The Dutch Deloitte CFO Survey Uncertainty accepted?cfo-sentiment.deloitte.nl/pdf/2013/2012_Q4_Results_CFO_Survey.pdfThe Dutch Deloitte CFO Survey Uncertainty accepted? 5 The risk appetite

2012 Q4 resultsFebruary 2013

The Dutch DeloitteCFO SurveyUncertainty accepted?

The Dutch Deloitte CFO Survey Uncertainty accepted? 3

Contents

Uncertainty accepted? 4

Financial outlook and priorities 6

Risk 8

Funding 9

M&A 11

R&D Tax Incentives 12

A note on methodology 14

Contacts 14

4

General economic environmentIn December 2012, the European Commission’s Economic Sentiment Indicator (ESI) improved to 87.0 points in the euro area, (+1.3 points). It was broadly level (+0.3 points) at 88.4 in the EU. Economic sentiment in the euro area improved among consumers and across all sectors, except retail trade. Economic sentiment in the EU registered increases in industry and construction, partly offset by decreases in services and retail trade. EU consumer confidence broadly remained level.

Deloitte’s Global Economic Outlook for the first quarter of 2013 describes that uncertainty in the euro area remains at almost unprecedented levels. Its root causes are nevertheless changing. While the European Central Bank (ECB) successfully increased trust in the future of the euro itself, the key challenge for the euro area pertains to reducing uncertainty. The uncertainty about the future of the euro itself dominated the European economy in 2012. This has shifted to uncertainty about the growth outlook that now clouds the economic prospects for Europe for 2013 and beyond.

During the third quarter of 2012, the Dutch economy shrunk by 1% (the strongest decline since 2009). No growth is projected for the fourth quarter either, according to CPB Netherlands Bureau for Economic Policy Analysis figures published on 19 December last. This trend is expected to continue for the first half of 2013 due to the low level of consumer confidence, spending cuts and stringent credit conditions. The economic outlook remains fragile.

Since 5 July 2012, the ECB’s governing council has not changed its main interest rates. The rate on the main refinancing operations remains 0.75%. The interest rates on the marginal lending facility and on the deposit facility remain 1.5% and 0.0%, respectively.

CFO SurveyDutch CFO optimism is broadly the same. Over half the CFOs says their business outlook has not changed compared with the last quarter. Optimists and pessimists maintain a perfect balance. Apparently the CFOs are accepting the significant uncertainty in the business environment as a new kind of status quo.

The cash flow expectations for the next twelve months remain stable. Almost half the CFOs expect a modest cash flow increase of between 1 and 10%.

Organic growth continues to be a strategic priority. Two‑thirds of the CFOs have selected this strategy to be a strong priority.

Uncertainty accepted?

We are proud to present our sixteenth quarterly Chief Financial Officers Survey in the Netherlands, as part of the Deloitte CFO Program. 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 Q4 Survey• Over half the CFOs state their business outlook

has not changed compared with the last quarter. Optimists and pessimists maintain a perfect balance.

• Almost half the CFOs expect a modest cash flow increase of between 1 and 10%.

• Two‑thirds of the CFOs consistently strive for organic growth as a strategic priority for their business for the next 12 months.

• Compared with the third quarter more CFOs report the level of financial risk on their balance sheet to have decreased over the last twelve months.

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

• Bank borrowing is perceived to be the most attractive source of funding.

• Around 61% of CFOs expect M&A levels to increase in the next twelve months.

• CFOs can benefit from R&D incentives in a more efficient way by incorporating this topic at a higher strategic level within the company.


The risk appetite remains low; some 12% of CFOs think now is a good time to be taking greater balance sheet related risks.

Bank borrowing is now perceived to be the most attractive source of funding this quarter. Funding preferences continue to have a highly volatile character.

CFOs’ expectations for M&A activity in the next twelve months have increased slightly. Around 61% of CFOs expect M&A levels to increase in the next twelve months. The outlook for Private Equity activity levels has increased slightly as well.

R&D Tax IncentivesThis quarter’s special topic is about R&D tax incentives and how they are valued by CFOs.

Cash grants being abolished and budgets subsequently being transferred to fiscal incentives is a trend in the Netherlands and in many other countries across the world alike. Up to now, CFOs have not given high marks for the tax credits available.

The results of the CFO Survey show CFOs to prefer tax incentives to have a direct cash flow impact.

When asked what to do with the benefits gained from R&D incentives, about 30% of CFOs state these benefits will be invested again in future R&D. However, over half the CFOs is undecided about how to allocate these benefits gained. 45% of CFOs treat R&D incentives as a local matter within the company.

This indicates even more benefits could be gained by incorporating this topic at a strategic level within the company, enhancing a more efficient planning and monitoring process. Both national and international companies could benefit from this.

R&D and tax planning regarding cash grants is usually left to different units within the organization. Obtaining the best leverage from different types of tax grants and incentives, international as well as national, also requires the headquarters to set the appropriate KPIs for national or operational levels within the organization. The administrative burden will be reduced, as well as the compliance risks involved.

The EU will introduce the Horizon 2020 Programme, a new research and innovation programme, which is to run from 2014 to 2020, with an 80 billion euro budget. This intends to secure Europe's global competitiveness. Dutch companies should be planning to claim their piece of the pie.

Earlier, the Dutch CFO Survey of 2011 Q4 reported that 82% of CFOs considered the strategic significance of innovation to be crucial to very crucial when striving for growth or for the continuation of their company in the currently harsh economic climate. Some 70% of CFOs then stated to have placed innovation high to very high on the board’s agenda.

Accordingly, and in line with these results, the elaboration of the tax planning for R&D incentives should be strategically incorporated.

6

Financial outlook and priorities

Dutch CFO optimism hovers around the zero mark. The optimists and pessimists are equally divided resulting in a net score of 0%. Over half the CFOs state their outlook has not changed compared with the third quarter, indicating they continue to play the waiting game. Are CFOs accepting uncertainty in the business environment as it is?

In the UK, business confidence improved again in the fourth quarter. CFOs enter 2013 in a far more optimistic mood than in early 2012.

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

-60%

-40%

-20%

0%

20%

40%

60%

80%Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

NL UK

2009 2010 2011 2012

L

ess

optim

istic

M

ore

optim

istic

Cash flow expectations remain fragile: none of the CFOs expects an increase of their company’s cash flow by more than 20% for the next twelve months.

Almost half the CFOs expect an increase of between 1 to 10%.

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

30

10 11

24

11

25 5

1510

23 25

13 1016

30

2616

1722

24

18 15 16

1529

21

6 3229

22

22

3446

49 40

38

55

4130

33

3938

44

3442 47

13

1620

23 2918 16

28

27

33

15 1016

18 1316

613

7 9 5 9 9 10

22

4 7 8 93 6

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%


Decline Remain unchanged Increase by 1%-10%

Increase by 11%-20% Increase by more than 20%

2009 2010 2011 2012


Striving for organic growth continues to be the prime strategic priority of most CFOs for their businesses in the next twelve months.

Even more CFOs this quarter have stated that increasing cash flow continues to be a strong priority.

Raising dividends or implementing share buy‑back programmes are not on the 2013 strong‑priority list. Regarding these metrics for Dutch corporates in general, 12% of CFOs expect a (significant) increase of dividends or share buy‑backs (not shown in chart).

According to CBS Statistics Netherlands, Dutch companies quoted at the Amsterdam Stock Exchange paid out nearly 17 billion euro in dividends to their shareholders in 2012 (including a non‑recurring payment of over 3.6 billion euro by ASML) compared with nearly 12 billion euro in 2011.

Non‑financial companies paid out nearly all dividends. Non‑financial companies are now back at the level prior to the economic crisis of 2009.

Financial companies only paid out 600 million euro in dividends in 2012, although this tops the amount paid in 2011 by nearly three times.

Dutch listed companies’ share buy‑back programmes accounted for almost 1.7 billion euro in 2012 (2011: 3.2 billion euro) – still a low level compared with the 15 billion euro spent in 2008.

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

3

19

22

50

34

66

3

11

16

32

41

72

3

17

10

47

47

67

0

3

9

45

55

67

0% 20% 40% 60% 80% 100%

Raising dividends or share buy backs

Increasing capital expenditure

Expanding by acquisition

Introducing new products/services orexpanding into new markets

Increasing cash flow

Organic growth

2012 Q4 2012 Q3 2012 Q2 2012 Q1

8

Risk

The levels of risk appetite remain low and at about the same level as the previous quarter.

Some 88% of the corporate CFOs think now is not a good time to be taking greater balance sheet related risks, against 12% who think it is.

Chart 4. Attitude towards greater balance sheet related risksPercentage of CFOs reporting that now is a good time to be taking greater balance sheet related risks.

2 513

22 22 22 24

39

2719

518 19

816 12

-98 -95-88

-78 -78 -78 -76

-61-73

-81

-95-82 -81

-92-84

-88-100%

-80%

-60%

-40%

-20%

0%

20%

40%


Yes No

2009 2010 2011 2012

More CFOs compared to the third quarter report that the level of financial risk on their balance sheet has decreased over the last twelve months (45%).

When CFOs are asked to assess the level of external financial and economic uncertainty facing their businesses 55% of them rate this level as high to very high compared with 42% in the third quarter (not shown in chart).

Another 33% of CFOs rate these conditions to be above normal level.

Chart 5. Change in financial risk* on balance sheetPercentage of CFOs reporting that the level of financial risk on their balance sheets increased/decreased over the last 12 months.

2009 2010 2011 2012

48

34 3223

20 24

13 13

27

15

39 3641 36

23 21

-30 -33-45

-58-49

-47-49 -49

-46 -41

-22

-36

-25 -26-16

-45

-80%

-60%

-40%

-20%

0%

20%

40%


Increased Decreased

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


Funding

The perceived conditions regarding cost and availability of credit have switched positions again, returning to their former order. The overall sentiment regarding cost and availability of credit remains negative.

Chart 6. Cost and availability of credit Net percentage of CFOs reporting that funding for corporates is cheap or expensive, and funding is readily available or hard to obtain.

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%


Cost of credit Availabilty of credit

Cos

tly/h

ard

to g

et

C

heap

/ava

ilabl

e

2009 2010 2011 2012

Chart 7 presents an overview of the billions of euros European banks have stored overnight at the overnight deposit facility of the European Central Bank.

The ECB put the financial markets at ease with two long‑term refinancing operations, in December 2011 and February 2012. Both rounds led to an increase in the banks’ liquidity – which was stored at the ECB in overnight deposits.

European banks still use the ECB as a trusted intermediary. However, at the start of the third quarter the ECB decided to change the deposit interest rate from 0.25% to 0.0%, leading to a new base level in the amounts of euros stored overnight. The significant drop in the average amount of overnight deposits perceived in the third quarter proved to be stable during the fourth quarter.

Chart 7. Overnight deposit facility European Central Bank 2009-2012Billions of euros stored by European banks at the overnight deposit facility of the European Central Bank

0

100

200

300

400

500

600

700

800

9001/1/2009 1/1/2010 1/1/2011 1/1/2012Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2009 2010 2011 2012

EUR

bln

Source: European Central Bank

10

The favourite source of funding remains volatile as CFOs adapt to changing circumstances. Bank borrowing gains in perceived attractiveness and is now considered to be the most attractive source of corporate funding.

Chart 8. Favoured source of corporate fundingNet percentage of CFOs reporting the following sources of funding as (un)attractive

-60%

-40%

-20%

0%

20%

40%


Bank borrowing Corporate debt Equity

Una

ttra

ctiv

e

Att

ract

ive

2009 2010 2011 2012

The time for issuing debt is perceived to have slightly improved. CFOs do not think now is a good time to issue equity.

This last quarter, the average closing rate of the AEX‑index was 334.38 (+2.3% Q3). The lowest closing rate was 319.84 on 16 November, and the highest Q3 closing rate was 346.60 on 20 December.

Some 64% of CFOs expect the AEX index to increase in the next twelve months (42% Q3), 15% expect a decrease.

Regarding the Dutch equity valuations in general, CFOs represent a net score of 0% (24% overvalued minus 24% undervalued). The valuation of CFOs’ own company (if appropriate) also hovers around a net score of 0% (7% overvalued and 10% undervalued). For the first time since the start of the survey these expectations are equally balanced.

Chart 9. Good time to issue debt/equity?Net percentage of CFOs who think now is a good time to issue debt/equity.

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%


Debt Equity

Not

a go

od t

ime

Goo

dtim

e

2009 2010 2011 2012


M&A

Some 61% of CFOs expect M&A activity levels to increase in the next twelve months, while only 6% of CFOs expect M&A levels to decrease further from current levels, which are still considered to be low.

The trend in CFOs’ expectations of Private Equity activity is rather similar to the one shown in the M&A outlook chart. About 45% of CFOs expect an increase in Private Equity acquisitions (Q3 32%).

Chart 10. M&A outlook Percentage of CFOs who expect M&A activity to increase/decrease in the next 12 months.

68

8884

9296

8480

100

86

77

3036

66

4145

61

-9

-2 -2 0 0

-9

0 0 0-4

-38

-23

-9 -8-13

-6

-40%

-20%

0%

20%

40%

60%

80%


Increase Decrease

2009 2010 2011 2012

Even though the number of deals slightly increased in 2012 compared with 2011 and the years before, according to mergermarket, the differences can be considered to be marginal. Based on other sources (e.g. OverFusies.nl) and criteria – the mergermarket data only shows transaction details in excess of EUR 5 billion – the 2012 figures of Dutch M&A activity show the number of deals to have dropped somewhat.

For 2013, the outlook still remains indefinite. Current transactions are mostly sales‑oriented. The economic outlook needs to be more promising for the M&A market to pick up.

Chart 11. Dutch M&A market 2007-2012Dutch M&A activity expressed in number of deals.

0

100

200

300

400

500

600

700

800

2007 2008 2009 2010 2011 2012

Number of deals > EUR 500 mln Number of mid market deals

Source: mergermarket

Num

ber

of d

eals

12

R&D Tax Incentives

Cash grants being abolished and budgets subsequently being transferred to fiscal incentives is a trend in both the Netherlands and in many other countries across the world. Up to now, CFOs have not rated the tax credits available as very high.

Different types of tax incentives are available. Each of these types will influence the cash flow of a company differently. It is therefore interesting to see which of these types CFOs prefer the most.

More than half the CFOs rate fiscal incentives ‑ i.e., wage tax or indirect tax – high to very high. These types have a direct cash flow impact.

National and EU cash grants show a larger group of CFOs within “neutral”. This might indicate these types to be fairly unknown. Due to their unfamiliarity, CFOs may miss out on benefits from national or EU budgets.

The European Commission introduces Horizon 2020 as successor to the Seventh Framework Programme. The EU’s new programme for research and innovation will be running from 2014 to 2020 with an 80 billion euro budget. It is intended to secure Europe's global competitiveness.

Chart 12. Attractiveness of tax incentives Percentage of CFOs who rate the value of the following types of incentives as high or low.

42

52

39

29

19

19

39

45

39

29

23

26

0% 20% 40% 60% 80% 100%

Corporate tax incentives(indirect cash flow impact)

Other fiscal incentives(direct cash flow impact)

National cash grants(direct cash flow impact)

EU Cash grants(direct cash flow impact)

(Very) high Neutral (Very) low

What do CFOs prefer to do with the benefits gained from R&D incentives? 30% state these benefits will be invested again in future R&D. However, 70% of CFOs is yet undecided or will not invest these benefits in future R&D.

Some 28% of CFOs state it will be added to the regular R&D budgets, thus increasing these budgets. Almost a quarter of CFOs state these benefits do not have a destination upfront.

With large EU and national budgets available, it is advisable to plan for the destination of these benefits upfront and link them to internal goals.

Chart 13. Destination of benefit gained from R&D incentivesPercentage of CFOs who rate each of the following statements to be true/false regarding the destination of the benefit gained from R&D incentives.

30

28

23

57

41

43

13

31

33

0% 20% 40% 60% 80% 100%

Invested again in future R&D

Added to regular R&D budgets (increase of total R&D budget)

Not consciously utilized

True Undecided False


CFOs are more reluctant to apply for R&D incentives because of the administrative burden than because of the potential compliance risks.

Some 43% of CFOs do not apply for available R&D incentives, because of the administrative burden.

Almost half the CFOs (48%) do not regard the compliance risk to contain a reputation risk and 39% is undecided. Introduction of automation, a centralized process and coordination reduces the burden of compliance and compliance risk.

Chart 14. Internal impact of R&D incentivesPercentage of CFOs who rate each of the following statements to be true/false regarding the internal impact when applying for R&D incentives.

20

6

48

23

19

39

57

74

13

0% 20% 40% 60% 80% 100%

Given the administrative burden I have chosennot to apply for available R&D incentives

Given possible compliance risks I have chosen notto apply for available R&D incentives

I am aware of the compliance risk, but have notregarded this as a possible reputation risk

True Undecided False

Some 45% of CFOs treat R&D incentives as a local matter within the company.

We experience that if R&D incentives are managed in a decentralized manner, companies may miss opportunities to make use of R&D incentives available. Both international and national firms are advised to address and prioritize this topic at a strategic central level.

R&D and tax planning regarding cash grants is usually left to different units within the organization. Obtaining the best leverage from different types of tax grants and incentives, internationally as well as nationally, also requires the headquarters to set the appropriate KPIs for national or operational levels within the organization.

Chart 15. Managing R&D incentives within the companyPercentage of CFOs reporting which reporting style best fits the internal structure of their company.

19

26

19

13

23

0% 20% 40% 60% 80% 100%

Local matter in our company

Local matter, but central managementencourages their use

At central level, each individual country or business unit has to report to central HQ’s

At central level and to be able to monitor andcontrol compliance

Not applicable (only local activities)

14

A note on methodologyTo 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 Q4 survey took place between 18 December 2012 and 17 January 2013. A total of 33 corporate CFOs completed our survey, representing a net turnover per company of approximately EUR 2.2 billion. The responding companies can be categorized as follows: less than 100 million (3%), 100 – 499 million (39%), 500 – 999 million (18%), 1 – 4.9 billion (27%), more than 5 billion (12%).

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 the report will make 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.

SourceDeloitte Research NL

ContactsJan de RooijPartner Deloitte Core [email protected]+31 (0)6 5336 6208

Wilten SmitManaging Partner Deloitte Financial Advisory [email protected]+31 (0)6 5389 7407

Helene GeijtenbeekDirector R&D [email protected]+31 (0)6 1312 7391

Liesbeth BaxDeloitte Clients & Markets [email protected]+31 (0)6 1201 0798

Wilma BontesDeloitte Press [email protected]+31 (0)6 2127 2102

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world‑class capabilities and high‑quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte has in the region of 200,000 professionals, all committed to becoming the standard of excellence. This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by means of this publication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this communication. © 2013. For information, contact Deloitte Touche Tohmatsu Limited. Designed and produced by Communications at Deloitte, Rotterdam.

Documents

The Dutch Deloitte CFO Survey Uncertainty accepted?cfo-sentiment.deloitte.nl/pdf/2013/2012_Q4_Results_CFO_Survey.pdfThe Dutch Deloitte CFO Survey Uncertainty accepted? 5 The risk appetite