April 2016 | 14th edition Global Capital Confidence...

April 2016 | 14th edition

Global

CapitalConfidenceBarometerMENA Key Findings

About the Barometer

EY’s Capital Confidence Barometer is a regularsurvey of senior executives from large companiesaround the world, conducted by the EconomistIntelligence Unit (EIU).

The majority of respondents would qualify for theFortune 1000 based on revenues.

The respondent community comprises anindependent EIU panel of senior executives andselect EY clients and contacts.

EIU panel of more than 1700 executives surveyed in February and March 2016 | 78 executives from

MENA | Companies from 45 countries | Respondents from 18 industry sectors | 885 CEO, CFO and

other C-level executives |

14th Capital Confidence Barometer

Capital confidence

3%

9%

42%

38%

8%

26%

24%

28%

20%

2%

21%

55%

18%

6%

0%

Strongly improving

Modestly improving

Stable

Modestly declining

Strongly declining

Apr-16

Oct-15

Apr-15

MENA executives expect stability to prevailin global economy… upside optimism wains

► While downside risks to the global economy persist, a majority of MENA (42%) and global (48%) executives maintain astable outlook about the global economy

► However, the optimists in MENA who think global growth will strongly improve have dropped to 3% from 21% last year.► Those who think it will strongly decline have increased to 8% from 0% a year ago

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

1%

36%

48%

14%

1%

36%

47%

9%

7%

1%

22%

61%

14%

3%

0%

Strongly improving

Modestly improving

Stable

Modestly declining

Strongly declining

MENA respondentsGlobal respondents

(GDP Change = same growth as 2015) (GDP Change = same growth as 2015)


0%

12%

24%

52%

12%

10%

30%

25%

25%

10%

0%

44%

50%

6%

0%

Strongly improving

Modestly improving

Stable

Modestly declining

Strongly decliningApr-16

Oct-15

Apr-15

Economic and geopolitical issues impairconfidence

► The economic impact of continued low oil prices and geopolitical tensions have impaired confidence in the local economy► An increased air of pessimism is cast around the prospects of the UAE economy, with 36% of the UAE executives

remained somewhat positive, while 64% sounded more concerned compared to a year ago

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

UAE respondents

[GDP Change = same growth as 2015]

0%

17%

43%

35%

5%

18%

30%

37%

11%

4%

6%

46%

42%

6%

0%

Strongly improving

Modestly improving

Stable

Modestly declining

Strongly declining

(GDP Change = same growth as 2015)

MENA respondents


0%

10%

40%

43%

7%

31%

30%

25%

11%

3%

3%

50%

44%

3%

0%

Strongly improving

Modestly improving

Stable

Modestly declining

Strongly decliningApr-16

Oct-15

Apr-15

What a difference a year (or less!) makes

► The ongoing geopolitical tensions and a lower oil price environment impaired confidence in the local economy► In Saudi, 50% of executives believe that the local economy is stable or modestly improving, while an equal number think

the economy is modestly or strongly declining

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

Saudi Arabia respondents

[GDP Change = same growth as 2015]

0%

17%

43%

35%

5%

18%

30%

37%

11%

4%

6%

46%

42%

6%

0%

Strongly improving

Modestly improving

Stable

Modestly declining

Strongly declining

(GDP Change = same growth as 2015)

MENA respondents


Shift in confidence to “stable” category

► A clear shift from positive to stable across all categories.

Please indicate your level of confidence in the following at the local level.

Corporate earnings Short-term market stability

Equity valuations Credit availability

MENA respondents

40%

42%

18%

58%

26%

16%

66%

32%

2%

Positive

Stable

Negative

30%

37%

33%

56%

20%

24%

71%

24%

5%

Positive

Stable

Negative

20%

38%

42%

39%

39%

22%

41%

56%

3%

Positive

Stable

Negative

32%

40%

28%

59%

29%

12%

42%

56%

2%

Positive

Stable

Negative

Apr-16Oct-15Apr-15


Decade of superabundance has come to anend

0.0

100,000.0

200,000.0

300,000.0

400,000.0

500,000.0

600,000.0

700,000.0

800,000.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

GCC fiscal revenue US$bn


But governments will continue to spend …

GCC fiscal spending USD bn

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Capital

Current


-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Fisc

alba

lanc

e(%

ofG

DP)

GCC fiscal shock…

Fiscal balance (% of GDP)


Future public debt risk

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Total Reserve Assets (US$m) Public debt / GDP (%)

Saudi reserves and public debt


The focus on cost management is affectingcompanies’ intentions regarding employment

► While the majority of companies still plan to hire, or retain their workforce, there is a shift towards reducing employees ascompanies struggle to support earnings.

► The strong levels of recent job creation in the US and UK may begin to level off.

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

28%

56%

16%

45%

49%

6%

29%

65%

6%

Create jobs/hire talent

Keep current workforcesize

Reduce workforce numbers

MENA respondents

19%

58%

23%

50%

40%

10%

29%

62%

9%

Create jobs/hire talent

Keep current workforce size

Reduce workforce numbers Apr-16Oct-15Apr-15

Global respondents


M&A market dynamics and trends

MENA IPO activity: yearly trend


MENA IPO: yearly trends (2008– YTD 2016*)

$13.2

$2.1 $2.7 $0.8$2.0

$3.0

$11.5

$2.5$0.3 $0.6

54

18

25

15 14

2327

14

2 2

-5

5

15

25

35

45

55

0

2

4

6

8

10

12

14

2008 2009 2010 2011 2012 2013 2014 2015 Q1 2015 Q1 2016

No.ofIPO

sVa

lue

ofIP

Os

(US$

b)

Value of IPOs (US$b) No. of IPOs

Note: *- 2016 covers Q1 2016; Q1 IPO values sourced from Capital IQ (28th March,2016)

Source : EY analysis of publicly available data

Disclosed MENA M&A activity: yearly trend

MENA M&A: yearly trends (2008– YTD 2016*)

Source: EY analysis of publicly available data

Note: *- 2016 covers Q1 2016

$102.2

$33.9$44.1

$31.6$44.8 $50.7 $44.9

$53.1

$10.3 $6.2

465

353

401416

398

442468 461

131 98

0

50

100

150

200

250

300

350

400

450

500

0

20

40

60

80

100

120

2008 2009 2010 2011 2012 2013 2014 2015 Q1 2015 Q1 2016

No.ofdeals

Dea

lval

ue(U

S$b)

Deal value (US$b) No. of deals


Total number of announced deals in Q1 2016 was 98Total number of announced deals in Q1 2015 was 131

Total value of announced deals in Q1 2016 was US$6.2bTotal value of announced deals in Q1 2015 was US$10.3b

US$1.5b

US$3.3b

US$5.4b

US$4.9b

US$0.1b

US$1.3b

Domestic

Inbound

Outbound

Q1 2016 Q1 2015

67

23

41

54

13

31

Domestic

Inbound

Outbound

Q1 2016 Q1 2015

Transaction by type (based on no. of deals) Transaction by type (based on total deal value)

Source: EY analysis of publicly available data

Note: Deals with disclosed values are only considered for analysis based on value

Transaction analysis by type:Q1 2016 and Q1 2015


M&A appetite, outlook and deal strategy

Deal intentions remain strong as UAE companies areincreasingly seeking opportunities

► While deal intentions have slipped back from October 2015, they still remain above the long term average.► Companies are actively seeking out growth opportunities in a low growth environment.► The need to respond positively to disruption is also spurring dealmaking intentions.

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

57%

41%

38% 40% 31%

25%29%

35%31%

40%

56%59%

50%

58%

48%

23%

58%

19%

27%

46%

26%

33%

57%

38% 41% 37%

56%

39%

20%

29%

35%45%

35%33%

50%

39%

50%

53%

Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16

Global Respondents

MENA Respondents

UAE Respondents

41%


Challenging M&A dynamics

► The quality of deals in the market have been downgraded

What is your level of confidence in the following at the local level:

46%

38%

16%

57%

29%

14%

45%

48%

7%

Positive

Stable

NegativeApr-16Oct-15Apr-15

25%

49%

26%

61%

27%

12%

45%

48%

7%

Positive

Stable

Negative

Apr-16Oct-15Apr-15

25%

48%

27%

50%

38%

12%

31%

59%

10%

Positive

Stable

Negative

Apr-16Oct-15Apr-15

Number of acquisition opportunities Quality of acquisition opportunities Likelihood of closing acquisitions

MENA respondents


Alliances are seen as a route to growth in anincreasingly complex environment

Are you planning to enter alliances with othercompanies or competitors to help create a value fromunderutilized assets?

If you answered yes, what was the primary reason?

MENA respondents

55%

30%

15%

To both monetize intangible andtangible assets

To monetize tangible assets (includingproduction facilities, land and buildings,

etc.)

To monetize intangible assets(including data, brands, intellectual

property, etc.)

51%49%

YesNo

► Alliances are becoming more attractive as companies look for new sources of revenue and earnings while seeking to keepcosts down.

► These alliances will replicate features of the “sharing economy” and will be more loosely structured than traditional JVs.

► Companies are increasingly looking to alliances to bolster their own R&D processes


Boardroom agenda – continued focus onmargins in low growth economy

► Reducing costs key focus for businesses as they seek to weather any economic storms ahead…

Which of the following has been elevated on your boardroom agenda during the past six months? Select your topthree answers

55%

36%

32%

28%

27%

26%

22%

22%

18%

14%

Reducing costs/improving margins

Acquisitions

Portfolio analysis, including strategic divestment (spin-off/IPO)

Shareholder activism, including returning cash to shareholders

Increased volatility in commodities and currencies

Impact of digital technology on your business model; e.g., new…

Corporate citizenship/wider stakeholder engagement

Cybersecurity

Regulatory and competition/antitrust oversight

Climate change

MENA respondents


Disruptive forces make dealmaking a preferredoption for business growth and continuity

► A majority of MENA companies are seeking acquisition to help themselves address the changing customer behavior andthe related customer need for product innovation

What is the main strategic driver for pursuing an acquisition outside your own sector?

31%

28%

23%

18%

Access to new materials ortechnologies/digitalization

Changes in customer behavior

New product innovation

Reacting to competition

38%

28%

17%

17%

Changes in customer behavior

New product innovation

Reacting to competition

Access to new materials ortechnologies/digitalization

MENA respondentsGlobal respondents


More distressed assets sales likely to drivedealmaking in MENA

► The prospects of dealmaking by MENA and UAE companies will be influenced mostly by the trend in depressed assetssales by companies

► A lesser number of UAE executives believe that the M&A market will also witness outbound acquisitions by Chinesecompanies

Which of the following do you expect to become more prominent in deal-making in the next 12 months?

37%

28%

25%

10%

47%

12%

29%

12%

64%

18%

12%

6%

More distressed asset sales

Unsolicited/hostile acquisition approaches

Greater competition from private equity acquirers

Outbound acquisitions from China Global

MENA

UAE


Disparity in assets value/purchase pricecontributes to expectations not being met

► MENA companies’ post-merger disappointment was largely due to external market forces acting on asset valuations –sales volumes and prices being below forecast

For acquisitions completed recently, what was the most significant issue that contributed to deals not meetingexpectations?

25%

19%

13%

13%

12%

10%

8%

15%

11%

16%

27%

7%

9%

15%

7%

4%

16%

30%

1%

15%

27%

Strategic value overestimated/purchase price multiple too high

Sales volume declines/loss of customers

Product/sales price and margin deterioration

Failure to achieve synergies

Unforeseen liabilities (tax, HR, pension, etc)

Poor execution of integration

Poor operating cost assumptionsApr-16Oct-15Apr-15

MENA respondents


Thank you

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About EY

EY is a global leader in assurance, tax, transaction and advisoryservices. The insights and quality services we deliver help build trustand confidence in the capital markets and in economies the worldover. We develop outstanding leaders who team to deliver on ourpromises to all of our stakeholders. In so doing, we play a critical rolein building a better working world for our people, for our clients and forour communities.

EY refers to the global organization, and may refer to one or more, ofthe member firms of Ernst & Young Global Limited, each of which is aseparate legal entity. Ernst & Young Global Limited, a UK companylimited by guarantee, does not provide services to clients. For moreinformation about our organization, please visit ey.com.

The MENA practice of EY has been operating in the region since1923. For over 90 years, we have grown to over 5,000 people unitedacross 20 offices and 15 countries, sharing the same values and anunwavering commitment to quality. As an organization, we continue todevelop outstanding leaders who deliver exceptional services to ourclients and who contribute to our communities. We are proud of ouraccomplishments over the years, reaffirming our position as thelargest and most established professional services organization in theregion.

© 2016 EYGM Limited.All Rights Reserved.

ED NoneThis material has been prepared for general informational purposes only and is notintended to be relied upon as accounting, tax, or other professional advice. Pleaserefer to your advisors for specific advice.

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April 2016 | 14th edition Global Capital Confidence...

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