EuroBusiness Media (EBM): VINCI, the world leader in concessions and construction, reports earnings for the first half of 2012. Xavier Huillard, welcome. You are the Chairman & CEO of VINCI. After a very strong 2011, how are things going in H1 2012?
Xavier Huillard : The first half has been OK. Despite bad weather, weak traffic on our French toll roads, and a macroeconomic environment that is difficult, VINCI’s top line increased 3.6%, our margins held up in most of our businesses, and our backlog is at record level. Things could be a bit tougher in the second half of the year, so we are on the alert but not overly concerned at present. The concessions business should be able to resist the current negative traffic trend. And this year’s expected Contracting activity is almost 90% assured by the backlog. So yes, there are many challenges on the road ahead but we are ready for them.
EBM : Toll road traffic is down across Europe but perhaps less so in France than in other countries like Spain or Italy. Why do you think that is and do you expect it remain so?
Xavier Huillard : You know, the French economic activity may not be robust, but it is in better shape than some other European countries in which were massively cut employment, salaries and investment and which had serious consequences on consumer sentiment and industrial activity. Secondly, France’s location makes it not only a major destination but also a “pass-through” area connecting the north and south of Europe. We continue to see a correlation between light vehicle traffic and consumer sentiment as well as oil prices, and as far as heavy vehicle traffic is concerned, it is closely linked to industrial production.
EBM : There is a new government in France since we last spoke, public finances are not in the best shape, and economic activity appears to be slowing down. How do you think this situation could impact VINCI and what can you do about it?
Xavier Huillard : The challenge in France today is to bring the budget and debt situations back within EU guidelines without reducing economic activity. Otherwise you end up in a vicious cycle of made of recession, therefore reduction of tax receipts and consequently deteriorating public finances. We already have to cope with last year’s exceptional 5% increase in the French corporate tax rate. Now the new French government is pushing for new measures that would increase our cost of doing business even more. For example, there is a proposal to increase one of the employer withholding taxes in France from 8% to 20%. There is also a plan to tax dividends at 3%. These proposals would impact our net income by some tens of millions of Euros, and we probably could not completely offset them with cost cutting measures.
EBM : The Group’s order intake has been quite impressive for the past several quarters and if I’m not mistaken the order book has reached new highs every quarter since June 2011. Is there a chance that VINCI has taken too much on its plate and how do you see commercial activity going forward?
Xavier Huillard : You know Adrian, the fact that our order book is at a record level is a good thing because it is important to have in hand a high level of activity at a time when new projects could become fewer and far between. Besides, the execution timeline of our backlog is longer than before and this is also a good thing because our visibility for 2013 and beyond is better. Order intake could decline during the second half. We must be lucid and take a pro-active approach by adjusting our operational structures and production capacity if needed.
EBM : VINCI has told the market that it expects slight revenue growth this year and that it is targeting margins close to last year’s level. How are things looking on that front today?
Xavier Huillard : Adrian, we are faced with a situation that is more worrying than six months ago: in addition to the sovereign debt crises of several EU countries, global economic activity is slowing down. Most European states are implementing public debt reduction policies. And I’ve already mentioned the new social and tax charges being proposed by the French government. Against this background, we expect that the slight decline in traffic on our motorways over the year will be offset by tariff adjustments and the ramp-up of the A86 tunnel. In our Contracting business, the order book is high and external growth should help activity. As a result, we feel it is still reasonable to aim for a slight increase in the Group’s top line in 2012. We are targeting EBIT and net income levels close to that of 2011, before the probable hike in tax and social charges in France. Looking beyond this year, a possible slowdown in H2 in public orders could impact the 2013 workload of some of our Contracting activities. If this happens, our mostly flexible cost base would allow us to continue to give priority to margins over volume. In any event, we will adapt but at the same time continue to pursue our targeted growth strategy.
EBM: Xavier Huillard, Chairman & CEO of VINCI, thank you very much.
Xavier Huillard : Thank you.
