Brexit Fears and Weak Pound Weigh on Corporate Europe

By Robert Wall 

LONDON--The fallout from last month's Brexit vote is starting to pile up for Europe Inc.

On Wednesday, European budget carrier Wizz Air Holdings PLC said it would cut the number of seats it planned to add to routes to and from the U.K. because of the lower pound. Appliance maker Electrolux AB and Groupe Eurotunnel SA both said the weaker pound would hit earnings.

Uncertainty over how Britain will disentangle itself from the European Union is clouding corporate forecasts. But the sharp drop in the pound after last month's Brexit vote is already having short-term effects across the continent.

Many companies stand to gain from the falling pound. Investors have bid up shares of several big, British-listed firms that earn most of their revenue outside the U.K., like drinks maker Diageo PLC and pharmaceuticals giant GlaxoSmithKline PLC.

But for many European firms dependent on the U.K. for revenue, the falling pound is turning into a headache. The British currency fell to a 31-year-low against the dollar after the June 23 referendum. On Wednesday, sterling was still more than 8% lower against the euro and down more than 11% against the dollar.

Wizz Air, based in Budapest, Hungary, said it would cut capacity-growth plans on U.K. routes because of the currency rout. The fast-growing carrier, one of Europe's lowest-priced airlines, said it would add just 15% more seats for the U.K. market during the winter season, instead of the planned 30% increase. Chief Executive József Váradi said the decision was currency related, and wasn't based on worry that passengers would stop traveling to and from Britain.

The airline takes in a chunk of revenue for U.K. inbound and outbound flights in pounds. It said it would shift plans to add seats on routes previously earmarked to serve the U.K. to other locations.

Jonas Samuelson, chief executive of Swedish household-appliance maker Electrolux AB, told analysts the British construction industry was more cautious after Brexit and that is expected to affect demand for Electrolux products.

"Our biggest job is to compensate for the currency impact," he said after the company reported earnings for the second quarter ended June 30. Electrolux said it is bracing for a tougher third quarter, when the effect of the weaker pound will stretch out over three months and as currency hedges it has in place unwind.

Groupe Eurotunnel SA, operator of the Channel Tunnel that links Britain with France, said that weakness in the pound knocked earnings before interest, tax, depreciation and amortization, by 2% in the first half. Stripping out the impact of foreign exchange, earnings would have risen 4%, the company said.

Matthias Verbergt

in Stockholm; William Horobin and

Thomas Varela

in Paris contributed to this article.

Write to Robert Wall at [e-mail]

(END) Dow Jones Newswires

July 20, 2016 09:21 ET (13:21 GMT)

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