1. Twinning project Kiev 18-21 Mars 2014 Twinning project Enterprises issuing from large and complex MNEs How to define the perimeter ?

2. Page 2 Twinning project Inputs for profiling large and complex MNEs › The 3 steps of profiling –Define the links between the legal units ‐ which kind of link ? the control –Define the perimeter of the group –Define the enterprises within the group

3. Page 3 Twinning project Inputs for profiling large and complex MNEs › Conceptual inputs : –European regulation (2002) adopting international accounting standards and specially the segmentation : IAS 14 then IFRS 8 –statistical European regulation defining the enterprise unit and the enterprise group unit (1993) The idea of the regulation on segmentation is that the internal organization of a group is mainly a sectoral organization The idea of profiling is that this sectoral organization usually matches with the definition of the enterprise

4. Page 4 Twinning project Inputs for profiling large and complex MNEs › Documentation inputs –groups reporting (mandatory in the reports : description of the segments with accounting informations for each segment, list of affiliates, detailed rules for accounting, etc.) –other informations from various media › Statistical and administrative data inputs –financial links –affiliates accounts –SBS surveys –National Accounts › Visit to the group and discussion -list of the enterprises of the group -perimeter (in terms of LU) of each enterprise of the group

5. Page 5 Twinning project Results › In most cases, at the end, the number and the perimeter of the enterprises coming from profiling are identical to the segmentation in the reporting › But in some cases, the number of enterprises finally selected is not equal to the number of segments in the reporting › Why ?

6. Page 6 Twinning project Results › Insufficient autonomy : often the case when the products are very close (example Telecom groups, IT services, l’Oreal) –lack of data at segment level (incomplete P&L and balance sheet) –segmentation too oriented towards the market (same process, same product but different markets : ie professional/non professional) › Comments –IAS 14 (now IFRS 8) requires the groups to present a segmented information to enable investors to better measure risk and return on investment because the informations at group level are too general –In fact the transition from IAS 14 to IFRS 8 has significantly reduced the accounting obligations. Sometimes the segmentation proposed in reportings reflects more a desire to seduce investors with a presentation of a wide range of markets than a reality in the internal organization of the group. In this case, the segments presented in the reporting have not a sufficient autonomy to be considered as enterprises

7. Page 7 Twinning project Results › Segmentation with other criterion than an activity segmentation (geographical or occupations, etc.) –Reorganization of the segments to fit with sectoral activities (example Adecco France) › Other specific cases –sometimes a specific enterprise for Wholesale andor Retail trade (manufacture of motor vehicles : examples PSA and Renault) –often a specific enterprise for corporate activities and residual activities (holdings and head offices)

8. Page 8 Twinning project Examples of insufficient autonomy 1) Telecommunications : Bouygues Telecom, France Telecom, SFR The SFR case –In its reporting SFR is segmented into two entities: the wired telecoms (including Internet) and wireless telecoms (mobile phones). The group believes however that this distinction is neither a technical reality (entangled technologies) or a commercial reality (bundled services) or an organizational reality ("Neuf Cegetel" specialized in the fixed and the Internet has been absorbed by SFR in 2009). –INSEE side, there is no particular demand (particularly for National Accounts) to have separate accounts for these two activities. The only key is to allocate turnover between mobile and fixed, which in principle is not an issue because this information is provided by the annual survey (SBS) Finally, we will have only one enterprise instead of two and it will be the same for France Telecom and Bouygues Telecom

9. Page 9 Twinning project Examples of insuficient autonomy 2) IT services : Cap Gemini The group analyzes the performance of all subsidiaries through several business units and / or geographical breackdown Nevertheless the various activities of the group are - so close (consultancy, programming, facilities management) - so linked together that set several enterprises would maintain internal flows Moreover, the autonomy of decision does not lie at each business unit but at the Group level => It seems better to have a simple enterprise

10. Page 10 Twinning project Examples of insufficient autonomy 3) Cosmetics : l’Oréal › In the cosmetics industry, for the same products, the group describes 4 segments according to the distribution channels : –professional products (hair salons) –consumer Products (retail trade) –luxury products (selective distribution) –active cosmetics (pharmacies and drugstores) › The group does not prepare a balance sheet for each of the four sectors distinguished in the cosmetic industry. Only a few indicators are available to characterize separately each of these areas but these are insufficient to respond adequately to our request › Finally, the group believes it is more appropriate to complete a single profiled enterprise grouping all legal units of the group L'Oreal in France

11. Page 11 Twinning project Examples of non sectoral segmentation Adecco France › Matrix segmentation with 2 axes : –general staffing/profesional staffing –sub-consolidation at sub-groups level =>reorganization of the segmentation into 2 enterprises › But an other view for Adecco International (head in Switzerland) =>only one segment

12. Page 12 Twinning project The case of trade activities Manufacture of motor vehicles : PSA and Renault › At group level retail trade is consolidated with manufacturing › But at French level, the 2 groups say that retail trade activities are autonomous and must be described in specific enterprises

13. Page 13 Twinning project Thank you for attention