TREASURY SEMINAR

BY ROB RÜHL

Montfoort, 9th of March 2017

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CONCLUSIONS

• Adverse impact of Brexit on the UK is overstated

• Main risk is retaliation by the EU Commission

• Challenges for the EU are underestimated

• By 2020 a strong English Pound, a stronger US Dollar and a weak Euro

BY ROB RÜHL

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CONTENT

FACTS AND ALTERNATIVE FACTS ABOUT BREXIT: WHAT ARE THE IMPLICATIONS FOR THE CORPORATE TREASURER?

• Process towards Brexit

• Risks and opportunities for the UK economy

• Challenges for the EU and the Dutch economy

• Banking landscape

• Consequences for cash pooling

BY ROB RÜHL

BREXITFACTS AND ALTERNATIVE FACTS

BY ROB RÜHL

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BIGGEST RISKS UK

BY ROB RÜHL

“Supertramp: Fool's Overture

History recalls how great the fall can be. It seemed the answers were so easy to find. "Too late," the prophets (profits) cry. The island's sinking, let's take to the sky

• Uncertainty in the processtowards Brexit

• Retaliation by the EU commission

• Strengthening pound

“The island’s sinking, let’s take to the sky.”

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BREXIT PROCESS

• Article 50 proposal in EU council in March

• End of March start of a two year period of exit negotiations

• Followed by an interim EEA style arrangement (1 year)

• Breathing space tonegotiate a FTA with EU

• Start FTA with EU 2019/2020

BY ROB RÜHL

“WTOBASEDDEALISSTILLPOSSIBLE.”

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BREXIT OPTIONS

BYROBRÜHL

EEA Customs FTA with WTOUnion EU

Norwegian, Iceland

Switzerland, Turkey UK?? UK??

Free movement of Goods 3%Services negotiated negotiated negotiatedPersons

CET

Contribute to EU budget

Comply with EU laws 2% 2% 6% 13%regulations 2% 2% 6% 13%standards 2% 2% 6% 13%

Nontariffbarriers

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IMPACT OF BREXIT: ON THE U.K.

PLUS MINUS

BY ROB RÜHL

• Still trade with EU

• Low £ stimulates exports

• FTA’s with others (US)

• Business climate improves

• FDI inflow triggered

• London FC still important role

• Uncertainty

• Less (foreign) investments

• Trade diversion

• Changes financial sector

• Weak £ à inflation

• Passporting

“JAMIE OLIVER CLOSES 6ITALIAN RESTAURANTS IN UK.”

“BYE BYE BENIDORM.”

-3.5%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

Brexit sceanrio's versus base (Real GDP growth)

CustomsUnion FTA WTO

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CHALLENGES FOR THE EU

OPPORTUNITIES MINUS

BY ROB RÜHL

• Reforming EU

• Reduce size bureaucracy

• Introduce a Northern anda Southern Euro?

• Punishment of UK

• Long lasting negotiations

• Less FDI inflow

• Negative impact EU economy, trade

Loss of popular support

Main risk: it takes too long

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IMPACT OF BREXIT: ON DUTCH ECONOMY

PLUS ? MINUS in 2016 -2026

BY ROB RÜHL

WTO Compared with base case, source CPB

• Loss of GDP 1.2%, FTA 0.9%

• Sectors of industry strongly linked to the UK, highest lossesin production (5.5 – 4.5%)

• Food industry, electronic equipment, cars and car parts, chemical industry

• Services sector is less linked = less damage

• Some companies may shiftpart of their activities tothe Netherlands

TREASURY SCENARIO BY 2020

11BY ROB RÜHL

INCLUDING BREXIT

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THE TRUMP HERITAGE IN 2020

BY ROB RÜHL

• Moderate US Growth

• Government deficit up by 50% in 2020

• Inflation up but manageable

• Fed rate increased at least 200 bps

• Long term bond rate up by 90 bps

• Stronger US dollar weigh on export competitiveness

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CURRENCY AND INTEREST RATES IN 2020

BY ROB RÜHL

Eng £ under strong upward pressure, MPC kept Base rate as low possible. Yield government bonds increased

US $ still strong due to mixed bag of Trump results, gradual Fed rateincreases and higher bond yields

€ under downward pressure, ECB ‘s tapering and limited interest rateincrease. Not enough to stop weak €

”HEDGE THE EURO!”

”NORTHERN AND SOUTHERN EURO?”

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BANKING ENVIRONMENT IN 2020

BY ROB RÜHL

• Change in distribution of services between UK and EU

• Passporting of regulations

• Back to home markets and corebusiness, less risk appetite

• Competition by alternative fundingsources for corporates

• Reduction complexity of banking processes

• Participation in open banking conceptswith fintech companies

0

10

20

30

40

50

60

70

80

Bank Financing Corporate bonds

Private placements

Securitisation vehicles

New alternatives

Financing Dutch Corps

2010 2016

72%

63%

22%

33%

1% 3% 5%1%

Source:DNB2015

CURRENT SITUATION

DIFFERENT BREXIT SCENARIO’S

HURDLESEU member FTA with EU WTO Impact

Technical standards No ? Yes + or -/-

Capital restrictions No Yes Yes ?

Regulators No Yes Yes + or -/-

Taxes WHT No Yes Yes + or -/-

Taxes on X services No Yes Yes -/-

Corporate tax Yes Yes Yes +

Response EU banks No Yes Yes -/-

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CASH POOLING IN DIFFERENT BREXIT SCENARIOS

BY ROB RÜHL

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• This presentation was prepared by Rob Rühl, Director of Next Markets Advisory. The views expressed in this presentation reflect the personal views of the author. The presentation was prepared at the request of PowertoPay solely for the information of its clients. It contains no investment advice or an offer for the purchase or sale of any financial instrument or product. The information contained herein is not untrue or misleading at the time of presentation. The information contained herein is subject to change without notice. The author cannot accept any liability for any direct of consequential loss or damage arising from any use of this presentation or its contents. Copyright protection exists with respect of the contents of this presentation. Therefore nothing may be reproduced, distributed or published by any person for any purpose without prior written consent of the author.

• Main source of information: Oxford Economics, OECD and IMF several publications