Vinci

With Xavier Huillard, Chief Executive, VINCI

INFRA. How would you assess VINCI’s position in the world and in Europe?
XH. With the acquisition of Autoroutes du Sud de la France (ASF) in March 2006, VINCI became the world’s leading integrated concession-construction group. In 2005, VINCI generated net sales worth €21.5 billion and employed a worldwide workforce of 142,000 people. This lead position has been built up around four major business lines: concessions, construction, roads and energy-related services.

Concessions
The French government’s decision on 14 December 2005 to sell VINCI its majority holding in ASF marked a decisive step forward for the group. As a result, VINCI became the leading European operator in concessions, with 4,687 km of motorway under management, 860,000 parking spaces, and a stake in numerous infrastructure operations (such as road engineering structures and airports) in France and around Europe.

Construction
Because of strong roots through its subsidiaries to local markets – mainly, but not exclusively – in France and Europe, VINCI Construction is number one in France and a leading player in the global construction sector, offering expertise in the fields of building, civil engineering, hydraulic engineering, multi-technical maintenance and construction-related services. With net sales of €9.4 billion, it is also a major operator worldwide when it comes to designing and building significant projects: recent examples include the Rion-Antiron bridge in Greece and the Naga Hammadi dam on the Nile.

Roads
Eurovia has become a world leader in roadworks and materials recycling, generating net sales of €6.5 billion in 2005. Vertically integrated with its 220 quarries, 520 sites producing bituminous mix and binders for roads and 110 recycling plants, Eurovia is also the leading French producer of aggregates and one of the biggest European producers of materials for road building.

Energy
With a turnover of €3.5 billion in 2005, VINCI Energies is the acknowledged leader in France and a prominent player in Europe for services associated with energy and information technology. The group is particularly strong in the fields of transport, electricity and telecommunications infrastructure. VINCI has become the world number one by exploiting the synergies in skills and networks that exist between these different, but complementary business lines.

INFRA. What is VINCI’s historic integrated concession-construction model?
XH. For over a century now, VINCI has combined its operations in the concessions sector with its various construction activities. The group’s development strategy is focused on three priorities: economics, finance and operations.

From an economic standpoint, involvement in two business areas having complementary business cycles means it is easier to ride out any fluctuations in the economy. Whereas cycles in the concessions business tend to be long (for example, up to 70 years for the A86 Ouest motorway, 65 years for the A19), cycles in the construction sector are shorter, ranging from a few months to several years.

On the financial front, concessions generate recurring revenue flows and margins in return for a large input of capital (and they account for more than 95 percent of the group’s invested capital), while the construction business ties up relatively little capital and has lower margins. In addition, construction operations generate a positive cash flow that can be reinvested in long-cycle assets like concessions, helping to secure the continuing generation of such revenue and cash flow for the future.

In operational terms, the skills and experience gained through concessions and construction activities tend to be mutually enriching. The construction sector calls for technical expertise covering the entire value chain, including, for example, design, construction, maintenance, and a locally-based sales network. The concessions business, meanwhile, relies on know-how in the area of project development (the legal and financial side of things, in particular), project implementation, and the management of the resulting infrastructure over the long-term.

The synergies coming out of these two areas can be seen at work in the creation of complex structures like motorways, bridges or tunnels. They currently benefit from a particularly favourable operating environment in which a shortage of public financial resources and the huge need for investment in infrastructure are prompting public-sector contracting authorities to increasingly turn to public private partnerships (PPPs) in order to open up new sources of finance.

INFRA. Is there a specific VINCI culture?
XH. With more than 2,500 subsidiaries, VINCI is noted for its extremely decentralised management approach and its ‘entrepreneurial spirit’. VINCI operates in areas where good people management is particularly important. The group is attractive because its management model is based on two key principles: autonomy and transparency. Showing confidence in our employees, giving them a sense of responsibility, together with decentralisation and profit-sharing arrangements, all have a positive impact on the group’s various operations. Of course, the freedom enjoyed by VINCI employees would obviously not be possible without transparency, honesty and reliable internal controls.

INFRA. How can you grow VINCI’s position in Europe? Where are the best opportunities?
XH. VINCI generates more than 90 percent of its turnover in Europe, and its future development, too, will be based on the strong growth expected in this region in coming years.

France is VINCI’s principle market. It still has considerable infrastructure requirements: population growth is above the European average and the country needs more homes, more hospitals and more prisons. French towns and cities are also keen to develop their public transport systems. In fact, projects worth more than €14 billion are already planned for between now and 2008. Thanks to the regulation implemented in June 2004 on Public Private Partnerships (PPPs), France is at last able to tap into new sources of funding to enable it to meet these growing needs.

Then come the countries of the ‘New Europe’, an area of high growth for the group (+35 percent in 2005). In fact, VINCI has had a presence there for many years, and is now reaping the rewards of past investments. These markets are not yet mature: the huge investment in infrastructure needed to put these countries on a level playing field is largely being covered by European funding, so these countries will be important markets for the group in years to come.

Finally, Western European countries remain extremely attractive for VINCI. Here, with numerous Greenfield concession projects, major modernisation and road infrastructure programmes (such as the A-Modell in Germany, the Antwerp ring road in Belgium and the Coentunnel in the Netherlands), the development of trans-European networks and the first PPPs in the energy sector, new opportunities for growth are emerging for the VINCI Group.

INFRA. Is it important to be the biggest? How might future concentration in Europe impact VINCI?
XH. Critical mass is essential for the sectors in which we operate. In the concessions industry, for example, a strong financial position is a definite advantage when bidding for a contract. In the construction sector, geographical coverage in a given region, the scale of the sales network and the acquisition of new areas of expertise are all factors that can ensure success.

In the field of concessions, recent developments like privatisations and mergers demonstrate that the process of market consolidation is only just getting under way. As the European number one in this expanding market, VINCI will undoubtedly continue to play a major role as the process advances.

In construction, the development of our business activities in recent years had been largely driven by organic growth. We believe this will continue to be the case, particularly in France, with the growing number of PPPs. In the future, however, we might decide to reinforce our geographical presence or expand our range of expertise, were the right opportunity to arise.

The roads sector in France is already highly concentrated and we are not aiming to expand to any significant degree by external growth. Again, however, were the right opportunity to arise, we might be tempted to strengthen our position in the value chain by acquiring some more quarries/aggregates. As far as the rest of Europe and North America are concerned, there are still numerous opportunities for further development, both through organic growth and acquisitions.

The energy sector, too, has strong prospects for expansion and there should be mo shortage of opportunities to create a truly European network, given the low level of consolidation.

I think that recent acquisitions by VINCO have, above all, made clear that the group intends to pursue its strategic goal of creating value and ensuring profitable long-term growth.

This interview first appeared in European Powers of Construction 2006 © Deloitte & Touche LLP 2006. Reprinted with kind permission.