Manufacturing Trends QuarterlyQ2 2015

CFO economic outlookConfidence in the economic outlook remains low among CFOs in the manufacturing sector as businesses continue to adapt to the removal of the exchange rate floor.

1Business risks

The strength of the Swiss Franc remains the biggest threat,

followed by increasing regulation in Switzerland and geopolitical risks.

2Staff cost reductionPlans to cut staff costs in response to the strong Swiss Franc are more common in Swiss manufacturing than in other sectors.

3Business outlookManufacturing sector CFOs are

now considerably more pessimistic in their business outlook than

CFOs in other sectors.

4Growth prospectsRevenues and margins are expected to decrease substantially over the next 12 months.

5Audit. Tax. Consulting. Financial Advisory.

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1. CFO economic outlookConfidence in the economic outlook remains low among CFOs in the manufacturing sector as businesses continue to adapt to the removal of the exchange rate floor.

• The economic outlook in Q2 2015 improved slightly, but remains gloomy in the views of Swiss CFOs. Only 9% of manufacturing sector CFOs are optimistic, with 49% pessimistic. Confidence remains low with the net balance at -39%, compared to -58% in the previous quarter.

• Swiss businesses are still adapting to the removal of the exchange rate floor in January 2015. There is also little impetus for growth from Switzerland’s most important trading partners. Growth in the eurozone remains slow, with prospects uncertain in light of the Greek crisis. There is also doubt about the US as a major engine for economic growth.

• The perception of the strong Swiss Franc as a key business risk remains high at 78% in Q2 2015. Increasing regulations in Switzerland and geopolitical risks have slightly decreased compared to the previous quarter, but remain high with 63% and 59% respectively.

9%

Economic outlook (net balance) (Q1 2012 – Q2 2015)Question: How do you judge the economic outlook for Switzerland over the next 12 months?

Manufacturing Other sectors

Neg

ativ

e Po

siti

ve

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

Q114

Q215

Q115

Q414

Q314

Q214

-10%9% -1% 4%

49%

-32%

-6%-14%

-29%

10%

39%56%

76% 70% 72%55% 60%

80% 83% 73%

48%

42%32%

20%

-46%

-58%-39%

-18%

42%

49%

2. Business risksThe strength of the Swiss Franc remains the biggest threat, followed by increasing regulation in Switzerland and geopolitical risks.

Notes: The net balance is the balance of positive (increase) and negative (decrease) assessments of the respondents. The figures for business risks are for the manufacturing sector only. The percentages indicate the number of responses that rate the respective risk as high.Sources: Deloitte CFO Surveys.

!"# $

Strength of the Swiss Franc

Increasing regulation in Switzerland

Geopolitical risks

Weaker foreign demand

Deterioration of cash flow

Weaker domestic demand

Stress in the financial system

Rising labour costs

Rising trade barriers/protectionism

Rising input costs

Shortage of capital

Cost of capital

82%78%

71%63%

59%

56%

50%

45%

29%

16%

5%

8% 13%

74%

68%

63%56%

56%

50%

31%

31%29%

19%

19%

Low risk High risk

Q1 2015 Q2 2015

Risk factors for the next 12 months (Q1 2015 vs. Q2 2015)Question: Which of the following factors are likely to pose a significant risk to your business over the next 12 months?

2

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• Almost every Swiss manufacturer (94%) plans to reduce personnel costs due to the strength of the Swiss Franc. By contrast, 77% of companies in other sectors are planning similar measures.

• The types of measures vary greatly. Roughly four in five (84%) Swiss manufacturers plan to freeze salaries, almost double that of other sectors (45%).

• 72% of Swiss manufacturers plan to freeze recruitment, while 66% are considering reducing their workforce. Both measures are mentioned more frequently by manufacturers compared to other sectors.

• Considerably fewer Swiss manufacturers intend to increase working hours for Swiss employees without adjusting salaries (28%), reduce fringe benefits (19%) or employ more foreign subcontractors/temporary workers (13%).

• The ongoing adjustment to the removal of the exchange rate floor and economic uncertainty is mirrored in the current business outlook.

• Confidence of manufacturing sector CFOs remains weak (net balance of -39%). 12% of manufacturing CFOs are currently optimistic (previously 5%) and 52% are pessimistic (previously 72%). The majority of respondents have shifted from optimistic/neutral positions in 2013 and 2014 to a pessimistic position.

• Manufacturing CFOs are considerably more pessimistic in their business outlook than CFOs in other sectors (net balance of -4%), similar to the second half of 2012.

3. Staff cost reductionPlans to cut staff costs in response to the strong Swiss Franc are more common in Swiss manufacturing than in other sectors.

4. Business outlookManufacturing CFOs are now considerably more pessimistic in their business outlook than CFOs in other sectors.

Notes: The net balance is the balance of positive (increase) and negative (decrease) assessments of the respondents. Sources: Deloitte CFO Surveys

Measures to cut personnel costs (Q2 2015)Question: If you are planning measures to cut personnel costs over the next 12 months in responseto the increase in the value of the Swiss Franc, which of the following measures are you planning?

Other

Employing more cross-border commuters

Salary cuts

Reducing working hours for Swissemployees, incl. corresponding salary cuts

Employing more foreignsubcontract/temporary workers

Reduction of fringe benefits

Increasing working hours for Swissemployees without (fully) adjusting salaries

Reducing number of employees

Recruitment freeze

Salary freeze

No reduction of personnel cost planned

Reduction of personnel cost planned94%

77%

84%45%

6%23%

72%

56%

66%40%

28%12%

19%

16%

13%

Manufacturing

Other sectors

5%

3%

6%5%

4%

3%3%

8%6%

Business outlook (net balance) (Q1 2012 – Q2 2015)Question: Compared to three months ago, how do you feel about the financial prospects for your company?

Manufacturing Other sectors

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

Q114

Q314

Q215

Q115

Q414

Q214

Neg

ativ

e Po

siti

ve

7% 3% 2%18% 19%

13%18%

29% 28%

-10%6%

-19%-8%

5%

26%44%

34% 30% 22%

3%

-4%

10%

0%

-55%

-4%

-39%

-67%

20%

12% 36% 52%

Manufacturing Trends Quarterly Q1 2015 3

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Key contacts

Dr. Ralf C. SchlaepferManufacturing Industry Leader Deloitte Consulting AG+41 (0)79 402 20 30rschlaepfer@deloitte.ch

Dr. Michael GramppChief Economist & Head of Research Deloitte AG+41 (0)58 279 68 17mgrampp@deloitte.ch

5. Growth prospectsRevenues and margins are expected to decrease substantially over the next 12 months.

• Swiss CFOs have a negative outlook for all key metrics over the next 12 months.

• Manufacturing sector CFOs have even more negative revenue expectations with -63% for Q2 2015, compared to -54% in the previous quarter. Revenue expectations for other sectors have recovered slightly, but remain in negative territory.

• Expectations for operating margins of manufacturing CFOs continue to be at the same low level with -81% in Q2 2015 as in the previous quarter (-82%). Margin expectations for other sectors have recovered slightly, but remain low (-60%).

• Due to the strength of the Swiss Franc, cost pressure remains high for manufacturing companies. Spending plans are correspondingly constrained and manufacturing CFOs expect lower capital expenditure and a smaller workforce than in other sectors.

Neg

ativ

e Po

siti

ve

-54%-63%

-82%-72%

-63% -69% -69%-81%

Revenues Operating margins Capital expenditure Number of employees

Q1 2015 Q2 2015

Neg

ativ

e Po

siti

ve

-46%

-14%

-78%

-48% -45% -44% -46%-60%

Revenues Operating margins Capital expenditure Number of employees

Q1 2015 Q2 2015

Development of key metrics (net balance) (Q1 2015 vs. Q2 2015)Question: In your view, how are the following key metrics for Swiss corporates likely to change over the next 12 months?

Manufacturing

Other sectors