europe‘s 500 growth policy martin schoeller, president europe‘s 500

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Europe‘s 500 Growth Policy

Martin Schoeller, President Europe‘s 500

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Europe's 500 Entrepreneurs for Growth

Average E’500 company

177 € mill Revenues p.a. 796 Employees

48% 3-year growth

Total increase in employees in 3 years

130.0000

Objectives:

Networking and Contribute political ideas

Awareness for Entrepreneurship

Activities

E’500 Awards, E’500 Conference, European round table

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Activities Europe‘s 500

Europe‘s 500Conference for Growth

annualy

EuropeanRound TableFor Growth1-2 per year

Europe‘s 500Listingannualy

Better Conditions for GrowthGenerate more Growth Entrepreneurs

Selects Top GrowthEntrepreneurs

Generates ideas forGrowth

Proposals for Improvement

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1. Growth financing : risk insurances

2. Fiscal Incentives for Innovation: for Business Angels and R&D

3. Entrepreneur education and awareness

4. Part-time job incentives

5. Trade policy: incentives to stimulate demand in developing countries

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Gap between Bank Loan and Private Equity

Cost of capital

Bank loan

PrivateEquity

4 – 8%

20 – 40 %

Predominant number of German medium-sized companies Decreasing credit rating

Increasing risk

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Problems of Growth Companies < € 50 Mio

Bank Loan Alternative financing

Rating

Margin

Venture Capital 30%

Mezzanine too small

Loan programmes

• 50 – 80%• more work, less success• 20 – 50% bank quota required, but banks are reluctant to finance the rest

Source: CRE Center for Risk & Evaluation

Costs of losses after Basel II

0,50% 0,60% 0,75% 0,90%

2,80%

4,75%

8,00%

VI VII VIII IX X XI XII

Rating

. .

. .

. .

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Crack in Logic with Basel II

8%

2% Margin

1% Loss

=1% Net margin

3% Margin

2% Loss

=1% Net margin

low risk medium risk

EVCA (22.10.2003)“There is a risk that instead of fulfilling its original purpose of providing stability to banks and thus sustainable growth, the accord in its current form risks impeding innovation and opportunities for businesses willing to finance European growth companies.“

Bundesverband deutscher Banken (Januar 2003)

„…Kapitalmarktprodukte vorantreiben, die es ermöglichen, Risiken aufzuteilen und denjenigen anzubieten, die bereit sind, diese Risiken zu tragen.“

Conclusion

16%

Example

50%

100%

After Basel II banks operating at medium risk will earn substantially less than those banks operating at low risk - assuming an equal net margin

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Response Citigroup to CP3 New Basel Capital Accord

Capital is mistakenly defined to cover both Expected and Unexpected Losses

“The New Accord sets capital requirements to cover both Expected Losses and Unexpected Losses without differentiating between the two.

However, the definition of capital is not changed to reflect the provisioning that supports Expected Losses and the margins that act as additional buffers against losses.

….. A further regulatory capital charge would double count this exposure.”

Todd S. Thomson, CFO Citigroup, 31.07.2003

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Credit – Crunch in Germany

Source: Deutsche Bundesbank

-40.000

-30.000

-20.000

-10.000

0

10.000

20.000

30.000

40.000

50.000

60.000

70.000

2000 2001 2002 2003 2004

3,5

3,6

3,7

3,8

3,9

4,0

4,1

4,2

4,3

4,4

4,5

Credit facilities change toprevious year in € mill

No of Unemployed in mill

Credit facilities to companies No of Unemployed change to previous year mill

€ mill

2000 55.875 3,92001 26.700 3,92002 -21.008 4,12003 -25.103 4,42004 -34.541 4,4

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Growth Financing at adequate Risk

All medium sized companies up to Rating XI (97% of all German companies)obtain loans at a pricing of:

enabling increasing growth again

Rating Percentage Initial cost + Handling Fee + Cost of Guaranty Totalof Companies (Libor 1 Year)

I-V 51,5% 1,8% 1,2% 1,4% 4,4%

VI 15,2% 1,8% 1,2% 1,5% 4,5%

VII 10,9% 1,8% 1,2% 1,6% 4,6%

VIII 10,7% 1,8% 1,2% 1,8% 4,8%

IX 4,6% 1,8% 1,2% 1,9% 4,9%

X 2,7% 1,8% 1,2% 4,8% 7,8%

XI 1,6% 1,8% 1,2% 6,8% 9,8%*) Source CRE Center for Risk & Evaluation

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2003 2004 2005

Spain Growth GDP 3,0% 3,1% 3,4%

Growth Loans 13,5% 19,8% 21,1%

Italy Growth GDP 3,0% 1,2% 2,0%

Growth Loans -7,7% -4,6% 3,5%

France Growth GDP 0,8% 2,3% 1,5%

Growth Loans -2,6% 6,0% 4,6%

Germany Growth GDP -0,2% 1,6% 0,8%

Growth Loans -3,2% -3,3% -0,9%

Loan Growth generates higher GDP growth

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Growth GDP 2005

Growth Loans 2005

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

3,0%

3,5%

4,0%

-0,9% 3,5% 4,6% 21,1%

Germany

Italy

France

Spain

Loan Growth generates higher GDP growth

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A possible Solution

Entrepreneurs can rent guarantees at a price that correlatesto their risk (rating) and borrowing capacitye.g. up to 4.5 x EBITDA

No risk participation of commercial bank required

EU does not restrict this because of „true cover“ and recommends a guaranty renting system to the member states

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Capital gains for Business Angels should be tax free

(like capital gains on shares)

Instruments in R&D should give tax benefits for SME,

as long as it is connected in IP generation

Tax Incentives for Innovation

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Increase Entrepreneurship as a discipline at Business Universities (Teach the Teachers)

The annual Award Listing, Ceremony and Conference of Europe‘s 500 would like to apply for EU sponsorship

Europe‘s 500 is capable of organizing top 50 events in various European countries. This could also be organized in cooperation with the Commission.

Entrepreneur Education and Awareness

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Part Time Jobs reduce Unemployment/social Charges

3%

5%

7%

9%

11%

10% 20% 30% 40%

10%

20%

30%

UER4,2%

UER6,8%

UER9,2%

UER4,7%

UNDERPERFORMERS (GE, FR, IT, ES, BE)

SCANDINAVIA (SW, FI, DK)

CH, AU

TOP PERFORMERS (UK, NL)

Non wage labour costs

Part-time rate

Net Employment Rateadjusted

51%

60%

68%

57%

Unemployment rate

UER

Source: Eurostat

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Incentives for more Part-Time Jobs

leads to less unemployment

fills a need for more part-time jobs

allows substantial cut of non wage labour costs

improves competitiveness and adaptability of enterprises

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Economic policy made simple

The Problem……

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Relocation and Outsourcing to low Wage Countries

reduces jobs and purchase power in Europe

quite often does not increase wealth in the exportingdeveloping countries

we import much more from Asia, Latin America, Africathan we export to them

2004 in € bn

Europe 15 Asia Latin America Africa

Imports from -322 -55 -86

Exports to 253 47 75

Balance -69 -8 -11

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Fair wages – Net foreign trade

Balance EU 15

74

-8

-11

-23

-71

-26

Source: Eurostat-35

in € bn

2000 2004 Growth 2000 2004 Growth

USA Eastern Europe

Import to EU -199 -154 -23% Import to EU -55 -78 42%

Export from EU 232 228 -2% Export from EU 28 55 96%33 74 -27 -23

Latin America Japan

Import to EU -49 -55 12% Import to EU -87 -69 -21%

Export from EU 55 47 -15% Export from EU 45 43 -4%6 -8 Balance Japan -42 -26

Africa China excl. HK

Import to EU -84 -86 2% Import to EU -70 -118 69%

Export from EU 66 75 14% Export from EU 25 47 88%-18 -11 -45 -71

Rest of Asia

Import to EU -322 -307 -5%

Export from EU 253 272 8%-69 -35

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A possible improvement

Exporters to Europe are required to gradually lift minimumwages as well as environmental and social standards

fight poverty

creates growth of internal demand

protects environment

Incentives and restrictions in order to enforce it

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1. True cover credit insurance for growth Entrepreneurs

2. Tax incentives for Business Angels and R&D

3. Entrepreneurship chairs and growth Entrepreneur Awards

4. Part time jobs with much less non wage labour costs across

all levels

5. Low-wage countries: incentives to increase minimum wages

Summary of Europe‘s 500 Suggestions

europe‘s 500 growth policy martin schoeller, president europe‘s 500

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