Future imperfect

09/09/2016 - 07:29
The UK may have made up its mind to leave the EU, but the reality for the catering and hospitality industry is that it now faces more of the same uncertainty that characterised the period in the build-up to the vote. David Foad reports.

In the strange, quantum-like atmosphere of the post-Brexit-vote world, it seems that two contradictory statements can simultaneously be true – everything has changed and everything is the same.

The Vote Leave campaign won the day in the referendum to decide the question: ‘Should the United Kingdom remain a member of the European Union or leave the European Union?’.

Financial markets and stock exchanges wobbled dramatically the day after the vote, and the pound plunged in value against the dollar and the euro, while the latter also saw losses. Prime Minister David Cameron announced his resignation, and EU leaders expressed their surprise and regret at the decision.

Within ten days, though, many of the most extreme market reactions had subsided; Cameron was still PM; and German Chancellor Angela Merkel, the most influential of the EU leaders, said: “The vote is not a reason to be in some way nasty in the negotiations. Great Britain will remain a close partner with close economic ties to us.”

While the FTSE 100 is on the way to recovery and the pound did at first slip to $1.32 against the dollar from a pre-vote high of $1.48, this value had been artificially inflated on a market expectation of a Remain vote win. The longer-term value over the first six months of 2016 has been closer to $1.40 – down but not markedly so.

The FTSE 250 index, which includes more UK-focused companies, did plummet in the immediate aftermath but, like the pound, it was affected by a similar pre-vote belief that Remain would win, which raised the index sharply the day before the referendum and served to accentuate the steepness of the drop that followed. A week later, though, it was at 16,468.49, close to its six-month average for this year.

So, what exactly is different for the UK generally and, more specifically, for the catering and hospitality industry?

The vote was to leave, and the first tentative steps on that journey taken. At the same time, Article 50 of the Lisbon Treaty has not yet been invoked and, with the markets calming, there is a feeling that, while we are on the way to the door marked exit, we’ve set off at little more than a dawdle at the moment. The UK is in something of a state of limbo right now – out, but in.

The initial reaction from industry leaders was to appeal for calm, play down the extent of any immediate changes and urge that the government act to reduce the sense of uncertainty in the business world.

Neil Murray, regional chairman for Sodexo UK & Ireland, said: “As a global company that operates within 22 EU member states, we would have preferred for the UK to stay part of the union. However, we do not believe that leaving the EU will have a major impact on our business.

“Sodexo has operated in the UK since 1988 and employs 34,000 people across the region. As a services company, most of our client relationships operate on a market-by-market level. We are a local player in the UK and work with local suppliers and local employees.

 “The UK is the first country to decide to leave the EU, so it is unclear how this will take effect. However, we remain confident in the sustainable growth of Sodexo across all our geographies, and it will continue to be business as usual in the UK.”

But there is no doubting that business leaders believe the decision to leave the EU will give them cause to consider their next moves very carefully.

On the day of the referendum vote, Philippe Salle, chairman and chief executive of Europe’s third-largest catering group, Elior, told Reuters he expected to make at least one acquisition in the US and one in the UK before the end of the year.

He said Elior was in advanced talks with several companies in Britain but had avoided taking decisions before the referendum “as the result could affect valuations”.

“Before signing, we need to know what is going to happen with the vote because it will have an impact on the value of the pound,” he said in an interview.

He told UK investors last year that he believed Elior could become the third-largest contract caterer in the UK after Compass and Sodexo, against its current ranking of fifth. This would be achieved on the back of a UK performance that would see its sales contribute 10% of group turnover by 2020, up from the current figure of 7%.

Campaigning before the vote, Chancellor George Osbourne warned that leaving the EU could cost the UK 400,000 jobs. In particular, he highlighted the threat to the services market, which employs more than 25 million people across retail, hospitality, transport, professional and financial services.

In response, leading players in the sector signed a statement backing a remain vote, including Glenn Earlam, chief executive of David Lloyd Leisure, and Compass Group’s chairman and chief executive Paul Walsh and Richard Cousins, both of whom signed in a personal capacity.

Britain is the world’s second-largest exporter of services in the world, and a recent report by Frontier Economics for business organisation London First indicated that £68 billion of service exports could be at risk from the Brexit decision.

Their fears are borne out in a survey of sentiment among UK facilities management (FM) firms that was carried out in April by Sheffield Hallam University. When asked what they considered to be the FM game-changers in the next five years, changes in legislation as a result of Brexit were mentioned as a key issue.

Some, though, are making an effort to see the opportunities offered by the decision to leave.

John Whittingdale, secretary of state for culture, media and sport, speaking at a British Hospitality Association (BHA) summit in London after the vote, said the decision could lead to abolition of VAT on tourism.

“If we wanted, for example, to abolish VAT on accommodation or attractions, we could now do so. We couldn’t have done when we were in the EU.”

The remark was echoed by Nick Varney, chairman of the BHA and chief executive of Merlin Entertainments, who said: “Tourism and leisure can continue to grow under Brexit. Initially, a weaker pound will encourage visitors and also exports will flourish.

“We should seize the moment and lock in that competitive advantage with a permanent cut to VAT for accommodation and attractions, and possibly, in the future, for restaurants.”

Varney is a leader of the Campaign to Cut Tourism VAT, which calls for the government to reduce the rate of tourism VAT from 20 to 5%.

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