Cincinnati companies bracing for Brexit impact

Experts: P&G could take the biggest hit
Cincinnati companies bracing for Brexit impact
Posted at 2:04 PM, Jun 24, 2016
and last updated 2016-06-25 08:34:41-04

CINCINNATI - Some of Cincinnati’s biggest employers are bracing for Brexit, now that British voters have decided the U.K. will exit the European Union.

Experts say the vote will mean slower economic growth in Europe and a weaker British currency, making it more difficult for global exporters like Procter & Gamble Co. to sell products profitably in the U.K.

It could also make it harder for Cincinnati-based Convergys Corp. to attract talent to its 10 U.K. locations, said Joseph Dehner, an attorney who leads the international services group for the Frost Brown Todd law firm. 

“The E.U. is not so much a trade union as a political union,” Dehner said. “It meant someone from Poland could easily go to work in Britain. Not any more.”

Dehner said Britain’s departure from the E.U. could impact the Cincinnati business units of companies based in the United Kingdom, including the market-research firm Dunnhumby and GKN Aerospace in Blue Ash.

“Britain is the number two investor in our region,” Dehner said. “Will it continue to be? It’s unclear.”

Also unclear is what impact Brexit will have on multinational firms like G.E. Aviation, which derives much of its revenue from its partnership with the French-owned Snecma S.A.

G.E. spokesman Rick Kennedy said the company is still evaluating the implications.

“The airline environment worldwide is very strong with oil prices down and passenger demand high everywhere,” he said. “Because we operate in more than 100 countries across the hemispheres, we are well positioned to operate within changing political situations.”

P&G spokesman Damon Jones offered this assessment: “P&G remains committed to serving consumers in the UK, as we have for more than 80 years.  We will work with the UK government and other organizations as needed to help ensure a smooth transition.”

Dunnhumby spokesman Brian Cavoli said the company plans "no changes to what we're doing, who we're working with and the markets we serve. The team is watching this closely."

Convergys did not respond to WCPO’s inquiry.

Dehner said all U.S. companies will face higher costs and more uncertainty, as Great Britain develops a new set of rules for its global trading partners as it prepares to exit the European Union in the next few years. He thinks Ireland could replace Britain as the biggest "gateway to Europe" for U.S. companies because of its lower tax rate, friendly immigration policies and an ample supply of English-speaking citizens.

P&G could be the local company most impacted by Brexit, said Scott Rodes, vice president and portfolio manager at Bahl & Gaynor Inc. That’s because 26 percent of its revenue comes from Europe, where some experts predict economic growth will slow from an already meager 2 percent to 0.5 percent.

“Procter & Gamble might face tougher competition from store brands,” said Warwick Business School Professor Christian Stadler in Coventry, England. “Customers are likely to turn to cheaper products during an economic downturn.”

Foreign exchange rates could complicate matters for P&G, as the company explained in detail when the Russian ruble lost two thirds of its value in 2014,

Rodes said P&G is just starting to recover from unfavorable exchange rates in Russia, Venezuela, Argentina and Japan that wiped out $1.4 billion in profits for the 2015 fiscal year that ended last June.

“This obviously does not help,” Rodes said. “For fiscal year 2017, you’ll probably see numbers come down for P&G.”