Vinci Braces for Building Slowdown as Crisis Hits Governments
February 08, 2012, 7:12 PM ESTBy Francois de Beaupuy
Feb. 8 (Bloomberg) -- Vinci SA, France’s largest builder, is among the nation’s construction companies bracing for a slowdown as the collapse of municipal lender Dexia SA exacerbates the debt crisis.
Vinci, based in Rueil-Malmaison, will protect its margins even if it means temporarily reducing the size of its business, Vinci Chief Executive Officer Xavier Huillard said at a press conference today. The company will also strive to grow abroad to make up for the potential shortfall, he said.
“The slowdown is ahead of us, and all the problem comes from Dexia’s restructuring,” Joel Rousseau, chairman of NGE, a public works company based in Tarascon, southern France, which had sales of about 1.2 billion euros ($1.6 billion) in 2011, said in an interview. Prices for carrying out roadworks “continue to be very tight. Some players will stumble.”
Local governments face a shortfall of up to 10 billion euros ($13.1 billion) to fund this year’s investments as banks face more stringent rules and Belgium and France are dismantling Dexia, once the world’s leading lender to municipalities, France’s mayors association says. The debt crisis and looming recession in parts of Europe pushed confidence among builders to the lowest in 18 months in December and raised concerns that a price war for road contracts may intensify.
“We’re delaying all investments,” said Philippe Laurent, chairman of the finance commission of AMF, France’s mayors association. “Renovating a street can always wait another year, same for a gymnasium or a crèche. We’re going to see a big wave of postponements.”
Austerity
Central and local government spending on infrastructure may fall as French President Nicolas Sarkozy and rival Socialist Party candidate Francois Hollande jostle for support ahead of elections, with pledges to eliminate the country’s public deficit. The shortfall amounted to 5.3 percent or 5.4 percent of gross domestic product in 2011, according to Sarkozy.
“With France having some of the best infrastructure in the world, it could be easy to let it age a little to save euros,” said Ian Osburn, an analyst at ING. France “requires some of the greatest austerity measures.” That threatens investment in public construction projects, and the growth outlook remains poor, he said. “Spending could come down after the election whoever wins.”
Laurent of the French mayors association is urging state- owned lender Caisse des Depots et Consignations, which is planning to take over some of Dexia’s activities with the government, to increase loans to local governments and partly make up for the shortfall created by the collapse of the lender.
Vinci SA, Europe’s biggest builder, yesterday reported a 7.2 percent increase in net income in 2011, and predicted that it will maintain operating margins this year as a record backlog offsets an economic slowdown in Europe.
‘Orders from some customers such as local governments may be more moderate in coming months than in previous months,” Vinci’s Huillard said. “That may have direct consequences on our business at the end of 2012. We could have 5,000 fewer temporary staff rapidly if we were to face a drop in local government orders.”
--Editors: Andrew Noel, Rob Valpuesta
To contact the reporter on this story: Francois De Beaupuy in Paris at fdebeaupuy@bloomberg.net
To contact the editor responsible for this story: Benedikt Kammel at
