7. Consolidation of enterprise groups ESTP Course on the EGR 16-17 November 2015 7. Consolidation of enterprise groups

EGR Data providers NSA DnB BvD So our main input comes from 3 different sources. The “National Statistical Authorities” from the participating countries and 2 commercial data providers.

Data entities Legal Units (LEU) Relationships (REL) Enterprises (ENT) Links Enterprise Groups (GRP) The data providers mainly provide us with information on 5 “Entities” Entity is an abstract definition. Color coding Links intentionally left out

Data entities per provider NSA LEU REL ENT GRP DnB BvD These ar ethe different entities received by each data provider

Goal of consolidation [EX] Swedish Dutch All the data from the different data providers have to be combined to form the global enterprise group. This process is called consolidation and includes setting up priorites and rules We will use this picture as our goal in upcoming examples!

Consolidation process Cons. Legal units Cons. Relationships Create cluster of control Cons.Enterprise group (and Enterprise) This is the process of consolidation as it happens by type of entity

Consolidate legal units (overview) Select preferred source Determine continuity

Consolidate legal units (select source) Source provided Transformed Consolidated NSA(3) LEID X NSA(3) LEID X NSA(1) LEID X NSA(2) LEID X DnB(1) LEID X BvD(2) LEID X BvD(1) LEID X WITHIN ONE FRAMEYEAR Collect LEID Priority: NSA DNB BVD Prioritize Update

Consolidate legal units (continuity) Source provided Transformed Consolidated NSA(3) LEID X NSA(3) LEID X NSA(1) LEID X NSA(2) LEID X DnB(1) LEID X BvD(2) LEID X BvD(1) LEID X WITHIN ONE FRAMEYEAR Collect LEID Same EGR identification? Priority: NSA DNB BVD UNIT in T or T-1 Prioritize Update

Consolidate legal units (continuity) This is little complex, what it comes down to that NSA_ID is primarely used to identify. If not available, LEID will be used

Consolidate legal units (continuity) LEID NSA ID EGR ID 2010 october CCRRRRR12345 100000000 2010 november 88888888 2011 october CCRRRRR23456 CCRRRRR98234 99999999 2222222222 IMPORTANT: The continuity of the LEID follows the continuity of the National_ID and not of the NSA ID or of the EGR ID

Consolidate legal units [EX] LEU FR 28385738 LEU SW 28374756 94764636 39483945 23947374 LEU NL 23644364 LEU NL 64264423 LEU NL 45379864 At teh end we have consolidated legal units.

Consolidate relationships Start form “scratch”, per subsidiary Collect all direct relationships on the same subsidiary Determine highest percentage per parent Create direct relationships in order of priority Check for no violation (for example, no more than 100%) Collect indirect relationships on the same subsidiary Discard superfluous indirect (if there is direct control) Discard lower priority (if more than 1 parent) Establish indirect relationship

Consolidate relationships (EX) 20% P3 40% P1 55%% Transformed relationships, explain percentages and P1, P2. Refer back to sheet 19 P4 20% P2 45%

Consolidate relationships (EX) 20% P1 55%% The result after the rules applied P4 20%

Consolidated units and relations [EX] LEU FR 28385738 LEU SW 28374756 94764636 39483945 23947374 LEU NL 23644364 LEU NL 64264423 LEU NL 45379864 So if we go back to our example let’s immagine that the following relationships remain after consolidation.

Consolidated legal units and control [EX] LEU FR 28385738 LEU SW 28374756 94764636 39483945 23947374 LEU NL 23644364 LEU NL 64264423 LEU NL 45379864 100% 100% No priority 100% 100% 100% 40% Controlling relationships determine the cluster as we will see during deriving the cluster of control.

Consolidated legal units and control [EX] LEU SW 28374756 94764636 39483945 23947374 LEU NL 23644364 LEU NL 64264423 So this is what remains from our original example.

Deriving the cluster of control The ‘cluster of control’ defines legal units that are involved in [controlling] relationships with each other, ultimately all being under control of the defined topmost legal unit (the head of the group). A legal unit can have control with a single relationship in two cases: ‘Type of ownership’ = ‘I'(ndirect)’ or (‘Type of ownership’ = ‘D(irect)’ and voting power > 50%) Combine clusters with cumulative direct control > 50%!

Deriving the cluster of control So if we look at the direct relationship (incl. cumulative) which clusters of more than 1 legal unit do we see?

Deriving the cluster of control (direct)

Combining cluster using indirect rel. For each ‘cluster’ C found until now: If the top-most legal unit is involved as a subsidiary in an indirect relationship with a legal unit that is not yet in cluster C : ‘combine’ cluster C with the cluster of the parent. For all legal units in the ‘cluster’ C, including the top-most legal unit: If the legal unit is involved as a parent in an indirect relationship with a legal unit that is not yet in cluster C : ‘combine’ cluster C with the cluster of the subsidiary. Repeat the above with the newly formed clusters until no more clusters can be combined. Explain on previous sheet

Deriving the cluster of control (indirect)

From cluster to enterprise group The identification of the cluster as defined by the EGR is the linking pin to the Enterprise Group data supplied. The identification (continuity) of the Enterprise Group is determined by looking at the overlapping Enterprises and the number of persons employed.

Continuity of enterprise groups

Continuity of enterprise group Final Group (T-1) Preliminary Group (T) Final employment Ent (T-1) Preliminary employment Ent (T) E1 FG1 - 10 E2 4 E3 PG1 15 E4 11 E5 PG2 54 77 E6 FG2 PG3 45 E7 12 E8 FG3 32 E9 PG4 14 We look at the enterprises in two frames: final frame of year t-1 and preliminary frame of the year in production t We use the employment of the enterprises in the two frames We want to set up rules that enable to take decisions whether a group in the preliminary is a candidate to be a continuation of a groups in the t-1 We look at the persistence of enterprises in the groups and at their employment High persistence >> candidate for contiuity Combination of various rules

Defining set C1: E1 (10) E2 (4) E3 (15) E4 (10) E5 (54) E6 (45) FG (T-1) PG (T) E1 (10) E2 (4) E3 (15) E4 (10) E5 (54) E6 (45) E7 (12) E8 (32) … (0) E3 (15) E4 (11) E5 (77) E6 (45) E8 (4) E9 (14) FG1 PG1 PG2 Is PG1 a candidate for continuation of FG1? E1 E2 and E5 are missed. Is PG2 a candidate for continuation of FG1? E1 E2 E3 and E4 are missed. Is PG3 a candidate for continuation of FG1? No overlapping at all. Is PG4 a candidate for continuation of FG1? This is repeated for all PGs. A set C1 is defined that contains all the ENT that have disappeared, so: E1, E2, E3, E4, E5, E7 PG3 FG2 FG3 PG4

Continuity of enterprise group C1 = Enterprises in the final groups (T-1) and not in preliminary groups (T) as candidates for continuation C1 Not in PG1 Not in PG2 Not in PG3 Not in PG4 In FG1 E1,E2,E5 E1, E2, E3, E4 No overlap In FG2 E7 In FG3 only -

Defining set C3: E1 (10) E2 (4) E3 (15) E4 (10) E5 (54) E6 (45) FG (T-1) PG (T) E1 (10) E2 (4) E3 (15) E4 (10) E5 (54) E6 (45) E7 (12) E8 (32) … (0) E3 (15) E4 (11) E5 (77) E6 (45) E8 (4) E9 (14) FG1 PG1 PG2 PG3 FG2 FG3 PG4

Continuity of enterprise group C3 = Enterprises which are in final groups (T-1) and in the preliminary groups (T) candidates for continuation C3 In PG1 In PG2 In PG3 In PG4 In FG1 E3, E4 E5 No overlap In FG2 E6 In FG3 E8

Continuity of enterprise group C2 = Enterprises which are in the preliminary groups (T) but not in the final groups (T-1). C2 In PG1 IN PG2 In PG3 In PG4 Not in FG1 - No overlap Not in FG2 Not in FG3

Employment: Consider the persons employed of the different combinations: PE_P_C1 = Persons employed of PGs in C1 PE_F_C1 = Persons employed of FGs in C1 PE_P_C2 = Persons employed PGs in C2 PE_F_C2 = Persons employed FGs in C2 PE_P_C3 = Persons employed of PGs in C3 PE_F_C3 = Persons employed of FGs in C3

For example, for checking if PG1 is a continuation of FG1:   PG1 – FG1 Note PE_P_C1 Lost in PF1= 0 If lost then always 0 PE_F_C1 Lost from FG1 =68 E1 (10), E2 (4), E5 (54) PE_P_C2 Lost in PG1 = 0 E3 and E4 both are FG1 PE_F_C2 Lost from PG1 =0 Always 0 PE_P_C3 Continuity PG1= 26 E3 and E4 are in PG1 PE_F_C3 Continuity FG1= 25 E3 and E4 are in FG1

Checking if PG1 is a continuation of FG1: PE_P_C1 = 0 + 0 = 0 PE_F_C1 = 10+4+54+= 68 PE_P_C2 = 0 PE_F_C2 = 0 PE_P_C3 = 15+11 = 26 PE_F_C3 = 15+10 = 25

Continuity of enterprise group RULE X0: IF PE_F_C3 >= 70% * (PE_F_C1 + PE_F_C3) 25 >= 70% * (68 + 25) (25 > 65,1) FALSE AND PE_P_C3 >= 70% * (PE_P_C2 + PE_P_C3) 25 >= 70% (0 + 26) (25 > 18,2) THEN X0 = 0 (possible continuation) ELSE X0 = 1 (no continuation) PG1 IS NOT A CONTINUATION OF FG1, as the first part of Xo is false

Final remarks: Small groups For small groups another rule is under discussion. Implementation of continuity rules Will start on EGR 2.0 – two cycles needed in 2.0 2015 will be the first cycle to apply continuity of groups with respect to 2014

Thanks for your attention Questions?