Vinci acts global but thinks local
Vinci Construction Site Ahead Of Earnings©Bloomberg
Vinci is seeking to take over Cuzco’s new airport in Peru, motorway concessions in Colombia as well as regional airports in Asia and Greece as Europe’s largest construction and concessions group by revenue extends its tentacles abroad.
But with 60 per cent of the group’s revenue still coming from France, chief executive Xavier Huillard explains – over lunch in chic Parisian restaurant Ledoyen – how much of the group’s fortunes hinged on French politics.
Despite the global reach of Vinci, which employs almost 200,000 people in 100 countries, it is likely to be hit by the French municipal elections next month, leading to a drop-off in activity this year, particularly in its lucrative motorway toll road business, Mr Huillard said.
“Globally speaking it is tough in France, but during the phase of local elections it is even tougher. The mayor does not want to potentially be negatively impacted [in his race by any controversial decisions],” said Mr Huillard.
There was a silver lining though. “The year after [local elections] you benefit from the fact that local politicians want to show their electors that they are very active so they launch many projects,” he said.
National politics in France was going to be even more important over the coming years for Vinci, which relies on public-private partnerships for its bigger projects.
“In most of our European markets, in the next 2-3 years, growth will recover,” he said. “But in France it could be a little more complicated . . . It depends on what the president of the republic is willing to do now.”
Mr Huillard is referring to the change of political tack last month from Mr Hollande, who edged to the right announcing a “responsibility pact” with business to cut taxes, public spending and red tape to boost growth.
French business leaders are hopeful that this could be a turning point. “If he [Hollande] really does what he told us he would do, we could start seeing some positive signs of small recovery in 2015,” he said.
Vinci has been struck hard by the drop off in construction activity in Europe during the sovereign debt crisis and has also suffered from the weak margins available in its construction business, which can be as little as 1-4 per cent.
Because of this the company has been attempting to push abroad into higher growth areas, and has also been attempting to move up the value chain and take on bigger and more complex projects.
It is constructing one of its most complex projects – the gallery to house billionaire Bernard Arnault’s modern art collection by architect Frank Gehry – as well as Europe’s largest concession rail project – the €7.8bn Tours to Bordeaux high-speed rail line.
Attempting to counter the construction slowdown, the group has also been developing its airport business, last year buying Portuguese airport operator ANA-Aeroportos de Portugal for €3.1bn and raising its stake in Aéroports de Paris to 8 per cent.
A rise in passenger traffic helped them report a healthy set of quarterly numbers this month, beating expectations with net profit up 2.3 per cent to €2bn last year on a 4.4 per cent rise in revenue to €40.3bn. Its shares are up 8 per cent this year.
Changes in the German energy sector could be a future growth area for the company as well, said Mr Huillard, managing the new renewable energy produced in the north that needs to be transported south to supply the industrial heartlands.
“The country will have to change dramatically their National Grid, investing dozens of billions of euros, in the coming 10-15 years,” he said. Vinci has bought Germany’s EVT, a power engineering group, to take advantage of this theme.
Lastly the group is edging away from France in looking for growth.
“We still have to keep a very strong footprint in our home country,” he said. [But] one day I would be happy if we had 40 per cent [of the business] in France and 60 per cent out of France.”