Post Brexit Implications for your business

Brexit risk remains strong as pressures grow

• For now, issues such as interest rates, growth, what consumers are doing and other cyclical factors are being put aside as we focus on the deeper more structural issues such as the twin current and fiscal deficits and the relationship that the UK will eventually hold with the Single Market. To look at the data calendar and think that inflation, retail sales or employment will give GBP a meaningful bounce is misguided we think.

• The UK economy is bearing up well from the vote but given we haven’t left anything yet, that is not a drastic surprise.

• The gun is loaded but we will have only have to wait until the end of March next year for the shot to be fired; Brexit will begin in 2017 and all things being equal therefore the UK will no longer remain part of the European Union by Q2 2019.

Brexit risk remains strong as pressures grow

Brexit risk remains strong as pressures grow

• Difficult to see a world within which the pound has hit its bottom. Obvious risks remain to all forecasts with political risk increasing in the US as we close in on the Presidential Election.

• We raised the possibility of a ‘sterling crisis’ pre-Brexit vote; a crisis is defined as a fall of more than 15% in a year. GBP on a trade weighted basis is down 18% as of Friday night.

• I'd be surprised if we didn't bounce in the coming week given how much panic and outright speculation is in the price although I think that there is no reason to buy the pound save the fact that it is 'oversold'.

• Expectations of a continued collapse in sterling and a delayed recession in the UK cannot be underestimated.

Why is it particularly relevant for businesses that want to export?

Foundations are laid 1/3

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GBP close to 24 year lows

1990 2016

Key drivers of currency volatility

Interest rate differentials

Financial (in)stability Commodities Open

markets Order flowPolitical risk

UK political risk & the poundGBP is the most political currency

1/2/09

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Trade Weighted Sterling

The global view of the pound

2009 2016

A few 2016/17 risks for you…

Brexit US election

European elections China Fiscal

policy

What does this mean for SMEs across their business?

Transactional Translational Credit Risk Liquidity Risk

Forecasted FX Exposures

Balance Sheet Adjustments Default Risk Liquidity Events

Accounts Payable Foreign Assets / Liabilities Concentration Risk Margin Calls

Accounts Receivable Tax Obligations Counterparty Risk

Capital Expenditure Foreign CCY Loans

Significant Company Purchases / M&A

Risks

What does this mean for SMEs across their business

Visibility of budgets

Knowledge of supplier

terms

Hedging programme

sFlexibility

Strategy overview

What do I want to

do?

What is optimal?

Product choice &

split

Financial position & stability

Internal policy

The 70% rule

“The biggest risk is not taking any risk… In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”

Mark Zuckerberg

Risk

Now!• Motivation• Hurdles/Risk• Exchange rate benefit• 20% sale• Now is the best time to start

exporting… ever!