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Global Capital Confidence Barometer

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The Global Capital Confidence Barometer is a regular survey of senior executives from large companies around the world, conducted by the Economist Intelligence Unit (EIU). …

The Global Capital Confidence Barometer is a regular survey of senior executives from large companies around the world, conducted by the Economist Intelligence Unit (EIU).

Our panel is comprised of select Ernst & Young clients and contacts, and regular EIU contributors. This snapshot of
our findings gauges corporate confidence in the economic outlook, and it identifies boardroom trends and practices
in the way companies manage their capital agenda.

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  • 1. ?dgZYd ;YhalYd/l` akkm]Outlook October 2012 – April 2013 ;gfÕ]f[] :Yjge]l]j >g[mk] gf ^mfYe]flYdk With a recovery taking longer than expected to arrive, companies are focusing on bottom-line improvements About this survey L`] ?dgZYd ;YhalYd ;gfÕ]f[] :Yjge]l]j Gmj k]n]fl` ?dgZYd ;YhalYd ;gfÕ]f[] :Yjge]l]j Õfk ak Y j]_mdYj kmjn]q g^ k]fagj ]p][mlan]k l`Yl d]Yaf_ [gehYfa]k k]] dalld] aee]aYl] hjgkh][l g^ from large companies around the world, Y j][gn]jq ^gj l`] _dgZYd ][gfgeq& O`ad] l`] kalmYlagf [gfm[l] Zq l`] =[gfgeakl Afl]dda_]f[] `Yk klYZadar] af kge] eYjc]lk$ egkl ]p][mlan]k ]ph][l Unit (EIU). Our panel comprises select =jfkl  Qgmf_ [da]flk Yf [gflY[lk Yf l`ak goflmjf lg ]fmj] ^gj Yl d]Ykl Y q]Yj$ o`ad] eYfq regular EIU contributors. This snapshot of ][gfgeaklk l`afc al [gmd h]jkakl ^gj l`j]] q]Yjk gj egj]& gmj Õfaf_k _Ym_]k [gjhgjYl] [gfÕ]f[] af l`] ][gfgea[ gmldggc$ Yf al a]flaÕ]k The Eurozone crisis and slowing growth in emerging markets, such as China and India, ZgYjjgge lj]fk Yf hjY[la[]k af l`] oYq `Yn] Yeh]f] _dgZYd ][gfgea[ [gfÕ]f[] Yf ]ph][lYlagfk Yjgmf [gjhgjYl] companies manage their capital agenda. ]Yjfaf_k& L`ak `Yk d] lg ka_faÕ[Yfldq j]m[] gj_Yfa[ Yf afgj_Yfa[ _jgol` YkhajYlagfk& HjgÔd] g^ j]khgf]flk L`] ^g[mk gf _jgol` af l`] f]Yj l]je oadd Z] eYafdq gj_Yfa[ Yk l`] Yhh]lal] ^gj E9 `Yk declined. Despite strong fundamentals for deals, including rising cash stock piles and  HYf]d g^ egj] l`Yf )$-(( ]p][mlan]k adequate credit, there is a lesser appetite for acquisitions and divestments compared kmjn]q] af 9m_mkl Yf K]hl]eZ]j *()* oal` Yfq hj]nagmk ]alagf g^ gmj ZYjge]l]j& ;gfljaZmlaf_ lg l`] dY[c g^ [gfÕ]f[]  Companies from 41 countries Yjgmf E9 Y[lanalq ak l`] k]flae]fl Zq eYfq ]p][mlan]k l`Yl Y[imakalagf lYj_]lk  Cross-section of respondents from are over-priced. *, k][lgjk  754 CEO, CFO and other C-level O`YlÌk f]pl7 ;gehYfa]k Yj] j]^g[mkaf_ gf l`] ZYka[k2 [gkl j]m[lagf$ h]j^gjeYf[] respondents improvement, capital allocation and targeted organic and inorganic growth initiatives  Egj] l`Yf ,(( [gehYfa]k ogmd imYda^q geafYl] l`] ZgYjjgge Y_]fY& L`gk] o`g ]p][ml] af Y ak[ahdaf] oYq oadd Z] Z]kl for the Fortune 500 based on revenue hgkalagf] o`]f ][gfgea[ [gfÕ]f[] j]lmjfk& Hah E[;jgkla]$ Global Vice Chair$ LjYfkY[lagf 9nakgjq K]jna[]k The Capital Agenda :Yk] Yjgmf ^gmj ae]fkagfk$ al `]dhk companies consider their issues and challenges, understand their options and C]q Õfaf_k make more informed capital decisions.  /0 l`afc l`] _dgZYd ][gfgeq k`gok fg ka_fk g^ aehjgn]e]fl 1. Preserving capital: reshaping the operational and capital base  .. ]ph][l l`] goflmjf lg h]jkakl ^gj egj] l`Yf gf] q]Yj 2. Optimizing capital: driving cash  ,, na]o [j]al YnYadYZadalq Yk klYZd]3 ][dafaf_ na]o mh eg]kldq and working capital and managing the portfolio of assets  9hh]lal] ^gj E9 ^Yddk lg *- ^jge +) af 9hjad 3. Raising capital: assessing future  Afl]flagf lg an]kl gof lg )1 ^jge +) af 9hjad capital requirements and assessing funding sources 4. Investing capital: strengthening investment appraisal and ljYfkY[lagf ]p][mlagf
  • 2. =[gfgea[ gmldggcGlobal economic outlook has weakened9k l`] kdgogof h]jkaklk af ]n]dgh] Yf ]e]j_af_ Na]ohgafleconomies, companies are less optimistic about the future A new sense of commitment by policymakersl`Yf l`]q o]j] kap egfl`k Y_g& Kdgoaf_ ][gfgea[ _jgol` Yjgmf l`] ogjd ak Y c]q akkm]Gfdq ** g^ j]khgf]flk Z]da]n] l`] _dgZYd ][gfgea[ kalmYlagf ^gj []fljYd ZYfck Yf hgda[qeYc]jk& EYfq `Y `gh] l`Yl Yak aehjgnaf_$ gof ^jge -* af 9hjad& L`]j] `Yk Ydkg Z]]f Yf j]lmjf lg _jgol` af ]n]dgh] eYjc]lk$ Ydgf_ oal` kljgf_increase in the number of companies who report declining ege]flme af ]e]j_af_ ][gfgea]k$ ogmd `Yn] khYjc] Yk]flae]fl$ ^jge *( lg +)& _dgZYd j][gn]jq Yf j]m[] l`] f]] ^gj egj] jYkla[ hgda[q Y[lagf&What is your perspective on the state of the globaleconomy today? J][]fl egfl`k `Yn] k]]f hgda[qeYc]jk j]Y[` ]n]f ]]h]j aflg l`] lggdcal& K]hl]eZ]j kYo Zgd Y[lagf gf Y fmeZ]j g^ 26% 52% 22% ^jgflk& Gf . K]hl]eZ]j$ l`] =mjgh]Yf ;]fljYd :Yfc =;:! Yffgmf[] YeZalagmk hdYfk lg Zmq l`]gj]la[Yddq mfdaeal] imYflala]k g^ Zgfk ^jge kljm__daf_ =mjgrgf] [gmflja]k& 47% 37% Kap Yqk dYl]j È Y^l]j gmj kmjn]q [dgk] È l`] ?]jeYf ;gfklalmlagfYd ;gmjl ZY[c] l`] =mjgh]Yf KlYZadalq E][`Yfake$ o`a[` [geealk l`] =;: lg Z]af_ Y d]f]j g^ 28% dYkl j]kgjl$ oal` Ò/(( Zaddagf g^ [YhalYd Yl alk akhgkYd& 37% L`] ^gddgoaf_ Yq$ l`] MK >]]jYd J]k]jn] Yffgmf[] al 31% ogmd Zmq MK,( Zaddagf g^ egjl_Y_]%ZY[c] k][mjala]k 20% ]n]jq egfl` lg khmj l`] j]Yd ]klYl] eYjc]lk Yf `gd mh Ykk]l hja[]k& Oct-11 Apr-12 Oct-12 L`ak ak Yf aehgjlYfl ege]fl af l`] _dgZYd ][gfgea[ [q[d]& Q Improving Q Stable Q Declining L`] hgda[q Y[lagfk lYc]f af l`] =mjgrgf] lg_]l`]j oal` l`] hjgeak] g^ Õk[Yd mfagf [gmd j]hj]k]fl Y lmjfaf_ hgafl af l`] [jakak$ hgl]flaYddq ][j]Ykaf_ ngdYladalq& 9f$ Zq ]eZYjcaf_ gf I=+$ l`] >]]jYd J]k]jn] `Yk Ydkg ka_fYd]22% view the global economy as improving compared with 52% in April alk afl]flagf lg lYc] Zgd Y[lagf& @go]n]j$ l`]j] j]eYaf ]]h%k]Yl] kljm[lmjYd hjgZd]ek l`Yl oadd Z] a^Õ[mdl lg gn]j[ge]& L`]k] e]Ykmj]k eYq gfdq hjgn] lg `Yn] k`gjl%dan] Z]f]Õlk$ Zml l`]q g ]egfkljYl] Y j]f]o]Egj] l`Yf `Yd^ ]ph][l l`] _dgZYd ][gfgea[ goflmjf lg h]jkakl k]fk] g^ mj_]f[q Yegf_ hgda[qeYc]jk lg lY[cd] l`]^gj Yfgl`]j gf] lg log q]Yjk$ o`ad] )- hj]a[l al oadd dYkl egj] ][gfgea[ goflmjf gf[] Yf ^gj Ydd&l`Yf log q]Yjk& Oal` kdgo _jgol` ]ph][l] lg [gflafm]$ eYfqcompanies are focusing on bottom-line improvements anddgo%jakc gj_Yfa[ _jgol` ghhgjlmfala]k& >]o k]] l`] mj_]f[q ^gj[gfm[laf_ eYbgj E9 ljYfkY[lagfk af km[` Yf mf[]jlYaf [daeYl]&How long does your organization expect the globaleconomic downturn to persist? 51% 27% 15% 7% 0–6 months 6–12 months 1–2 years More than 2 years66% believe the economic downturn is likely to persist for at least another year* ?dgZYd ;YhalYd ;gfÔ]f[] :Yjge]l]j
  • 3. Local economic sentiment weakens In line with the global results, local economic sentiment has Na]ohgafl also declined. The Eurozone crisis continues to dominate 9 j]_agfYd a^Õ[mdlq `Yk Z][ge] Y _dgZYd hjgZd]e È Ydegkl Ten countries with the highest percentage of respondents 1( g^ j]khgf]flk [al] l`] =mjgrgf] [jakak Yk Y^^][laf_ holding negative views on their local economies l`]aj Zmkaf]kk& Kap egfl`k Y_g$ l`] =mjgrgf] oYk j][g_far] af ZgYjjggek Italy 59% Yk Yf aehY[l$ oal` [gflaf_]f[q hdYfk Yjgmf [mjj]f[a]k India 44% Yf o`a[` [gmflja]k ea_`l ]pal l`] ]mjg& Egj] j][]fldq$ Singapore 40% `go]n]j$ l`] =mjgrgf] `Yk Z]]f j][g_far] Zq [gehYfa]k Sweden Yjgmf l`] ogjd Yk Y dgf_%l]je kljm[lmjYd akkm] lg Z] 40% [gfka]j] af dgf_%jYf_] Zmkaf]kk hdYffaf_& Spain 39% United O`ad] l`] =;: [gflafm]k lg lYc] Y[lagf lg [Yde l`] [jakak$ Kingdom 39% l`] j]_agfÌk ][gfgea[ hjgZd]ek Yj] ^Yj ^jge j]kgdn]&Netherlands 37% 9k dgf_ Yk ][gfgea[ klY_fYlagf h]jkaklk$ l`] =mjgrgf] France 26% oadd [gflafm] lg Z] Y jY_ gf l`] ZjgY]j _dgZYd ][gfgeq$ Y^^][laf_ alk ljYaf_ Yf ]phgjl hYjlf]jk$ hgl]flaYddq ^gjSouth Africa 25% q]Yjk lg [ge]& Malaysia 24% D]Yaf_ [gehYfa]k Yj] lYcaf_ hjgY[lan] e]Ykmj]k$ km[` Yk 0% 10% 20% 30% 40% 50% 60% j]m[af_ [gklk lg j]da]n] hj]kkmj] gf eYj_afk$ Yf Z]ll]j eYfY_af_ [gmfl]jhYjlq ]^Ymdl jakc Yf kmhhdq%[`Yaf jakc& :q Yf dYj_]$ l`] [gmflja]k oal` l`] egkl f]_Ylan] k]flae]fl Yj] l`gk] egkl Y^^][l] Zq l`] =mjgrgf] [jakak Yf kdgoaf_ growth in China. ;gfÔ]f[] af ]Yjfaf_k jghk 89% believe the Eurozone crisis has affected their business L`]j] `Yk Z]]f Y eYjc] ][daf] af ]ph][lYlagfk ^gj [gjhgjYl] O`Yl Yj] l`] egkl ka_faÔ[Yfl [`Ydd]f_]k ^Y[af_ qgmj ]Yjfaf_k$ oal` gfdq +( g^ j]khgf]flk hgkalan] YZgml business in light of the Eurozone crisis? (Select two) l`] gmldggc af G[lgZ]j *()*$ [gehYj] oal` ,, af 9hjad& L`] ][daf] af [gjhgjYl] ]Yjfaf_k ]ph][lYlagfk ak [gfkakl]fl Revenue and margin pressure 41% across all geographies. Counterparty default risk 28% Credit availability 21% Supply-chain risk 21% 30% are positive about earnings, compared with 44% in April Increased regulation Price/valuation of 12% 20% M&A assets Treasury management and banking relationships 11% Taxation 8% ?dgZYd ;YhalYd ;gfÔ]f[] :Yjge]l]j +
  • 4. Fewer expect to create jobsIn light of economic challenges, the percentage of respondentshdYffaf_ lg [j]Yl] bgZk `Yk ][j]Yk] ^jge ,) af 9hjad lg*0 af G[lgZ]j& L`] h]j[]flY_] g^ l`gk] o`g hdYf lg eYaflYafl`]aj ogjc^gj[] `Yk af[j]Yk] ka_faÕ[Yfldq ^jge ,/ lg -1&L`ak eYq j]Ö][l Y oYal%Yf%k]] Yllalm] Yegf_ [gehYfa]k l`YlYj] kaemdlYf]gmkdq mfoaddaf_ lg lYc] jakck Zml j]dm[lYfl lg dgk]Ö]paZadalq k`gmd Z]ll]j lae]k j]lmjf&With regard to employment, which of the following doesyour organization expect to do in the next 12 months? 36% 41% 28% 59% 49% Q Create jobs/hire talent 47% Q Keep current workforce size Q Reduce workforce numbers 15% 12% 13% Oct-11 Apr-12 Oct-12 are seeking to increase their workforce in light28% g^ ][gfgea[ [`Ydd]f_]k$ Y ka_faÔ[Yfl k`a^l from 41% in April 4 ?dgZYd ;YhalYd ;gfÔ]f[] :Yjge]l]j
  • 5. 9[[]kk lg [YhalYdModest decline in credit availability Deleveraging continuesO`ad] [j]al ak ZjgYdq YnYadYZd]$ hYjla[mdYjdq lg dYj_]%[Yh ;gehYfa]k ]ph][l lg [gflafm] lg ][j]Yk] ]Zl d]n]dk&enterprises, respondents do cite a modest decline in credit =a_`lq%log h]j[]fl ]ph][l lg k]] l`]aj ]Zl%lg%[YhalYd jYlagkYnYadYZadalq& Gfdq *. na]o [j]al eYjc]lk Yk aehjgnaf_$ j]eYaf klYZd] gj ^Ydd gn]j l`] q]Yj Y`]Y& ;gehYfa]k Yj][gehYj] oal` +( af 9hjad& [`ggkaf_ lg j]laj] ]Zl Yf ]hdgq [YhalYd egj] [Ymlagmkdq&;gehYj] oal` log q]Yjk Y_g$ ZYfck Yj] gf Y kljgf_]j^gglaf_ Yf Z]ll]j [YhalYdar]& Q]l l`ak `]Ydl`a]j ha[lmj] g]k How do you expect your company’s debt-to-capital ratio to change over the next 12 months?fgl YdoYqk ljYfkdYl] aflg af[j]Yk] d]faf_& EYfq ZYfck `Yn]la_`l]f] d]faf_ klYfYjk$ hYjla[mdYjdq ^gj keYdd%lg%e]ame 22% 21% 18%]fl]jhjak] KE=! Zgjjgo]jk& :Yfck Ydkg ^Y[] `a_`]j [YhalYdj]imaj]e]flk mf]j aeh]faf_ :Yk]d AAA j]_mdYlagfk$ o`a[` 49%[gmd j]klja[l l`]aj YZadalq lg af[j]Yk] l`] Ögo g^ [j]al aflg 51% 45%l`] ][gfgeq&Hd]Yk] afa[Yl] qgmj d]n]d g^ [gfÔ]f[] af [j]alavailability at the global level 34% 33% 24% 30% 26% 27% 44% 44% Oct-11 Apr-12 Oct-12 45% Q Increase Q Remain constant Q Decrease J]ÔfYf[af_ kdgok 32% 30% 25% Gfdq *. g^ [gehYfa]k hdYf lg j]ÕfYf[] l`]aj Zgjjgoaf_k gn]j l`] f]pl )* egfl`k$ gof ^jge +, af 9hjad& Egkl Yj] gaf_ so in order to optimize their capital structures, reduce the size Oct-11 Apr-12 Oct-12 g^ l`]aj afl]j]kl Zaddk gj ]pl]f l`] eYlmjalq g^ l`]aj ]Zl& Q Improving Q Stable Q Declining EYfq =mjgh]Yf Zgjjgo]jk `Yn] mk] l`] MK hjanYl] hdY[]e]fl eYjc]l lg j]ÕfYf[] ]paklaf_ ZYfc dgYfk& <g]k qgmj [gehYfq hdYf lg j]ÔfYf[] dgYfk gj gl`]j ]Zl obligations in the next 12 months?30% view credit availability as declining, compared with 25% in April 29% 34% 26% 74% 71% 66% Oct-11 Apr-12 Oct-12 Q Yes Q No ?dgZYd ;YhalYd ;gfÔ]f[] :Yjge]l]j -
  • 6. ?jgol`Declining growth sentiment What is the primary focus of your company’s organic growth?HjagjalarYlagf g^ _jgol` `Yk ][daf] kl]]hdq Yk [gehYfa]k Yj] More rigorous execution ofegj] ^g[mk] gf l`] ^mfYe]flYdk& ;gehYj] oal` kap egfl`k core products/ 26% existing marketsago, our respondents report an increased focus on reducing[gklk$ aehjgnaf_ ]^Õ[a]f[q Yf ghlaearaf_ [YhalYd& 9k ]p][mlan]k New sales channels 22%assess how to compete in an environment where there is lower]ph][l] _jgol`$ l`ak k`a^l af ]eh`Ykak lgoYj aehjgnaf_ Exploiting technology to develop new markets/ 19%Zgllge%daf] h]j^gjeYf[] Yf k]]caf_ gml f]o oYqk lg aehjgn] productsinternal performance is understandable. Changing mix of existing 17% products & servicesNonetheless, growth remains the number-one objective, with,) j]hgjlaf_ l`Yl _jgol` ak l`]aj hjaeYjq ^g[mk& @go]n]j$ l`ak Increasing research 16% & developmentis the lowest percentage of respondents citing growth as theirlgh hjagjalq kaf[] G[lgZ]j *()(& L`gk] [gehYfa]k ^g[mk] gfgrowth tend to prioritize lower-risk organic strategies that arewithin their comfort zone. Rather than pursuing ambitious,ljYfk^gjeYlagfYd ]Ydk$ l`]q Yj] `ghaf_ lg ]dan]j _jgol`l`jgm_` Z]ll]j ]p][mlagf af ]paklaf_ eYjc]lk$ [`Yf_af_ l`][mjj]fl eap g^ hjgm[lk Yf k]jna[]k$ a]fla^qaf_ f]o kYd]k 41% are focused on growth, compared with 52% in Aprilchannels, and developing new products and markets throughl`] ]phdgalYlagf g^ l][`fgdg_q&Which statement best describes your organization’s focusover the next 12 months? ^g[mk] gf _jgol` „ Growth 41% „ Cost reduction and gh]jYlagfYd ]^Õ[a]f[q „ EYaflYafaf_ klYZadalq 52% 51% „ Survival 49% 31% 46% 41% 25% 3%Oct-10 Apr-11 Oct-11 Apr-12 Oct-126 ?dgZYd ;YhalYd ;gfÔ]f[] :Yjge]l]j
  • 7. L`] gn]jYdd ][dafaf_ k]flae]fl gf _jgol` ak hYjla[mdYjdqhjgfgmf[]& =n]f l`] Yhh]lal] ^gj gj_Yfa[ _jgol` j]Ö][lk Na]ohgafll`ak lj]f& J]khgf]flkÌ afl]flagfk oal` j]_Yj lg ]p[]kk [Yk`mf]jdaf] l`] ][dafaf_ k]flae]fl lgoYj _jgol`& Gfdq +. hdYf Are companies prepared for a return tolg ]hdgq ]p[]kk [Yk` lgoYj gj_Yfa[ _jgol`$ [gehYj] oal` economic growth?-( af 9hjad& L`] ^g[mk gf gj_Yfa[ Yf afgj_Yfa[ _jgol` `Yk ][daf]Returning cash to stakeholders — shareholders and creditors — ka_faÕ[Yfldq Yk [gehYfa]k Yj] hgkalagfaf_ l`]ek]dn]k ^gjak fgo l`] hjagjalq$ oal` +) g^ j]khgf]flk hdYffaf_ lg mk] Y kdgo j][gn]jq oal` dgo gj klY_fYfl _jgol` jYl]k& L`]]p[]kk [Yk` lg hYq gof ]Zl$ n]jkmk )0 af 9hjad& L`ak hjgna]k =mjgrgf] [`Ydd]f_]k$ Ydgf_ oal` kdgoaf_ _jgol` af ]e]j_af_further evidence that companies are focusing their attention on eYjc]lk$ Yj] janaf_ l`ak egj] [gfk]jnYlan] k]flae]fl&deleveraging and strengthening their balance sheets against a O`Yl oadd al lYc] lg _]l _jgol` ZY[c gf ljY[c7 K]n]jYdZY[cjgh g^ gf_gaf_ mf[]jlYaflq& af_j]a]flk emkl Z] af hdY[] È [gflafm] Zgd egn]k Zq l`] =;:$ l`] e]j_af_ g^ Õk[Yd Yf hgdala[Yd Y_]fYk af l`]If your company has excess cash to deploy, which of the =mjgrgf]$ j]^gje af ]e]j_af_ eYjc]lk$ Yf l`] cfg[c%gffollowing will be your focus over the next 12 months? ]^^][lk g^ af[j]Yk] ljY] Ögok ^jge ]e]j_af_ eYjc]lk lgGrowth slows... l`] =mjgrgf] È af gj]j ^gj Y j]lmjf lg _jgol`& Afl]j]klaf_dq$ l`] k]flae]fl Zq l`] eYbgjalq g^ gmj 36% j]khgf]flk 0/! lg eYaflYaf gj _jgo l`]aj ogjc^gj[] Organic growth (R&D, capex) 50% ak Y ka_f l`Yl eYfq [gehYfa]k Yj] c]]haf_ c]q jgd]k Yf 49% af^jYkljm[lmj] af hdY[] Yf eYaflYafaf_ Ö]paZadalq lg lYc] 13% YnYflY_] g^ Yfq aehjgn]e]fl af l`] ][gfgeq&Inorganic growth (M&A) 16% 15% Q Oct-12 Q Apr-12 Q Oct-11Cash is returned to stakeholders... 31% Pay down debt 18% 22% 12% Pay dividends 11% 10% 8% Buy back stock 5% 4% „ Oct-12 „ Apr-12 „ Oct-11 51% with excess cash are focused on returning cash to shareholders and creditors ?dgZYd ;YhalYd ;gfÔ]f[] :Yjge]l]j 7
  • 8. E]j_]jk Yf Y[imakalagfk gmldggcAppetite for M&A declines What is the expected deal size?9ea mf[]jlYaflq YZgml l`] _dgZYd ][gfgea[ gmldggc$ 46%[gehYfa]k Yj] af[j]Ykaf_dq oYjq g^ Y[imakalagfk Yf l`]ajh]j[]an] jakck& Bmkl *- g^ j]khgf]flk fgo ]ph][l lg hmjkm] 38%Y[imakalagfk gn]j l`] f]pl )* egfl`k$ gof ^jge +) af 9hjadYf ,) Y q]Yj Y_g& Al ak fgl bmkl Y dY[c g^ [gfÕ]f[] af l`]Zmkaf]kk ]fnajgfe]fl l`Yl ak `gdaf_ [gehYfa]k ZY[c È eYfqare also concerned about the gap between their valuation ofhgl]flaYd Y[imakalagfk Yf l`] hja[]k kgm_`l Zq k]dd]jk&>gj eYfq [gehYfa]k$ l`] afl]fl Yjgmf E9 `Yk ][daf]& >an] 9% 7%q]Yjk Y^l]j l`] ÕfYf[aYd [jakak$ eYfq ]p][mlan]k Yj] oYalaf_ ^gj Y US$50m or less US$51m–US$500m US$501m–US$1b More than US$1bkmklYaf] j][gn]jq Z]^gj] lYcaf_ Y[lagf& „ Oct-12Do you expect your company to pursue acquisitions overthe next 12 months? kYqaf_ q]k 84% expect to do deals of US$500m or less 41% 41% J]khgf]flk afa[Yl] Y ka_faÕ[Yfl k`a^l af k]flae]fl gf Ykk]l 38% hja[]k& Lo]flq%k]n]f h]j[]fl g^ j]khgf]flk fgo Z]da]n] ]Yd 31% hja[]k oadd ][j]Yk]$ mh ^jge ). Y q]Yj Y_g& Ka_faÕ[Yfldq egj] j]khgf]flk ]ph][l E9 Ykk]l nYdm]k lg ][j]Yk] ^jge Y q]Yj 25% Y_g$ hgl]flaYddq kdgoaf_ l`] hY[] g^ ]Ydk Yk Zmq]jk hYmk] af anticipation of falling asset prices.Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 af afmkljaYd hjgm[lk$ +* af ÔfYf[aYd9egf_ l`gk] [gehYfa]k l`Yl g ]ph][l lg ]f_Y_] af E9$]Yd kar]k j]eYaf keYdd$ j]Ö][laf_ Yf gf_gaf_ Yn]jkagf lg jakcq$ljYfk^gjeYlagfYd ljYfkY[lagfk& Egj] l`Yf 0( kYq l`Yl l`]q 34% services, 28% in oil and gas and 28% in consumer products expect to pursue acquisitions in the next 12 monthsoadd g ]Ydk ogjl` d]kk l`Yf MK-((e$ Yf +0 kYq l`]q oaddg ]Ydk mf]j MK-(e& L`ak km__]klk l`Yl$ o`]j] ]Ydk Yj]Z]af_ [gfka]j]$ l`]q oadd ]pl]f ]paklaf_ Zmkaf]kk]k Yf Õdd What do you expect the price/valuation of M&A assets tostrategic gaps. do over the next 12 months? 31% Increase 41%28% with revenues of US$5b or greater expect to pursue an acquisition in the next 12 months Remain at 27% 42% current levels 41% 57% 27% Decrease 18% 16% Q Oct-12 Q Apr-12 Q Oct-118 ?dgZYd ;YhalYd ;gfÔ]f[] :Yjge]l]j
  • 9. Where will the deals be done? Top investment destinationsTop investment destinations, according to our respondents )& ;`afYspan developed and emerging markets, as companies seeklg af[j]Yk] l`]aj ]phgkmj] lg eYjc]lk l`Yl g^^]j Z]ll]j _jgol` *& MKopportunities. There is increasing evidence that developed markets +& AfaYare regaining momentum as top investment destinations. ,& :jYrad>gmj g^ l`] lgh Õn] ]klafYlagfk ^gj [gehYfa]k eYcaf_ -& ?]jeYfqafn]kle]flk Yj] mf[`Yf_] ^jge 9hjad$ oal` Õ^l`%hdY[] ?]jeYfqreplacing Indonesia. While China remains a top investmentdestination, completing deals there remains challenging.AfZgmf afn]klgjk aflg lgh Õn] afn]kle]fl ]klafYlagfk Top inbound investors 1. US 2. UK 3. France 4. Brazil 5. Turkey Germany US China Top inbound investors India Top inbound investors 1. UK 2. Singapore 1. US 3. Germany 2. Singapore 4. Canada 3. Italy 5. China Brazil Top inbound investors 4. Brazil 1. US 5. UK 2. Germany 3. Japan Top inbound investors 4. Italy 1. US 5. Brazil 2. Italy 3. UK 4. Singapore 5. Colombia ?dgZYd ;YhalYd ;gfÔ]f[] :Yjge]l]j 1
  • 10. Fewer divestments expected after period of Optimization moves to the forefront high activity >gddgoaf_ Yf Y[lan] h]jag g^ an]kle]fl Y[lanalq gn]j l`] There has been a sharp decline in the number of companies hYkl )0 egfl`k$ [gehYfa]k `Yn] fgo k`a^l] l`]aj ^g[mk lg hdYffaf_ lg eYc] an]kle]flk af l`] f]pl )* egfl`k$ ^jge optimizing capital allocation and improving performance. +) af 9hjad lg )1 lgYq& EYfq [gehYfa]k `Yn] _gf] l`jgm_` l`] hjg[]kk g^ ghlaearaf_ l`]aj hgjl^gdagk Yf g^ÖgYaf_ l`gk] Ykk]lk l`Yl a fgl Õl l`]aj gn]jYdd kljYl]_a[ gZb][lan]k& L`ak eYq afa[Yl] Y k`a^l ^jge Y an]kle]fl h`Yk] lg Y Na]ohgafl performance-optimization phase. :gYjjgge Y_]fY jan]f Zq [YhalYd ghlaearYlagf Kaf[] l`] gfk]l g^ l`] ÕfYf[aYd [jakak$ l`] [gfl]fl g^ Is your company likely to make an asset sale/divestment ZgYjjgge ak[mkkagfk `Yk Z]]f ljYfk^gje]& >an] q]Yjk in the next 12 months? Y_g$ lgha[k km[` Yk ]^Õ[a]f[q Yf [gkl [gfljgd È c]q  kYqaf_ q]k ]d]e]flk g^ [YhalYd ghlaearYlagf È ogmd jYj]dq `Yn] eY] 31% l`] ZgYjjgge Y_]fY Yf ogmd `Yn] Z]]f [gfka]j]0% akkm]k ^gj gh]jYlagfYd eYfY_]e]fl& LgYq$ `go]n]j$ l`]k] 26%5% Y[lanala]k Yj] [jm[aYd jan]jk g^ nYdm] [j]Ylagf$ hYjla[mdYjdq 21% Yl Y lae] o`]f lgh%daf] _jgol` j]eYafk ]dmkan] af egkl 20%0% ]n]dgh] eYjc]lk& 19%5% 9alagfYddq$ egj] l`Yf `Yd^ g^ j]khgf]flk kYq l`Yl Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 ghlaearaf_ [YhalYd Yddg[Ylagf `Yk egn] mh l`] ZgYjjgge Y_]fY$ Yk k`Yj]`gd]jk ]eYf l`Yl ZgYjk aj][l [YhalYd lgoYj l`] egkl hjgeakaf_ afn]kle]flk Yf eYpaear] j]lmjfk& Top sectors planning to divest )& >afYf[aYd k]jna[]k *& AfmkljaYd hjgm[lk How do you think the boardroom agenda at your company +& L][`fgdg_q `Yk [`Yf_] kaf[] l`] gfk]l g^ l`] ÔfYf[aYd [jakak7 ,& ;gfkme]j hjgm[lk =^Õ[a]f[q Yf 71% 25% 4% [gkl [gfljgd -& 9mlgeglan] Jakc eYfY_]e]fl 64% 29% 7% ;YhalYd Yddg[Ylagf 52% 41% 7% What are the main drivers of your company’s planned divestment activity? (Select two) ?jgol` Ç affgnYlagf J< 49% 36% 15% J]_mdYlgjq 51% akkm]k 47% 43% 10% Focusing on core assets 56% H]ghd] 48% YlljY[laf_ 42% 42% 16% j]lYafaf_ lYd]fl! 30% Enhancing shareholder Afn]klgj value 25% j]dYlagfk 41% 46% 13% 28% ?jgol` Ç 22% afn]klaf_ af 35% 40% 25% Shedding underperforming f]o eYjc]lk business unit 17% 32% „ ?j]Yl]j ^g[mk lgYq „ KlYq] l`] kYe] „ D]kk ^g[mk lgYq 19% Funding inorganic/M&A growth plans 17% 20% Raising cash to 18% compensate for underperformance of 23% aggregate business 19% „ Oct-12 „ Apr-12 „ Oct-11 )( ?dgZYd ;YhalYd ;gfÔ]f[] :Yjge]l]j
  • 11. Kmjn]q ]eg_jYh`a[kProportions of select industries represented What are your company’s annual global revenues in US$? $5b or more 24% ;gfkme]j hjgm[lk $1b to $4.9b 35% 9mlgeglan] $500m to $999.9m 23% Less than $500m 18% Oil and gas Da^] k[a]f[]k" What is your position in the organization? Hgo]j Yf mladala]k >afYf[aYd k]jna[]k C-level executive 49% Head of BU/dept. 27% L][`fgdg_q SVP/VP/director 24% Mining and metals<an]jkaÕ] afmkljaYd hjgm[lk What best describes your company ownership? HmZda[ k][lgj Publicly listed 60% Privately owned 28% *Health care/provider care, pharma, biotech Family-owned 5% Government/ state-owned enterprise 4% Private equity portfolio company 3% ?dgZYd ;YhalYd ;gfÔ]f[] :Yjge]l]j ))
  • 12. ;gflY[lk Ernst & Young Assurance | Tax | Transactions | Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, ourA^ qgm ogmd dac] lg ak[mkk l`] [gehj]`]fkan] kmjn]q j]kmdlk gj 167,000 people are united by our shared values and anl`gk] kh][aÕ[ lg qgmj k][lgj gj _]g_jYh`q$ hd]Yk] [gflY[l qgmj unwavering commitment to quality. We make a difference=jfkl  Qgmf_ Ynakgj gj Yfq g^ l`] [gflY[lk Z]dgo& by helping our people, our clients and our wider communities achieve their potential. Ernst & Young refers to the global organization ofName Telephone Email member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young GlobalGlobal Limited, a UK company limited by guarantee, does not provide services to clients. For more information aboutPip McCrostie our organization, please visit www.ey.com.Global Vice Chair +44 20 7980 0500 pip.mccrostie@uk.ey.comLjYfkY[lagf 9nakgjq K]jna[]k About Ernst & Young’sSteven Krouskos Transaction Advisory Services?dgZYd Yf 9e]ja[Yk +1 212 773 3975 steve.krouskos@ey.com How an organization manages its capital agenda todayEYjc]lk D]Y]j will define its competitive position tomorrow. WeLjYfkY[lagf 9nakgjq K]jna[]k work with our clients to help them make better and more informed decisions about how they strategicallyMichael Rogers manage capital and transactions in a changing world.?dgZYd EYjc]lk +44 20 7980 0200 michael.rogers@ey.com Whether you’re preserving, optimizing, raising orLjYfkY[lagf 9nakgjq K]jna[]k investing capital, Ernst & Young’s Transaction Advisory Services brings together a unique combination ofAmericas skills, insight and experience to deliver tailored adviceRichard M. Jeanneret attuned to your needs — helping you drive competitive9e]ja[Yk D]Y]j +1 212 773 2922 richard.jeanneret@ey.com advantage and increased shareholder returns, throughLjYfkY[lagf 9nakgjq K]jna[]k improved decision-making across all aspects of your capital agenda.Europe, Middle East,India and Africa (EMEIA) About this surveyJoachim Spill Ernst & Young’s Capital Confidence Barometer is part=E=A9 D]Y]j +49 6196 996 25366 joachim.spill@de.ey.com of Growing Beyond, our flagship program exploring howLjYfkY[lagf 9nakgjq K]jna[]k companies are finding new opportunities in challenging economic times.9kaY%HY[aÔ[ Yf BYhYfJohn Hope © 2012 EYGM Limited.9kaY%HY[aÕ[ D]Y]j +852 2846 9997 john.hope@hk.ey.com All Rights Reserved.LjYfkY[lagf 9nakgjq K]jna[]k EYG no. DE0361Kenneth G. Smith This publication contains information in summary formBYhYf D]Y]j +81 3 4582 6400 kenneth.smith@jp.ey.com and is therefore intended for general guidance only. It isLjYfkY[lagf 9nakgjq K]jna[]k 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 anyAcknowledgements material in this publication. On any specific matter, reference should be made to the appropriate advisor.Gmj kh][aYd l`Yfck _g lg l`] ?dgZYd ;YhalYd ;gfÕ]f[] :Yjge]l]j hYf]d" ^gj alk The opinions of third parties set out in this publication are[gfljaZmlagf lg l`ak kmjn]q& 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." L`] hYf]d [gehjak]k =AM k]fagj ]p][mlan]k Yf k]d][l =jfkl  Qgmf_ [da]flk Yf [gflY[lk o`g hYjla[ahYl] af l`] ;YhalYd ;gfÕ]f[] :Yjge]l]j gf Y k]eaYffmYd www.ey.com ZYkak& L`] kmjn]qk Yj] [gfm[l] gf Yf af]h]f]fl ZYkak Zq l`] =AM& ED None.