pierre teillet coordinator 06-07/09/2011 essnet on « profiling large and complex mnes »: report to...

Pierre TEILLET coordinator06-07/09/2011

ESSnet on « profiling large and complex MNEs »:

report to the BRWG

BRWG 06-07/09/2011

ESSnet on « profiling large and complex MNEs »

› The objectives of profiling slide 3

› The choosen way: towards economic definition slides 4 to 11

› Insight in guidelines slides 12 to 14

› Testing ability to provide adequate data slides 15 to 20

› Consultation, dissemination and future work slide 21

BRWG 06-07/09/2011


the main objectives of the ESSnet Profiling project

› describe consistently the same MNEs in all EU countries => “global enterprises” included in the EGR

=> “truncated (national) enterprises” linked between countries through the EGR

› support efficient data collection (SBS, FATS, FDI & if possible STS => a system of statistical units able to be used in all types of statistics => necessity of testing the “ability” to collect on the “enterprise” base

› for direct dissemination and indirect use (National accounts etc) in the countries:

=> most statistical domains concerned: the “stakeholders”

› for use in European aggregates

-

BRWG 06-07/09/2011

ESSnet on « profiling large and complex MNEs » reminder

profiling: a way towards an economic definition of enterprises

The work scheme used for profiling:› A collaborative partnership, the ESSnet:

– 7 partners (CBS –NL, DESTATIS –DE, ISTAT –IT, ONS –GB, SF –FI, OFS –CH , INSEE –FR coordinator) => 70% of the large European groups concerned

– developing a common methodology and testing it for the whole ESS

› Structured into 3 steps:– 2009-2010 (work done):

- a positioning paper on feasibility of profiling; - an input on statistical units as regards to EU regulation - “examples”

– 2010-2011 (work in progress): - drafting methodology, tools, guidelines …and beginning tests

– 2012-2013: writing methodology, tools, guidelines , enlarging tests to 5/6 countries (2012) and to all ESS members (2013)

› 2014 and on:– go/no-go decision, then implementation, inside EU+EFTA

BRWG 06-07/09/2011


the chosen way (1): move towards economic definition of enterprises

Profiling is a method:› to analyse the

– legal – operational and – accounting

› structure of an enterprise group

› in order to

– establish the statistical units within that group and

– their links and

– the most efficient structures

› for the collection of statistical data

BRWG 06-07/09/2011


the chosen way (2): use economic information coming from the businesses

Profiling :› uses the MNEs information system for accounting consolidation› takes the operating segment as a starting point for delineation of

economic “enterprises” (IFRS8), but can differ at the end› with the result that a global enterprise (GEN) is (can be):

– a single legal unit (if independant) – an enterprise group (i.e a set of legal unit under common control)

– a part of an enterprise group.› with the “national” enterprise = TEN= “truncated” part of the GEN

› as “enterprises” are organisational units, their autonomy (in decision making for allocation of their current resources) is an essential characteristic.

› => the delineation, list, name of the “enterprises” are built with and agreed by the MNEs.

› => their use is mainly national (truncated enterprises)

BRWG 06-07/09/2011


the chosen way (3): from operational/managerial to statistical world

GlobalGroup

GlobalGroup

TEN1 TEN2 TEN3 TEN4

OpSeg 1

OpSeg2

GEN1

GEN3

GEN2

Statistical environment

at global (GEN) level

and national (TEN) level

Operational/managerial (non statistical)

Environment: mainly IFRS

BRWG 06-07/09/2011


the chosen way (4): consequences and proposals

› necessity of confident relations with profiled MNEs › Statistical Units defined via a Top-Down approach :

– accounting “Consolidation” Information System based on IFRS: the starting point for analysis, for perimeter and “segments“ (IFRS 8)

› Statistical Units and profiling consistently interlinked: – “global enterprises” (GENs): new statistical units usually derived from

operational segments

– “truncated enterprises” being the national parts of GENs: rarely “autonomous”

› need of specific data (from the accounting IS not in the accounts), eg: - intra-group inter-GENs flows

- intra-GENs inter-countries flows

› Enterprises: collaborative definition/statistics national collection: - the “D option” with consideration to the “E option”

BRWG 06-07/09/2011


the chosen way (5): a system of Statistical Units

Economic/statistical world (global)

Global Enterprise group

Legal Unit

Legal/administrative world (global)

Local (legal) unit

Global Enterprise

Local unit

Economic/statistical world (sub-global)

Truncated Enterprise group

Truncated Enterprise

Local unit

Legal/administrative world (sub-global)

Legal or operational unit (sub global)

Local unit legal or operational

SPE SPE

BRWG 06-07/09/2011


the choosen way (6) : comparison to bottom-up methods

› defining “enterprise” as:

- that is an organisational unit

- producing goods and services (for the market)

- … with a certain degree of autonomy in decision making

- especially for the allocation of its current resources

- the smallest combination of legal units

BRWG 06-07/09/2011


the choosen way (7): agreements and progress

› a European perspective on MNEs operating in Europe› a dual classification for the truncated national enterprises

› common improved “check-lists” for complete profiling › defining a web platform for profiling needs (to be developed in 2012)

› a large testing programme: – 20 MNEs by present partners at the end of 2011– 20 more in 2012 + training and testing in 5/6 new countries – extension of tests to all ESS in 2013

› with analysis of impacts on the main aggregates

› soon working on “light profiling” methods for potential enlargement of the target

BRWG 06-07/09/2011

ESSnet on « profiling large and complex MNEs », from methods to guidelines:

“profiled MNE = consolidated MNE” ?

› Both cases include “effective control”:– direct or indirect majority of interest– other types of control

‐ de jure (legal prescriptions, agreements between shareholders etc)

‐ de facto (e.g effective permanent majority)

› and exclude limitation of voting rights (statutory or temporary suspended or the effect of specific (golden) minority shares

No geographic limitation (indirect can be through foreign affiliates)

=> cooperation between EU NSIs is necessary

BRWG 06-07/09/2011

ESSnet on « profiling large and complex MNEs » from methods to guidelines:

use of BR recommendation manual

› the MNEs must be mutually exclusive => 4 amendments of the manual to the consolidation perimeter (BR manual in blue ; our remarks in grey)

– Consider the highest level of consolidation (the GGH or the UCI level; always the highest “displayed” level)

– Include only the “entirely integrated units” (“proportional” integration disappears in 2013)

– Add the controlled but not integrated units (the “too small”) (we miss a concrete criterion and find no way to reintegrate them)

– Discount temporary links (now done most of the time by accountants)› working on “investment funds” (private equity) that we do not consider as

MNEs + working on “subgroups”

› Main conclusion: BR recommendation manual OK for profiling (differences slight and lessening between accounts and our wishes).

BRWG 06-07/09/2011

ESSnet on « profiling large and complex MNEs », insight in the guidelines (3):

MNE appearances, translation in the statistical world

› Can we limit us to general methods? (No) or do we need a typology of MNEs? (Yes)– the subsidiarity principle => each of the 500 MNE to UCI country

(on 27 , 31 etc)– the lack of standards for displayed accounting tables– => try to include typology + profiling strategy

› A purely pragmatic typology => necessity of permanent up-dates / an insight on management principles (?) => permanence of the typology ?

› A list of scale effects supposed to lead to types of MNEs / a list of regional-local conditions / resulting effects: now testing the emergence of the hoped typology.

BRWG 06-07/09/2011


Ability of the « enterprise » unit to produce structural statistical data › For most EU statisticians, a large change from the present way:

– from surveying national SUs (statistical units), predetermined in the BR,

– to a dialog with MNEs using the common business accounting language

– on global enterprises (GENs) and truncated (TENs)

› Leads to necessary pre-checks, from register staff: – Are the “variables” we need available in the MNE information system at the

level of the “enterprises”?

– If yes, are they economically significant?

› The checks are uppermost to be made at EU level (then at national level):

– are there theoretically consistent TEN data on the “variables” all over the EU?

– will each involved NSI be able to gather them consistently from the truncated national parts of the “enterprises”?

BRWG 06-07/09/2011


Ability of the « enterprise » unit to produce structural statistical data › What are the main variables to check (statisticians view)?

- the usual BR variables (to identify, assess the continuity and link different kind of units, split the populations and stratify);- the SBS variables; as such and as one of the main providers of NA- the NA themselves- + attention to outward-FATS statistics, that operate: at the MNE level, & on “enterprises”

› How can the MNEs work on checks (the business view)? – They ask for a priority list– They want this list to be common to all European countries – They ask for common questionnaires for priority variables – They know better accounting data than any other

› => priority to components of value added (in accounting shape), the “core variables”

then reconciliation with SBS data

BRWG 06-07/09/2011

ESSnet on « profiling large and complex MNEs » Core variables: the highest priority to test ability for SBS & NA: › a bundle of only 10 to 15 «main production variables» to be tested (in blue)

› related to the profit & loss account, and including the « operational result »

P & L by nature (not by function)

(consolidated for the GEN or the TEN)

Content of the boxes

“Production” = proxy “Revenue”=

+ pure Turn-Over

+ other activity products

+- produced inventories

T-O (sales to 3rd parties) net of granted discounts & rebates (IAS18) if possible split

between sales of merchandise and other sales. Newly produced inventories and fixed assets

(incl grants on fixed assets)

+- Other products and expenses Patent, franchise & brand royalties etc; more useful if split between products and charges.

1st evaluation of VA ( by the production

side )

=

- Used purchases

- Other external expenses

Purchases of goods (raw material, equipments and parts etc), services and merchandises, net of in inventories of received discounts and rebates+ancillary costs on purchases (CIF etc)

+ Employees wages and salaries Including bonuses and share of results

+ Taxes on products and indirect taxes

+Depreciations Physical and value change

2nd evaluation of

VA ( by the

components) = = Current operating result

(optional)

Close to net operating result of the NA

+- Other current products and charge

Other current non recurring products & charges (e.g. sellings of assets, depreciations

of goodwill)

= Operational result

BRWG 06-07/09/2011

ESSnet on « profiling large and complex MNEs » Core variables: reconciliation with the P&L

+ Treasury products - Cost of debt

Financial result

+- Other financial products and costs

Net costs of net financial debt

- Taxes costs Taxes on result + deferred taxes + participations des salariés aux résultats

+- Net result quota-share of minority owning of non-consolidated interests

When the MNE has a real influence on decisions

+- Pre-tax net result of: . non-continued activities

. ceased or being sold activities

IFRS 5

Net result

- Minority interests

Part of the Net result accruing to minority holders, for globally consolidated affiliates

Net result, share of the group

› not compulsory

› gives consistency with the business accounts

BRWG 06-07/09/2011

ESSnet on « profiling large and complex MNEs » Core variables: where to find the right variables in the financial statement?

ASSETS


Tangible assets

Equipment, machines etc Activity-used buildings

Buildings for hire Biological non current assets (forest, orchard,

cattle, etc)

Intangible assets Goodwill Other intangible (patents, brands, etc)

Non floating assets

Financial assets

Equity share in associate enterprises (Equity share in TEs of other countries)

Other disposable (sellable) financial assets

Non current assets, disposable to be sold ??

Inventories Goods and merchandise Biological current assets (crops, vegetable and

fruits, animal products, etc)

Floating assets

Financial floating assets Credits to clients Other financial current assets

Cash and similar

Total Assets

BRWG 06-07/09/2011

ESSnet on « profiling large and complex MNEs » Core variables: what if a complete balance-sheet for the enterprise?

LIABILITIES


Shareholders funds

Shareholders funds

+ Equities + Other non distributed reserve funds + Non distributed net results + Value of non current assets disposable for sale (directly accounted for in the shareholders funds) = Total of shareholders funds - Minority shareholding = Shareholders funds, part of the group

Non current liabilities

Long term debt Deferred taxes Long term reserves

Current liabilities

Supplyers credit Short term financial debt Short term part f long term debt Exigible taxes Short term reserves Liabilities directly linked to non current assets disposable for sale

TOTAL LIABILITIES

BRWG 06-07/09/2011


consultation, dissemination and future work

› Our project lasts until the end of 2013, now mainly on testing

› We try to be in constant coordination with:– the EGR methodological studies – an ESSnet project on Consistency– the EU studies on globalisation (e.g on value chains) and on MNEs

– our stakeholders through the Eurostat groups on BR, SBS, FATS, NA, GNI

– other interested countries (US, Canada, China …)– international bodies such as OECD, UNECE, etc

› We appreciate comments:[email protected]

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Thank you for your attention

pierre teillet coordinator 06-07/09/2011 essnet on « profiling large and complex mnes »: report to...

Documents

profiling large

objectives of profiling

essnet profiling project

businesses profiling

feasibility of profiling

brwg slide

global enterprises

mnes information system