Historical Foe U.K. Rolls Out Red Carpet to French Firms

U.K. Prime Minister David Cameron 17 months ago said he’d “roll out the red carpet” for the French. In the last few weeks, he has put his money where his mouth is.

France’s biggest industrial groups are being welcomed across the English Channel by their country’s historical foe. On Oct. 21, Electricite de France SA secured a $26 billion deal to build the U.K.’s first nuclear reactors in 18 years, bringing business for Areva SA, Alstom SA, Bouygues SA and Groupe Gorge. On Nov. 1, Groupe Steria won a U.K. government back-office contract valued at 1 billion pounds ($1.59 billion), its biggest ever.

While Cameron’s comment in June 2012 had been a playful remark to lure entrepreneurs facing taxes from the then newly elected Socialist President Francois Hollande, French companies are finding that they’re not excluded from British hospitality. With the U.K. economy set to grow almost twice as fast as France next year, according to the International Monetary Fund, the companies are getting a much-needed helping hand as they seek to claw out of Europe’s slump.

“It seems to be one of the few western economies that has regained some dynamism,” said Emmanuel Babeau, chief financial officer of Schneider Electric SA, which agreed in July to buy British automation-equipment maker Invensys Plc for 2.4 billion pounds. “The backdrop created for companies is favorable, allowing a pickup in investment, which is what western Europe cruelly lacks as it remains very depressed.”

Old Enemies

The support France is getting from its neighbor belies the prickly, love-hate relationship the nations have had over the centuries. From the French bristling over Napoleon’s defeat at Waterloo in 1815 to former President Jacques Chirac’s slandering of British cooking, the ties have always been complex.

The British press was quick to pick on the country’s millennial rival, with the Daily Mail bemoaning the “loss of control to foreigners” over energy with the EDF deal.

To ensure that EDF -- with partners Areva, the world’s largest builder of atomic reactors, and two Chinese companies -- would invest 16 billion pounds to build the two nuclear plants in southwest England, Cameron’s government agreed to guarantee power-purchase prices for 35 years.

“New nuclear reactors will transfer billions of pounds a year from British consumers to France and China,” the Telegraph said. “Needing the approval of Presidents Xi Jinping and Francois Hollande to keep the lights on is a humiliating admission of national decline,” wrote the Mirror.

Bright Spot

In spite of the vitriol, for French companies the U.K. has become a bright spot in an otherwise gloomy region. France has a rare trade surplus -- its biggest -- with the U.K. It swelled 14 percent to 6.4 billion euros last year, while its deficit with nations using the euro widened 11 percent to 42 billion euros.

French companies are boosting operations in the U.K. as Cameron works on trimming corporate taxes to 20 percent by 2015. The U.K. last year got 3.3 billion euros of direct investment from France, or 12 percent of the French total, Bank of France figures show. That’s almost double French investments in China or Brazil.

Hollande, meanwhile, is raising the top corporate tax on net income for large companies to 38 percent next year.

Taxes in France have risen by 70 billion euros in the last three years and will take the tax burden this year to 46 percent of gross domestic product. That’s up two percentage points from 2011 when it was already the third-highest in the world behind Denmark and Sweden, according to the Organization for Economic Cooperation and Development.

Going Nuclear

Additionally, the push by the U.K. to build nuclear reactors comes at a time when France, which gets 75 percent of its electricity from the source -- the highest proportion in the world -- is cutting back. Hollande has decided to shut down a nuclear reactor in France and shrink such energy to 50 percent of the country’s power supply by 2025, effectively hurting companies that have developed nuclear expertise over the years.

“I admire the British government for its sensible decision to invest in third-generation nuclear plants in the current environment,” said Raphael Gorge, chief executive officer of Groupe Gorge, which makes doors for atomic plants and drones. “I’m disappointed by France’s decision to shut down a nuclear plant that could get an extension, and not replace old plants.”

The U.K. deal may ring in as much as 100 million euros for the company and also bring business for Redhall Group, a U.K firm in which Groupe Gorge has a 19 percent stake.

If the British nuclear program is re-launched and six to 10 reactors are built, “the U.K. will become our top export market in Europe,” Gorge said.

Areva, Alstom

For Areva, the U.K. contract is worth more than 2 billion euros ($2.7 billion), according to Chief Operating Officer Philippe Knoche. Areva’s first reactor sale in six years may also come with an order for nuclear fuel, he said.

For its part, Alstom will be building two turbine islands at Hinkley Point, which will be larger than the contract it got seven years ago from EDF for a similar nuclear station in France, said Patrick Fragman, the company’s nuclear unit head.

British plans to modernize its infrastructure in energy, waste, rail and roads play into the strength of French companies. On Oct. 22, GDF Suez SA, France’s biggest natural gas supplier, agreed to buy assets from Dart Energy Ltd. to tap the U.K. shale market. Shale gas production is banned in France.

Earlier this year, Total SA, France’s largest oil company, said it’s spending 3.3 billion pounds to build a plant to process gas from fields off the Shetland islands.

Building Boom

The U.K. has two infrastructure plans “representing hundreds of billions of investments over the next 10 year or so,” said John Stanion, Chairman of Vinci Construction U.K.

Vinci, Europe’s biggest construction company, last year won orders worth more than 3.5 billion euros for multi-year road maintenance in the U.K., and a contract to transform a terminal at London Gatwick airport. This year, Vinci, based near Paris, won a contract to build a part of the campus at Swansea University, and a new tranche of the Crossrail link across London, Europe’s largest engineering project.

Construction volumes in the U.K. will grow at more than double the average rate in western Europe to 2025 as it modernizes ageing infrastructure and builds new homes to prevent a widening housing deficit, while euro-area economies remained burdened by debt and taxes, Global Construction Perspectives and Oxford Economics wrote in July.

“In the housing market, we’re seeing strong growth as the government is helping first-time home buyers,” said Stanion. “There’s an enormous amount of money coming into the London residential market, from overseas, from Europe, eastern Europe, Russia, Turkey, China, India, the far east, you name it.”

‘No Barriers’

Since 2010, the U.K. accounts for 6 percent of Vinci’s revenue, the same percentage as Germany, whose economy is 40 percent larger than Britain’s.

To better tap the U.K. market, Paris-based Bouygues -- which got a contract worth more than 2 billion pounds for Hinkley Point reactors together with U.K. engineering group Laing O’Rourke -- bought British builders Leadbitter Group in 2011 and Thomas Vale in 2012. Cie. de Saint-Gobain SA, Europe’s biggest supplier of building materials, bought Build Center in 2011 and insulation-foam maker Celotex last year.

“One of the characteristic of the U.K. construction market that sets it apart from the rest of Europe is that it’s a very, very, open market,” said Vinci’s Stanion.

That has helped French companies. And although President Hollande bridled at Cameron’s comments last year, suggesting they weren’t “noble,” he and the French economy may end up being grateful for the British premier’s red-carpet invitation.