global capital confidence barometer

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With a recovery taking longer than expected to arrive, companies are focusing on bottom-line improvements

The Eurozone crisis and slowing growth in emerging markets, such as China and India, ��

�� declined. Despite strong fundamentals for deals, including rising cash stock piles and adequate credit, there is a lesser appetite for acquisitions and divestments compared �� !� �� "�� are over-priced.

#��$��%�� &�� '�� improvement, capital allocation and targeted organic and inorganic growth initiatives � ��

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About this survey��*� �� +�� from large companies around the world, � ��/� ��0��Unit (EIU). Our panel comprises select /��3 �� regular EIU contributors. This snapshot of �� !'�� companies manage their capital agenda.

�� 4� (�� 5'677��

��)��87584� Companies from 41 countries4� Cross-section of respondents from

8;�� 4� 754 CEO, CFO and other C-level

respondents4� � ��;77�� "��

for the Fortune 500 based on revenue

The Capital Agenda+�� '��companies consider their issues and challenges, understand their options and make more informed capital decisions.1. Preserving capital: reshaping the

operational and capital base2. Optimizing capital: driving cash

and working capital and managing the portfolio of assets

3. Raising capital: assessing future capital requirements and assessing funding sources

4. Investing capital: strengthening investment appraisal and ��

22% view the global economy as improving compared with 52% in April

66% believe the economic downturn is likely to persist for at least another year

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Global economic outlook has weakened�� economies, companies are less optimistic about the future ��

?��88@� �� '�� 68@�� increase in the number of companies who report declining ��'�� 87@�� A5@��

20%

28%

52%

Apr-12

31%

47%

22%

Oct-12

37%

37%

26%

Oct-11

� Improving � Stable � Declining

27%

6–12 months

51%

15%

1–2 years More than 2 years

7%0–6 months

� �� '��56@�� #�� '��companies are focusing on bottom-line improvements and � �B��!� �� G�� H ��

What is your perspective on the state of the global economy today?

How long does your organization expect the global economic downturn to persist?

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<��A new sense of commitment by policymakers

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30% are positive about earnings, compared with 44% in April

59%Italy

44%India

40%Singapore

40%Sweden

39%Spain

39%United

Kingdom

37%Netherlands

26%France

25%South Africa

24%Malaysia

0% 50%40%30%20%10% 60%

Ten countries with the highest percentage of respondents holding negative views on their local economies

<��The Eurozone crisis continues to dominate

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89% believe the Eurozone crisis has affected their business

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Local economic sentiment weakensIn line with the global results, local economic sentiment has also declined.

+��'�� /�� J �� growth in China.

�� !�� '�� A7@� �� !��?�� 8758'�� ;;@�� across all geographies.

��business in light of the Eurozone crisis? (Select two)

41%Revenue andmargin pressure

28%Counterparty default risk

21%Credit availability

21%Supply-chain risk

20%Increased regulation

12%Price/valuation ofM&A assets

11%Treasury management andbanking relationships

8%Taxation

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28%are seeking to increase their workforce in light ��from 41% in April

Apr-12 Oct-12Oct-11

12%

47%

41%

13%

59%

28%

15%

49%

36%

� Create jobs/hire talent

� Keep current workforce size

� Reduce workforce numbers

With regard to employment, which of the following does your organization expect to do in the next 12 months?

4

Fewer expect to create jobsIn light of economic challenges, the percentage of respondents �� H �� ;5@�� 8K@��?�� !� �� ;L@�� 6M@��N��B��B�� !��!�� N��

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� Improving � Stable � Declining

Apr-12 Oct-12Oct-11

25%

45%

30%

30%

44%

26%

32%

44%

24%

34%

45%

21%

33%

49%

18%

27%

51%

22%

� Increase � Remain constant � Decrease

Apr-12 Oct-12Oct-11

30% view credit availability as declining, compared with 25% in April

� Yes � No

66%

34%

74%

26%

71%

29%

Apr-12 Oct-12Oct-11

'

#��

Deleveraging continues� �� /��B�� B� B��

Modest decline in credit availability#�� '�� B��enterprises, respondents do cite a modest decline in credit ��?��8P@��!�� '�� A7@��

� �� '��!�� J��3�� !��'�� B� B��Q)�/R�� +�!�� "��+��000�� '�� N ��

�� availability at the global level

How do you expect your company’s debt-to-capital ratio to change over the next 12 months?

��?��8P@� �� 58�� '�� A;@�� so in order to optimize their capital structures, reduce the size �� /�� S)��!�� !��

!�� obligations in the next 12 months?

��

Oct-10 Apr-11 Oct-11 Apr-12 Oct-12

46%

51%49%

52%

41%

� Growth

� Cost reduction and��

� $��

� Survival

3%

25%

31%

41%

26%More rigorous execution of

core products/existing markets

22%New sales channels

19%Exploiting technology to

develop new markets/products

17%Changing mix of existingproducts & services

16%Increasing research & development

41% are focused on growth, compared with 52% in April

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What is the primary focus of your company’s organic growth?Declining growth sentiment(�� J�� ago, our respondents report an increased focus on reducing � ��'�� J��assess how to compete in an environment where there is lower �� '�� B�� !�� internal performance is understandable.

Nonetheless, growth remains the number-one objective, with ;5@�� W ��'��is the lowest percentage of respondents citing growth as their � �� ?�� 8757�� growth tend to prioritize lower-risk organic strategies that are within their comfort zone. Rather than pursuing ambitious, �� '�� !��'�� '��channels, and developing new products and markets through ��

Which statement best describes your organization’s focus over the next 12 months?

@��

��

50%36%

49%

Organic growth(R&D, capex)

16%13%

15%

Inorganic growth(M&A)

� Oct-12 � Apr-12 � Oct-11

18%31%

22%

Pay down debt

11%12%

10%Pay dividends

5%8%

4%Buy back stock

� Oct-12 � Apr-12 � Oct-11

51% with excess cash are focused on returning cash to shareholders and creditors

If your company has excess cash to deploy, which of the following will be your focus over the next 12 months?

Growth slows...

Cash is returned to stakeholders...

<��Are companies prepared for a return to economic growth?

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Returning cash to stakeholders — shareholders and creditors — �� '��A5@� �� '��5K@�� further evidence that companies are focusing their attention on deleveraging and strengthening their balance sheets against a ��!��

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Apr-12 Oct-12Oct-11Apr-11Oct-10

41%

38%

41%

31%

25%

� Oct-12

46%

US$51m–US$500m

9%7%

US$501m–US$1b More than US$1b

38%

US$50m or less

41%31%

27%

Increase

41%42%

57%

Remain atcurrent levels

18%27%

16%Decrease

� Oct-12 � Apr-12 � Oct-11

28% with revenues of US$5b or greater expect to pursue an acquisition in the next 12 months

84% expect to do deals of US$500m or less

34%�� "#&��services, 28% in oil and gas and 28% in consumer products expect to pursue acquisitions in the next 12 months

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$��B ��

Z�� B�� '�� 5P@�� )�� '� �� anticipation of falling asset prices.

What is the expected deal size? Appetite for M&A declines�� !'�� "�� !��[��86@� �� "�� 58�� '�� A5@��;5@�� 0�� H��!� �� !�\��are also concerned about the gap between their valuation of ��"��

G �� '�� G��'�� !��

Do you expect your company to pursue acquisitions over the next 12 months?

@��

�� '� ��J��'��N�� !�'�� K7@�� S)]677�'��AK@�� S)]67��'�� '��strategic gaps.

What do you expect the price/valuation of M&A assets to do over the next 12 months?

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Top investment destinations

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Where will the deals be done?Top investment destinations, according to our respondents span developed and emerging markets, as companies seek � �� !�� opportunities. There is increasing evidence that developed markets are regaining momentum as top investment destinations.

G �� !�� '��B��*��replacing Indonesia. While China remains a top investment destination, completing deals there remains challenging.

+

US China

India

Germany

Brazil

Top inbound investors1. UK2. Singapore3. Germany4. Canada5. China

Top inbound investors1. US2. Singapore3. Italy4. Brazil5. UK

Top inbound investors1. US2. Germany3. Japan4. Italy5. Brazil

Top inbound investors1. US2. UK3. France4. Brazil5. Turkey

Top inbound investors1. US2. Italy3. UK4. Singapore5. Colombia

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56%51%

48%Focusing on core assets

25%30%

28%

Enhancing shareholdervalue

17%22%

32%

Shedding underperformingbusiness unit

17%19%

20%

Funding inorganic/M&Agrowth plans

23%18%

19%

Raising cash tocompensate for

underperformance ofaggregate business

� Oct-12 � Apr-12 � Oct-11

0%

5%

0%

5%

Apr-12 Oct-12Oct-11Apr-11Oct-10

21%20%

26%

31%

19%

Top sectors planning to divest

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'2� # ��

Optimization moves to the forefrontG �� 5K�� '�� optimizing capital allocation and improving performance.

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4%71% 25%

7%64% 29%

7%52% 41%

15%49% 36%

10%47% 43%

16%42% 42%

13%41% 46%

25%35% 40%

How do you think the boardroom agenda at your company �� +

)F ��

What are the main drivers of your company’s planned divestment activity? (Select two)

Fewer divestments expected after period of high activityThere has been a sharp decline in the number of companies �� !��58�� '�� A5@�� 5M@�� J�� N �� H�� performance-optimization phase.

Is your company likely to make an asset sale/divestment in the next 12 months?

@��

Mining and metals

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Z��

Oil and gas

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Proportions of select industries represented

5%

4%

3%

60%

28%

Family-owned

Government/state-owned enterprise

Publicly listed

Privately owned

Private equityportfolio company

What best describes your company ownership?

24%

35%

23%

18%

$1b to $4.9b

$5b or more

$500m to $999.9m

Less than $500m

What are your company’s annual global revenues in US$?

49%

27%

24%

C-level executive

Head of BU/dept.

SVP/VP/director

What is your position in the organization?

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Ernst & Young

Assurance | Tax | Transactions | Advisory

© 2012 EYGM Limited. All Rights Reserved.

EYG no. DE0361

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

The opinions of third parties set out in this publication are not necessarily the opinions of the global Ernst & Young organization or its member firms. Moreover, they should be viewed in the context of the time they were expressed.

www.ey.com

ED None.

About Ernst & YoungErnst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com. About Ernst & Young’s Transaction Advisory Services How an organization manages its capital agenda today will define its competitive position tomorrow. We work with our clients to help them make better and more informed decisions about how they strategically manage capital and transactions in a changing world. Whether you’re preserving, optimizing, raising or investing capital, Ernst & Young’s Transaction Advisory Services brings together a unique combination of skills, insight and experience to deliver tailored advice attuned to your needs — helping you drive competitive advantage and increased shareholder returns, through improved decision-making across all aspects of your capital agenda.

About this survey Ernst & Young’s Capital Confidence Barometer is part of Growing Beyond, our flagship program exploring how companies are finding new opportunities in challenging economic times.

.��

*�� 5�� 6��%�� 2

Name Telephone Email

Global

Pip McCrostieGlobal Vice Chair�� )��

+44 20 7980 0500 [email protected]

Steven Krouskos*� �� !�� )��


Michael Rogers*� ��!�� )��

+44 20 7980 0200

[email protected]

Americas

Richard M. Jeanneret�� )��


Europe, Middle East, India and Africa (EMEIA)

Joachim Spill/�/0�� )��

+49 6196 996 25366 [email protected]

<��=�� >��

John Hope��B(�� )��

+852 2846 9997 [email protected]

Kenneth G. Smith[�� )��


Acknowledgements?��!�� *� �� +��

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global capital confidence barometer

Economy & Finance

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