About this survey. less optimistic than other major economies. Marcoeconomic pressure in the Eurozone,

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1 Outlook April October 2013 About this survey is a regular survey of senior executives from large companies around the world, conducted by the Economist Intelligence Ernst & Young clients and contacts and boardroom trends and practices in the way companies manage their Capital Agenda. Panel of almost 1,600 executives globally surveyed in February and March 2013 Companies from 50 countries respondents Fortune 1000 based on revenue Based around four dimensions, it helps companies consider their issues and challenges, understand their options and make more informed capital decisions. reshaping the operational and capital base driving cash and working capital and managing the portfolio of assets assessing future sources strengthening investment appraisal and transaction execution Expectations of economic growth continue to improve, and sentiments on market stability, corporate earnings, credit availability and employment are broadly positive. Global economic less optimistic than other major economies. Marcoeconomic pressure in the Eurozone, in emerging markets - remain prime corporate concerns. But these concerns appear to have been baked into the boardroom agenda. Companies report plans to hire, and they are beginning to access the debt markets. M&A activity. However, in the near term, our respondents are gravitating towards lower-risk optimizing capital structures, strategic divestments, and more rigorous cost control and and asset valuations are poised to rise, but they themselves do not have near-term plans executives appear to be positioning their companies for growth. While it may take time before we see plans turn into actions, corporate leaders are setting the stage for a bolder future.

2 global economy as either stable or improving up from both six 47% 19% 48% 46% 10% Economic Improving Stable Declining growth Japan 65% economic indicators. At 7, positive sentiment toward global economic growth is at its highest level in two years. More than half of the respondents are positive on corporate earnings and short-term market stability has more than doubled. % positive view Employment growth 30% 46% 51% 6 7 France Germany UK China Australia 64% 63% 58% 54% 53% Credit availability Corporate earnings 33% 37% 53% 58% 57% Brazil US India South Korea 35% 4 50% While global economic sentiment has improved considerably, the Equity valuations/ stock market outlook Short-term market stability 5% 33% 39% sentiment about the regulatory environment for business growth, would normally signal an increase in both capital into action. Spain France Italy 17% 21% 40% 57% in October 2012 Netherlands 17% UK 5% * Percentage-point spread between local and global economic sentiment

3 recognize global growth is unlikely to reach peaks last seen in has been so long and pervasive that typical cyclical behaviors have changed. More than 5% 3% 5% 1% 3% Zero growth Negative growth 3% 6% 13% 13% 10% US economy 25% 25% Global economy 57% 57% 69% and outweighs Eurozone and emerging markets challenges. While many companies have adjusted their strategies to compensate for these risks, others view them as a source of opportunity. Even more encouraging, plans for workforce reduction are at 6%, the lowest they have been in two years. Stagnation in the Eurozone 27% 48% 3 47% Slowing growth in emerging markets US debt ceiling challenges 49% 56% 47% Create jobs/hire talent Keep current workforce size Reduce workforce numbers 47% 8% 1 6% 3

4 In addition to their improved outlook on the economy, to access the global credit markets. two years. changes to capital structure now nearing completion. Debt-tocapital ratios remain fairly constant today, but the appetite for leverage is expected to accelerate over the next year for 2 move toward more traditional levels as valuations start rising and companies gear up to do larger and more transformational deals that cannot be funded principally with cash. However, the decrease their leverage over the next year. 37% 58% 43% 4 Improving Stable Less than 25% 41% 43% 30% Declining 25% 49.9% 30% 33% 41% 20% 11% 50% 74.9% 21% 16% 11% 75% 100% 8% 8% 4% US 2 58% in October % 18% 2 45% 47% 36% Increase Remain constant Decrease 36% 35% 4 4

5 interest rates, extending maturities and removing covenants. Reduce interest cost 27% 25% Extend maturity (short-term debt ratio) Retire maturing debt Remove restrictive covenants Optimizing the capital structure (non-stressed situation) 7% 10% 11% 1 20% 23% 47% need to deploy cash currently earning low rates of return. 27% 26% 33% 55% 56% 71% 66% 74% 47% Cash Debt Equity 20% 15% Oct-11 Yes No 5

6 appetite for growth and a steady move toward investment. 26% remain focused on cost reduction and operational Organic growth (e.g,, investing in products, capex, talent retention, R&D) Inorganic growth (e.g., acquisitions, alliances, JVs) 16% 1 20% 36% 36% % focused on growth 77% 51% 49% 56% 5 46% 61% 5 Pay down debt Pay dividends 10% 8% 9% 18% 4 Apr-11 Oct-11 41% Buy back stock 9% 13% 9% Global respondents US respondents 46% 23% 26% 5% 61% 26% 11% Growth Cost reduction and operational ef ciency Maintaining stability Survival lower-risk growth strategies much more cautious approaches crisis world: growth activities perceived as higher-risk are more cautiously pursued. Companies will want more and longer-lasting evidence of an upturn before making major investments. New sales channels 27% growth rather than returning it to stakeholders. In total, 5 through paying down debt, paying dividends or buying back More rigorous focus on core products/ existing markets Higher risk Exploiting technology to develop new markets/products Changing mix of existing products and services Increasing R&D/product introductions Investing in new geographies/markets 4% 2 19% 15% 13% 6

7 declined. While companies are repositioning toward an investment mindset, they continue to pursue organic growth and portfoliooptimization strategies. 16% 1 9% 43% 46% Preserving Investing Optimizing The Capital Agenda Raising 26% 19% 21% Capital allocation 66% 10% Risk manag m nt 65% 2 13% 63% 25% 1 R gulato issu s 6 23% 15% Inv sto lations 54% 15% *C po at gov nanc 50% 35% 15% P opl (att acting/ tainin t nt) 50% 21% G owth innovation R&D 4 37% 21% G owth n w g og aphic ma k ts 38% 38% Ap -13 G at focu to a Sta th sam L s focu to a 7

8 deal volumes to improve over the next 12 months. Return to historic highs Improve Remain the same Decline 5% 2 US deal volumes 37% Global deal volumes 59% 71% Consistent with sentiment six months ago, deals are likely to remain smaller in size despite record amounts of available cash strategy toward organic growth and lower-risk sentiment. 10% 9% 43% 38% 7% 6% 58% Over US$1b US$501m US$1b US$51m US$500m US$50m or less 41% 38% 36% 25% growth opportunities in emerging markets and North America. 23% Apr-11 Oct-11 Global Likelihood of closing acquisitions US about the number of opportunities available, up from 40% six 33% 58% Quality of acquisition opportunities 36% Number of acquisition opportunities 40% 8

9 Expectations for valuations to increase have rebounded in the compared with 21% six months ago, suggesting the market has stabilized. 48% 40% 33% 46% 45% 50% Increase Remain at current levels Decrease 1 21% 5% However, while valuation gaps are narrowing today, this expect the gap to widen or stay the same. 45% 88% 65% 66% 25% 27% 20% or less 10% 10% 7% 21-30% Over 30%

10 1. Canada US 3. China Top inbound investors 1. South Korea 2. Mexico 3. UK 4. Mexico 5. India 2. Brazil US Investment destinations continue to evolve as companies challenge their growth strategies and underlying risk tolerance. markets. We remain optimistic and have not changed our approach Companies remain optimistic about deals in emerging markets but are exercising more caution. In light of slowing growth, We remain optimistic but will apply further rigor We are less optimistic and are reconsidering our strategies 18% 41% We are less optmistic and have already turned our attention more toward developed markets 7% We have discontinued our emerging markets strategies for now 3%

11 Divestments are now an established tool for creating shareholder value. In total, of global respondents* either have a divestment in progress or are planning one in the next two years. A steady stream of divestments will provide capital to fuel growth in the future. 17% Life Sciences* Technology 15% Oil and Gas Power and Utilities Automotive In progress/planning 6 12 months 1 2 years Consumer Products Global corporate divestment study Diversi ed Industrial Products Financial Services Media and Entertainment Mining and Metals *Health care/provider care, pharma, biotech that those divestments will involve the carve-out of one or more and rigorous processes around divestment. $5b or more $1b to $4.9b $500m to $999.9m Less than $500m 26% 26% Sale of business unit 30% C-level executive 53% Spinoff/IPO of business unit Sale of entire business Head of BU/dept. SVP/VP/director 19% Contribution of business unit to joint venture 8% Publicly listed 87% Privately owned Family-owned Government/ state-owned enterprise Private equity portfolio company 10% 0% 1% 11

12 Telephone Ernst & Young Assurance Advisory Ernst & 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 by helping our people, our clients and our wider communities achieve their potential. Ernst & Young refers to the global organization of which is a separate legal entity. Ernst & Young Global provide services to clients. For more information about our organization, please visit 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. 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. of Growing Beyond, our flagship program exploring how companies are finding new opportunities in challenging economic times. EYG no. CE ED None. senior executives and select Ernst & Young clients and contacts who participate in