The Deloitte CFO Survey Riding the tide of uncertainty

Quarter 2 2013 survey results

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

2

Contents

Quarter 2 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 13

Section 3. Corporate priorities for CFOs’ businesses in the next 12 months 16

“

About the survey This is the sixteenth in a series of quarterly surveys of Chief Financial Officers of major Irish based companies. The survey was conducted in June and July 2013, 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

Business optimism is rising. A net 36% of CFOs surveyed this quarter are optimistic about the financial prospects of their firms – an increase of 3% on the previous quarter. They believe their revenues and operating cash flows will increase – 81% and 76% respectively. Confidence in the domestic capital market also appears to be on the rise as CFOs believe domestic credit is cheaper and more available now than any other time in recent years.

However, uncertainty still reigns to a large degree and the second quarter of 2013 saw the Irish economy slip back into recession. Hopes of an export-led recovery were thwarted by a contraction in Ireland’s main export markets – particularly in Europe. More than half of the CFOs surveyed (59%) cite the level of financial and economic uncertainty facing their businesses as high or very high. In fact, 63% of CFOs ranked market uncertainty as the most negative influence on their companies’ investment plans in the next 12 months.

This quarter also saw the Government’s commitment to public sector reform get a fresh boost with the revised Haddington Road Agreement. Opinion amongst CFOs surveyed is split equally on the achievability of the target pay bill savings of €300 million this year and €1 billion over the next three years. However, the majority of CFOs surveyed (62%) predict that the expected increases in public sector productivity will be achievable.

We also posed the question as to what areas CFOs believe the Government should focus on to further stimulate economic growth and recovery. Unsurprisingly, job creation emerged as the number one area of focus, a theme which has been recurring over the last number of quarters in the CFO Survey. These sentiments are not unfounded and echo the IMF’s warning that the country faces an ‘acute unemployment crisis’.

Foreign direct investment and enhancing the flow of credit to businesses also ranked high among respondents as further measures to support economic recovery.

Even with market uncertainty, growth both in Ireland and abroad is now playing a crucial role in companies’ plan for the future. CFOs remain bullish and are placing greater emphasis on strategic planning than in previous quarters. It appears that CFOs are indeed rising to the challenge and riding this wave of uncertainty.

The CFO ForumThe second annual Deloitte CFO Forum was held in the Four Seasons Hotel, Dublin on 30 May 2013. Chief Financial Officers and Finance Directors of Ireland’s largest businesses gathered to hear the views of four eminent speakers on the key role that finance can perform to support and challenge the business, and how CFOs and their teams can be strategic business partners. Full details of the conference and a retrospective covering key themes and insights are available at www.deloitte.com/ie/cfoforum

Shane Mohan Partner, Deloitte

Quarter 2 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

4

Snapshot of key findings

53DOMESTIC CREDIT

%

53% improvement in the net perception of the availability of domestic credit.

31BANKBORROWINGS

%

31% of respondents expect bank borrowings to increase over the next 12 months.

80NO IMPACT%

80% of respondents believe SEPA will have no impact on their business.

50:50SAVINGS DUECFO opinion is split equally in relation to the achievability of the savings due to be delivered under the Haddington Road Agreement.

5

81REVENUE%

81% of respondents believe their firm’s revenue will increase over the next 12 months.

36 NET OPTIMISM%

Net optimism remains relatively stable this quarter at 36%.

35 JOB CREATION%

35% of respondents believe that the Government should focus on job creation to stimulate economic growth and recovery.

63 INVESTMENT PLANS%

63% of respondents believe that market uncertainty will have a negative impact on their company’s investment plans for the next 12 months.

6

Key events and economic trends

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 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 29 30

/$: 0.81 /£: 1.32

Bond Yield to Maturity ISEQ® Overall

7,000.00

7,200.00

7,400.00

7,600.00

7,800.00

8,000.00

8,200.00

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

Bond Yield to Maturity ISEQ® Overall

/$: 1.28/£: 0.85

/$: 1.30 /£: 0.86

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FTSE 100: 5,897.81 Nasdaq: 3,019.51

FTSE 100: 6,411.70 Nasdaq: 3,267.52

FX

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my Fitch ratings

downgraded China's long-term local currency debt one notch, from AA- to A+, citing the country's rapid expansion of credit.

The IMF cuts its outlook for global growth, now believing that the world economy will grow only by 3.3% in 2013.

US markets enjoy their best start of year since 1999, with the Dow Jones surpassing 15,000 for the first time. The Dow is up 14% from last year and has not suffered a three day losing streak in over 90 days.

Real world GDP rose 2.4% in the first quarter of 2013. Key highlights include a noticeable turn up in inventory investment, an increase in consumer spending and increases in exports (foods and non automotive goods).

Eurozone unemployment reaches 12.2%, an extra 100,000 people from April. Spain and Greece are facing 27% unemployment and above 50% in youth unemployment.

The European Central Bank trimmed its forecast for the Eurozone economy in 2013, leaving interest rates alone, with gradual recovery expected to start in second half of the year.

G8 leaders gathered in Northern Ireland for the 39th annual G8 meeting, with tax, trade and transparency the three main topics.

Stock markets are spooked by Portugal's descent into political chaos, with the FTSE falling 74 points (1.2%).

European markets close at a six week low, with the London FTSE 100 falling 2.1%. Meanwhile in the US the Dow Jones industrial average is down 1.2%, and now trading at 14,991.

ISEQ in

dex valu

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IMF warns of an acute unemployment crisis in Ireland saying that the high share of long-term jobseekers increases the risk that unemployment will remain high even after the economy recovers.

An extension of seven years to repay its bailout loan was granted to Irish emergency loans by EU ministers, an important step forward toward full market financing for Ireland.

It was announced that the European Investment Bank is to work with AIB to provide €200m for investment by SME's in Ireland.

April tax revenue reported an increase of €51m or 2.4% from the same time last year.

The revised public sector pay agreement is released as the Haddingtion Road Agreement. It includes a series of pay appendences to govern pay for individual sectors, with the pay bill to be reduced by €1bn by 2015, but no agreement on the €300m saving for 2013.

NAMA announces a profit of €228m for 2012; the agency is on target to pay down €7.5bn in senior debt by the end of 2013.

The central collective committee of IMPACT today accepts the terms of the Haddingtion Road Agreement, exempting its members from cuts and changes in working conditions.

Mobile phone operator Three bought O2's Irish operation from Telefonicia for €850m. The sale is subject to approval at EU level.

Ireland slips into second recession within three years, with GDP shrinking 0.6% and consumer spending slumping 3%, the biggest slump in four years.

April

April

May

May

June

June

29 30 31

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 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 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

7

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 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 29 30

/$: 0.81 /£: 1.32

Bond Yield to Maturity ISEQ® Overall

7,000.00

7,200.00

7,400.00

7,600.00

7,800.00

8,000.00

8,200.00

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

Bond Yield to Maturity ISEQ® Overall

/$: 1.28/£: 0.85

/$: 1.30 /£: 0.86

Yied

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Irish

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FTSE 100: 5,897.81 Nasdaq: 3,019.51

FTSE 100: 6,411.70 Nasdaq: 3,267.52

FX

rate

sD

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my Fitch ratings

downgraded China's long-term local currency debt one notch, from AA- to A+, citing the country's rapid expansion of credit.

The IMF cuts its outlook for global growth, now believing that the world economy will grow only by 3.3% in 2013.

US markets enjoy their best start of year since 1999, with the Dow Jones surpassing 15,000 for the first time. The Dow is up 14% from last year and has not suffered a three day losing streak in over 90 days.

Real world GDP rose 2.4% in the first quarter of 2013. Key highlights include a noticeable turn up in inventory investment, an increase in consumer spending and increases in exports (foods and non automotive goods).

Eurozone unemployment reaches 12.2%, an extra 100,000 people from April. Spain and Greece are facing 27% unemployment and above 50% in youth unemployment.

The European Central Bank trimmed its forecast for the Eurozone economy in 2013, leaving interest rates alone, with gradual recovery expected to start in second half of the year.

G8 leaders gathered in Northern Ireland for the 39th annual G8 meeting, with tax, trade and transparency the three main topics.

Stock markets are spooked by Portugal's descent into political chaos, with the FTSE falling 74 points (1.2%).

European markets close at a six week low, with the London FTSE 100 falling 2.1%. Meanwhile in the US the Dow Jones industrial average is down 1.2%, and now trading at 14,991.

ISEQ in

dex valu

e

IMF warns of an acute unemployment crisis in Ireland saying that the high share of long-term jobseekers increases the risk that unemployment will remain high even after the economy recovers.

An extension of seven years to repay its bailout loan was granted to Irish emergency loans by EU ministers, an important step forward toward full market financing for Ireland.

It was announced that the European Investment Bank is to work with AIB to provide €200m for investment by SME's in Ireland.

April tax revenue reported an increase of €51m or 2.4% from the same time last year.

The revised public sector pay agreement is released as the Haddingtion Road Agreement. It includes a series of pay appendences to govern pay for individual sectors, with the pay bill to be reduced by €1bn by 2015, but no agreement on the €300m saving for 2013.

NAMA announces a profit of €228m for 2012; the agency is on target to pay down €7.5bn in senior debt by the end of 2013.

The central collective committee of IMPACT today accepts the terms of the Haddingtion Road Agreement, exempting its members from cuts and changes in working conditions.

Mobile phone operator Three bought O2's Irish operation from Telefonicia for €850m. The sale is subject to approval at EU level.

Ireland slips into second recession within three years, with GDP shrinking 0.6% and consumer spending slumping 3%, the biggest slump in four years.

April

April

May

May

June

June

29 30 31

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 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 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

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 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 29 30

/$: 0.81 /£: 1.32

Bond Yield to Maturity ISEQ® Overall

7,000.00

7,200.00

7,400.00

7,600.00

7,800.00

8,000.00

8,200.00

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

Bond Yield to Maturity ISEQ® Overall

/$: 1.28/£: 0.85

/$: 1.30 /£: 0.86

Yied

on

Irish

Gov

t.

FTSE 100: 5,897.81 Nasdaq: 3,019.51

FTSE 100: 6,411.70 Nasdaq: 3,267.52

FX

rate

sD

om

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cec

on

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yY

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on

Iri

sh

Go

vern

men

t b

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ds

Glo

bal

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tsG

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no

my Fitch ratings

downgraded China's long-term local currency debt one notch, from AA- to A+, citing the country's rapid expansion of credit.

The IMF cuts its outlook for global growth, now believing that the world economy will grow only by 3.3% in 2013.

US markets enjoy their best start of year since 1999, with the Dow Jones surpassing 15,000 for the first time. The Dow is up 14% from last year and has not suffered a three day losing streak in over 90 days.

Real world GDP rose 2.4% in the first quarter of 2013. Key highlights include a noticeable turn up in inventory investment, an increase in consumer spending and increases in exports (foods and non automotive goods).

Eurozone unemployment reaches 12.2%, an extra 100,000 people from April. Spain and Greece are facing 27% unemployment and above 50% in youth unemployment.

The European Central Bank trimmed its forecast for the Eurozone economy in 2013, leaving interest rates alone, with gradual recovery expected to start in second half of the year.

G8 leaders gathered in Northern Ireland for the 39th annual G8 meeting, with tax, trade and transparency the three main topics.

Stock markets are spooked by Portugal's descent into political chaos, with the FTSE falling 74 points (1.2%).

European markets close at a six week low, with the London FTSE 100 falling 2.1%. Meanwhile in the US the Dow Jones industrial average is down 1.2%, and now trading at 14,991.

ISEQ in

dex valu

e

IMF warns of an acute unemployment crisis in Ireland saying that the high share of long-term jobseekers increases the risk that unemployment will remain high even after the economy recovers.

An extension of seven years to repay its bailout loan was granted to Irish emergency loans by EU ministers, an important step forward toward full market financing for Ireland.

It was announced that the European Investment Bank is to work with AIB to provide €200m for investment by SME's in Ireland.

April tax revenue reported an increase of €51m or 2.4% from the same time last year.

The revised public sector pay agreement is released as the Haddingtion Road Agreement. It includes a series of pay appendences to govern pay for individual sectors, with the pay bill to be reduced by €1bn by 2015, but no agreement on the €300m saving for 2013.

NAMA announces a profit of €228m for 2012; the agency is on target to pay down €7.5bn in senior debt by the end of 2013.

The central collective committee of IMPACT today accepts the terms of the Haddingtion Road Agreement, exempting its members from cuts and changes in working conditions.

Mobile phone operator Three bought O2's Irish operation from Telefonicia for €850m. The sale is subject to approval at EU level.

Ireland slips into second recession within three years, with GDP shrinking 0.6% and consumer spending slumping 3%, the biggest slump in four years.

April

April

May

May

June

June

29 30 31

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 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 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

8

Domestic banks continue to be the preferred method of funding in Quarter 2 2013 despite a decrease of 3% from the previous quarter.

The preferences for overseas banks and leasing as an external source of finance have fallen this quarter.

Equity is now the second most popular method of funding and is the only method which has had an increase this quarter, with a significant rise from 12% to 35%.

A net 27% of CFO respondents believe that new credit is costly, down from 53% in Quarter 1 2013.

The majority of CFOs perceive finance as easily available this quarter. A net 12% of respondents currently believe that finance is easily attainable.

This is the highest percentage for availability of finance seen in over two years.

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?

Q1 2013

Bank (domestic)

Q4 2012

Q3 2012

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

Q1 2013

Bank (overseas)

Q4 2012

Q3 2012

Q1 2013

Equity

Q4 2012

Q3 2012

Q1 2013

Corporate bonds

Q4 2012

Q3 2012

0%0%

0%

0%Q2 2013

Q1 2013

Reduced dividend payments

Q4 2012

Q3 2012

0%Q2 2013

Q1 2013

Leasing

Q4 2012

Q3 2012

53%

50%Q2 2013

46%

35%

4%Q2 2013

18%

14%

30%

35%Q2 2013

11%Q2 2013

12%

18%

16%

6%

4%

3%

12%

18%

16%

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

Q2 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013

Availability

Cost

-80

0

100

CostlyEasily available

CheapHard to get

Q3 2011 Q2 2013

62%68%

62%

76%81%

62% 62%

53%

27%

-40%-44%

-38%

-68%

-50%

-29%-23%

-31%

12%

9

According to a net 43% of respondents, equity is the most difficult source of funding to attain this quarter.

The availability of finance from domestic banks and corporate bonds is on the rise.

Domestic banks availability of credit has shifted significantly, from the most difficult to the easiest source of finance since last quarter.

Only a net 4% of CFO respondents believe that Irish Government bonds are overpriced. This is a large drop from 28% last quarter.

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: How do you currently rate Irish Government bond valuations?How would you rate the overall availability of new credit for

Irish corporates compared to six months ago from the following sources?

Q3 2012

Easily available

Hard to get-50

0

20

Overseas banks

Corporate bonds

Equity

Domestic banks Q4 2012 Q1 2013 Q2 2013

12%

-31%

-23%

-29%

-17%

-43%

-29%

-23%

-18%

0%

-26%

-16%

8%5%

-4%

6%

How do you currently rate Irish Government bond valuations?

Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013

High Government bond valuations

Low -5

0

30

-4%

2%

4%

23%

9%

-5%

0%

28%

4%

10

Net optimism increased slightly this quarter by 3% to 36%.

Overall, CFO sentiments on their companies’ financial prospects has remained relatively stable in the last year, with the exception of a dip in optimism in Quarter 3 2012.

A net 22% of CFOs have indicated that their company’s gearing has fallen in the last 12 months. Although this is a net increase from the previous quarter, it is still a significant drop compared to the same time last year.

Figure 5: Compared with three months ago how do you feel about the financial prospects for your company?

Figure 6: How has your company’s gearing changed since this time last year?

5. Compared with three months ago how do you feel about the financial prospects for your company?

Q2 2012 Q3 2012 Q4 2012 Q1 2013

Optimistic Sentiments on your company’s financial prospects

Pessimistic 0

40

31%

17%

33%

36%

6. How has your company’s gearing changed since this time last year?

Q2 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013-30

0

10

Q3 2011 Q2 2013

9%

-12%

-4%

-6%

-2%

-13%

0%

-28%

-22%

Increase

Decrease

11

Almost 30% of CFO respondents believe that it is not an opportune time to take greater risk onto their company’s balance sheet.

59% of CFOs who responded to the survey rate the level of external financial and economic uncertainty facing their business as high or very high.

This is a decrease of 13% from the previous quarter.

Figure 7: Do you think it is a good time to take greater risk onto your company’s balance sheet?

Figure 8: How would you rate the level of external financial and economic uncertainty facing your business?7. Do you think it is a good time to take greater risk onto your

company’s balance sheet?

29%

71%

Yes

No

8. How would you rate the level of external financial and economic uncertainty facing your business?

48%

11%4%

0%

37%

Very high

High

Normal

Low

Very Low

12

71% of CFOs continue to believe that market risk poses the largest threat to their company; this is down from 83% in Quarter 1 2013.

According to CFOs, strategic risk is a growing threat to companies as it jumps from 11% in Quarter 1 2013 to 25% in Quarter 2 2013.

Figure 9: Which category of risk poses the largest threat to your company?

9. Which category of risk poses the largest threat to your company?

Q1 2013

Strategic

Q4 2012

Q3 2012

0%Q1 2013

Operational

Q4 2012

Q3 2012

71%Q2 2013

Q1 2013

Market

Q4 2012

Q3 2012

0%Q2 2013

Q1 2013

Financial

Q4 2012

Q3 2012

25%Q2 2013

4%Q2 2013

11%

20%

13%

7%

23%

83%

67%

59%

7%

6%

5%

Deloitte perspective:

Confidence in the domestic capital market appears to be on the rise as the perception of the availability of funding from Irish banks has improved considerably in Quarter 2 2013. For the first time since this survey began, more CFO respondents believe domestic credit to be easily attainable. Perceptions around the cost of funding from Irish banks have also improved. Looking at the trend since this time last year, it is apparent that the domestic capital market is now a more attractive source of funding for Irish businesses. This is supported by the Central Bank of Ireland’s latest Euro Area Bank Lending Survey published in April 2013 which found that ‘regarding lending to large enterprises, there was some evidence of competition pressures providing an impulse towards more accommodative credit standards.’ This survey also observed that loan demand has been increasing over the last number of quarters, this demand being driven by inventories and working capital requirements along with debt restructuring.

CFOs are unanimous in their view that it is not an opportune time to take greater risks onto their companies’ balance sheets. In addition, 82% of CFO respondents cited that their company’s level of gearing has either decreased or remained static over the past year. This suggests that companies are continuing with prudent strategies regarding funding with an ongoing focus on risk management. The decrease in gearing this quarter is in line with the marked increase in preference for equity as a source of funding. In contrast however, equity is viewed by CFO respondents as the most difficult source of funding to attain.

CFO optimism appears to have stabilised this quarter amidst a decrease in the perceived level of financial and economic uncertainty among CFO respondents. It remains to be seen if the announcement that the Irish economy has slipped back into recession will have a material impact on both these variables in the upcoming quarter.

13

80% of CFOs believe that SEPA will have no impact on their business. The majority of CFOs are in the process of implementing the changes required to enforce SEPA, with only 4% of CFOs unaware of any required changes. Businesses need to ensure that their payroll, direct debit and accounting systems are SEPA ready before 1 February 2014 so that they are able to make euro electronic payments after that date.

Figure 10: SEPA (Single Euro Payments Area) comes into full effect in February 2014 – what impact do you believe this will have on your business?

Figure 11: Have you implemented the necessary changes to enforce SEPA?

11. SEPA (Single Euro Payments Area) comes into full effect in February 2014 – what impact do you believe this will have on your business?

80%

7%

0%

13%

Very positive impact

Some positive impact

No impact

Somewhat negative impact

Very negative impact

0%

12. Have you implemented the necessary changes to enforce SEPA?

54%

11%4%

31%

Yes, all required changes have been implemented

We are currently implementing any required changes

We intend to implement the required changes in the upcoming months

I am not aware of any required changes to implement SEPA

Section 2. Current economic and other events

14

Sentiment amongst CFOs surveyed is divided on the economic benefits that the Haddington Road Agreement will deliver. However, the majority of CFOs believe that it will result in increases in public sector productivity.

Despite the fact that previous surveys have suggested that CFOs recognise the need for existing austerity measures, further austerity is considered by respondents to be the least effective policy in stimulating economic growth and recovery. CFOs’ sentiment suggest that the Government should now instead focus on stimulating job creation, foreign direct investment and the availability of credit to businesses.

Figure 12: Do you believe that the Haddington Road Agreement (revised Croke Park II Agreement) will deliver:

Figure 13: What areas do you believe the Government should focus on to further stimulate economic growth and recovery? Please rank the top three areas in your opinion

13. Do you believe that the Haddington Road Agreement (revised Croke Park II Agreement) will deliver:

2013 -€300m

Next 3 years -€1bn

Increases inpublic sectorproductivity

62%

38%

50%50%

Achievable

Not achievable

50%50%

14. What areas do you believe the Government should focus on to further stimulate economic growth and recovery? Please rank the top 3 areas in your opinion

14%

24%

2%

35%

3%

22% Job creation

Innovation and start up business

FDI

Further austerity

Enhance flow of credit to businesses

Invest in public works projects

15

CFO respondents ranked market uncertainty, low economic growth and the global recession as the three greatest external challenges facing their businesses today.

Figure 14: What are the top three external financial challenges currently facing your business today?

15. What are the top three external financial challenges currently facing your business today?

29%10%

26%

2% 1%

32%Europe’s Sovereign debt crisis

Global recession

Market uncertainty

Financial stress

Low economic growth

Other

Deloitte perspective:

The second quarter of 2013 was significant for Ireland, both politically and economically. Internationally, the quarter opened on a positive note, as the economic unrest brought about by the Cypriot banking crisis eased within Europe.

Domestically, the Government displayed their continued commitment to public sector reform. The terms of the revised Croke Park II agreement were negotiated, emerging in the form of the Haddington Road Agreement, and a campaign was launched for the abolition of the Seanad. While previous surveys have suggested that CFOs recognise the need for existing austerity measures, only 2% of respondents this quarter consider further austerity an effective step on the road to recovery. In fact, CFOs ranked job creation as the most critical step to recovery. These sentiments are not unfounded and echo the IMF’s warning that the country faces an ‘acute unemployment crisis’. These comments offer little reassurance that Ireland will be in a position to exit the IMF bailout programme by the end of the year and only serve to increase uncertainty surrounding the looming Budget 2014.

CFO sentiment also indicates the need for economic growth, as CFOs consider that low economic growth and market uncertainty pose the greatest threats to their businesses. Their concerns are not unjustified as the close of the quarter saw Ireland descend into recession for the first time since 2009.

Overall, the quarter saw the Government sow a number of key political seeds in a bid to harvest economic growth. However, whether or not these political investments will be realised economically in the future remains to be seen.

16

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

Business strategies are considered expansionary according to the majority CFO respondents, although 13% more respondents deem their strategy defensive than Quarter 1 2013.

The dominant concern for CFOs currently is market uncertainty, with 63% of respondents believing this will have a negative impact on their company’s investment plans for the next 12 months.

7% of the CFOs surveyed cite the cost of and difficulty in raising finance as being a major worry for their business.

Long-term growth for businesses’ products and services is considered as having the most positive influence on companies’ investment plans.

Figure 15. Would you consider your corporate strategy expansionary or defensive?

Figure 16: 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:

69%Q1 2013

Defensive

Expansionary

56%Q2 2013

44%Q2 2013

31%Q1 2013

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

Market uncertainty

Actual or expected growth in the Euro area

Actual or expected growth in Ireland

Cost and availability of external finance

Availability of internal finance

Actual or expected growth in the US and Asia

Actual or expected growth in the emerging markets

Long-term growth for you products and services

4% 33% 63%

26% 59% 15%

38% 38% 24%

19% 62% 19%

34% 59% 7%

27% 73% 0%

23% 77%

69% 23% 8%

0%

Positive Neutral Negative

17

A substantial proportion of CFOs surveyed expect revenues to increase (81%), and operating costs to decline (52%) resulting in a positive outlook on operating cash flows.

Over 41% of CFO respondents expect to see an increase in cash on their balance sheets over the next 12 months.

Retention of talent remains a priority for almost three quarters of CFOs despite falling from 94% in Quarter 1 2013.

Figure 17: What change, if any, do you expect in the following financial metrics over the next 12 months?

Figure 18: Has retention of talent remained a priority in your firm despite pressures to engage in cost cutting and downsizing?18. What change, if any, do you expect in the following financial

metrics over the next 12 months?

Discretionary spending

Operating margins

Inventory levels

Capital expenditure

Hiring

Equity issuance

Financing costs

Bank borrowing

Operating cash flows

Revenues

Dividends/share buybacks

Operating costs

Levels of cash and cash equivalents on balance sheet

Bond issue

6% 72% 22%

37% 48% 15%

14% 67% 19%

37% 44% 19%

30% 48% 22%

8% 84% 8%

30% 58% 12%

31% 42% 27%

78% 7% 15%

81% 8% 11%

19% 69% 12%

18% 30% 52%

41% 22% 37%

16% 84% 0%

Expected to increase No change Expected to decline

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

94%Q1 2013

74%Q2 2013

6%Q1 2013

No

26%Q2 2013

Yes

18

The top three areas where CFOs surveyed feel the need to improve their finance function’s capabilities are: strategic planning (27%); budgeting/financial planning (20%); and risk management (15%).

The top three industry challenges for CFOs remain the same as Quarter 1 2013 – namely market contraction, pricing trends and industry regulation.

Figure 19: What are the top three areas in which you feel the need to improve your finance function’s capabilities?

Figure 20: What are the top three external financial challenges currently facing your business today?20. What are the top three areas in which you feel the need to im-

prove your Finance Function’s capabilities?Accounting reporting

0%

2%

2%

6%

20%

12%

27%

2%

8%

15%

2%

Tax

Capital investment

Mergers & acquisitions

Financial processes/controls

Budgeting/financial planning

IT/information systems management

Strategic planning

Treasury and audit

Corporate finance

Risk management

21. What are the top three industry challenges currently facing your business today? (Not sure which to use)

Foreign competition

Product substitutes

Input prices

Mergers and acquisitions

New market entrants (domestic)

Changing cost structures

New competitive tactics

Availability of people/skill sets

Overcapacity/excess inventory

Market growth (increasing number of products/services/customers

Market contraction (declining demand/customer base)

Pricing trends

Industry regulation / legislation

4%

3%

8%

0%

0%

6%

6%

3%

6%

2%

30%

23%

13%

Q2 2013

Q1 2013

0%

19

Deloitte perspective:

The results from the Quarter 2 2013 survey highlight that the current dominant concern for CFOs surveyed is market uncertainty and suggest that worries about the external environment loom larger than worries about company specific issues such as margins, cash flows and costs. Credit availability is no longer a key concern; in fact the survey results suggest that this is no longer an inhibitor to companies’ investment plans.

Growth, primarily in Ireland, but also in Europe and further afield, is now playing a crucial role in companies’ plans for the future. Expansionary business strategies, that are proactive and can capitalise on this growth, remain the focus for Irish companies. The survey results suggest that companies are not only reliant on the domestic market but that actual or expected growth for our European counterparts and in the US and Asia contribute to the robustness of the investment plans of Irish companies.

On the whole, CFOs still remain bullish with troubled times presenting opportunities to increase market share and expand capacity. Such opportunities are now more selective, with our survey results suggesting that executives are placing much greater stead on strategic planning than in previous quarters. This is something that we have also found to be true in practice. With the business environment becoming more complex and competitive, it is imperative that companies develop innovative strategies for revenue growth and improved operational performance. We have supported clients with identifying appropriate growth targets, determining where and how to look for growth opportunities, and designing optimal growth portfolios for maximising the chances of a company’s success. Central to the success of a strategy is its execution; we have worked side by side with executives to execute on strategies, creating new revenue streams and facilitating business model enhancements to sustain the benefits.

Growth, primarily in Ireland, but also in Europe and further afield, is now playing a crucial role in companies’ plans for the future.

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

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

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

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

ContactsFor more details please contact:

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

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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 Mohan

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

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