May 16th 2019

Interest Rates and Brexit

Implications

Content

1. Interest Rates

2. FX Trends

3. Strategic Considerations

4. Brief Economic Summary.

1. Interest Rates

EUR short-term rates

EUR long-term rates

Current Yield Curves.

3-m euribor and ECB Base

-0.50

-0.25

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

3.00

3.25

01/01/09 01/01/10 01/01/11 01/01/12 01/01/13 01/01/14 01/01/15 01/01/16 01/01/17 01/01/18 01/01/19

3-month 3-year

EUR 3-year swap (10-year trend)

Daily EURAB6E3Y= 18/05/2009 - 22/11/2019 (GMT)

Line, EURAB6E3Y=, 15/05/2019, -0.2000, -0.0100, (+5.26%) Price

EUR

-0.4

0

0.4

0.8

1.2

1.6

2

2.4

-0.2000

2010 2011 2012 2013 2014 2015 2016 2017 2018 20192000 2010

EUR 3-year swap (1-year trend)

Daily EURAB6E3Y= 16/05/2018 - 04/06/2019 (GMT)

Line, EURAB6E3Y=, 15/05/2019, -0.2000, -0.0100, (+5.26%) Price

EUR

-0.21

-0.18

-0.15

-0.12

-0.09

-0.06

-0.03

0

0.03

0.06

0.09

-0.2000

16 01 18 02 16 01 16 03 17 01 16 01 16 03 17 01 16 01 18 01 18 01 16 01 16 03Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019

Irish Government 10-year gilts

Daily IE10YT=RR 16/05/2018 - 03/06/2019 (GMT)

Line, IE10YT=RR, 15/05/2019, 0.498 Yield

0.5

0.55

0.6

0.65

0.7

0.75

0.8

0.85

0.9

0.95

1

1.05

1.1

0.498

16 01 18 02 16 01 16 03 17 01 16 01 16 03 17 02 16 01 18 01 18 01 16 02 16 03Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019

Banking consequences

Macro impact on the business

Micro impact on the debt service capability of the business

Stress-testing of higher rate moves on borrowing submissions

Requirement to fix interest rates?

Higher margin (higher credit risk)?

Current Yield Curves

EUR GBP USD

3-m -0.310 0.805 2.21

2-year -0.220 0.98 2.25

3-year -0.170 1.03 2.19

5-year 0.00 1.11 2.19

7-year 0.160 1.18 2.26

10-year 0.460 1.27 2.36

2v10 spread 0.680 0.29 0.110

2. FX Trends

EUR/GBP

EUR/USD

EUR/GBP long-term trend

Daily EURGBP= 18/05/2009 - 22/11/2019 (GMT)

LineGrd, EURGBP=, 15/05/2019, 0.8681, +0.0001, (+0.01%) Price

GBP

0.69

0.72

0.75

0.78

0.81

0.84

0.87

0.9

0.93

0.8681

2010 2011 2012 2013 2014 2015 2016 2017 2018 20192000 2010

EUR/GBP since Brexit

Daily EURGBP= 01/06/2016 - 14/06/2019 (GMT)

Line, EURGBP=, 09/05/2019, 0.8630, +0.0027, (+0.31%) Price

GBP

0.76

0.78

0.8

0.82

0.84

0.86

0.88

0.9

0.92

0.8630

J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J2016 2017 2018 2019

Watch the volatility

Daily EURGBP= 16/05/2018 - 04/06/2019 (GMT)

BarOHLC, EURGBP=, 15/05/2019, 0.8681, 0.8692, 0.8672, 0.8678, -0.0002, (-0.02%) Price

GBP

0.845

0.85

0.855

0.86

0.865

0.87

0.875

0.88

0.885

0.89

0.895

0.9

0.905

0.8678

16 01 18 02 16 01 16 03 17 01 16 01 16 03 17 01 16 01 18 01 18 01 16 01 16 03Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019

Watch the volatility

0.8860

0.8732

0.8579

0.8628

0.84

0.845

0.85

0.855

0.86

0.865

0.87

0.875

0.88

0.885

0.89

jan feb mar apr may jun jul aug sep oct nov dec

2019 EUR/GBP avge rate

EUR/GBP averages….been here

before High to

EUR/GBP High Low Low % Average

2019 0.9109 0.8469 7.56% 0.8699

2018 0.9099 0.8618 5.58% 0.8849

2017 0.9306 0.8313 11.95% 0.8765

2016 0.9365 0.7308 28.15% 0.8192

2015 0.7874 0.6930 13.62% 0.7263

2014 0.8400 0.7755 8.32% 0.8063

2013 0.8814 0.8083 9.04% 0.8493

2012 0.8505 0.7753 9.70% 0.8115

2011 0.9083 0.8283 9.66% 0.8681

2010 0.9148 0.8065 13.43% 0.8579

2009 0.9519 0.8397 13.36% 0.8915

2008 0.9803 0.7388 32.69% 0.7972

2007 0.7388 0.6534 13.07% 0.6845

2006 0.7021 0.6662 5.39% 0.6819

2005 0.7043 0.6607 6.60% 0.6839

2004 0.7107 0.6541 8.65% 0.6786

2003 0.7255 0.6467 12.18% 0.6920

2002 0.6534 0.6066 7.72% 0.6288

2001 0.6443 0.5939 8.49% 0.6220

2000 0.6416 0.5673 13.10% 0.6094

EUR/USD

Daily EUR= 17/05/1999 - 02/06/2020 (GMT)

Line, EUR=, 15/05/2019, 1.1210, +0.0007, (+0.06%) Price

USD

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

1.1210

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 20202000 2010

Daily EUR= 16/05/2014 - 20/08/2019 (GMT)

Line, EUR=, 15/05/2019, 1.1210, +0.0007, (+0.06%) Price

USD

1.04

1.08

1.12

1.16

1.2

1.24

1.28

1.32

1.36

1.1210

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q32014 2015 2016 2017 2018 2019

3. Strategic Considerations

Strategy

Policy Strategy Development

Strategy Implementation

Gross Margin and FX Sales increase required to offset adverse FX moves

FX Move

Margin 1% 2% 3% 4% 5% 6%

20% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

21% 4.8% 9.5% 14.3% 19.0% 23.8% 28.6%

22% 4.5% 9.1% 13.6% 18.2% 22.7% 27.3%

23% 4.3% 8.7% 13.0% 17.4% 21.7% 26.1%

24% 4.2% 8.3% 12.5% 16.7% 20.8% 25.0%

25% 4.0% 8.0% 12.0% 16.0% 20.0% 24.0%

26% 3.8% 7.7% 11.5% 15.4% 19.2% 23.1%

27% 3.7% 7.4% 11.1% 14.8% 18.5% 22.2%

28% 3.6% 7.1% 10.7% 14.3% 17.9% 21.4%

29% 3.4% 6.9% 10.3% 13.8% 17.2% 20.7%

30% 3.3% 6.7% 10.0% 13.3% 16.7% 20.0%

31% 3.2% 6.5% 9.7% 12.9% 16.1% 19.4%

32% 3.1% 6.3% 9.4% 12.5% 15.6% 18.8%

33% 3.0% 6.1% 9.1% 12.1% 15.2% 18.2%

34% 2.9% 5.9% 8.8% 11.8% 14.7% 17.6%

35% 2.9% 5.7% 8.6% 11.4% 14.3% 17.1%

Copyright Treasury Solutions Ltd

Other Currency Strategy Considerations

Know

Currencies of exposures

Scale of exposures

Timing of exposures

Certainty of exposures (volume and timing)

Customer/supplier knowledge of FX movements (do they

seek price decreases if you have a favourable FX

movement?)

Current policy or practice

Current FX reporting content and frequency

Number and location of foreign currency bank accounts.

Borrowing Arrangements

Only tested in times of crisis – watch financial covenants

So focus on quality of arrangements

Ability to withstand a slowdown is a competitive advantage

Ability to move quickly to buy stressed businesses even more compelling an

argument

US corporate debt levels could be next “sub-prime”…global impact of this?

Refinance now to bring your business through Brexit!

4. Economic SummaryIndicator Current Level Last seen? US UK

GDP growth 3.0% Jan 2016 3.2% 0.5%

Unemployment 5.4% Feb 2008 3.6% 3.9%

Employed persons 2.272m Highest ever 156.6m 24.1m

Labour participation rate 62.2% Jul 2018 62.8 79.3

Youth unemployment 13.4% 2009 8.8% 10.6%

Inflation rate 1.7% Aug 2012 2.0% 1.9%

Govt budget (% of GDP) 0% 2007 (3.8%) (2.0%)

Govt debt (% of GDP)* 64.8% 2009 105.4% 84.7%

Manufacturing PMI 52.5 Sept 2016 52.6 53.1

Services PMI 54.7 Oct 2017 53.0 50.4

Balance of Trade +€6.2bn Jan 2019 is highest ($50bn) (£5.4bn)

Housing ownership rate 69.5% All time high is 81.8% in

2004. Lowest was 68.6% in

2015

64.2% 65.0%

Private sector credit €166.7bn% Low of €4.4bn in 1979.

Highest of €375.9bn in 2009

202.8% 229.4%

Government Debt(Source : tradingeconomics.com)

Household Debt(Source : tradingeconomics.com)

212%

111%

133%

117.2%

43.8%

Projections

2019 Budget included projections to 2023

Annual Income Tax to increase by 25% (€7bn) while VAT to increase by 40% (€4bn)

But will be 2023 before debt starts being repaid

Above includes annual interest bill falling by over €1bn

And that is before recent capital project increases

Looks too optimistic.

Summary

Expect increase in GBP volatility through to end Summer

EUR longer-term interest rates likely to remain static in 2019/20?

Identify weaknesses and fix NOW

Identify potential opportunities and act now?

Improve your banking/lender interaction – mutual dependency

Don’t hesitate to look for help!

May 16th 2019

Interest Rates and Brexit

Implications