4.

0 Impact of Brexit on our Company

First of all, the potential impact of Brexit in Malaysia, can be determined by its effect in EU
markets and how the EU-UK relationship will be like afterwards. More clearly, the potential
impact of Brexit in Malaysia is low but it`s anticipated to affect all markets, (Fintan, 2016). In
fact, if exiting from EU damages the strength of London Market, Malaysia`s financial services
could benefit from that, (Sundaily, 2016).

Specifically, the impact of Brexit on our company will totally depend on the type of investment
we have made in the UK. Our research shows that, companies with investments in the UK are at
risk if they are in property development, regulated assets, casino ops and renewable energy,
(TheStar, 2016).

According to Maybank Investment Bank, a potentially weaker economy of UK and British

pound which resulted from Brexit could be negative but its impact on Malaysian Multinational
firms is minimal. By considering that we can assume that the Brexit can affect in either way
which is possible benefit when UK equities and London Market are hit and slight harm due to
specific investments in the UK, (TheStar, 2016).

However, Brexit could harm our company in terms of lower exchange rate where potentially
weak UK economy could result in decline of British pound and eventually lower the Malaysian
Ringgit profits, (TheStar, 2016). Our sensitivity analysis shows that, a 10% weakness in the
Pound/Ringgit from our base situation could make negative impact on our net profit for financial
year 2017 by -3.5%/-1.1%, and our revalued net asset value is expected to be -1.5%/less than -
1%, (Chandrasekaran, 2016).

Overall, probability of risk for our company is quite low at present but future state of UK can
affect our company in terms exchange rate of currency and potential new trade policies between
EU and UK. For example it can be higher tariffs and quotas within their terms, etc.
5. Financial risk our company can be exposed

Tax Implications

As long as our company has substantial investment in the UK, we should take note of taking tax
impact assessment which focuses on the cost of importing goods, cash flow position and export
market since UK is leaving the European Union officially over the next two years. Hence, indirect
tax can be huge concern for us in order to operate our business in the UK since our business
requires import and export of goods to and from other EU countries. Because, after Brexit UK will
be excluded from EU and trading cost from UK based companies to other EU based companies
might increase, (Chandrasekaran, 2016). In contrast to European Union, if UK government sets
new policies on importing goods from EU to UK, the cost of UK based firms will most probably
rise on a significant level.

Acquisition and Dispatch System

Another problem that might be faced after Brexit is disqualification for UK companies to make
use of acquisition and dispatch system of EU supply stores. Movement of goods in and out of UK
without proper facility, might be considered as import and export and certain level of additional
expenses will be required. If new policies and regulations are introduced, supply of goods might
be affected and as a result, it will increase the cost of doing business in the UK and firm operating
in the UK including our company will need make analysis on expenses, supply chain and export
markets, (Chandrasekaran, 2016). Lastly, our firm`s operation in the UK will have to deal with
new taxations and additional expenses as UK will no longer be under protection of EU with certain
tax advantages,

Exchange Rate Risk

The pound sterling suddenly fall down to 5.4535 against ringgit since the day Britain voted to
leave EU, and it affected the value of Malaysian ringgit and resulted immediate chaos on financial
markets. According to Reuters, due to Brexit sterling dropped by 10% to its weakest vales since
1985, and also dropped sharply against US dollar which affected the firms who are operating
business in the UK. As for our company, obviously weakened pound can result in lower Malaysian
ringgit profit, as we will be involved in exchange rate due to our investment in the UK, (Fintan,
2016). However, according to International Trade and Industry Minister Datuk Seri Mustapa,
changes in ringgit due to Brexit is just a temporary and he gave guarantee that it will bounce back
soon. Also, Malaysian ringgit has been affected also by other factors like changes in oil prices
other than Brexit. Considering the fact that value of ringgit will recover, then it shouldn’t be issues
within our operation in Malaysia, (Kumar, 2016). However, Britain is showing uncertain traits and
finalized decisions haven’t been made and even if it was, it will be on practice after 2 years when
Britain officially leaves the EU.

6. Necessary implementations to minimize the potential risks in our company

We need to accept the fact that, Brexit created considerable uncertainty for the future of businesses
and requiring to adopt flexibility and take advantage of the opportunities that might be created
through upcoming changes. Each organization will face different set of challenges, threat and
opportunities will arise specifically for each company out of Brexit. At this current moment, we
cannot make final decisions but we can get prepared by considering what our business might face
after Brexit, (BDO, 2016). Therefore, following core areas should be considered in order to
minimize the potential risk that our company might face:
 Business strategy
 People
 Tax
 Regulation
 Risk Management

Business Strategy
Firstly, we must build a Brexit taskforce and the team must consist of senior leaders of the business,
including leaders who are in charge of P&L, HR, internal and external communications, legal and
risk. Objective is to make the business aware of ongoing developments, determine potential risks
and opportunities and consult on the necessary actions. Also, advise on the possible outcome of
trading models after Brexit. Lastly, adopt flexibility method to our business strategy, (BDO, 2016).
People

By considering the fact that Brexit strives to achieve free movement of people including the free
movement of employees, we should also focus on our HR and employment tactics as the people
are the greatest asset of our company. Providing free movement includes creating environment for
workers to freely speak up their concerns and ideas to improve the business performance rather
than following the standardized system of work procedure. As a multinational company, we need
to consider the different ethnicity of people and encourage them by internal communication so that
they can make maximum contribution to our company, (BDO, 2016).

Tax

It`s certain that tax regulations will change in the UK after Brexit, UK lived for 40 years under EU
by following their tax regulations. Government of UK works through the economic implications
of Brexit by balancing the activities through fiscal incentives. They are also required to simplify
the complicated relations between UK and EU laws. As for our company we need navigate our
business through uncertainty by focusing on some specific areas; First, We need to determine how
we are going to take control over Value Added Tax (VAT) registrations and management cost
across the European Union after Brexit. Second, additional working capital required to finance the
VAT cost from import and export after Brexit. As the negotiations go further, we will need to
make sure whether transfer pricing policy still valid and our current business structure can generate
withholding tax costs after Brexit, (BDO, 2016).

Regulation

After Brexit there will be new laws and regulations that require reformation or retention but now
it’s early to consider the outcome of progression. As our business is operating in regulated
industries, we need to consider relocating functions within the EU so that we can continue to
operate among the single market and following method should be considered

 Any relocated business will require to adapt the policy of transferred location
 Current transfer price need to be revised to make changes in trading and cross
border transactions
Risk Management

There`s no doubt that Brexit creates general and specific risks to organizations and requires risk
monitoring system by applicable risk commissions on a usual basis. It`s encouraged to assign risk
managers to analyze the impact of Brexit for business performance and make proper plans to take
advantage out of it. It`s true Brexit creates risk along with opportunity but still company should
prepare a form of scenario planning that includes the potential threats and opportunities over the
years and necessary actions to implement. Nowadays, successful business is the one that can think
one step ahead by formulating strategies for risks and have a vision to recognize opportunities and
exploit them, (BDO, 2016).

Conclusion

A referendum on Brexit is now certain but the possible outcome is far from inevitable conclusion,
the probability of Britain to leave EU is highly possible. Due to Brexit, business operations in the
UK, economy of Britain and British parties will face severe loss through numerous channels. New
terms and conditions in terms of trade and cross-border relations between EU and UK will be
determined and it will create additional costs to the UK. On the other hand, EU countries will also
be affected by export, supply chain and investments through the UK as the British government
will also form new policies on trade between nations. Overall, all member states including UK will
be affected by Brexit, both politically and economically.
Reference

Hardy, E. (2016). Possible BREXIT from the European Union (Essay) | Economics | tutor2u.
Tutor2u.net. Retrieved 21 September 2016, from
http://www.tutor2u.net/economics/reference/possible-brexit-from-the-european-union-essay

Chandrasekaran, M. (2016). Brexit's Tax Implications for Malaysian Firms.

Propertyguru.com.my. Retrieved 21 September 2016, from
http://www.propertyguru.com.my/property-news/2016/7/129604/brexits-tax-implications-for-
malaysian-firms

Sundaily, S. (2016). Brexit will have minimal impact on Malaysia | theSundaily. Thesundaily.my.
Retrieved 21 September 2016, from http://www.thesundaily.my/news/1847939

Fintan, N. (2016). Brexit’s impact on Malaysians - Business News | The Star Online.
Thestar.com.my. Retrieved 21 September 2016, from
http://www.thestar.com.my/business/business-news/2016/06/25/brexits-impact-on-malaysians/

TheStar, B. (2016). Brexit may impact Malaysian PLCs in UK property and casinos - Business
News | The Star Online. Thestar.com.my. Retrieved 21 September 2016, from
http://www.thestar.com.my/business/business-news/2016/06/15/brexit-may-impact-malaysian-
plcs-in-uk-property-and-casinos/

Soon, T. (2016). After Theresa May’s Appointment As UK Prime Minister, How Will Post-Brexit
Impact Malaysia?. Malaysian Digest. Retrieved 21 September 2016, from
http://www.malaysiandigest.com/features/621380-after-theresa-may-s-appointment-as-uk-prime-
minister-how-will-post-brexit-impact-malaysia.html

Kumar, K. (2016). Brexit effect on ringgit ‘temporary’, international trade minister says.
Themalaymailonline.com. Retrieved 21 September 2016, from
http://www.themalaymailonline.com/malaysia/article/brexit-effect-on-ringgit-temporary-
international-trade-minister-says
TheStar, B. (2016). Pound slumps to 2 month low against ringgit - Business News | The Star
Online. Thestar.com.my. Retrieved 21 September 2016, from
http://www.thestar.com.my/business/business-news/2016/06/24/pound-slumps-to-2-month-low-
against-ringgit/

BDO, H. (2016). Reporting on risks and uncertainties - EU referendum - BDO. Bdo.co.uk.

Retrieved 21 September 2016, from https://www.bdo.co.uk/en-gb/insights/business-
edge/business-edge-2016/reporting-on-risks-and-uncertainties-eu-referend