2. PROFILING methodology (Dominique Francoz) The Euro Groups Register (EGR) – Introductory Course 2. PROFILING methodology (Dominique Francoz) Luxembourg, 30 May 2013 – BECH A3/045

A little bit of terminology and acronyms Before to start A little bit of terminology and acronyms GEG: global enterprise group, also known as MNE: MultiNational Enterprise group UCI: Ultimate Controlling Institutional Unit, aka GDC: Global Decision Center GEN: Global ENterprise TEN: Truncated Enterprise NSI: National Statistical Institute UCI NSI: main profiler Partnering NSI: country which has subsidiaries, but not the UCI of the profiled GEG

What is profiling Profiling is a method The ESSnet on profiling which analyses the legal – operational and – accounting structure of an enterprise group in order to establish enterprise units within that group (and their links to legal units) and explores the most efficient structures for the collection of statistical data. The ESSnet on profiling develop, test and implement a common methodology for the profiling of large and complex multinational enterprise groups

A need for looking at the whole elephant Why to profile A need for looking at the whole elephant

Why to profile Need to better take into account the globalisation of the economy The GEGs organise themselves at the global level The statistical representation of the GEGs may be different from the GEG’s own vision National statistics don't take properly into account this global dimension Need to improve the consistency of business statistics in the EU Currently, practices differ from one country to another one In most countries, the legal unit is used for the enterprise as statistical unit To take into account the global dimension may change the statistics and the economic analysis

Why to profile Need to better take into account the globalisation of the economy To take into account the global dimension may change the statistics and the economic analysis

Why to profile European Profiling will reconcile Global vision of the groups on their activity National needs to observe economic activity European Profiling is the only way to properly delineate "enterprises" in multinational and complex EG. describe consistently the same GEG in all EU+EFTA countries Ensure consistency of treatment between countries Allow producing statistics at different geographical levels Fulfil both needs of national statistics and statistics on globalisation support efficient data collection in SBS, FATS, FDI & if possible in STS

The profiling project Proposes a new definition of the statistical unit “enterprise” To better take into account the global dimension of the economic activity in the Multinational Enterprise Groups To improve relevance of national business statistics and significance and comparability at the European level Proposes a top down approach to define the new enterprises at two levels: The global enterprises (GEN) defined regardless of the geographic dimension The truncated enterprises (TEN): the national parts of the GEN GEN and TEN delineated in terms of legal units

European Profiling consists in: How to profile European Profiling consists in: Centrally defining “enterprises” in the frame of multinational enterprise groups (GEG) Not only delineate the enterprises but also ensure that the enterprises defined are suitable for data collection and follow up The NSI of the UCI has the responsibility of defining the GENs and TENs The “partnering” NSIs have the responsibility to confirm the TENs in their country In both cases: discussion with statistical users is essential The main process steps are: Desk profiling (UCI NSI) Contact with the GEG (UCI NSI) Assess the UCI proposal (Partnering NSIs)

How to profile 2 types of profiling Intensive profiling For the largest and most complex GEG 500 GEGs in the target Light profiling For the less complex GEG but still large enough 1200 GEGs in the target Differences between intensive and light profiling Same desk activity Contact with the GEG not mandatory in light profiling Partnering exercise not mandatory, but highly recommended

The steps for profiling Selection of the GEGs to be profiled in the EGR Target population: the 500 largest and most complex GEG in the EU Preparation, identification and defining at the global group level centrally by the NSI of the UCI Defining the UCI, that determines the responsibility for the profiling of the GEG Theoretically already done in the EGR Check the EGR information

The steps for profiling Desk preparation: collection of information on the legal structure, using EGR data determination of the countries in which the GEG operates, and so determination of the NSIs involved collection of information on the operational structure of the GEG, using the annual reports and information at GEG websites collection of the GEG information that is already available at the NSIs (e.g. from surveys) analysis of the relationships between the legal structure and the operational structure. If these are not clear, priority should be given to the operational structure of the GEG Derive and classify GENs at the global level as a proposal ( including identification) Analyse the operational structure of the GEG Prepare a proposal for the GEN structure List the legal units for each GEN

The steps for profiling Contact and visit the GEG To confirm the GENs and their delineation To collect data on the GENs and TENs Derive and classify TENs at the national level (including identification); List the legal units for each TEN Informing the NSIs of EU-countries in which the GEG operates on the draft profile and asking for comments Pass the TENs (and the lists of legal units) to the relevant NSI for use as supplied in the national business register and for data collection. Partnering NSIs confirm the TEN Feedback process between the partnering and the UCI NSI until an agreement is reached

Main output each step

Variables to be collected For the GENs and TENs NACE Employment Turnover Variables in the BR regulation mandatory In addition: core variables Variables of the SBS regulation, annex1

Profiling: a cooperative process Statistical users Statistical users

Cooperation between NSIs Specific tasks to adequate actors : “NSI of the UCI” / “partnering NSIs” For the NSI of the UCI (leading profiler): check the global perimeter of the GEG, visit the GEG, propose GENs and TENs in agreement with the GEG Discuss the GENs and TENs with national statistical users link the GENs with legal units (can be “m to n” links), send the resulting TENs to partnering NSIs and discuss with them, check at EU level (then at national level) the ability to produce adequate statistics : SBS, STS, FATS, FDI.

Cooperation between NSIs Specific tasks to adequate actors : “NSI of the UCI” / “partnering NSIs” For the partnering NSIs : receive proposed TENs (and links with leUs) from the leader NSI validate them through discussion with statistical users existence, LeUs contents, suitability for data collection, organisation of data collection (which unit to follow?) agreement from the national GEG managers accept or re-discuss them with the leading NSI Each NSI plays alternatively the 2 roles

Cooperation with the GEG an important part of the profiling process Statistician requests Global perimeter of the GEG/Profiling perimeter of the GEG (consolidation perimeter or list of the controlled affiliates) Number and name of GENs and TENs (IFRS 8 as a starting point) Ability to produce consistent data at these levels Ability for the GEG to produce at UCI level/country level “core variables” Ability to produce SBS variables (SBS are main providers of NA). Ability to produce other variables such as STS. Special attention to O-FATS information collected at the GEG level on “country x Nace CODE”, a concept close to “enterprises” in most cases

Cooperation with the GEG an important part of the profiling process GEG requests they know better financial and accounting data than any other they ask for a priority list and for a common list of variables they ask for common questionnaires to all European countries When consolidation is centralised they prefer to provide consistent information for each country at UCI level than at country level. Priority to value added components in an accounting shape + employment = “the core variables”

Organisation of data collection Organisation of profiling May differ from one NSI to another Profiling together with BR and EGR Profiling together with SBS Profiling independent from both In any case, need for a good coordination between all actors Efficiently update EGR with profiling information Efficiently collect data for SBS (FATS) purposes

Organisation of data collection Different ways of collecting data for SBS (FATS) purposes: Fully centralised By the UCI NSI for all the partnering countries On request of the GEG Requires an agreement with the GEG Requires a good coordination between involved countries Decentralised The UCI NSI collects only the minimum set of data for GEN and TEN National collection for SBS: By specific collection from TENs or GEG's national representative By consolidation of existing information (surveys or use of administrative data)

IPT: a tool to make coordination easier IPT: Interactive Profiling Tool Allow profiling teams to smoothly exchange information during the profiling process, but respecting the confidentiality rules in force concerning exchanges of individual data. Centralise information on the GEN and the TEN for the group under profiling process. Release information on profiling to the users Be the central place of guidelines, metadata, templates and other documents related to International profiling.

IPT: a tool to make coordination easier What could be done with the ITP Exchange information between the EGR and the IPT (direct transfer from EGR to IPT) Exchange information between the national environment and the IPT (batch procedure) Modify information online for authorised members (profiling teams of the UCI or partnering countries) Read information on a given group Add new legal units Send notifications to the partnering or UCI countries during the profiling process (this should be done automatically according to some trigger signal)

Example 1: SIEMENS Initial operating segments Geographical organisation

Example 1: SIEMENS Going in the detail of segments Split of the "energy" segment

Example 1: SIEMENS Split of the segments Energy segment Industry segment Energy segment Infrastructures & Cities

Example 1: SIEMENS

Example 1: SIEMENS Employment figures

Example 1: SIEMENS To be compared with the EGR list List of subsidiaries: an extract

First step: desk profiling Example 1: SIEMENS First step: desk profiling Several options for GEN Consider only the 4 operational segments (Industry, Energy, Healthcare and Infrastructures and cities) and integrate the activity of the 3 cross-sector segments into them Requires information to split the activity of the cross sector businesses Siemens publishes information for these three cross sector businesses, but information is very poor for equity investments

First step: desk profiling Example 1: SIEMENS First step: desk profiling Split the Industry, Energy and Infrastructure segments into several global enterprises Segment information presented in the annual report detailed by sub-segments Requires checking the autonomy of enterprises defined in the frame of the segments Consider 6 global enterprises in line with the segments exclude equity investments Consider transversal activities in a segment "others" Need for a contact with the group

A possible operational structure: Example 1: SIEMENS A possible operational structure: GEN NACE 3Digit employment turnover (external revenue) in M€ Energy 351 86,000 27,302 Healthcare 266 51,000 13,600 Industry automation 27 105,000 9,563 Drive technologies 281 9,640 Instrastructures&Cities 302 89,000 16,731 financial services 649 3,000 859 others 701 36,000 1,031

Example 1: SIEMENS French organisation

Example 1: SIEMENS French organisation

Example 1: SIEMENS French organisation

Example 1: SIEMENS French organisation

Example 1: SIEMENS Operational structure: Legal structure: a national restriction of the GENs Legal structure: Transversal to the economic structure One sub-holding which controls the most part of LeUs One LeU with activity in the 5 GENs Should be split into the different TENs 6 LeU which directly depend from SIEMENS AG GEN structure should be suitable for national purposes Way to collect information on TENs: See if SIEMENS SAS or SIEMENS SA could report for all the TENs

Example 2: BRICORAMA Suitable for light profiling: Medium size group: 3510 employees Active in 3 other EU countries Quasi monoactive Detailed segmental information incl. by country Detailed list of subsidiaries Possibility to delineate the global enterprises in terms of legal units

Example 2: BRICORAMA Legal structure of the GEG

Example 2: BRICORAMA Detailed list of subsidiaries

Example 2: BRICORAMA Intra-group flows

Example 2: BRICORAMA Income statement by TEN

Example 2: BRICORAMA Balance sheet by TEN: assets

Example 2: BRICORAMA Balance sheet by TEN: liabilities

Example 2: BRICORAMA Conclusion: 1 GEN 5 TENs NACE: 475 "Retail trade of ither household equipment in specialised stores" Additional activity: windmill (NACE:3411: production of electricity) Currently side activity 5 TENs France, Belgium, Netherlands, Spain, Hong-Kong (small activity) Central collection of data at the UCI level is possible

EGR and profiling: two different visions of the same "object" Profiling and EGR EGR and profiling: two different visions of the same "object" EGR: legal structure of the global enterprise group Profiling: economic structure of the global enterprise group

Interactions between the EGR and the profiling project Profiling and EGR Interactions between the EGR and the profiling project The EGR: a fundament for profiling EGR: starting point of profiling Profiling population selected in the EGR UCI in EGR defines the profiling country EGR perimeter starting point for profiling Profiling: a fundament for EGR quality Global economic information on the GEG Delineation of GEN and TEN in terms of legal units and economic information on GEN and TEN Updated information on legal units

Principles for a coordinated view between EGR and profiling Profiling and EGR Principles for a coordinated view between EGR and profiling The perimeter of the groups treated in the IPT should be identical in the EGR and the IPT database at the beginning of the profiling process and at the end (when the country of the UCI considers the profiling to be achieved). The EGR should be updated by the IPT data (set of information to be defined). The common units in the EGR and on the IPT should be identified with to the same ID number It could be the LEID number for the legal unit and the group ID number for the group.

Profiling and FATS FATS among the main statistical users for profiling (with SBS) Analytically: Same statistical unit "enterprise" followed in FATS and defined through profiling TEN are defined not only in EU, but worldwide TEN allow to produce information by country and activity Operationnally FATS can help profiling To delineate the GENs and TENs: especially for light profiling complete the annual report information to produce data by country and activity Profiling can collect information for FATS purposes Information collected on TENs (turnover, employment, NACE) also available for non-EU countries

A set of common tools currently tested Guidelines and methodological report Profiling Template + metadata using the EGR as the starting point completed by 2 sets of “profiling variables” (UCI NSI / partnering NSIs) Profiling Report to sum up the main characteristics of the GEG and of the profiling process An “IPT” interactive profiling tool under development to ease and improve the exchange of profiling information between NSIs. The IPT to be interlinked with the EGR platform For statistical users to get information on the GEN and TEN

Thank you for your attention

Annex: core variables 1- Strategic need: the main aggregates of the P&L by nature: needed as proxies of the GDP (productive analysis and NA providing)

Annex: core variables 2- Completion of the P&L: useful to check consistency between operating and net results

Annex: core variables 3- Identification, through the Financial Assessment, of the « investment »