DEERFIELD, ILL. — Mondelez International Inc. has in place an extensive contingency plan for a hard Brexit, said Dirk Van de Put, chairman and chief executive officer of Mondelez International. Steps taken by the company ahead of what could be a messy breakup between Great Britain and the European Union include the building of additional inventory and the stockpiling of packaging and ingredients.
During a conference call Jan. 30 with investor analysts, Mr. Van de Put reviewed what he characterized as worst-case scenario plans and steps the company has taken in preparation. His comments came in response to a question posed by an analyst. The call was in connection with the Mondelez financial results for 2018.
Europe is the largest market for Mondelez. The company’s overall sales in Europe in 2018 (year ended Dec. 31) totaled $10,122 million, equating to 39% of Mondelez’s total sales and 47% larger than its business in North America. Within the European market, Mr. Van de Put characterized the United Kingdom as “an important business for us” with a “good team there that’s very solid.”
“I think they’re very well equipped to weather through this situation,” he said.
The challenge for Mondelez and all stakeholders affected by Brexit is uncertainty about how Great Britain’s departure from the European Union will occur.
“We really have to prepare for the worst and hope for the best,” Mr. Van de Put said. “And the worst is clearly a hard Brexit.”
At present, the U.K. is set to leave the European Union on March 29, two years after British Prime Minister Theresa May formally notified European Council President Donald Tusk that Britain would withdraw. A British Parliament vote last week giving Ms. May the opportunity to reopen negotiations over terms of the Brexit was a hopeful sign, Mr. Van de Put said.
The difference for Mondelez between a hard Brexit and a softer one would be “huge,” he said.
Under a hard Brexit, the U.K. would surrender full access to the E.U. single market and likely would withdraw from the E.U.’s customs union, which harmonizes import duties on goods from countries outside the bloc and allows member countries to enjoy tariff-free goods transport. A soft Brexit would allow Britain to retain a considerable degree of access to the single market.
Preparing for a hard Brexit has been necessary and has required investments, Mr. Van de Put said.
“Our contingency plan is quite extensive,” he said. “And it basically is focused on the disruption and the ease of the flow of the goods. And so we’ve invested in additional resources in logistics operations. That means we’ve rented many more trucks, we’ve rented much more warehousing space, we’ve increased our inventories. We are making sure that we are capable even in difficult circumstances to maintain our customer service. And we are very focused on demand planning. And so we’ve also increased, for instance, our additional raw and packaging materials in the U.K. and in Europe.”
Mondelez has not yet accounted for the effects of Brexit in its earnings guidance for 2019, including the impact of potential jolts from tariffs, devaluations or an initial loss of consumer confidence, Mr. Van de Put said.
“But we are preparing for it, in case it would happen,” he said.
Whether there is a soft or hard exit, business will be affected over the short term and medium term.
“Over the long term, we believe that it will stabilize itself, and we will come back to where we are today,” Mr. Van de Put said.