CFO survey Q1 2012

The Dutch Deloitte CFO Survey Gaining optimism in uncertain reality 2012 Q1 results April 2012

Contents

Gaining optimism in uncertain reality

4

Financial outlook and priorities

6

Risk

8

Funding 9 M&A 11 Government incentives policy

12

A note on methodology

14

Contacts 14

The Dutch Deloitte CFO Survey Gaining optimism in uncertain reality

3

Gaining optimism in uncertain reality

We are proud to present our thirteenth quarterly Chief Financial Officers Survey in the Netherlands, as part of the Deloitte CFO Initiative. The survey gauges attitudes to valuations, risk and financing, and reports trends and turning points for you and your business.

Key points from the 2012 Q1 Survey • CFO optimism on their financial outlook on the rise again.

• Almost 70% of CFOs expect an increase of their companies’ cash flow over the next twelve months.

• Striving for organic growth continues to be the most prioritized strategy. Developing new products or expanding into new markets gains priority.

• The risk appetite remains at the same level as the previous quarter.

• The overall assessment of the conditions regarding availability and cost of credit remains negative.

• Corporate debt is perceived to be the most attractive source of funding. Equity also gains attractiveness.

• Two thirds of CFOs expect M&A levels to increase in the next twelve months.

• Corporate and wage tax in particular are seen as key drivers for cash flow.

4

General economic environment Several measures were conducive to reducing the uncertainty in the financial markets during the first quarter of 2012. In December 2011 the European Central Bank (ECB) conducted the first Long Term Refinancing Operation (LTRO), which enabled European banks to expand their liquidity at a favourable interest rate of 1% for 3 years. European policymakers agreed to grant Greece an additional package of funds. This quarter, Greece also successfully negotiated with the European banks a large haircut on their loans – one of the conditions set by European governments before releasing additional funding to Greece.

In February the ECB conducted the second LTRO, a EUR 530 bn, 3-year lending facility. The ECB overnight deposit facility increased after each LTRO. The successful LTROs buy policy makers time. Now, European policy makers have to proceed by reducing their national budget deficits and spending, and by reforming their economies.

According to CPB Netherlands Bureau for Economic Policy Analysis figures published on 20 March last, the current economic recession will continue until the second half of this year, while GDP is expected to shrink by 0.75% in 2012. A slight recovery is forecast for the following years: a growth in GDP of 1.25% in 2013, and of 1.5% in both 2014 and 2015.

During the previous three months, the governing council of the ECB decided not to change the ECB key interest rates. The interest rate on the main refinancing operations has been 1.0% since December.

CFO Survey As in the UK, CFO optimism about the financial prospects of the own company is on the rise again.

Almost 70% of CFOs expect their cash flow to increase.

These expectations went up compared with the last quarter of 2011 (56%).

CFOs expect that especially capital expenditure and hiring will increase for Dutch corporates over the next twelve months. Increasing capital expenditure is also considered a priority of increasing significance for the own business.

Which governmental tax-related measures will currently be most effective in stimulating the cash flow and/or growth of the own company? Most CFOs assess the wage tax related incentives policy to have the highest impact (high to very high). As the results of this quarters survey show that hiring gains in priority, an incentives policy in this area could really boost this effect.

Some 19% of CFOs think now is a good time to be taking greater balance sheet related risks.

16% of CFOs consider extension of loss compensation to have a very high impact in stimulating cash flow and/or growth. For this measure to take effect, companies will offset these fiscal losses from future or past profits. Therefore, the outlook is that healthy companies will benefit the most.

Corporate debt is perceived to be the most attractive source of funding this quarter. Equity also gains in attractiveness. Apparently, the IPO of Ziggo has set a great example in the past quarter.

CFOs consider tax savings on cross-border income to have a lesser impact. Our experience, however, is that CFOs may be surprised by the hidden cash tax savings in this area.

CFOs expectations for both M&A and Private Equity activity levels went up this quarter, with two thirds of CFOs expecting an increase in M&A levels in the next twelve months.

R&D incentives (Innovation box and WBSO) are not perceived to stimulate cash flow very much. These measures are structured such, that they have a limited impact on managing costs for larger companies.

Tax: impact on cash flow CFOs perceive that corporate taxes and wage taxes have a very high impact on the company’s cash flow.

If the Dutch government wants to stimulate the Dutch economy by taking tax-related measures to ease the tax burden for corporates, it should consider the relevance of these tax areas.

During the crisis, which started in 2008, the Dutch government helped companies reduce the impact of the crisis by introducing a package of incentive policy measures, including several tax measures. CFOs perceive corporate tax measures, such as the extension of loss compensation, to have had the greatest impact in helping companies sustain their cash flows over the past years. Both indirect tax measures, like deferral of payment of VAT, and wage tax measures, like special deductions or the part-time unemployment compensation, are considered to have had a (very) high impact as well.

The Dutch Deloitte CFO Survey Gaining optimism in uncertain reality

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Financial outlook and priorities

UK CFO optimism has seen its sharpest rise since the survey started in 2007.

Chart 1. Financial prospects NL & UK Net percentage of CFOs who are more optimistic about the financial prospects for their company now versus three months ago.

2009

2010

Q1

Q2

Q3

Q4

Q1

2011 Q2

Q3

Q4

2012

Q1

Q2

Q3

Q4

Q1

80% More optimistic

CFO optimism about the financial prospects of the own company is on the rise again. The Dutch sentiment now hovers around the zero mark, meaning CFOs are positive and negative about their companies’ financial prospects in almost equal measure.

60% 40% 20%

Less optimistic

0% -20% -40% -60% NL

Almost 70% of CFOs expect their cash flows to increase. The expectations went up compared with 2011 Q4 (56%).

Less CFOs (6%) expect the cash flow to remain unchanged over the next twelve months compared with 2011 Q4 (21%).

UK

Chart 2. Change in cash flow over the next 12 months Percentage of CFOs who expect their companies’ operating or free cash flow to increase/decrease over the next 12 months.

2009 Q1 100% 90%

6

Q2 13

16

2012

2011

Q3

Q4

Q1

Q2

Q3

Q4

7

9

5

9

9

10

Q1

Q2

Q3

Q4

Q1

4

7

8

9

15

10

22

13

80% 70%

2010

20

23

29

18

16

33

28

22 27

60%

39 34

50% 40%

30

49

26

20% 30

44 55

40

33 41

30

24

16 17

10% 10

11

0% Decline

38

38

46

21

30%

6

16

Remain unchanged

2

22 4

15 18

11

Increase by 1%-10%

2

15

16 15

5

Increase by 11%-20%

5

6

29 23 10

Increase by more than 20%

25

CFOs remain consistent in striving for organic growth as their most prioritized strategy.

Organic growth is followed in priority by another expansion strategy, such as introducing new products or expanding into new markets.

Increasing cash flow becomes less of a priority than in the previous quarter. However, it is still the third prioritized strategy. Increasing capital expenditure gains in priority.

Some CFOs appear to gradually release the financial brakes in order to revive the entrepreneurial spirit.

Chart 3. CFOs priorities for the next 12 months Percentage of CFOs who have selected each of the following strategies as a strong priority for their business for the next 12 months.

59 56

Organic growth Introducing new products/ services or expanding into new markets

32

13 13

Expanding by acquisition 3 3

46

59

22

8 10

Raising dividends or share buy backs

19 19 30

5

0%

20%

40%

2012 Q1

CFOs especially expect capital expenditure and hiring to increase again for Dutch corporates over the next twelve months.

44 41

Increasing capital expenditure

78

50

38

34

Increasing cash flow

66

2011 Q4

60% 2011 Q3

80%

100%

2011 Q2

Chart 4. Expected change in key metrics of Dutch corporates Percentage of CFOs who expect the following key metrics to (significantly) increase for Dutch corporates over the next 12 months.

Financing costs

71 69 10

Capital expenditure

25 14

46 25

8 7

Hiring

78 77

35 22

26 25

Operating cash flow 13

Dividends/share buybacks

19 16 13

Inventory levels

17 13 13 11

Financial leverage 0%

20% 2012 Q1

38

19 25 29

23 40% 2011 Q4

60% 2011 Q3

80%

100%

2011 Q2

The Dutch Deloitte CFO Survey Gaining optimism in uncertain reality

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Risk

The risk appetite remains at the same level as the previous quarter. Some 19% of CFOs think now is a good time to be taking greater balance sheet related risks.

Chart 5. Attitude towards greater balance sheet related risks Percentage of CFOs reporting that now is a good time to be taking greater balance sheet related risks.

2009 Q1

2010 Q2

Q3

Q4

Q1

2011 Q2

Q3

Q4

Q1

2012 Q2

Q3

Q4

Q1

18

19

-82

-81

60% 39

40% 22

20% 2

5

22

22

27

24

13

19 5

0% -20% -40% -60%

-61

-80% -100%

-78 -98

-95

Yes

No great shifts can be observed in the levels of financial risk that the CFO is willing to take on the balance sheet.

For some CFOs the level slightly decreased.

When CFOs are asked to assess the level of external financial and economic uncertainty facing their business, 56% of CFOs rate this level as high to very high (not shown in chart). Some 34% of CFOs rate these conditions to be above normal level, similar to the previous quarter. However, the movement tends to slightly range from very high toward above normal.

-78

-78

-73

-76

-88

-81 -95

No

Chart 6. Change in financial risk* on balance sheet Percentage of CFOs reporting the level of financial risk on their balance sheets increased/decreased over the last 12 months.

2009 Q1 60%

2010 Q2

Q3

34

32

Q4

Q1

2011 Q2

Q3

Q4

Q1

2012 Q2

Q3

Q4

39

36

48

40%

23 20%

20

Q1

41

27

24 13

15

13

0% -20% -40%

-30

-22 -33 -45

-60%

-49

-47

-49

-49

-46

-41

-25 -36

-58

-80%

Increased

Decreased

* Financial risk could include, levels of gearing, uncertainty about the valuation of assets, and interest and exchange rate sensitivity.

8

Funding

2009 Q1 Cheap / available

The results of the fourth quarter Bank Lending survey of the ECB published in January 2012 state: “Participating banks explained the surge in the net tightening of credit standards by the adverse combination of a weakening economic outlook and the euro area sovereign debt crisis, which continued to undermine the banking sector’s financial position.

Increased market scrutiny of bank solvency risks in the fourth quarter of 2011 is likely to have exacerbated banks’ funding difficulties. As a result, euro area banks significantly tightened credit terms and conditions and raised interest rates on loans to non-financial corporations.”

Chart 7. Cost and availability of credit Net percentage of CFOs reporting that funding for corporates is cheap or expensive, and funding is easily available or hard to get.

2010 Q2

Q3

Q4

Q1

2011 Q2

Q4

Q1

Q2

Q3

Q4

Q1

80% 60% 40% 20% 0% -20% -40% -60% -80% -100% Availabilty of credit

Chart 8 presents an overview of the amount of billions of euros which European banks have stored overnight at the overnight deposit facility of the European Central Bank.

Q3

2012

100%

Costly / hard to get

The perceived conditions regarding cost and availability of credit are much the same as the last two quarters.

The overall sentiment remains negative. The availability of credit is considered low by most CFOs, while the perceived level of cost is considered high.

Cost of credit

Chart 8. Overnight deposit facility European Central Bank 2009-2012 Amount of billions of euros stored by European banks at the overnight deposit facility of the European Central Bank.

2009

The ECB eased the financial markets with two LTRO rounds, on 21 December 2011 and 29 February 2012.

After both rounds the banks’ liquidity increased. Also shown is the increased amount of stored overnight deposits at the ECB both at the end of 2011 and the beginning of March.

Q1

2010 Q2

Q3

Q4

Q1

2011 Q2

Q3

Q4

Q1

2012 Q2

Q3

Q4

Q1

900 800 700

European banks still use the ECB as a trusted intermediary.

EUR bln

600 500 400 300 200 100 0

Source: European Central Bank

The Dutch Deloitte CFO Survey Gaining optimism in uncertain reality

9

A prominent example of corporate debt was set by Heineken N.V. last March. Heineken tapped both the European and US bond markets on 12 March and 29 March to source capital.

2009

2010

Q1

Q2

Q3

Q4

Q1

2011 Q2

Q3

Q4

Q1

2012 Q2

Q3

Q4

Q1

60% Attractive

This quarter the sentiment of corporate debt and equity improves for large corporates. The private debt market, too, appeals to companies as an alternative to traditional bank financing. The longer terms of these bonds (e.g. 10 years) may be part of this appeal. In January alone, European companies issued a record USD 4.6 bn of debt on the US private placement market, according to Barclays Capital, more than twice the previous record of USD 2.2 bn issued in January 2005.

Chart 9. Favoured source of corporate funding Net percentage of CFOs reporting the following sources of funding as (un)attractive.

40% 20% 0%

Unattractive

The volatility in the results of this chart is high, meaning the current circumstances and sentiments on the financial markets change rapidly, causing CFOs to shift to the best (and available) financing mix over time.

-20% -40% -60% Equity

Bank borrowing

Corporate debt

The Dutch equity market revived through the successful IPO of Ziggo on 21 March. It was the first IPO of a large Dutch company since the listing of Delta Lloyd in 2009.

This last quarter, the average closing rate of the AEX-index was 323.08 (+8.9% Q4). The lowest closing rate was 309.28 on 13 January, while the highest Q1 closing rate was 336.17 on 16 March.

2009 Q1

2010 Q2

Q3

Q4

100% Good time

The time to issue equity is still perceived as bad by most CFOs. However, one third of CFOs do believe now is a good time.

Chart 10. Good time to issue debt/equity?

Net percentage of CFOs who think now is (not) a good time to issue debt/equity.

80% 60% 40% 20% 0%

Not a good time

The net scores of both indicators whether it is a good time to issue debt or equity are slightly running up.

The time to issue debt or equity is perceived to have improved, being consistent with the previous chart.

-20% -40% -60% -80% -100% Equity

10

Debt

Q1

2011 Q2

Q3

Q4

Q1

2012 Q2

Q3

Q4

Q1

M&A

CFOs expectations for both M&A and Private Equity activity levels have increased compared with the previous two quarters.

Chart 11. M&A outlook Percentage of CFOs who expect M&A activity to increase/decrease in the next 12 months.

Two thirds of CFOs expect M&A levels to increase in the next twelve months, while 56% of CFOs expect PE activity to increase.

The trend of CFOs expectations of Private Equity activity is rather similar to the one shown in the M&A outlook chart.

2009 Q1 100%

2010 Q2

88

80%

Q3

Q4 92

Q1

2011 Q2

Q3

Q1

Q2

Q3

Q4

Q1

100

96 84

84

Q4

2012

86

80

77

68

66

60% 40%

30

36

20% 0%

-2

-2

0

0

-20%

0

0

-9

-9

0

-4 -9 -23

-40%

-38 Increased

Chart 12. Dutch M&A market 2007-2012 Dutch M&A activity expressed in number of deals.

800 700 600 Number of deals

In 2012, the number of deals is, relatively speaking, at the same level as in 2011. However, the average value of deals disclosed is slightly increasing.

Decreased

500 400 300 200 100 0 2007

2008

Number of deals > EUR 500 mln

2009

2010

2011

2012 Q1

Number of mid market deals

Source: mergermarket

The Dutch Deloitte CFO Survey Gaining optimism in uncertain reality

11

Government incentives policy

The Dutch government policy makers are negotiating government spending cuts and reform measures in order to reduce the Dutch budget deficit, which is forecast to be 4.6 percent of GDP for 2013. However, alongside spending cuts the Dutch government wants to stimulate the Dutch economy too, as a way out of the current recession. The Deloitte CFO Survey indicates that generating cash flow and organic growth are big business priorities for Dutch corporates. What measures will best help our Dutch companies accelerate and generate cash flow?

CFOs especially consider corporate taxes and wage taxes to have a (very) high impact on the company’s cash flow.

Chart 13. Impact of tax areas on cash flow Percentage of CFOs who assess the impact of the following tax areas as a driver of companies’ cash flows as (very) high.

Corporate taxes

26

Wage taxes

10

Indirect taxes

10

Grants/Incentives

16

32

19

16

0%

6

10%

20%

30%

40%

50%

High impact

Very high impact

During the crisis which started in 2008, the Dutch government helped companies to reduce the impact of the crisis by introducing a package of incentives policy measures, including several tax measures. We asked CFOs what has been the impact of these tax measures in helping the company sustain its cash flow over the past years.

Chart 14. Impact of crisis package of tax measures Percentage of CFOs who assess the impact of the crisis package of tax measures in sustaining the cash flow over the past years as (very) high.

Corporate tax measures

10

Corporate tax measures, such as the extension of loss compensation, are perceived to have had the greatest impact over the past years. Both indirect tax measures, such as deferral of payment of VAT, and wage tax measures, such as special deductions or the part-time unemployment compensation, are considered to have had a (very) high impact as well.

Indirect tax measures

10

Wage tax measures

3

Grants/incentives

3

0%

13

10

16

3

10% Very high impact

12

20% High impact

30%

40%

50%

Which governmental tax-related measures will currently be most effective in stimulating the cash flow and/or growth of the own company?

Most CFOs assess that wage tax related incentives policy have the highest impact (both “very high” and “high”). However, CFOs consider extension of loss compensation to be the measure with a very high impact.

CFOs consider tax savings on cross-border income to have a lesser impact. Our experience, however, is that CFOs are often unaware of hidden cash tax savings in this area.

R&D incentives (Innovation box and WBSO) are not perceived to stimulate cash flow very much. These measures are structured such that they have a limited impact on managing costs for larger companies.

Chart 15. Effective measures in stimulating growth or cash flow Percentage of CFOs assessing which measures will currently be most effective in stimulating the cash flow and/or growth of their company.

Wage tax related incentives policy

6

34

Extension of loss compensation

16

Incentives policy on innovation (grants)

9

Savings on local taxes Tax savings on cross-border income 0%

13

19

6

3

16

19 10%

Very high impact

20%

30%

40%

50%

High impact

The Dutch Deloitte CFO Survey Gaining optimism in uncertain reality

13

A note on methodology

To enhance readability not all survey questions will be reported in each quarterly survey. Survey questions will be selected in response to the current financial economic situation. If you wish to receive information about non-reported questions, please contact us. The Deloitte CFO Survey is also executed by other Deloitte countries, for instance in the UK. Comparisons will be made when relevant.

Some of the charts in the Dutch Deloitte CFO Survey show the results in the form of a net balance. This is the percentage of respondents reporting, for instance, that bank credit is attractive minus the percentage stating that bank credit is unattractive. This is a standard way of presenting survey data.

Due to rounding answers may not sum to 100%.

The 2012 Q1 survey took place between 15 March and 10 April. A total of 32 corporate CFOs, representing a net turnover per company of approximately EUR 1.8 billion, completed our survey. The responding companies can be categorized as follows: less than 100 million (12%), 100 – 499 million (34%), 500 – 999 million (16%), 1 – 4.9 billion (25%), more than 5 billion (13%).

The participating CFOs are active in a variety of industries: Retail/Wholesale, Manufacturing Technology Real Estate, Consulting, Entertainment, Communication, Energy & Utilities, Transport, and Banking/Finance/Insurance.

We would like to thank all participating CFOs for completing our survey. We trust that the report makes an interesting read and highlights the challenges facing CFOs. We also hope it provides you with an important benchmark to understand how your organization rates among your peers.

14

Source Deloitte Research NL Contacts Jan de Rooij Partner Deloitte Global Employer Services JandeRooij@deloitte.nl +31 (0)6 5336 6208

Wilten Smit Function Leader Deloitte Financial Advisory Services WiSmit@deloitte.nl +31 (0)6 5389 7407

Stephen Brunner Partner Deloitte Tax SBrunner@deloitte.nl +31 (0)6 5065 6275

Liesbeth Bax Deloitte Research NL LBax@deloitte.nl +31 (0)6 1201 0798

Marinda Giethoorn Deloitte Press Officer MGiethoorn@deloitte.nl +31 (0)6 1234 5063

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