Commercial Implications of Budget 2012 on SME’sFunding for Growth – Commercial Briefing

Budget 2012Budget 2012Give Give

Static Corporation TaxR&D Tax Credits (€100k milestone, restrictions light touched, employee incentives)Special Assignment Relief Programme (SARP)Foreign Earnings Deduction BRIC & ASStart Up Companies to 2014International Financial Services Support MeasuresStatic Income Tax - lift in USC earnings thresholdPension funding and exit relief unchanged - but flagged for reformStamp Duty - Commercial Property (& business assets), Family Transfers

TakeTake

Cessation of Employer PRSI Relief on Pension contributions - now 100%PRSI on Investment Income for PAYE worker from 2013(share based remuneration \last year)Relevant Contracts Taxes - new 20% tier Absenteeism tax relief benefits removedRedundancy Rebate Scheme - from 60% to 15%DIRTARF's & PRSA's imputed distributionCGT - Rates, 7 year relief and Retirement Relief (Shrinking Cap +66 years)CAT - Rates and Child ThresholdsVAT & Fuel increases

Last Years Measures

Strategic Trends ReconfirmedFrom Individualism to Corporatism

Pension Restrictions• Late Retirements - continuing payments for services / consultancy• Downgrading of a core transition strategy for SME owners = more focus on |Succession | Sale | Hold as passive• Points Finger at marked absence of effective transition planning strategy in the past• Lock in of capital with pension restrictionsRestrictions on Personal Relief's• ROI will become a more relevant key indicator of performance - less off balance sheet assets & debt• Capital Flight risks• Migration of personal business debt to corporate - securitisation and cost issues• Future borrowings will favour corporate structure• Asset purchases will be corporate - increasing use of special purpose vehiclesContinuance of Low CT Relief• Capital Growth in a low tax environment in preference to larger annual revenue streams• More complexity in debt and equity instruments?• Commencement of a post retirement dividend culture?Capital Funding Initiatives• Channelling of free capital to corporate investment - EIIS• 30% DIRT• Unsophisticated investors unable to critically evaluate investment opportunities• Requirement for more robust investor ready business plans stress testing and sensitivity analysis

IndustryIndustry

BusinessBusinessEnvironmentEnvironment

Stakeholders

TechnologTechnologyy

CompetitionCompetition

Customers

Budget2012

Need to be careful abouttaking on risks

Should only consider very low risk options

Can pursue higher risks with caution

Positioned to take on higher risk options

Assess Impact on Strategic positioning

Identify and Develop

Core Competence

“Selectively Expand”

“Shore Up”

“Defend”“Exit” “Diversify”

“Acquire”

“Aggressively Develop”

Numerous Opportunities

Major StrengthsCritical Weaknesses

Significant Threats

OT AnalysisOT Analysis for yourAction PortfolioAction Portfolio

Vision Strategy Structure & Culture/ Shareholder Circumstance + Business EnvironmentTransition Planning | Pension DowngradingPlan and manage alternative funding strategy | EIIS & Interest Restrictions Implement external stakeholder management system | Respond to market demand for private equity perspective

Products &Services/ IndustryProduct / Services development review | Optimising & synergising with R&D ReliefOutsourcing Evaluation | Loosening of Restrictions for Relief

Marketing & Sales/ Customers & CompetitionDevelop Pricing & Promotion strategy | Retail & End users seeking to have VAT/Overhead hikes underwritten Update International marketing Strategy | To leverage the foreign earning exemption opportunity

FinanceConduct overhead analysis & strategy (logistics / outsourcing) | Increased costs- Fuel, power and transport Remodel MIS Reporting– adopt stakeholder perspective | EIIS / Banks & Stakeholders (including yourself!)Conduct Cost Benefit Analysis -Commercial Property & Loan Rationalisation | Stamp Duty, CGT, Tax Rate leverageRoll Cash Flows & P/L | Budget impact assessment – development scenarios for all rocket elements

PeopleConduct productivity & HR policy review | Absenteeism benefit restrictionsImplement recruitment & inward investment study | Special assignment relief program leverageReappraise Remuneration Package Elements | Foreign Earning Exemption 60 Days | Share Option schemes

Systems, Processes & Support / TechnologyUpdate share subscription mechanisms and housekeeping |Systems review for all Business Model Drivers and Enablers | All function areas impacted strategically or operationally i

Action PortfolioAction Portfolio covers how many FunctionsFunctions?

Develop Vision and Strategy

Plan and Manage Funding

Set Policies and Manage Performance

Manage External

Stakeholders

Design Production Marketing Selling Customer Service

Accounting and Finance

Physical Resource

Management

People Management

Information and

Technology Management

Strategic Management Functions

Value Creating Functions

Support Functions

It’s all about:

1.Converting Strategy into Action

2.Turning common sense........ into common practice