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Prepared for the Grexit?

The odds on a Greek exit from the euro are shortening, but many UK businesses could be caught out

Tom Bawden
Friday 18 May 2012 19:09 BST

Despite the doom and gloom surrounding the future of Greece and the eurozone, UK plc looks like it could be in for a rude awakening. Against a backdrop of an increasingly likely Greek exit, which the CBI director general John Cridland warned this week would hit Britain like an "earthquake", alarming new research shows that the majority of UK businesses that would be affected by the "Grexit" have made no contingency plans.

The electrical goods retailer Dixons may be drawing up high-profile plans to shut its Kotsovolos stores in Greece and protect itself against civil unrest, and the household products group Reckitt Benckiser is sweeping euros out of its accounts more frequently than before. But companies taking significant proactive measures such as these are in the minority and tend to be confined to the bigger groups.

Many more British businesses with significant suppliers, customers, operations or contractors in Greece could be in for a huge shock if the country leaves the eurozone.

Some 52 per cent of British companies with this kind of exposure to Greece have taken no action to mitigate it, while many that have, have only tinkered around the edges, according to new research from ICAEW, the association for chartered accountants.

"Yes, this report is certainly alarming, although it is quite difficult to know what to do," said Clive Lewis, ICAEW's head of enterprise.

Mr Lewis said that to make matters worse: "As far as Greece is concerned, companies are almost past the point where much can be done now. But we would urge companies that trade with Spain, Portugal and Italy to take precautions because they could be next."

Among those British companies that are taking measure to mitigate any potential the fallout from Greece, 11 per cent are preparing exit strategies, while 15 per cent are cutting jobs.

Another 11 per cent are looking to sell their eurozone businesses and 19 per cent are more frequently converting their euros into pounds or dollars. The biggest proportion – 23 per cent – are building their cash reserves.

It is not only British goods and services providers that stand to lose heavily from the eurozone crisis. Pension and insurance funds, banks and wealthy individuals have billions of pounds of cash which they need to find a home for, and much of it is invested in euro-denominated assets such as shares, bonds and Greek debt. These stand to lose much of their value if Greece exits the currency and the euro tumbles.

Gemma Godfrey, the head of investment strategy at the London wealth manager Brooks Macdonald, said: "As the eurozone crisis has intensified, concern among our clients has been growing. Contagion is a real risk."

However, although the major UK institutions are collectively likely to lose tens of billions of pounds from a Grexit, Ms Godfrey said financial institutions, which specialise in looking into the investment future, have been taking steps to mitigate the damage since last year. As have some of Britain's biggest companies.

Vodafone's chief financial officer Andy Halford said in Feburary that it had started to move cash out of Greece and into the UK "every evening".

Mr Halford said the company, which is the third biggest mobile operator in Greece, has looked at a switch to billing in a different currency.

GlaxoSmithKline, the drugs maker, and the advertising group WPP have indicated that they have taken similar measures. In March the ABTA and AITO travel and tour operator associations wrote to the then Greek prime minister urging "immediate action" to correct the impression that the country is a "war zone" as bookings to one of Britons' best loved destinations tumbled.

Inevitably, there are a few winners from Greece's woes.

On Monday, De La Rue, the banknote printer, saw its shares shoot up after the chief executive, Tim Cobbold, said the crisis "can create opportunities for us", possibly through printing drachma notes if the currency was reintroduced. The next day, Nick Buckles, the chief executive of G4S, said his security company's cash-handling operation, which does a lot of work for Greece, would benefit if it left the euro and re-adopted the drachma.

"Basically we would be involved in the whole roll-out of the currency," Mr Buckles said. Yesterday, Euromoney, the financial arm of Daily Mail & General Trust, added itselfto the list of potential Grexit beneficiaries.

Colin Jones, the group's finance director, said: "Volatility of currencies is not a bad thing. It's probably another conference we want to run or something like that... making money from adversity."

As if to underline the casino-like aspect of the Greek meltdown, the growing odds of a Grexit rise – going from an already likely 1 to 4 on Friday to a probable 1 to 8 now at William Hill – are presenting an ever-greater opportunity for the bookmakers to make money and advertise their services.

"We are seeing an opportunity to spread the word about what we do. It's a business opportunity for us," a William Hill spokesman said, adding: "We are not accepting drachmas yet, but we might be at some point."

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