Europe

New Leaders wake sleeping giants

Overview

The upturn in Europe’s traditional cyclical productivityis stronger and better than before because:

a. New leaders are running Europe’s businesses; and

b. New leaders are running key European economies

Europe – Productivity

• Cyclical economy

• Productivity has recovered from a depressed level

• Productivity now similar to the US

Euroland Productivity (total economy)

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

97 98 99 00 01 02 03 04 05 06 07

%,yoy

Source: ECB

New leaders are running Europe’s businesses

• Globalisation of business flows

• New managements embark on corporate restructuring

• Dramatic fall in units labour costs

Euroland unit labour cost (total economy)

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

97 98 99 00 01 02 03 04 05 06 07

%,yoy

Source: ECB

Corporate example - MAN

MAN ROIC inc goodwill

0.0%2.0%

4.0%6.0%

8.0%10.0%

12.0%14.0%

16.0%

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

New leaders are running key European economies

• New political leaders introduce supply side reforms• Labour markets become more flexible, labour

participation rates rise

Will the Giants remain alert?

• Probably – corporate culture has changed

• Historic complex cross-shareholdings web has been broken

Will the Giants remain alert?

• Corporate managers remunerated for generating shareholder returns

• Privatisation has severed historic links between companies and governments/states

• New shareholders focused on higher returns