UK Chamber of Commerce in London, says some Britain-based Australian companies are already having to bulk up in Europe, particularly in financial services.
“Some of our members have opened satellite offices in Europe, while others are still taking a wait-and-see attitude because of the ongoing uncertainty,” she says.
“For SME and start-up members with the Chamber, who might only have a few staff on the ground in the UK, the logistics and cost of running an additional office in the EU probably don’t yet justify a move.”
Thebanks and financial services companies have had to be first out of the block, because they need to ensure they can still service their EU client base after Brexit – and securing a banking licence is a slow process.
For most of them, it’s still a work in progress. Westpac said it “has plans” to set up a subsidiary office with a full banking licence in Frankfurt; Commonwealth Bank “is working with Dutch and European authorities” on an office in Amsterdam. National Australia Bank “is considering” a presence in Paris. Macquarie Group hasapplied for a full banking licence in Ireland. You do wonder if they are sweating on the possibility of a hard Brexit on March 29.
“We’re very much hoping that there will be a transition period that will take the urgency out of this,” one Australian banker admits.
The asset manager Janus Henderson is hiring “a handful” of new staff for its office in Luxembourg, which opened back in 1985, a company spokeswoman says. This will “provide additional oversight of our activities in continental Europe”. The company has a project underway “looking at all possible Brexit impacts including distribution, regulatory permissions and licences, HR, IT and operations”.
Meanwhile,QBE Insurance seems to have got the jump on the others, announcing recently it had secured court approval for its plan to radically restructure the European business. It has set up a new legal entity, QBE Europe, based in its existing office in Brussels, which will take over all EU-facing insurance business from the London office.
For other companies, the challenges are less on the regulatory front and more on logistics. Pallet supplier Brambles’ turnover in Europe was US$1.55 billion ($2.27 billion) in 2017-18, although most pallet movements were in-country – only 10 per cent of the volume related to EU-Britain cross-border flows.
The company has appointed a Brexit director and set up a Brexit taskforce. A spokesman says Brambles is working with British and European governments and its customers to try and keep a lid on post-Brexit supply-chain disruption. It’s also carrying out scenario planning for the impact on its own supply chain and operations.
Transport and logistics companyToll Group says its haulage partners in Europe have contingency plans in place and are preparing for a range of Brexit scenarios.
“While we expect minimal impact on our day-to-day operations, the ongoing uncertainty is not good for global trade or economic growth,” says Mark Kurzeja, Toll’s UK vice president.
In other sectors, the main worries are currency depreciation and the impact on Britain’s domestic economy. Qantas, for example, could take a hit if British holidaymakers stay home – which might put a brake on any short-term moves to expand its currently popular direct flights.
Investors in commercial property development and infrastructure may also feel the impact of any downturn. IFM Investors owns an airport company and AustralianSuper has committed $1.7 billion to a pair of mixed-use property development sites in London – but neither would comment for this story. Last year IFM chief Brett Himbury said the fund was considering taking out political risk insurance for Brexit and other geopolitical uncertainties.
Over atLendlease, areport this week from Bank of America Merrill Lynchsuggested the economic and currency headwinds from Brexit were part of a deteriorating outlook for the developer. But the company’s European boss Dan Labbadrecently toldThe Australian Financial Reviewthat Lendlease had structured its operations to minimise that risk.
“A lot of our schemes are such that we’re not having to make big commitments until the market economics are proven,” he said. “We haven’t gone and bought up large tracts of land across London. We’re not building residential speculatively or commercial speculatively at any scale.”
Finally, there are Australian companies whose biggest problem could be hiring and retaining staff when EU nationals can no longer freely settle in Britain. Although Ramsay Health Care’s local CEO Andy Jones said last July that he hadn’t yet felt any pressure, the public health system, the NHS, has repeatedly voiced concerns about a looming shortage of medical staff.
On the plus side, tighter rules for EU nationals might level the playing field for Australians wanting to live and work here. “Movement of people is the key issue, the freeing up of that could encourage more Australian investment,” Porter says.
The overall picture seems to suggest that Australian companies, at least in public, have adopted the British mantra of Keep Calm and Carry On – a striking contrast to therampant pessimismemanating from the British business community. Could Australian lips really be stiffer than their British cousins?
Muirhead, the ad man, can be relied upon to put a positive Aussie gloss on it: “Whatever happens, it’s still an opportunity,” he says. But even he can’t completely paint over the cracks: “There could be a long period of pain. But this country always manages to muddle through.”