The Dutch Deloitte CFO SurveyGaining optimism in uncertain reality

2012 Q1 resultsApril 2012

3 The Dutch Deloitte CFO Survey Gaining optimism in uncertain reality

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

4

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.

General economic environmentSeveral 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.

5 The Dutch Deloitte CFO Survey Gaining optimism in uncertain reality

CFO SurveyAs 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.

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

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 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.

Tax: impact on cash flowCFOs 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.

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.

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.

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.

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.

6

Financial outlook and priorities

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.

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

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%).

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

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

-60%

-40%

-20%

0%

20%

40%

60%

80%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

NL UK

Less

opt

imis

ticM

ore

optim

istic

2009 201220112010

30

30

22

13

6

Q1

10

26

34

16

13

Q2

11

16

46

20

7

Q3

2

17

49

23

9

Q4

4

22

40

29

5

Q1

11

24

38

18

9

Q2

2

18

55

16

9

Q3

5

15

41

28

10

Q4

5

16

30

27

22

Q1

15

15

33

33

4

Q2

10

29

39

15

7

Q3

23

21

38

10

8

Q4

25

6

44

16

9

Q1

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2010 2012

Decline Remainunchanged

Increase by 1%-10%

Increase by 11%-20%

Increase by more than 20%

2011

7 The Dutch Deloitte CFO Survey Gaining optimism in uncertain reality

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 business for the next 12 months.

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

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.

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

23

17

19

38

35

46

69

11

29

25

25

7

14

71

13

13

13

26

8

10

77

13

16

19

22

25

25

78

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

Financial leverage

Inventory levels

Dividends/share buybacks

Operating cash flow

Hiring

Capital expenditure

Financing costs

2012 Q1 2011 Q4 2011 Q3 2011 Q2

30

19

41

44

78

5

13

10

46

32

56

3

13

8

59

38

59

3

19

22

34

50

66

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

Raising dividendsor share buy backs

Expanding by acquisition

Increasing capital expenditure

Increasing cash flow

Introducing new products/services or expanding

into new markets

Organic growth

2012 Q1 2011 Q4 2011 Q3 2011 Q2

8

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.

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.

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

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

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

and exchange rate sensitivity.

48

34 3223 20 24

13 13

27

15

39 3641

-30 -33

-45

-58-49 -47 -49 -49 -46

-41

-22

-36

-25

-80%

-60%

-40%

-20%

0%

20%

40%

60%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2009 2010 2011 2012

Increased Decreased

Yes No

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2009 2010 2011 2012

2 513

22 22 22 24

39

2719

518 19

-98 -95-88

-78 -78 -78 -76

-61

-73-81

-95

-82 -81

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

9 The Dutch Deloitte CFO Survey Gaining optimism in uncertain reality

Funding

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.

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.

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

Source: European Central Bank

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.

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.

European banks still use the ECB as a trusted intermediary.

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2009 2010

Cost of creditAvailabilty of credit

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%C

ostly

/ ha

rd t

o ge

t

C

heap

/ av

aila

ble

20122011

0

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2009 2010 2011 2012

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

EUR

bln

10

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.

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.

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.

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.

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.

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.

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.

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

Chart 10. Good time to issue debt/equity?Net percentage of CFOs who think now is (not) a good time to issue debt/equity.

-60%

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-20%

0%

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40%

60%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Una

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A

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e

Bank borrowing Corporate debtEquity

2009 2012 20112010

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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Not

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od t

ime

Goo

dtim

e

2009 2010 2012

Equity Debt

2011

11 The Dutch Deloitte CFO Survey Gaining optimism in uncertain reality

M&A

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

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.

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.

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

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

Source: mergermarket

68

88 8492

96

8480

100

8677

3036

66

-9-2 -2 0 0

-90 0 0 -4

-38

-23

-9

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0%

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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2009 2010 2012

Increased Decreased

2011

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2007 2008 2009 2010 2011 2012 Q1

Num

ber

of d

eals

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

12

Government incentives policy

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.

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?

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.

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.

Chart 14. Impact of crisis package of tax measuresPercentage 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.

10

10

3

3

13

10

16

3

0% 10% 20% 30% 40% 50%

Corporatetax measures

Indirect tax measures

Wage tax measures

Grants/incentives

Very high impact High impact

26

10

10

16

16

32

19

6

0% 10% 20% 30% 40% 50%

Corporate taxes

Wage taxes

Indirect taxes

Grants/Incentives

Very high impact High impact

13 The Dutch Deloitte CFO Survey Gaining optimism in uncertain reality

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

Tax savings on cross-border income

Savings on local taxes

Incentives policy on innovation (grants)

Extension of loss compensation

Wage tax related incentives policy

3

6

9

16

6

19

16

19

13

34

0% 10% 20% 30% 40% 50%

Very high impact High impact

14

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.

Source Deloitte Research NL

Contacts

Jan de RooijPartner Deloitte Global Employer ServicesJandeRooij@deloitte.nl+31 (0)6 5336 6208

Wilten SmitFunction Leader Deloitte Financial Advisory ServicesWiSmit@deloitte.nl+31 (0)6 5389 7407

Stephen BrunnerPartner Deloitte TaxSBrunner@deloitte.nl+31 (0)6 5065 6275

Liesbeth BaxDeloitte Research NLLBax@deloitte.nl+31 (0)6 1201 0798

Marinda GiethoornDeloitte Press OfficerMGiethoorn@deloitte.nl+31 (0)6 1234 5063

A note on methodology

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© 2012 Deloitte The Netherlands

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