UK-dependent U.S. companies downplay 'Brexit' worries

[June 21, 2016]  By Noel Randewich and Nick Carey

(Reuters) - U.S. companies which depend on the United Kingdom for sales are downplaying the risk that a vote by Britain to leave the European Union could seriously harm their businesses, even as economists and Wall Street have expressed concerns about the trans-Atlantic economic impact.

Britain, the fifth-largest buyer of U.S. exports last year with an estimated $56 billion in purchases according to the U.S. Census Bureau, is scheduled to vote on Thursday to determine whether it should stay in the European Union or withdraw.

Leaving the EU could hit the $2.9 trillion British economy with a sharp economic slowdown, some economic forecasters say, and bring a devaluation of the pound <GBP=> - a scenario that would inevitably hit U.S. exporters.

But American companies relying on UK sales, including Molson Coors, Penske Automotive Group Inc <PAG.N> and PPL Corp, a Pennsylvania-based power company, have downplayed the impact a so-called Brexit vote would have on their business.

After polls a week ago indicated dramatic gains by the "Leave" camp, Brexit has become a central question posed on calls and at investor conferences.

Campaigning for the June 23 referendum resumed on Sunday after a three-day suspension following the killing last week of British lawmaker Jo Cox, and three polls at the weekend showed the "Remain" camp gaining momentum. The killing of Cox has shocked Britain and could yet prove a defining moment in a vote that will shape the nation's role in world trade and also determine the future of the bloc.

In the first two weeks of June, the British referendum was discussed at least 20 times on quarterly conference calls and events held by publicly-listed U.S. companies, double the amount the previous week, according to Thomson Reuters data.

During those appearances, U.S. corporate executives have said the effect would be mainly one of temporary or hedgeable currency risk, and that they would have plenty of time - estimated at two years - to plan for an actual exit.

The most recent polls and betting odds now indicate a greater likelihood that British citizens will vote to "Remain," or stay in the 28-country trade and political union, and Wall Street fears - made manifest in falling stock prices last week - eased as stock indexes ended higher on Monday. [.N]

A vote to leave the EU could cut the 2017 growth rate of Britain's economy from 2.4 percent to 0.2 percent, said Howard Archer, chief UK and European economist at IHS Global Insight.

"You would also see a sharp loss of momentum in consumer spending and you could also see a marked downturn in the housing market," he told Reuters.

LAGGING IMPACT?

But even such an impact would not be equally bad for all U.S. exporters, as many Britons would still drink beer and fix their cars.

A branded balloon and mug are seen in the office of pro-Brexit group pressure group "Leave.eu" in London, Britain February 12, 2016. REUTERS/Neil Hall

Molson Coors Brewing Co. depends on Britain, where its sells Carling and other beers, for about a third of its sales, a larger percentage than any other S&P 500-listed company that reports revenue by country, according to S&P Global.

"I don't think it will affect any real demand patterns in the UK, which is clearly what we're really interested in," Molson Coors' Chief Executive Mark Hunter said during a conference call in May, though he allowed that there could be a transitory currency impact.

Penske Automotive, which relies on the United Kingdom for about a third of its sales, already calibrates many of its costs there in sterling, muting potential foreign exchange volatility, said Anthony Pordon, executive vice president of investor relations.

Furthermore, Penske's service and parts business tends to perform well during economic downturns as people hold on to their cars longer.

Lisa Pammer, investor relations manager at power utility PPL, said she has been fielding calls over the past week from concerned investors. Since selling electricity in Britain accounts for almost a third of PPL's revenue, it has hedged its foreign exchange risk through 2017.

Leading package delivery company United Parcel Service Inc, which has been expanding its European operations, would expect few changes in the short term from a "Leave" vote since an existing treaty allows Britain two years to arrange its departure.

"We're in unchartered territory," said UPS spokesman Richard Currie. "Negotiations would have to start fairly swiftly, but we would have two years for those negotiations to take place."

(Reporting by Noel Randewich in San Francisco and Nick Carey in Chicago; editing by Linda Stern and G Crosse)

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