The Deloitte CFO Survey Prioritising investment

Quarter 1 2014 survey results

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Survey app at www.deloitte.com/ie/cfoapp

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Contents

Quarter 1 overview 3

Snapshot of key findings 4

Key events and economic trends 6

Survey findings

Section 1. The economy and your company – financing, debt and credit 8

Section 2. Current economic and other events 12

Section 3. Corporate priorities for CFOs’ businesses in the next 12 months 18

“

About the survey This is the nineteenth in a series of quarterly surveys of Chief Financial Officers of major Irish based companies. The survey was conducted in April 2014, and CFOs of listed companies, large private companies and Irish subsidiaries of overseas multi-national companies participated.

The Deloitte CFO Survey is the only survey that seeks to establish the views of CFOs in relation to the financial markets, economic outlook and business trends on a quarterly basis.

Due to rounding, responses to the questions covered in this report may not aggregate to 100.

3

The first quarter of 2014 was significant in relation to Ireland’s economic recovery. The optimism generated by Ireland’s exit from the EU-IMF bailout programme in December emanated throughout the quarter, with Ireland showing signs of sustainable recovery and performing well against some key economic indicators. The first bond issuance post the bailout exit in early January highlighted that there is strong confidence amongst investors for Irish bonds and marked a return to normal market access since 2010. From a global perspective, this quarter will be remembered for the deepening crisis in the Ukraine, which not only caused political unrest, but also economic turbulence. The crisis saw the Russian currency, the Ruble, plunge to a historic low, as Russia’s actions in Ukraine led to economic sanctions and asset freezes for the country. The wider European economy is likely to fall vulnerable to the rippling effects of the crisis, with analysts in Ireland warning that Irish exports to Russia, worth approximately €637 million annually, could be under threat.

Looking at companies’ priorities over the next 12 months, discretionary spending is expected to decrease for over a third of respondents with an increased focus on capital expenditure. Interestingly, one in four CFOs indicated no requirement for funding this quarter with bank borrowings largely expected to remain unchanged or decrease over the coming 12 months. This suggests that the trend experienced in the past year, of decreasing levels of gearing in respondents’ companies, is set to continue. At the same time, a majority of CFOs believe that it is not a good time to bring greater risk onto their balance sheets. The continued emphasis on capital expenditure however, coupled with the fact that CFOs have indicated their priority is on achieving growth and scale as opposed to contracting, suggests a positive outlook. Instead the survey findings indicate that companies are less reliant on debt to fund growth, with surplus cash injections likely to be a driver of growth in its place. This is supported by the fact that CFOs believe their companies are prioritising investing cash as opposed to holding cash.

All in all, the survey findings suggest that companies are continuing to prioritise growth for the future with economic growth, primarily in the EU, set to drive companies’ performance. 69% of CFOs expect revenues to rise in the next 12 months. It is unsurprising that revenue growth was quoted by 72% of CFOs as one of the top five indicators they use to measure performance in their organisation. Other metrics ranking high as performance indicators include the achievement of budgets, net income, cash flow and operating margins, suggesting that financial metrics continue to dominate when it comes to monitoring the performance of an organisation.

Talent remains on the agenda for CFOs. While the retention of talent continues to be cited as a priority for CFOs, only 3% of CFO respondents indicated that talent retention is an indicator used by them to monitor the performance of their company. Despite the fact that almost half of respondents perceive talent costs as an impediment to their company’s performance, the majority of CFOs surveyed expect employee numbers to increase over the next year. 45% of CFOs are currently experiencing difficulty finding the required skills and knowledge for available roles indicating that talent availability remains a concern for CFOs. Notably, a third of respondents expect also talent availability to impede their company’s performance in the future.

Shane Mohan Partner, Deloitte

Quarter 1 overview

“CONTACTS

If you would like further information on the CFO Survey or wish to participate in the future, please contact: Shane Mohan Partner T: +353 1 417 2543 E: smohan@deloitte.ie or Jennifer Casey Manager T: +3531 417 3813 E: jencasey@deloitte.ie

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Snapshot of key findings

FUNDING26%

26% of respondents said that funding was not required by their company this quarter.

TAX REGIME79%79% of respondents believe the current tax regime is business friendly.

SKILLS AND KNOWLEDGE45%45% of respondents are finding it difficult to employ staff with the required skills and knowledge for the available roles.

GROWTH69%69% of respondents believe their company has already returned to growth.

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TALENT48%

Talent costs will impede companies’ performance for 48% of respondents.

PLANS AND BUDGETS79%Achievement of plans/budgets is the top indicator used by CFOs to monitor their company’s performance, as cited by 79% of respondents.

CAPITAL EXPENDITIURE62%A net 62% of respondents believe capital expenditure in their company will increase over the coming 12 months.

ECONOMIC GROWTH73%Economic growth in the EU is the most significant driver of companies’ performance for 73% of respondents.

6

Key events and economic trends

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FEBRUARY

JANUARY

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JANUARY

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Bond yeild to maturity ISEQ® overall

€/$: 1.38€/£: 0.84

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Prospects of tax cuts in 2015 have improved according to official Exchequer returns for 2013. Findings indicate optimism that the deficit will come in under the target of 7.5% of GDP, however a full picture won’t be clear until the CSO has all 2013 data.

The World Bank has raised its forecast for global growth for the first time in three years as advanced economies started to pick up pace, led by the United States.

Moody’s upgrade Ireland’s credit rating to Baa3 in a major post-bailout boost for the Government. Minister for Finance Michael Noonan, says change doesn’t mean ‘mission accomplished’ but caution needed.

IMF MD, Christine Lagarde, urged policy makers in advanced economies to fight threats of deflation that threaten global recovery. She highlighted that the momentum seen in the second half of 2013 should strengthen in 2014 as developed economies gain pace. Global economic expansion is currently below its 4% potential.

The Irish economy is forecast to grow by 2.1% in 2014 as consumer spending and business investment increases. The Central Bank’s Quarter 1 bulletin marks fiscal consolidation as the biggest challenge, while restoring bank soundness and growing employment by increased competitiveness is also essential.

The eurozone’s private sector started 2014 with stronger growth than expected. This was marred only by a continued downturn in France. Markit’s flash eurozone composite Purchasing Managers’ Index (PMI), jumped to 53.2 in January from 52.1 in December; well above the 50 mark that denotes growth. This was its highest reading since mid-2011.

The Government revealed its new network of local enterprise offices will be up and running by April ‘14 with an additional €3.5 million in funding and a new entrepreneurial fund aimed at U25s. The announcement followed a Cabinet meeting focusing on employment.

The ISEQ index outperformed London’s FTSE, France’s CAC and Germany’s DAX, gaining 65 points or 1.4% to close at 4,829.

Import growth in China, the world’s second biggest economy, hit a six month high in January, but fears still exist that the economy could be heading for a prolonged period of difficulty.

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FEBRUARY

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

FEBRUARY

MARCH

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

MARCH

5,400.00

5,200.00

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4,800.00

4,600.00

4,400.00

4,200.00

€/$: 1.37€/£: 0.83

ISEQ in

dex valu

e

Michael Noonan, Minister for Finance, said a report on Irish corporation tax which showed a 2.2% effective rate, was based on a “flawed premise”.

CSO figures reveal falling house prices for the first time in almost a year, recording a decline of 0.7% in January compared with an increase of 0.3% in December 2013. The majority of the decline was accounted for by a 1.3% fall in Dublin’s property prices.

German chancellor, Angela Merkel, stated that the eurozone could generate stronger growth this year than the 1.2% forecast by the European Commission. The wider EU sees its growth forecast at 1.5% for 2014.

Government unveiled a plan to create an extra 10,000 new jobs in addition to the 100,000 already pledged. The initiative will involve the allocation of extra resources to the IDA to promote Ireland as a location for investment.

US has supported a push to make global taxation reform a key goal for the G20 advanced and emerging economies. The US supports moves to close loopholes used by major multinationals to avoid tax.

Irish exports rose by 4% to €7.03 billion in the past year; driven by higher pharma-chem and agri-food exports. The trade surplus narrowed to €3.1 billion, as exports declined 6% from December 13 – January 14.

S&P affirmed Greece’s sovereign credit rating at ‘B-/B rating’ and gave the country a stable outlook; saying it believed the country’s economy was rebalancing. Athens and its lenders expect the economy to pull out of recession later this year and grow by 0.6%.

Retail sales fell by 1.5% in February – the second-largest monthly decline in over a year – as sales of cars and electrical goods declined. CSO figures suggest recovery on the high street is far from assured.

US Commerce Department figures reveal the US economy grew by 2.6% in Quarter 4 2013. Economic growth was faster than estimated in Q4, displaying underlying strength that could support views that the slowdown in activity in early 2014 is temporary.

Intel revealed spending of $5 billion over the past three years upgrading its Leixlip  plant in Co Kildare. The capital injection represents the largest private investment in the history of the State.

Inflation in the eurozone dropped to 0.5% in March, the lowest level in over four years, raising expectations that the ECB might cut interest rates. Eurostat figures reveal consumer prices grew by 0.5% in 2013, after a 0.7% gain in February.

8

Funding is not required by 26% of respondents for Quarter 1 2014 and domestic banks continue to be the preferred method of funding for 32% of respondents.

The number of CFOs who identified overseas banks as the preferred method of funding has fallen by 16%, while the preference for equity funding regained attractiveness.

For the first time since Quarter 2 2012, respondents noted reduced dividend payments as a preferred method of funding.

CFOs continue to perceive credit as costly, with a net 18% rise in respondents sharing this sentiment.

The perception around the inaccessibility of credit has improved significantly this quarter, with a net 6% of respondents believing credit to be easily available.

Since this quarter last year there has been a clear improvement in the perception of both the cost and availability of credit.

Section 1 – The economy and your company - financing, debt and credit

Figure 1: What is your company, or your parent company’s, preferred method of funding?

Figure 2: How would you rate the overall cost of new credit for Irish corporates?

Q4 2013

Bank (domestic)

Q3 2013

Q2 2013

1. What is your company, or your parent company’s, preferred method of funding?

Q4 2013

Bank (overseas)

Q3 2013

Q2 2013

Q4 2013

Equity

Q3 2013

Q2 2013

Corporate bonds Reduced dividend payments Leasing

54%32%Q1 2014

44%

50%

8%

4%

19%

3%Q1 2014

35%

4%

18%Q1 2014

17%

Q4 2013

Q3 2013

Q2 2013

0%

0%

0%Q1 2014

Q4 2013

Q3 2013

Q2 2013

Q4 2013

Q3 2013

Q2 2013

Q1 201421%

4%

0%

0%

30%

15%

Funding not required

Q1 201426%

6%12%

0%Q1 2014

2. How would you rate the overall cost of new credit for Irish corporates?

Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013

Availability

Cost

-80

-60

-40

-20

0

20

40

60

80

100

CostlyEasily available

CheapHard to attain

Q3 2013 Q4 2013 Q1 2014

76%81%

62% 62%

53%

27%

50%

26%

44%

-68%

-50%

-29%-23%

-31%

12%17%

-19%

6%

9

CFOs continue to rate all sources of credit as more difficult to obtain compared to six months ago. The exception to this is the availablility of credit from domestic banks, with the net sentiment reverting back this quarter to new credit being more easily available. There has also been an improvement in the availability of credit from overseas banks, with a rise of 17% in terms of ease of accessibility.

Nevertheless, the perception of the availability of credit through equity and corporate bonds continues to deteriorate this quarter.

Net optimism has largely remained unchanged this quarter, with half of respondents optimistic about the financial prospects of their company. This is a significant improvement on optimism from this time last year.

CFOs who are feeling more optimistic about the financial prospects of their companies relate this optimism largely to external factors such as the economy and industry trends. While those feeling less optimistic correlate this with internal, company specific factors.

Figure 3: How would you rate the overall availability of new credit for Irish corporates compared to six months ago from the following sources?

Figure 4: Compared with three months ago how do you feel about the financial prospects for your company?

Figure 3: How would you rate the overall availability of new credit for Irish corporates compared to six months ago from the following sources?

Easily available

Hard to get-50

-40

-30

-20

-10

0

10

20

Domestic banks

Overseas banks

Corporate bonds

EquityQ2 2013 Q3 2013 Q4 2013 Q1 2014

-43%

0%

12%

5%9%

-33%

-18%

-4%

-19%

-29%

-15%-16%

13%

17%

-19%

6%

Figure 4: Compared with three months ago how do you feel about the financial prospects for your company?

Q2 2013 Q3 2013 Q4 2013 Q1 2014

Op

tim

isti

c Sentiments on your company’s financial prospects

20

30

40

50

60

36%

28%

52%

50%

More optimistic primarily due to external factors (e.g. economy, industry and market trends)

Most optimistic primarily due to internal company specific factors (e.g. products/services, operations and financing)

Unchanged

Less optimistic primarily due to external factors (e.g. economy, industry and market trends)

Less optimistic primarily due to internal company specific factors (e.g. products/services, operations and financing)

38%

26%

21%

12%3%

Figure 4: Compared with three months ago how do you feel about the financial prospects for your company?

Q2 2013 Q3 2013 Q4 2013 Q1 2014

Op

tim

isti

c Sentiments on your company’s financial prospects

20

30

40

50

60

36%

28%

52%

50%

More optimistic primarily due to external factors (e.g. economy, industry and market trends)

Most optimistic primarily due to internal company specific factors (e.g. products/services, operations and financing)

Unchanged

Less optimistic primarily due to external factors (e.g. economy, industry and market trends)

Less optimistic primarily due to internal company specific factors (e.g. products/services, operations and financing)

38%

26%

21%

12%3%

10

A net 38% of respondents report a decrease in gearing compared to 12 months ago. This is a significant change from last quarter, when a net 4% of respondents indicated decreasing levels of gearing.

38% of CFOs feel it is a good time to take more risk on their company’s balance sheet, a fall of 6% on last quarter’s results.

Figure 5: How has your company’s gearing changed since this time last year?

Figure 6: Do you think it is a good time to take greater risk onto your company’s balance sheet?Figure 5: How has your company’s gearing changed since this time last year?

Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013-40

-35

-30

-25

-20

-15

-10

-5

0

Q1 2012 Q4 2013 Q1 2014

-6%

-2%

-13%

-22%

0%

-28%

-24%

-4%

-38%

Increase

Decrease

Figure 6: Do you think it is a good time to take greater risk onto your company’s balance sheet?

38%

62%

Yes

No

Q1 14

Q4 13

Q3 13

Q2 13

44%

56%

24%

76%

29%

71%

11

53% of CFO respondents rate the level of external financial and economic uncertainty facing their business as normal. A net 15% perceive uncertainty as either low or very low.

Figure 7: How would you rate the level of external financial and economic uncertainty facing your business?

Figure 7: How would you rate the level of external financial and economic uncertainty facing your business?

12%

53%

26%

6% 3%

Q1 14

Q4 13

Q3 13

11%

59%

26%

4% 0%

11%

59%

26%

4% 0%

12%

32%52%

4% 0%

Very high High Normal Low Very low

Deloitte perspective:

CFOs continue to feel buoyant about the macro environment, with the optimism they feel about their companies’ prospects this quarter largely due to external factors such as the economy, industry and market trends. With this in mind, it is unsurprising that 85% of respondents believe the level of external financial and economic uncertainty facing their business is either normal or relatively low.

Despite this positivity, the aftermath of the recession lingers as we continue to see CFOs exhibiting caution. The majority of CFO respondents still believe that it is not a good time to take greater risk onto their balance sheets. This may be a factor contributing to the decline in respondent companies’ levels of gearing, with a net 38% of respondents reporting a decrease in gearing compared to 12 months ago. This could indicate that companies are now less reliant on debt to fund growth. This is supported by the fact that over a quarter of respondent companies this quarter cite no requirement for funding, probably due to the fact that they have sufficient internal funds.

12

CFOs optimism has increased in relation to their companies’ growth prospects, with 69% of respondents considering that their company has already returned to growth, an increase of 6% from last quarter.

Almost seven out of every ten CFO respondents (69%) believe that the Irish economy has either already returned to growth or will before the end of the year.

Opinion on return to growth for the eurozone is indecisive.

Similar to last quarter, the majority of CFO respondents expect foreign direct investment, exports, GDP and inflation to increase over the next 12 months.

The outlook is also positive on the jobs front with no CFO respondents believing that unemployment levels will rise over the coming 12 months.

The largest shift in perspective from last quarter is in relation to ECB interest rates – a third of respondents are now anticipating an increase in rates.

Section 2 – Current economic and other events

Figure 8: In your view, when will the Irish economy, your company and the eurozone return to growth?

Figure 9: What change, if any, do you expect in the following economic metrics over the next 12 months?Figure 8: In your view, when will the Irish economy, your company and the eurozone return to growth?

The eurozone Your companyThe Irish economy18%

4%6%6% 15%

8%

33%

18%

24%

8%

69%

12%

9%

24%

45%

H1 2016

H2 2015

H1 2015

H2 2014

Already returned

Increase somewhat No change Decrease somewhat

Figure 9: What change, if any, do you expect in the following economic metrics over the next 12 months?

Foreign direct investment

Austerity measures in budget

Immigration

Emigration

Exports

GDP

Unemployment rate

Consumer index/inflation

ECB interest rates

Increase significantly Decrease somewhat

0% 0%

0%

0%

3%

0%

0%

0%

0% 0%

0% 0%

Q1

14

0 20 40 60 80 100

9% 64% 24% 0%

0% 18% 39% 42% 0%

3%

0%3%

3%

25% 69% 6%

27% 48% 24%

6% 70% 6% 18%

70% 24%

21% 76%

61% 33% 6%

6%33% 61%

Foreign direct investment

Austerity measures in budget

Immigration

Emigration

Exports

GDP

Unemployment rate

Consumer index/inflation

ECB interest rates

0%

0%

0% 0%

0% 0%

0%

Q4

13

0 20 40 60 80 100

62% 38% 0% 0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

23% 50% 27%

19% 77% 4%

19% 69% 12%

88% 12%

88% 8%

4%4%

4%

92%

58% 42%

13%87%

13

Economic growth in the EU is seen as one of the biggest drivers of company performance over the next 12 months. However, CFOs have flagged talent costs, fuel/energy prices and industry specific regulations as the main factors which could hinder the performance of their companies.

79% of CFOs believe that the current tax regime is business friendly.

Figure 10: What external factors will substantially drive and/or impede your company’s performance over the next year?

Figure 11: Do you think that the current tax regime is business friendly?

Impede N/A

Figure 10. What external factors will substantially drive and/or impede your company’s performance over the next year?

Currency exchange rates

Government spending/budget policy

Enviornmental regulation/policy

Industry specific regulation

Talent costs (e.g. wages, benefits, payroll taxes)

Talent availability

Non-fuel input prices

Fuel/energy prices

Industry specific demand

Capital cost/availability

Technology advancements

Industry specific demand

Industry dynamics (e.g. pricing, consolidation, M&A, entrants etc.)

Economic growth – other markets

Economic growth – EU

Economic growth – Ireland

Drive

0 20 40 60 80 100

9% 31% 59%

21% 45% 33%

33%

6% 48% 45%

27% 33% 39%

6% 36% 58%

6% 48% 45%

67% 9% 24%

19% 28% 53%

42% 3% 55%

42% 30% 27%

63% 13% 25%

64% 3% 33%

73% 12% 15%

52% 15% 33%

15% 48% 36%

67%0%

11 Do you think that the current tax regime is business friendly?

21%

79%

Yes

No

14

Only 6% of respondents are of the opinion that the start-up exemption should not be broadened.

A slight majority of CFOs (55%) are not finding it difficult presently to employ individuals with the required skill and knowledge for available roles.

Figure 12: Do you think that the start-up exemption should be broadened?

Figure 13: Are you currently finding it difficult to employ persons with the required skills and knowledge for the available roles?

12. Do you think that the start-up exemption should be broadened?

6%

94%

Yes

No

13. Are you currently finding it difficult to employ persons with the required skills and knowledge for the available roles?

55%

45% Yes

No

15

Figure 14: Do you think that there is scope for more tax incentives for high-growth, labour intensive industries?

Figure 15: Would you like to see increased tax incentives for inbound secondees?

14. Do you think that there is scope for more tax incentives for high-growth, labour intensive industries?

6%

94%

Yes

No

15. Would you like to see increased tax incentives for inbound secondees? �

42%

58%

Yes

No

The majority of CFOs surveyed believe that there is scope for more tax incentives for high-growth, labour intensive industries.

58% of respondents have said that they would like to see increased tax incentives for inbound secondees.

16

Deloitte perspective:

Overall, CFOs appear positive on the forecast for growth of their own companies and the Irish economy, with many stating that both have already returned to growth. The outlook is more reserved in relation to the eurozone area, with the first half of 2015 being the period in which growth is expected by the majority of CFOs. Interestingly, based on the European Commission’s latest forecast in Quarter 1 2014, the eurozone economy is expected to return to growth this year with a 1.2% expansion, accelerating to 1.8% the following year. This bodes well for Irish companies as economic growth in the EU is expected to be the main driver of performance for companies over the coming 12 months according to CFO respondents.

Last quarter we reported that no respondent anticipated an increase in ECB interest rates in the next 12 months. Sentiment has shifted this quarter with a third of CFOs now expecting an interest rate increase within the year. This is interesting given that inflation in the eurozone dropped its lowest level in four years in March, prompting economic commentators to speculate that this will see the ECB cut interest rates, possibly even cutting one of its key interest rates to below zero.

Talent availability continues to be a key consideration for companies. As Ireland’s reputation as a European hub for many multinationals continues to grow, it is expected that the requirement for talent and skills in certain areas will be an increasing issue for companies. A third of respondents expect talent availability to impede their companies’ performance over the next 12 months. The need to focus on graduate programmes and further education to increase the skills of the work force and encourage up-skilling will be necessary to assist economic growth.

Furthermore the cost of talent is considered to be a significant factor in the impediment of business growth: 48% of respondents believed that the cost of talent will negatively impact their company’s performance over the next 12 months. This is worrying as the programme for austerity is expected to continue with no relief on individuals marginal tax rates. This will result in the cost of talent remaining steady or even increasing in certain sectors due to a potential shortage of individuals with certain talent/skill levels. A lack of people with the requisite skills at a cost that is affordable to employers will impact the growth possibilities of businesses.

17

Over half of CFOs would like to see an increase in tax incentives for inbound secondees. While such incentives would be welcomed, they do need to be considered in contrast with developing Irish based talent to ensure a greater monetary return in monthly pay checks for the work force. From a political perspective, it is difficult to provide generous incentives for inbound secondees while our unemployment rate remains at 11.7%. Reference was also made by respondents to the generous benefits system currently in place in Ireland and the need for a re-balancing of the benefits system to incentivise people back to work. Respondents also felt that the current taxing of pensions resulted in people staying in the work force for a longer period of time, decreasing the number of opportunities available for younger generations. Overall there is a strong sense that there is a need to incentivise people in the work force and those entering the work force, with a focus on up skilling people for certain industries while reducing the cost of hiring talent.

The majority of CFOs (94%) feel that the start-up exemption should be broadened. As it stands the exemption from corporation tax for start-up companies is quite restrictive with very few start-ups being able to avail of the exemption due to the onerous conditions. A relaxing of the conditions to avail of the exemption, to encourage entrepreneurs by relieving them of corporation tax for their first three years in business, would be welcomed.

Overall, CFOs appear positive on the forecast for growth of their own companies and the Irish economy, with many stating that both have already returned to growth.

18

Section 3 – Corporate priorities for CFOs’ businesses in the next 12 months

This quarter has seen an increase of 6% in the number of CFOs who now view their corporate strategy as expansionary. In the space of 12 months the number of CFOs who consider their strategy expansionary has risen from 56% to 77% of survey respondents.

81% of CFOs see the long term growth for their companies’ products and services as being a positive driver for investment plans over the next 12 months. Expected growth in the eurozone is a positive factor for 68% of CFOs, an increase from 50% in Quarter 4 2013.

Significantly, there has been an 18% decrease this quarter in the number of CFOs who now view cost and availability of external finance as a positive factor in their decision making.

Figure 16: Would you consider your corporate strategy: Figure 17: What effect do the following factors have on your company’s investment plans for the next 12 months?

16. Would you consider your corporate strategy:

Expansionary

Defensive

76%Q3 2013

71%Q4 2013

56%Q2 2013Q1 2014

77%

23%Q1 2014

29%Q4 2013

24%Q3 2013

44%Q2 2013

Neutral Negative

17. What effect do the following factors have on your company’s investment plans for the next 12 months?

0 20 40 60 80 100

Market uncertainty

Actual or expected growth in Ireland

Actual or expected growth in Euro area

Actual or expected growth in the US

Actual or expected growth in Asia

Actual or expected growth in the emerging markets (BRICS)

Cost and availability of external finance

Availabilty of internal finance

Long-term growth for your products and services

Market uncertainty

Actual or expected growth in Ireland

Actual or expected growth in Europe

Actual or expected growth in US

Actual or expected growth in Asia

Actual or expected growth in the emerging markets (BRICS)

Cost and availability of external finance

Availabilty of internal finance

Long-term growth for your products and services

13% 27% 60%

35% 55% 10%

Positive

68% 29% 3%

3%

3%

41% 56%

38% 59%

63%31% 6%

22% 19%59%

47% 44% 9%

81% 9% 9%

0 20 40 60 80 100

8% 50% 42%

40% 56%

50% 42% 8%

38% 63%

38% 63% 0%

0%

40% 52% 8%

38% 54% 8%

38% 63%

70% 30%

0%

0%

Q1

14

Q4

13

4%

19

Over 50% of CFOs expect to see their company’s revenue, employee numbers, capex, operating costs and cash reserves to increase somewhat over the next 12 months.

While CFOs are largely positive that revenue and cash flow will increase, it is worth noting that CFOs are less optimistic than in Quarter 4 2013 as to how these metrics will perform over the next 12 months.

Discretionary spending is expected to decrease somewhat for 35% of CFOs, which is an increase of 18% from Quarter 4 2013.

Retention of talent remains a major priority for CFOs with 81% stating it as a focus despite the ongoing pressures to cut costs. This is down 11% since Quarter 4 2013.

Figure 18. What change, if any, do you expect in the following financial metrics over the next 12 months for your company?

Figure 19: Has retention of talent remained a priority in your firm despite pressures to engage in cost cutting and downsizing?

Figure 18. What external factors will substantially drive and/or impede your company’s performance over the next year?

Discretionary spending

Operating margins

Inventory levels

Capital expenditure

Employee numbers

Equity insurance

Financing costs

Bank borrowing

Operation cash flows

Revenues

Dividends/share buybacks

Levels of cash equivalents on balance

Operating costs

Bond issuance

0 20 40 60 80 100

9%0%

0%

0%

0%

0%

0%

0%

0%

31% 59% 6%

22% 53% 22% 3%

19% 61% 13% 6%

9% 59% 25% 3%

3%

3%

3%

56% 31% 6%

0%

0%

0%

0%

31% 63% 6%

31% 63% 6%

13% 72% 16%

9% 47% 25% 16%

13% 56% 13% 13% 6%

19% 77%

52% 23% 19% 6%

56% 22% 16%

9% 84%

3%

3%

3%

3%

3%

3%

Q1

14

Discretionary spending

Operating margins

Inventory levels

Capital expenditure

Employee numbers

Equity insurance

Financing costs

Bank borrowing

Operation cash flows

Revenues

Dividends/share buybacks

Levels of cash equivalents on balance

Operating costs

Bond issuance

0 20 40 60 80 100

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

74% 13% 4%

35% 57% 9%

30% 57% 13%

63% 29% 8%

54% 25% 21%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

38% 46% 17%

38% 46% 17%

9% 26% 17%48%

4% 75% 17% 4%

8% 79% 8% 6%

35% 65%

38% 29% 33%

38% 33% 25% 4%

8% 8% 83%

Q4

13

Increase somewhat

No change

Increase significantly

Decrease somewhat

Decrease significantly

Figure 18. What external factors will substantially drive and/or impede your company’s performance over the next year?

Discretionary spending

Operating margins

Inventory levels

Capital expenditure

Employee numbers

Equity insurance

Financing costs

Bank borrowing

Operation cash flows

Revenues

Dividends/share buybacks

Levels of cash equivalents on balance

Operating costs

Bond issuance

0 20 40 60 80 100

9%0%

0%

0%

0%

0%

0%

0%

0%

31% 59% 6%

22% 53% 22% 3%

19% 61% 13% 6%

9% 59% 25% 3%

3%

3%

3%

56% 31% 6%

0%

0%

0%

0%

31% 63% 6%

31% 63% 6%

13% 72% 16%

9% 47% 25% 16%

13% 56% 13% 13% 6%

19% 77%

52% 23% 19% 6%

56% 22% 16%

9% 84%

3%

3%

3%

3%

3%

3%

Q1

14

Discretionary spending

Operating margins

Inventory levels

Capital expenditure

Employee numbers

Equity insurance

Financing costs

Bank borrowing

Operation cash flows

Revenues

Dividends/share buybacks

Levels of cash equivalents on balance

Operating costs

Bond issuance

0 20 40 60 80 100

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

74% 13% 4%

35% 57% 9%

30% 57% 13%

63% 29% 8%

54% 25% 21%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

38% 46% 17%

38% 46% 17%

9% 26% 17%48%

4% 75% 17% 4%

8% 79% 8% 6%

35% 65%

38% 29% 33%

38% 33% 25% 4%

8% 8% 83%

Q4

13

Increase somewhat

No change

Increase significantly

Decrease somewhat

Decrease significantly

Figure 18. What external factors will substantially drive and/or impede your company’s performance over the next year?

Discretionary spending

Operating margins

Inventory levels

Capital expenditure

Employee numbers

Equity insurance

Financing costs

Bank borrowing

Operation cash flows

Revenues

Dividends/share buybacks

Levels of cash equivalents on balance

Operating costs

Bond issuance

0 20 40 60 80 100

9%0%

0%

0%

0%

0%

0%

0%

0%

31% 59% 6%

22% 53% 22% 3%

19% 61% 13% 6%

9% 59% 25% 3%

3%

3%

3%

56% 31% 6%

0%

0%

0%

0%

31% 63% 6%

31% 63% 6%

13% 72% 16%

9% 47% 25% 16%

13% 56% 13% 13% 6%

19% 77%

52% 23% 19% 6%

56% 22% 16%

9% 84%

3%

3%

3%

3%

3%

3%

Q1

14

Discretionary spending

Operating margins

Inventory levels

Capital expenditure

Employee numbers

Equity insurance

Financing costs

Bank borrowing

Operation cash flows

Revenues

Dividends/share buybacks

Levels of cash equivalents on balance

Operating costs

Bond issuance

0 20 40 60 80 100

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

74% 13% 4%

35% 57% 9%

30% 57% 13%

63% 29% 8%

54% 25% 21%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

38% 46% 17%

38% 46% 17%

9% 26% 17%48%

4% 75% 17% 4%

8% 79% 8% 6%

35% 65%

38% 29% 33%

38% 33% 25% 4%

8% 8% 83%

Q4

13

Increase somewhat

No change

Increase significantly

Decrease somewhat

Decrease significantly

19. Has retention of talent remained a priority in your firm despite pressures to engage in cost cutting and downsizing?

Yes

No

77%Q3 2013

92%Q4 2013

74%Q2 2013Q1 2014

81%

19%Q1 2014

8%Q4 2013

23%Q3 2013

26%Q2 2013

20

A large number of CFOs are focusing on executing strategy in 2014, as opposed to refining or adapting strategy.

Firms are also still prioritising the pursuit of opportunities and revenue growth over the next 12 months.

This quarter CFOs are neutral on whether cost reduction efforts should be focused on direct or indirect costs.

CFOs predict revenue growth in their firms will be prompted via new offerings in 2014 but they do not differentiate between current and new locations for this growth. Amongst CFOs this quarter there is an increased view that firms will grow organically rather than from acquisitions.

CFOs are divided in relation to whether increasing or decreasing employee numbers will be a priority for their firms over the next 12 months.

CFOs believe their companies are more aligned to investing cash over the next 12 months as opposed to holding cash.

Figure 20: Please indicate in the five point scale where you believe your business’s focus will be in the next 12 months in relation to these priorities

Figure 20: Please indicate in the five-point scale where you believe your business’s focus will be in the next 12 months in relation to these priorities.

Planning versus executing

Execute strategy

Refine/adapt strategy

Scale:

0-10% 11-20% 21-30% 31-40% 41-50% 51+%

Cost reduction

Limit risk

Pursueopportunity

Contract/rationalise

Grow/scale

Denotes the meanfor Q1 14

Denotes the meanfor Q4 13

Business focus

Reduce costs

Growrevenue

Employee numbers

Increase employee numbers

Decreaseemployee numbers

Save versus invest

Hold/ build cash

Investcash

Cost reduction

Reducedirect costs

Reduceindirect costs

Grow viacurrent offerings

Grow vianew offerings

Revenue growth

Revenue growth

Revenue growth

Grow in current geographies

Grow in new geographies

Grow in organically

Grow via acquisition

Figure 20: Please indicate in the five-point scale where you believe your business’s focus will be in the next 12 months in relation to these priorities.

Planning versus executing

Execute strategy

Refine/adapt strategy

Scale:

0-10% 11-20% 21-30% 31-40% 41-50% 51+%

Cost reduction

Limit risk

Pursueopportunity

Contract/rationalise

Grow/scale

Denotes the meanfor Q1 14

Denotes the meanfor Q4 13

Business focus

Reduce costs

Growrevenue

Employee numbers

Increase employee numbers

Decreaseemployee numbers

Save versus invest

Hold/ build cash

Investcash

Cost reduction

Reducedirect costs

Reduceindirect costs

Grow viacurrent offerings

Grow vianew offerings

Revenue growth

Revenue growth

Revenue growth

Grow in current geographies

Grow in new geographies

Grow in organically

Grow via acquisition

Figure 20: Please indicate in the five-point scale where you believe your business’s focus will be in the next 12 months in relation to these priorities.

Planning versus executing

Execute strategy

Refine/adapt strategy

Scale:

0-10% 11-20% 21-30% 31-40% 41-50% 51+%

Cost reduction

Limit risk

Pursueopportunity

Contract/rationalise

Grow/scale

Denotes the meanfor Q1 14

Denotes the meanfor Q4 13

Business focus

Reduce costs

Growrevenue

Employee numbers

Increase employee numbers

Decreaseemployee numbers

Save versus invest

Hold/ build cash

Investcash

Cost reduction

Reducedirect costs

Reduceindirect costs

Grow viacurrent offerings

Grow vianew offerings

Revenue growth

Revenue growth

Revenue growth

Grow in current geographies

Grow in new geographies

Grow in organically

Grow via acquisition

21

Five metrics dominate the indicators that CFOs use to monitor the performance of their organisations. The achievement of budgets and revenue growth were cited by 79% and 72% of respondents respectively as key indicators in monitoring performance in their organisation. This was followed by net income at 69%, cash flow at 63% and operating margins at 52%.

Figure 21: What indicators do you use to monitor the performance of your organisation? Please indicate your top five indicators only.

21. What indicators do you use to monitor the performance of your organisation? Please indicate your top five indicators only.

Achievement of plans/budgets

Revenue growth/market share

EBIT/EBITDA/net income

Cash flow/FCF

Operating margins/yield

Compliance

Forecast accuracy

Cost savings idendified/achieved

Financing/capital costs

Engagement with operations/seat at table

Feedback from board

Cost of finance function

Reporting timliness/quality

Finance transaction efficiency/effectivness

Percentage of CFOs who mentioned indicator

Talent retention

Finance talent bench/development/capability

0 20 40 60 80 100

Analysis quality/decision support

Internal customer satifaction

Close timeliness/quality

79%72%

69%62%

52%24%24%

21%21%

14%14%14%

7%7%

3%3%3%3%

0%

22

Deloitte perspective:

Throughout 2014 CFOs are looking to execute strategy with a view to growing their organisations. They see this growth predominately coming from long term growth in their firms’ products and services along with continued growth in the eurozone. 60% of CFOs now see market uncertainty as having a negative impact on their company’s investment plans, up from 42% in Quarter 4 2013. This could largely be attributed to the trouble in Ukraine during Quarter 1 2014 which led to instability in the global financial markets. In contrast to this, CFOs are positive about growth in Europe for 2014. 68% believe it is a positive factor in their investment decision making, up 18% from Quarter 4 2013.

The percentage of CFOs who believe the cost and availability of external financing will impact positively on their investment plans has decreased to 22% in Quarter 1 2014 from 40% in Quarter 4 2013. This is in line with both media coverage on the lack of bank lending to businesses and our survey findings highlighting that a significant portion of CFOs still view new credit as costly and difficult to obtain. In contrast, there has been a rise in the number of CFOs believing the availability of internal finance will have a positive impact on their company’s investment plans. This suggests that CFOs are feeling positive about using internal finance and cash for their investment plans.

Although 69% of CFOs are positive about their firms’ revenue increasing in 2014 this is a significant decrease from Quarter 4 2013 where 87% of CFOs forecasted increased revenue over the upcoming 12 month period. Despite this more tapered view on revenue increases, 68% of CFOs see capital expenditure increasing in 2014, further highlighting the positive company growth that CFOs predict in the coming year.

CFOs are indicating strongly that they want to pursue opportunities and grow their organisations in 2014, further emphasised by their preference to invest rather than hold onto cash reserves. This is a significant change from previous years where companies were focused on building cash reserves due to market uncertainty. Executing strategy is a key component of their plans for the year with a definite focus on increasing revenue over reducing costs. CFOs see this growth coming from new and innovative product or service offerings that will occur organically rather than through acquisitions.

Not surprisingly the popular metrics for monitoring organisation performance among CFOs are very heavily focused on profit and loss measures with a particular focus on growth and earnings. 79% of CFOs see achievement of budgets as being a key performance indicator. Within this, revenue growth and EBITA were selected by 72% and 69% of CFOs respectively as indicators to monitor their organisation. In a sign that perhaps organisations are no longer as focused on cost savings, only 21% of respondents stated this as being a key indicator for 2014.

CFOs are clearly viewing 2014 as a year to grow their organisations and the bottom line. They still view external financing as an issue so the focus is on organic growth, with the eurozone seen as a positive growth story for 2014.

23

The optimism generated by Ireland’s exit from the EU-IMF bailout programme in December emanated throughout the quarter, with Ireland showing signs of sustainable recovery and performing well against some key economic indicators.

Tom Cassin Partner, Audit T: +353 1 417 2210 E: tcassin@deloitte.ie

Pádraic Whelan Partner, Taxation T: +353 1 417 2848 E: pwhelan@deloitte.ie

Michael Flynn Partner, Corporate Finance T: +353 1 417 2515 E: miflynn@deloitte.ie

Cathal Treacy Partner, Audit T: +353 61 435511 E: ctreacy@deloitte.ie

Ciarán O’Brien Partner, Audit T: +353 1 3829 E: ciobrien@deloitte.ie

ContactsFor more details please contact:

DublinDeloitte & ToucheDeloitte & Touche HouseEarlsfort TerraceDublin 2T: +353 1 417 2200F: +353 1 417 2300

CorkDeloitte & ToucheNo.6 Lapp’s QuayCorkT: +353 21 490 7000F: +353 21 490 7001

LimerickDeloitte & ToucheDeloitte & Touche HouseCharlotte QuayLimerickT: +353 61 435500F: +353 61 418310

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For more information on the Deloitte CFO Survey please contact:

Shane MohanPartner, Management Consulting T: +353 1 417 2543 E: smohan@deloitte.ie

Alan FlanaganPartner, Management Consulting T: +353 1 417 2873 E: aflanagan@deloitte.ie