France Infrastructure Report Q2 2009

The French companies that operate in the infrastructure sectors, from Vinci and Bouygues, to EDF, Veolia and Lafarge are among the leaders in their respective fields globally. Though their 2008 financial performance was relatively stable, they have all expressed concern for the short to medium term. They all pin their hopes on the infrastructure-geared fiscal stimulus plans of France, other European countries and the United States and beyond, though there is precious little else at the moment to offer comfort from the downturn.

Especially in the infrastructure sector, once the pace of investments begins to slow, recovery is also a lengthy process, which in turn raises the concerns over the private sectors decline in orders and large scale concessions. According to a report published in early April 2009 by ratings agency Fitch, the economic downturn will have a effect delayed on European infrastructure majors, culminating in declining revenues and reduced cash flows. Indeed, this is also expressed in the analyst consensus polls by Reuters, which indicate that all the French infrastructure majors will see declining financial performance in 2009 and in some cases extending into 2010 as well.

The delayed full effects of the impact in France's infrastructure sector are also evident from BMI's forecasts. Accordingly, we forecast that industry value will decline in 2009 from EUR122bn in 2008 to EUR116bn in 2009 and fall further to EUR112bn in 2010. This amounts to real industry value growth of -5.5% and -4% respectively. The stimulus plan represents a risk to the upside for our forecasts, albeit not one that could lift the real growth figure in positive territory easily, given the scope of demand destruction coming from the private sector.

In December 2008, French President Nicolas Sarkozy announced a EUR26bn (US$33bn) stimulus package to boost the country's economy. Under the scheme, state-owned companies will increase investment by EUR4bn (US$5.1bn) in 2009 and the government will supplement this with a further EUR4bn on high-speed rail projects, dams and canals, university campuses, road maintenance amongst other projects. Though this will provide momentum for the sector, the international scope of operations of the French infrastructure majors means that they are also pinning their hopes on overseas fiscal stimulus packages (such as the one in the US for instance) to breathe life in their order backlogs in 2009.