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British companies prepare for long night to possible Brexit

Fri, 17th Jun 2016 06:01

* Britain holds EU membership referendum on June 23

* Momentum swings in polls towards "Leave" campaign

* Brexit would be expected to roil currency markets

* Brexit could affect trade, economy and migration

By Martinne Geller and Kate Holton

LONDON, June 17 (Reuters) - British companies are preparingfor the possibility that the country will vote to leave theEuropean Union with extra funds, pre-written statements andplans for late-night vigils by teams of consultants.

In the final week before Britain's June 23 referendum on EUmembership, the prospect of a "Leave" vote has come into sharpfocus, prompting a last-minute flurry of preparations in thecorridors of "UK PLC".

Much of the focus is on communication -- how to assure customers, employees and investors that there will be near-termbusiness continuity in the event of an "Out" vote. Britain wouldhave two years to negotiate its exit, or "Brexit", from the28-country bloc.

Treasury departments will also be working overtime because avote for a Brexit would be expected to roil currency markets andhave major consequences for trade, the economy and migration inBritain and elsewhere.

Many companies have yet to work out detailed plans, as anypost-Brexit picture is unclear and opinion polls had untilrecently suggested the "Remain" camp was comfortably ahead.

But some have sprung into action since the momentum in thepolls swung towards the "Leave" camp in the latter stages ofcampaigning, which was suspended on Thursday after a Britishlawmaker was killed.

"The nearness of the vote and sudden increased likelihoodof Brexit has definitely sharpened client appetite for draftstatements," said a senior executive at a public relations firm,one of three who said this week there had been an increase inclient requests for communications advice.

As of February, more than three-quarters of Britain's FTSE250 companies had not made any contingency plans for a possibleexit, according to a survey published in April by the CharteredInstitute of Internal Auditors.

More than 60 percent said they planned to do so, but theuncertainty at that time made it impossible.

STERLING SWINGS

For many export-orientated multinationals in the FTSE 100index, violent currency swings on the morning of June 24 are thetop concern.

"The biggest short-term impact and the biggest headache forus is going to be sterling," said the head of strategy at onetop-10 FTSE company.

While chief executives generally back "Remain" on thegrounds that unfettered access to Europe's market of about 500million consumers is good for business, a short-term fall insterling on a "Leave" vote would make exports cheaper and couldboost sales, while a "Remain" vote could see the currency jump.

Either way, it spells volatility for sterling-denominatedearnings at businesses including engineering firms Rolls-Royce and BAE Systems, pharmaceuticals giantGlaxoSmithKline, drinks group Diageo, andBritish American Tobacco.

Richard De Meo, managing director of Foenix Partners, aforeign exchange specialist for British companies, said manycorporate treasury departments were now escalating currencydecisions up the chain of command.

"There can be serious business risks to them sticking tolong-term policies in a situation like this. They are incommunication with the chairman, the MDs (managing directors),the board," he said.

Some companies have also been keeping open lines of creditin case Brexit-related volatility increases their need for cash.

Vodafone, which boosted its short-term borrowingcapabilities this year during merger talks with U.S. cablecompany Liberty Global, has said it is grateful it has thatfunding in place for now.

"Once we're through uncertainty, you would expect the(commercial paper) to drop down," Vodafone CFO Nick Read toldanalysts in May. "There's no other uses of cash. It's just more,I would argue, timing and tactical."

NOT "A HOSTILE ACT"

Several executives said they were concerned about managingrelations with international employees, customers, suppliers andshareholders immediately after the results are announced on June24. While there were no plans to issue public statements to thestock market, several executives said they would be likely tocommunicate with stakeholders in the event of a Leave vote.

"I would want to reassure our European partners that this isnot something they should regard as a hostile act," said MilesYoung, chairman of advertising agency Ogilvy & Mather, part ofBritish group WPP.

Another senior FTSE 100 executive told Reuters the companywould bring in external lawyers and consultants on June 24 forbackup, if this was necessary.

"One thing we need to do immediately is to engage in a veryserious dialogue after the 24th with customers to identify bothopportunities and challenges in the ongoing relationship," saidthe executive. "They may say 'come back in two years to talk tous' or they may want to talk then."

One senior executive at a public relations firm said heplanned to stay in a central London hotel the night of June 23to be close to the office.

He also expected most of the firm's public affairs team towork late on June 23 and come to work early on June 24 to watchand analyse the results on behalf of multinational clients.

"As their public affairs eyes and ears, they're expecting usto do ... most of the watching and analysis for them," he said."I'm not telling people they have to stay on the floor oranything, but if they can get in earlier than usual, that wouldbe helpful."

After issuing weekly bulletins to clients in the last fewmonths, he said he would update them shortly after the pollsclose at 2100 GMT on June 23 and then again around 0600 GMT thenext day.

In the financial services sector, where a Brexit vote willecho the loudest, large banks including Citi and Goldman Sachswill have senior traders working through the night, which is setto be among the most volatile 24 hours for markets in a quarterof a century.

A FTSE 100 finance director said there would also be concernabout what a Brexit would mean for the rest of the EU.

"We will have to reassure clients," the director said. "TheEU is worried. We are an important part of it and you risk adomino effect. We're in the hands of the gods."

(Additional reporting by Patrick Graham, Ben Hirschler andSarah Young, Editing by Timothy Heritage)

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