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The Deloitte CFO Survey Achieving sustainable growth?

Quarter 3 2013 survey results

Leading business advisersDownload our dedicated Deloitte CFO

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

2

Contents

Quarter 3 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 17

Section 4. Sustainability and the CFO 20

“

About the survey This is the seventeenth in a series of quarterly surveys of Chief Financial Officers of major Irish based companies. The survey was conducted in September and October 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

The third quarter of 2013 was again a significant and eventful one for Ireland. Domestically, the referendum to abolish the Seanad was defeated and the Haddington Road Agreement was rejected by one of the main teachers’ unions in Ireland with ASTI members voting two to one in favour of industrial action. Internationally, from 1 July 2013, the European Stability Mechanism (ESM) became the ‘sole and permanent mechanism for responding to new requests for financial assistance by euro area member states.

Business optimism dropped for the first time in 2013, falling from net 33% in Quarter 1 and net 36% in Quarter 2 to net 28% this quarter. The survey was conducted in the lead up to Budget 2014 which may have impacted business optimism as companies awaited the impacts of these announcements. Domestic banks continue to be the preferred method of funding however the net perception of the cost of finance as ‘high’ increased by 23% to net 50% this quarter.

Over 60% of CFO respondents believe that Ireland is on track to exit the international bailout programme by the end of 2013 and 52% of CFOs surveyed think that exiting the bailout programme will have a somewhat positive impact on their company. All respondents believe it is a good idea that the Government seeks an enhanced conditions credit line from the European Stability Mechanism (ESM) permanent bailout fund initially once the country has exited the bailout programme.

While the perceptions of market risk, and financial and economic uncertainty have improved and corporate strategy is considered to be expansionary, companies remain reluctant to take a lot of risk onto their balance sheets.

Fundamental changes have been introduced to Irish GAAP, effective for periods commencing 1 January 2015. All extant FRSs and SSAPs will be withdrawn and replaced by one standard based on IFRS for SMEs called FRS 102. The changes introduce a wide range of choice of accounting frameworks including IFRS, IFRS with reduced disclosures for qualifying entities, as well as FRS 102. The new frameworks set out regulation for all entities (other than listed entities) to transition to the new accounting frameworks. Listed companies transitioned to IFRS in 2005 (EU IAS regulation). 68% of respondents feel that they have adequate resources in their finance function to ensure a smooth transition to FRS 102. 59% of CFOs believe their Board of Directors have not yet made the decision as to what accounting framework to adopt for 2015 and beyond.

Sustainability is fast becoming a primary area for consideration and has arrived firmly on many CFOs’ agendas. There is now a greater demand for further regulation and transparency across all areas of the business which in turn creates many pressures for an organisation. 81% of CFOs surveyed believe it is important for sustainability programmes to be part of the CFO’s role and according to 91% of respondents there is a direct link between sustainability programmes and business performance. Interestingly, the workplace has emerged as the most important pillar of sustainability to CFOs. The Q4 2013 survey should provide some valuable insights following the announcements for Budget 2014.

Shane Mohan Partner, Deloitte

Quarter 3 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: [email protected] or Jennifer Casey Manager T: +3531 417 3813 E: [email protected]

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Snapshot of key findings

28NET OPTIMISM%Net optimism dropped slightly to 28% this year however overall, CFOs appear positive this quarter.

61BAILOUT%61% of CFOs surveyed expect Ireland to exit the bailout programme in 2013.

52POSITIVE IMPACT%52% believe exiting the bailout programme will have a somewhat positive impact on their company.

48MARKET RISK%48% consider market risk to be the largest threat to their company – a drop from 71% in Quarter 2 2013.

5

60ACCOUNTING FRAMEWORK

%Almost 60% of respondents indicated that their Board of Directors have not concluded on which accounting framework to adopt for 2015 and beyond.

81SUSTAINABILITY%81% believe it is important for sustainability programmes to be part of the CFO’s role.

91PERFORMANCE%According to 91% of respondents, there is a direct link between sustainability programmes and business performance.

17 NEW CREDIT%Perceptions of availability of new credit from domestic banks continue to improve with a net 17% of respondents perceiving credit as easily attainable.

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 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

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3,900.00

4,000.00

4,100.00

4,200.00

4,300.00

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the 28th Member State of the European Union as Lithuania takes over the EU Presidency from Ireland.

Statistics released by Eurostat show that Ireland had the fourth highest debt to GDP ratio (125.1%) in the EU at the end of March, preceded by Greece at 160.5%, Italy at 130.3% and Portugal at 127.2%.

The IMF approves the latest installment of €1.7 billion of its €28 billion contribution to Greece after completing a review of the country's performance under the international rescue programme.

The threat of military action in the Middle East pushes oil prices up, with Brent crude oil up to $114 barrel, its highest in six months.

Statistics released by Eurostat show that unemployment rose by 995,000 in the EU-28 and by 1,008,000 in the euro area. Meanwhile the unemployment rate in the US was 7.4%, down from 8.3 % in July 2012.

The G20 Summit is held in St. Petersburg, Russia and sees political leaders focus their attention on the crisis in Syria.

Angela Merkel is re-elected for a third term as Prime Minister of Germany, as her Conservative Party increases their share of the vote by 7.7 points to 41.5%.

China opens a new free trade zone in Shanghai with plans to liberalise regulations governing finance, investment and trade in the area.

Division between Democrats and Repulicans over budgertary matters relating to healthcare legislation forces the first US Government shut down in 17 years. The shut down sees the suspension of non-vital government services forcing 783,000 workers to stay at home on unpaid leave.

Apple release the iPhone 5s and 5c with sales of nine million units in the first three days.

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Credit rating agency Standard & Poor's upgrades its outlook on Ireland's credit rating from 'stable' to 'positive' on its BBB+ rating, saying Ireland's debt may fall faster than expected.

Interest rates on new business loans to non financial corporations of over €1 million decreased in Quarter 2 by 76 basis points to 2.57%, according to a report released by the CBI.

The Insolvency Service of Ireland (ISI) authorises its first batch of personal insolvency practitioners, responsible for leading people through the insolvency process in line with the Personal Insolvency Legislation.

The National Treasury Management Agency (NTMA) completes an auction of Irish Treasury Bills, selling the target amount of €500 million.Total bids amount to €1.671 billion, 3.3 times the amount on offer.

The Irish Economy is officially out of recession as GDP increased for three consecutive months in Quarter 2, according to the CSO.

The CSO release statistics showing that property prices in Dublin have increased by 10.6% over the last 12 months.

July

July

August

August

September

September

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 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

The EU - IMF Troika return to Ireland for their second last review as part of the current bailout programme. The Trioka are satisfied that Ireland has met the programme targets.

As 'The Gathering' initiative continues, the CSO release statistics indicating that trips to Ireland increased by 7.6% for May - July of this year, when compared to the same period in 2012.

Irish politicians are met by anti-austerity protesters as they return to the Dáil following the summer break.

The Government approves plans for a banking enquiry to investigate the events leading up to the bank guarantee in September 2008.

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 31

3.90%

3.80%

3.70%

3.60%

3.50%

3.40%

3.30%

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 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


3,800.00

3,900.00

4,000.00

4,100.00

4,200.00

4,300.00

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July

July

August

August

September

September

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 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 31

3.90%

3.80%

3.70%

3.60%

3.50%

3.40%

3.30%

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


3,800.00

3,900.00

4,000.00

4,100.00

4,200.00

4,300.00

4,400.004.00%


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July

July

August

August

September

September

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 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 31

3.90%

3.80%

3.70%

3.60%

3.50%

3.40%

3.30%

8

Domestic banks remain the preferred method of funding in Quarter 3 2013 with an increase of 4% on last quarter. The preference for overseas funding also grew by 4% with the preference for leasing remaining unchanged at 0%.

Corporate bonds saw a significant rise of 10% this quarter to 21%, overtaking equity which fell to 17%.

This quarter sees the net perception of the cost of new credit from domestic banks revert back to a similar figure to that which was recorded in Quarter 1 2013, with 50% believing new credit to be costly.

A net 17% of respondents perceive finance from domestic banks as being easily attainable, continuing the upward trend recorded in Quarter 2 2013. This represents a significant shift in perception from that recorded over the past 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?

Q2 2013

Bank (domestic)

Q1 2013

Q4 2012

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

Q2 2013

Bank (overseas)

Q1 2013

Q4 2012

Q2 2013

Equity

Q1 2013

Q4 2012

Q2 2013

Corporate bonds

Q1 2013

Q4 2012

0%0%

0%

0%Q3 2013

Q2 2013

Reduced dividend payments

Q1 2013

Q4 2012

0%Q3 2013

Q2 2013

Leasing

Q1 2013

Q4 2012

53%

46%

18%

14%

Q3 201312%

18%

0%

6%

4%

12%

18%

50%

54%Q3 2013

4%

8%Q3 2013

35%

17%Q3 2013

11%

21%

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

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

Availability

Cost

-70

-50

-30

-10

0

10

30

50

70

90

CostlyEasily available

CheapHard to get

Q4 2011 Q3 2013

68%62%

76%81%

62% 62%

53%

27%

50%

-44%-38%

-68%

-50%

-29%-23%

-31%

12%17%

9

A net 4% of respondents perceive corporate bonds to be difficult to obtain.

There has been a significant change in perceptions in relation to equity which is now perceived by a net 13% of respondents as being easily available, a rise of 56% on Quarter 2 2013.

Domestic and overseas banks both saw a rise this quarter of 5% and 4% respectively in terms of ease of availability.

Net optimism saw its first fall this year (8%) on the upward trend experienced since Quarter 4 2012.

However, a net 28% of CFOs still remain optimistic on their companies’ financial prospects.

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

How would you rate the overall availability of new credit for Irish corporates compared to six months ago from the following sources?

Q4 2012

Easily available

Hard to get-50

-40

-30

-20

-10

0

10

20

Domestic banks

Overseas banks

Corporate bonds

EquityQ1 2013 Q2 2013 Q3 2013

-43%

0%

-18%

12%

-31%

-23%

5%9%8%

-4% -4%

-17%

-26%

-29%

13%

17%

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

Q4 2012 Q1 2013 Q2 2013 Q3 2013

Optimistic Sentiments on your company’s financial prospects

Pessimistic 15

20

25

30

35

40

17%

33%

36%

28%

10

A net 24% of respondents have reported that their gearing has fallen in the last year.

This is a substantial change when compared to the net 13% of respondents reporting gearing decreases this time last year.

76% of respondents believe it is not a good time to take greater risk onto their companies balance sheets, a slight increase on the 71% reported in Quarter 2 2013.

Figure 5: How has your company’s gearing changed since this time last year?

Figure 6: Do you think it is a good time to take greater risk on your company’s balance sheet?5. How has your company’s gearing changed since this

time last year?

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

-25

-20

-15

-10

-5

0

Q4 2011 Q3 2013

-12%

-4%

-6%

-2%

-13%

-22%

0%

-28%

-24%

Increase

Decrease

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

24%

76%

Yes

No

11

Only 12% of CFOs indicated that the level of external financial and economic uncertainty facing their business is high or very high. This contrasts with 59% of respondents last quarter perceiving external uncertainty as high or very high.

CFOs continue to consider market risk as the largest threat to their company (48%). However this sentiment has been falling since Quarter 1 2013 figure of 83%.

Operational risk, or the risk of loss resulting from inadequate or failed internal processes, people and systems has experienced the most significant increase this quarter, rising 16% to 20%.

Figure 7: How would you rate the level of external financial and economic uncertainty facing your business?

Figure 8: Which category of risk poses the largest threat to your company?

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

32%

12%4%

0%

52%

Very high

High

Normal

Low

Very low

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

Q2 2013

Strategic

Q1 2013

Q4 2012

11%

20%

25%

28%Q3 2013

Q2 2013

Operational

Q1 2013

Q4 2012

Q3 20130%

7%

4%

20%Q3 2013

Q2 2013

Financial

Q1 2013

Q4 2012

0%

7%

6%4%

Q2 2013

Market

Q1 2013

Q4 2012

83%

67%

71%

48%Q3 2013

12

Encouragingly, the majority of CFOs believe their company and the Irish economy have already returned to growth.

However, the overall view on the eurozone returning to growth is not so optimistic with almost half of respondents believing that it will be 2015 before this occurs.

Figure 9: In your view when will the following return to growth:9. In your view when will:

The eurozone Your company The Irish economy

20%

8%

4%

68%

56%13%

13%

13%

6%

8%

8%

12%

12%

20%

40%

Already Returned

H1 2014

H2 2014

H1 2015

H2 2015

Deloitte perspective:

There is continued confidence among CFOs this quarter in relation to the availability of new credit. The perception of the availability of funding from domestic and overseas banks, as well as equity sources, have all improved. This bodes well for Irish businesses and suggests that the decisive actions by the Government to stabilise the banking system following the banking crisis, which played a central role in Ireland’s economic difficulties, has turned the tide on perceptions regarding the availability of credit over the last 18 months. It is ironic that this increased availability of new credit comes at a time when the majority of CFO respondents are still focussed on decreasing the levels of gearing on their balance sheets. This suggests that there is still a level of caution amongst CFOs.

There continues to be a high degree of optimism this quarter in relation to the financial outlook for individual companies despite an 8% drop in this metric. A possible contributory factor to continued buoyancy may be the fact that perceptions of market risk and financial and economic uncertainty have improved significantly this quarter. These sentiments coincide with an announcement by the Central Statistics Office recently that Ireland is officially out of recession with GDP growing by just under 0.5% between April and June this year. A strong majority of respondents (68%) believe that their companies have already returned to growth, up 12% from last quarter. Coupled with this is a view by 56% of respondents that the Irish economy has also returned to growth. Despite some caution by CFOs in relation to a reluctance to take greater risk onto their companies’ balance sheets, the survey results this quarter paint a positive picture in relation to CFO sentiments on the economy and their companies.

13

Low economic growth continues to be the top external financial challenge facing businesses today according to the majority of respondents (34%) this quarter. This is closely followed by market uncertainty (31%).

61% of respondents believe that Ireland will be in a position to exit the

bailout programme by the end of 2013 as planned.

It should be noted that the survey closed before Enda Kenny’s mid-October announcement, confirming Ireland is on track to exit the bailout programme on December 15 2013.

Figure 10: What are the top three external financial challenges currently facing your business today?

Figure 11: Do you believe Ireland will exit the bailout programme by the end of 2013?

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

31%7%

34%

6%4%

Europe’s sovereign debt crisis

Global recession

Market uncertainty

Financial stress

Low economic growth

Other

17%

11. Do you believe Ireland will exit the bailout programme by the end of 2013?

61%

39%

Yes

No

Section 2. Current economic and other events

14

All respondents to this quarter’s survey believe that the Government should seek an enhanced conditions credit line from the European Stability Mechanism (ESM), after the expected exit from the bailout programme on December 15 2013.

Only 4% of CFO respondents believe that exiting the bailout programme will have a negative impact on their business.

The majority of respondents (52%) perceive the exit from the bailout programme as a positive influence on their company.

Figure 12: Do you believe it is a good idea that the Government seeks an enhanced conditions credit line from the European Stability Mechanism permanent bailout fund initially once the country has exited the bailout programme?

Figure 13: What impact do you believe exiting the bailout programme will have on your company?

12. Do you believe it is a good idea that the Government seeks an enhanced conditions credit line from the European Stability Mechanism permanent bailout fund initially once the country has exited the bailout programme?

100%

Yes

No

No opinion

13. What impact do you believe exiting the bailout programme will have on your company?

52%

4%

0%0%

43%

Very positive impact

Somewhat positive impact

No impact

Somewhat negative impact

Very negative impact

15

Irish GAAP fundamentally changes effective for periods commencing 1 January 2015 with early adoption permissible. All extant FRSs and SSAPs will be withdrawn and replaced by one standard based on IFRS for SMEs called FRS 102. The changes introduce a wide range of choice of accounting frameworks including IFRS, IFRS with reduced disclosures for qualifying entities, as well as FRS 102.

CFO respondents highlighted a broad range of areas that have the potential to be impacted by the choice of accounting framework. There is no single area that stands out as being a key concern to respondents.

68% of respondents believe that their current level of finance function resources will be adequate to ensure a smooth transition to the chosen accounting framework.

An additional 27% believe a smooth transition is feasible but only with additional help.

Figure 14: Do you think that the choice of framework has the potential to adversely impact the business. 14. Do you think that the choice of framework has the potential to adversely impact the business: (rank all that apply in order of impact where 1 = most impact)

Training requirements

11%

8%

10%

12%

7%

10%

7%

8%

7%

12%

9% IT systems

Investor relations

Budgets and forecasts

Reporting financial instruments

Earn outs and other contractual arrangements

Tax

Dividend flows

Performance related pay and bonuses

Covenant compliance

Measurement of profit and other KPIs

Irish GAAP fundamentally changes effective for periods commencing 1 January 2015 with early adoption permissible. All extant FRSs and SSAPs will be withdrawn and replaced by one standard based on IFRS for SMEs called FRS 102. The changes introduce a wide range of choice of accounting frameworks including IFRS, IFRS with reduced disclosures for qualifying entities, as well as FRS 102.Figure 15. Given the highly detailed nature of the work including

but not limited to research into past transactions required to transition from one accounting framework to another, do you consider that your current financial reporting resources within the finance function are adequate to ensure a smooth transition?

15. Given the highly detailed nature of the work including but not limited to research into past transactions required to transition from one accounting framework to another, do you consider that your current financial reporting resources within the finance function are adequate to ensure a smooth transition?

68%

5%

Yes

No

With some help required

27%

16

Almost 60% of respondents indicated that the Board of Directors have not concluded on which accounting framework to adopt for 2015 and beyond.

While almost a third of respondents’ Board of Directors plan to adopt IFRS or IFRS with reduced disclosures.

Figure 16. Has your Board of Directors decided which accounting framework to adopt for 2015 and beyond?16. Has your Board of Directors decided which accounting framework to adopt for 2015 and beyond?

9%

9%

23%

0%

59%

Yes – IFRS

Yes – IFRS with reduced disclosure (FRS 101)

Yes – New Irish GAAP (FRS 102)

Yes – Other

No


A key upcoming event is Ireland’s expected exit from the EU-IMF bailout on December 15 2013, which signals a move towards increased economic independence. Hence we sought the views of CFOs on this topical issue which revealed some interesting perceptions in relation to this key step on Ireland’s road to economic recovery. Most notable is the fact that there is unanimity on the idea that the Government seeks an enhanced conditions credit line from the European Stability Mechanism’s permanent bailout fund initially once the country has exited the bailout programme. All CFO respondents believe that this is a necessary step to ensure a smooth exit from the bailout programme. Such a credit line would be a ‘safety net’ to reassure investors and purchasers of Irish Government bonds that Ireland could have access to funds if needed, though it is not envisaged that Ireland will need to draw down such funds.

52% of CFO respondents believe that exiting the bailout will have a positive impact on their company. This suggests that an exit from the bailout programme signals to CFOs that recovery is taking place and gives them the confidence that the economy is on the mend. This is expected to have a knock-on positive effect on businesses according to the majority of CFOs surveyed.

The new FRS 102 sets out regulations for all entities (other than listed entities) to transition to IFRS. The introduction of three FRSs, (100: ‘Application of financial reporting requirements’, 101: ‘Reduced disclosure framework’ and 102: ‘The financial reporting standard applicable in the UK and Republic of Ireland’), means that all entities other than listed companies will transition to a new financial reporting framework for financial years commencing on or after 1 January 2015.

60% of CFOs highlighted some uncertainty around which FRS would be adopted. Overall, however, CFO sentiment towards the new accounting framework is positive, with 95% of CFOs responding positively in terms of the FTE effort required for the transition.

17

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

76% of CFOs have identified their corporate strategies as expansionary, a rise of 20% since Quarter 2 2013. This figure had dropped between Quarter 1 and Quarter 2 2013, but latest results indicate that it is once again on the rise.

Strategic rather than market growth has a greater effect on firms’ investment plans for the next 12 months. 79% of respondents identified the long term growth of their product and service offering as having a positive effect on investment plans. Growth prospects of the Irish market are seen as having a positive effect by 50% of CFOs. Market uncertainty represents the greatest concern among CFOs with 75% of respondents identifying market uncertainty as having a negative effect on investment plans.

Figure 17: Would you consider your corporate strategy to be: Figure 18: What effect do the following factors have on your company’s investment plans for the next 12 months?17. Would you consider your corporate strategy:

Defensive

Expansionary

76%Q3 2013

56%Q2 2013

69%Q1 2013

24%Q3 2013

44%Q2 2013

31%Q1 2013

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

0 20 40 60 80 100

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 your products and services

10% 15% 75%

30% 50% 20%

50% 30% 20%

21% 53% 26%

47% 42%

33% 67% 0%

37% 63%

79% 10.5% 10.5%

0%

Positive Neutral Negative

11%

18

While retention of talent has dropped in importance for CFOs since Quarter 1 2013, 77% still consider it a priority over cost cutting and downsizing.

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

Market contraction with the added burden of increasing industry regulation/legislation are viewed as the joint top two challenges facing businesses today (22%). 15% of respondents see pricing trends as the third greatest challenge while CFOs view product and/or market competition as being the least significant industry challenges to their businesses.

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

Figure 20: What are the top three industry challenges currently facing your business today?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

77%Q3 2013

23%Q3 2013

20. What are the top three industry challenges currently facing your business today?

Changing cost structures

Foreign competition

Product substitutes

New competitive tactics

New market entrants (domestic)

Availability of people/skill sets

Overcapacity/excess inventory

Mergers and aquisitions

Input prices

Market growth

Pricing trends

Market contraction (declining demand/customer base)

Industry regulation/legislation

1% 25%

2% 2% 2%

4% 4% 5% 6%

7% 9%

15% 22% 22%

19


Quarter 3 2013 figures indicate that the external operating environment continues to present challenges to Irish businesses with market contraction and industry regulation top of the list of industry challenges currently facing respondents’ businesses. Concerns about market uncertainty remain in the forefront of CFOs’ minds - 75% see market uncertainty as having a negative effect on investment plans. Strategic growth, highlighted by expansionary strategies and a focus on the long term growth of their firms’ products and services, represents the most important factor to CFOs in sustaining their competitive positions.

Maintaining momentum in a national and international economy that is shadowed by uncertainty will be crucial for CFOs over the coming months. While competitive pressures have forced businesses to engage in cost cutting, CFOs clearly recognise the importance of talent retention in order to achieve the strategic growth that is required to overcome their concerns of market volatility and uncertainty.

50% of CFOs consider domestic growth as having a positive impact on their investment plans which suggests that respondents’ businesses are heavily reliant on the domestic market. Nevertheless, CFOs are not ignoring the fact that market contraction, including declining demand, represents a significant industry challenge that will need to be overcome in order to achieve their growth strategies.

Maintaining momentum in a national and international economy that is shadowed by uncertainty will be crucial for CFOs over the coming months.

20

Compared to Quarter 2 2012 when we last surveyed CFOs on the topic of sustainability, sentiment among CFOs on the matter has changed somewhat.

There is an increasing emphasis on the importance of sustainability with survey respondents believing it forms an important part of the CFO’s agenda.

Opinion among CFOs has largely remained stable over the last year with the vast majority of survey respondents (91%) believing there is a direct relationship between sustainability programmes and business performance.

Section 4. Sustainability and the CFO

Figure 21: In your view how important is it for sustainability programmes to be part of the CFO’s role?

Figure 22: Do you believe that there is a direct link between sustainability programmes and business performance?21. In your view how important is it for sustainability programmes to be

part of the CFO’s role?

Extremely important

19%Q3 2013

15%Q2 2012

Important

62%Q3 2013

43%Q2 2012

Somewhat important

19%Q3 2013

36%Q2 2012

Not important

0%Q3 2013

6%Q2 2012

22. Do you believe that there is a direct link between sustainability programmes and business performance?

0

20

40

60

80

100

Strongly agree Agree Neither agree or disagree

Disagree Strongly disagree

13%10%

81% 80%

7%5% 5% 0% 0% 0%

Q3 2013

Q2 2012

21

26% of CFOs believe the workplace is the most important pillar of sustainability to them in their role, an increase of 2% on previous results.

Marketplace is considered by 22% of CFOs as the most relevant area of sustainability to their role.

The results highlight that CFOs include sustainability dimensions in the bidding and procurement processes, with 75% and 81% respectively responding favourably.

Of those who responded ‘no’, 40% plan to incorporate sustainability dimensions in bidding processes in the future, whilst 50% of CFOs plan to incorporate sustainability into procurement processes.

Figure 23: Which pillars of sustainability are most important to you in your role as CFO?

Figure 24a: Are sustainability dimensions incorporated into your company’s bidding processes?

23. Which pillars of sustainability are most important to you in your role as CFO?

Communication, reporting and governance

Community

Environment

Workplace

Marketplace

18% Q3 2013

Q2 201219%

16%

15%

17%

15%

26%

24%

22%

28%

24a. Are sustainability dimensions incorporated into your company’s bidding processes?

Yes

No

Q3 2013

Q2 2012

75%

25%

37%

63%

Figure 24b: Are sustainability dimensions incorporated into your company’s procurement processes?

24b. Are sustainability dimensions incorporated into your company’s procurement processes?

Q3 2013

Q2 2012

81%

19%

61%

39%

Yes

No

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Business value (16%) is the foremost area of concern in relation to the impact of sustainability whilst long term value creation (14%) is second.

Figure 25: Do you think sustainability has an impact on:25. Do you think that sustainability has an impact on:

Business value

Revenue generation

Cost control

Long-term value creation

Compliance and risk management

Financial auditing and reporting

Investor relations

Investment planning

M&A activity/investment analysis

Building trust

Reporting to stakeholders

16% 20%

12% 11%

14%

10%

6% 7%

5% 5%

8% 7%


Sustainability is fast becoming a primary area for consideration and has arrived firmly on many CFOs’ agendas. There is now a greater demand for further regulation and transparency across all areas of the business which in turn can create many pressures for an organisation. These challenges can have a significant impact on enterprise value over time through increasing costs relating to ‘green factors’ and changes in regulatory requirements can profoundly impact how an organisation operates.

However, sustainability is not only an area of pressure for an organisation but it can be considered as a catalyst for value creation and transformation that the CFO can leverage through sustainable initiatives and programmes. Sustainability programmes can drive value creation by eliminating waste and inefficiencies, driving cost savings, ensuring ethical business practices and increasing brand awareness. The importance of value is highlighted in the survey results with ‘business value’ and ‘long-term value creation’ being ranked as the top two areas that CFOs believe sustainability impacts on.

It is evident through the growing trends amongst organisations that CFOs are embracing the sustainability agenda and reacting positively to the changing business environment.

23

Sustainability programmes can drive value creation by eliminating waste and inefficiencies, driving cost savings, ensuring ethical business practices and increasing brand awareness.

Tom Cassin Partner, Audit T: +353 1 417 2210 E: [email protected]

Pádraic Whelan Partner, Taxation T: +353 1 417 2848 E: [email protected]

Michael Flynn Partner, Corporate Finance T: +353 1 417 2515 E: [email protected]

Cathal Treacy Partner, Audit T: +353 61 435511 E: [email protected]

Ciarán O’Brien Partner, Audit T: +353 1 3829 E: [email protected]

ContactsFor more details please contact:

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

CorkDeloitte & ToucheNo.6 Lapp’s QuayCorkT: +353 21 490 7000F: +353 21 490 7001

LimerickDeloitte & ToucheDeloitte & Touche HouseCharlotte QuayLimerickT: +353 61 435500F: +353 61 418310

www.deloitte.com/ieDeloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a 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/ie/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 publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, Deloitte Global Services Limited, Deloitte Global Services Holdings Limited, the Deloitte Touche Tohmatsu Verein, any of their member firms, or any of the foregoing’s affiliates (collectively the “Deloitte Network”) are, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your finances or your business. 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 publication. © 2013 Deloitte & Touche. All rights reserved

For more information on the Deloitte CFO Survey please contact:

Shane MohanPartner, Management Consulting T: +353 1 417 2543 E: [email protected]

Alan FlanaganPartner, Management Consulting T: +353 1 417 2873 E: [email protected]

www.deloitte.com/ie

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