EuroBusiness Media (EBM): VINCI, the world’s leading concession and construction group, reports earnings for the first-half of 2010. Xavier Huillard welcome, you are the Chairman and CEO of VINCI. Now that the year is 2/3 over, what are your comments about VINCI’s performance thus far?
Xavier Huilard (XH): As you know, we published our first-half 2010 financial results last night. First-half revenue is up more than 2%, while operating profit is up almost 5% compared to the first-half of 2009. Therefore, I would say that VINCI’s performance so far in 2010 is “ahead of plan.”
We're ahead of plan at our French motorways. We had been expecting revenue growth of around 2.5% but we were at +5% at the end of June thanks to a good increase in light vehicles traffic and the ongoing recovery of truck traffic. In our Contracting businesses, our top line is ahead of plan as well. We had thought that this would be down something like 4-5% for the entire year on a like-for-like basis. This included the usual seasonality which normally would have led to a somewhat bigger decline in the first-half. And yet Contracting was down only 5% on a comparable basis at the end of June. This is rather remarkable when you consider the very bad weather we had. In terms of the Contracting operating profit margin, it remains stable as forecast. And finally, our record backlog of more than €28 billion gives us not only greater visibility on how 2010 should play out, but also some comfort regarding activity levels next year and after.
So, all in all, I would say that things are going perhaps a bit better than we had anticipated earlier this year.
EBM: Maybe we can talk a little bit more about your backlog. What explains the apparent success that you've had here and how do you expect this to evolve over the coming months?
XH: I think there are several things going on here. First, we've been moving up the value chain in terms of size and complexity, going after larger commercial opportunities. Second, we have been diversifying our geographical footprint outside our traditional markets in France and Europe. And this has paid off for us this year as we have had good order intake in North and Central Africa, Asia and North America. For example, we won the Kenitra Power Station in Morocco, the Toukra University in Chad, the Hong Kong-Guangzhou rail link in China and the I-495 project in the US. Third, we are focused on public transportation infrastructure projects where quite a bit of public spending has been and continues to be concentrated. So we are winning large infrastructure projects pretty much around the world, whether the Chinese and American projects I just mentioned or the GSM-Rail project here in France. This is not only having an immediate impact both in terms of order intake and near term activity; it is also giving us a certain amount of longer term visibility on our Contracting activities. We are also seeing the beginning of a pickup in the private sector. We have won a couple of large renovation projects in France in July, one being the Descartes Tower in La Défense and the other being the Peninsula Hotel in Paris. And this is also adding to our visibility. In fact, VINCI Construction France, which is our largest Contracting division in terms of sales, is currently projecting that 2011 sales could be ahead of 2010 due to its current backlog. And finally, I think it is worth pointing out that there are quite a few projects where we have been appointed “preferred bidder” but which are not in our backlog today. I'm thinking of the South Europe Atlantic Tours-Bordeaux high speed rail link or the new Nantes airport. These two projects represent somewhere around €7 billion of future activity beyond what we already have in hand. So I would have to say that our backlog, combined with our preferred bidder projects, gives us a fairly comfortable position.
EBM: You mention public spending and I think the market has some concerns about where this is heading, given announced austerity plans in Europe and, more importantly, the impact of reduced public spending on companies such as VINCI. What can you say about this?
XH: It is clear that we hear more these days about austerity plans than stimulus packages. It is also clear that austerity has already arrived in some parts of Europe such as Greece, Spain and the UK. Our numbers already reflect this reality. Just for example, in the UK our construction business went from €660 million during the first-half of last year down to €560 million during the first six months of this year. In France, however, the situation is not so clear cut. The fact is that today we do not see any significant impact in terms of bids which are coming on the market. We have seen no cancellations of awarded contracts. And on top of that, the large infrastructure projects, such as the Tours-Bordeaux rail link and the Nantes airport which I just mentioned, will be going ahead. That’s for sure. So yes, indeed, VINCI is exposed to the public spending market in and outside of France. But at the same time VINCI is also well positioned on the private sector market which shows some signs of recovery. On top of that, VINCI is growing in the emerging markets in Central Europe, Africa, the Middle East and Asia. For example, we have never seen so many infrastructure projects in Poland, we have been able to win €160 million of work in Hong Kong as well as half a billion euro contract in Papua New Guinea. So to make it short, we are not naïve - we realize that public spending will probably decrease in the western part of Europe. But thanks to the number of countries in which we operate, our vast business expertise and the continuing development of the PPP concept, which helps to finance projects, we are confident in our ability to grow in the coming years.
EBM: Maybe you can give us an update on how things are going on the M&A front. Where do we stand with the Cegelec transaction and what else might we expect?
XH: The Cegelec transaction was completed on the 14th of April and we have been consolidating its results since then. So we have about two and a half months of its activity in our first-half numbers, and we will benefit from a full period of consolidation in the second-half. Cegelec, I remind you, had about €2.8 billion of sales last year, and we expect it to contribute somewhere around €2 billion to VINCI’s top line this year. We have also completed the Faceo transaction at the end of July and started consolidating its results at the beginning of August. Faceo last year had revenues of €430 million and brings to us its market-leading expertise in facility management. We are in the process of combining all our FM business under a new structure, VINCI Facilities. This is an activity we want to grow because it provides us recurring revenue at a margin that generally exceeds 5%. And finally, the Tarmac transaction, which involves the acquisition of quarries in France, Germany, Poland and the Czech Republic, should be completed in the coming days. Beyond that, we do not expect to make any other significant transactions in the coming months.
EBM: Finally, any revisions to your full year outlook and guidance for 2010?
XH: Our guidance was about 2.5% top line growth for our French motorways. We should end up a bit higher than this, somewhere around 4%, and we are sticking to our flat EBITDA margin forecast for the time being. On the Contracting side, we had said that sales on a like-for-like basis would be down somewhere between 4 to 5%. This remains globally true, although we are probably trending more toward the bottom end of that range today. Then we had said that after adding Cegelec and Tarmac we would be “slightly” positive. Now, when we take into consideration Faceo and also the fact Cegelec is being consolidated a bit earlier than we had planned, we think that the Contracting top line will grow somewhere around 5%. EBIT-wise, we are expecting that Eurovia's operating profit margin will mostly rebound during the second-half and that for the whole of the Contracting activities the operating profit margin will be stable at around 4.5%. Net income should be around the €1.6 billion we earned last year, plus the contribution from Cegelec, plus the impact of better than expected French motorway traffic. And last but not least, our net debt should stay at the same level that we had at the end of June.
EBM: Xavier Huillard, Chairman and CEO of VINCI, thank you very much.
XH: Thank you.
