Meeting with Mr. GOUNON October 6, 2010 We discussed with him the major current issues: competition on the Channel market, sales of HS1, insurance payments, security, financial issues (investment and reductions in costs) and more generally the prospects evolution of the company.
I - THE MARKET TRANSMANCHE:
The crisis and the burning of the tunnel have been an opportunity for ferry operators to revive a price war, therefore, all companies are in trouble and lose money ;
In this fierce competition, each other and cut prices to attract customers. "All operators see current prices as" suicidal ", For Mr Gounon, such a situation can not continue and will be obliged to back their charges.
• LD Lines has thrown in the towel and left Boulogne ... .. for St Nazaire.
In this connection, we asked what he thought Mr Gounon motorways of the sea and the new link St Nazaire / Gijon while shippers satirize themselves by calling them "county of the sea" As low speeds (3 weekly rotations) are inadequate for the needs professionals!
Line is it sustainable? This new service is supported by the States and Europe (€ 34 million) as part of Marco Polo while previous experience between Toulon and Civitavecchia, also operated by LD Lines (!) Has been abandoned 2009 after only four years of operation ...
"Subsidies are they always put to good use?" ... no other comments!
• SeaFrance: According to Mr Gounon is SeaFrance that sparked the hostilities, in effect, the company has canvassed customers GET by saying "Whatever your circumstances, you will get a better price with us," Mr Gounon
moreover sent a letter to the administrators with a copy to the Competition Authority, to alert them of practice illegal price well below market (30 to 40 €).
• P & O: has been forced to follow the policy of low prices and "exploit" the accusation Eurotunnel to "sell off its rates to recover its clients" to get the pill from its own restructuring and the 70 proposed redundancies in Britain ...
Analysis figures that we made and shows that he has approved the charges against Eurotunnel are unfounded. It appears that after the fire prices were first adjusted upward due to the restriction of supply and maintained at that level until the end of Q3 2009, they have actually been revised decline from the fourth quarter of 2009 today to find a value equivalent to the first half of 2008.
Passenger traffic has obviously benefited from one-off promotional offers (especially on weekend returns), a common practice in all business enterprises.
We posed the question of the evolution of maritime traffic Channel?
For him the real question is who will redeem SeaFrance and under what conditions since the station by way of advertisement, has made clear his intentions .... It will particularly ensure that this recovery is not made in anticompetitive or discriminatory conditions.
Brittany Ferries has already indicated it would not be a candidate in the current conditions.
II - EVOLUTION OF TRAFFIC EUROTUNNEL
1 - FREIGHT
cargo activity provides some signs of recovery in an economic environment still very difficult compared to 2008 the overall decline of 20% recorded in 2009 were reduced to 17% at end June 2010.
• With regard to the rail freight industry in Eurotunnel, the recovery remains laborious despite the commitments of the Grenelle Environment and particularly since the abandonment of the station wagon isolated activity.
must convince customers that must also rethink his habits, his way to work and review its organization which takes time. According to Mr Gounon this transformation will require 2 or 3 years.
• GET recovers gradually truck market share (35% instead of 38% before the fire). However, very large customers are not all met, indeed, some have remained competitive because they exercised too much pressure on prices. It would have been easy to find all traffic at the expense of sales by yielding to their demands refused what Eurotunnel.
This has mainly benefited P & O.
From our small audit referred to above that:
- shuttle truck traffic is still very affected by the fire. For example:
- H1 2008 = 757,423 trucks
- H1 2010 = 500,975 trucks (- 34%)
We note that 2010 earnings are still suffering the consequences of the fire because the only effect of the crisis (- 17%) would have reduced the number of trucks to approximately 629 000 units, is particularly sensitive as this activity represents more than a third of the Board of Eurotunnel.
- traffic "shuttle passengers" on the other hand has almost returned to its pre-fire (985 000 / 1 026 748 cars + vans)
The combination of the crisis and the fire has profoundly changed the Eurotunnel's business strategy this sector and led to a diversification of the clientele:
- they have highlighted the need to target small and medium-sized carriers that offer more attractive margins. This category is already 30% of customers.
- moreover, the interest of German carriers and Eastern Europe to the Eurotunnel Channel traffic has led to open a sales office in Germany, May 2010, the clientele to drain into the tunnel, this initiative begins bear fruit.
CAREX: its development is frozen for the sale of HS1 and resume with the arrival of new owners.
2 - NEW TRADERS
Since 2009 the IGC launched a consultation to review safety standards for access to the Channel Tunnel, including the divisibility
trains.
Mr Gounon confirmed organizing evacuation tests with ICE on the night of October 16 to 17. He said Eurotunnel is uniquely positioned to offer its experience in safety and they think that shorter trains will be better suited to current needs and quicker and easier to evacuate.
Evacuation procedures Eurostar are well controlled and will also work with other trains.
Mr Gounon said that safety is a priority at Eurotunnel. Reviewing the terms of access does not in any way affect the security level in the tunnel. This test is also an opportunity to educate new operators evacuation procedures.
If this test is successful, like everyone suggests, why wait until December 2013 (more than 3 ½ years) to allow Deutsche Bahn to pass through the Tunnel? ... "All that the English are very friendly on arrival new operators on HS1? As proof, the ICE 3 will be presented in St Pancras station Oct. 19 and greeted with great fanfare by the Minister of Transport British person. "(Says Mr. Gounon)
Strategy Eurostar is surprising in Last March he called into question the principle of divisibility accepted by the IGC and in September they announced their intention to order * ICE, trains similar to those operated by Deutsche Bahn to cross the tunnel!
This means there that change the security rules is acquired for them? * the order of 10 ICE Velaro Siemens D was made by Eurostar official from our RV.
It seems clear that these delays will enable Eurostar to appropriate the economic benefits of the 2012 Olympics. They have also signed contracts with the sponsor Olympic Committee.
Nevertheless, the revision of the rules open the door eventually to other operators who have already expressed interest, although each would benefit from the windfall of the Olympics!
Mr Gounon said that the tunnel will end 2011 with the 4 stations SAFE In this regard, a test was conducted in the presence of insurance experts. They were very impressed and even amazed (!) with the presentation of the prototype ... a good sign for future negotiations of the contract of insurance!
III - INSURANCE
Regarding benefits, the coverage period ended September 10, the cost of the claim has been arrested by Eurotunnel to 295 M €. The case is pending with insurers.
Mr Gounon believes that the final negotiations will not succeed before the end of the year, Eurostar's claim is still ongoing. Under these conditions the loss 9.5 months to earn will not be compensated and will affect the result, as already stated. This situation does not worry Mr Gounon as the benefits will be released anyway.
Recall that operating losses are not compensated for 15 ½ months: last installment of operating losses June 8, 2009. To date, Eurotunnel received insurers 157 million € (of which € 80 million for operating losses alone!)
IV - HS 1
The binding offer will be presented Oct. 29 and announced the award decision beginning of next year Anyway, the closure of the financial transaction will be effective no later than March 31, 2011 because the British tax year begins in April.
This beautiful asset, whose price remains at £ 1.5 billion, provides high visibility on profitability (local traffic guaranteed by the British Govt, traffic EUROSTAR known).
Mr Gounon said that competing offers are all the same level.
criteria that will make the decision are not known. However with new operators, a privatized management, a new organization and new regulations for passage through the tunnel ... .. regardless of the winner, this will involve development of profitable traffic to Eurotunnel.
V - FINANCIAL ASPECTS
You stated that "the time came he would lower the cost of debt and especially value our billion of tax losses ... a real treasure." Can you expand on that?
• Interest rates are currently very low do they justify not a workout?
- "Although it may seem, the time is not conducive to debt market on very large amounts. Must await improved.
" For example, the government UK to facilitate the sale of HS1 has established a bridge loan in August 2010 of £ 1.2 bn. Low rates do not permit him to obtain better conditions than rates in 2007 GET "
• SWAP: The hedge contracts on the loan tranches C LT GET are not currently advantageous and in 2009 these derivatives generated loads of € 36 million, are you obliged to keep them?
- "These contracts have generated revenues in 2008 and are of the same duration as the loan if rates are low right now, they can not get remain on the TLT, when rates ascend, GTE will retain its fixed rates at 5.21% and 4.85%.
On this slice precisely who is to be refinanced before June 2012 it is advisable to wait until the market improves large debt, combined with a better financial situation of GET 2012, the conditions are more favorable renegotiation " .
• Valuation of deficits: what are the possibilities other than those known by deduction from the profits of the year?
- "It is about developing or absorbing activities that generate cash. One of the tracks for example: the benefits of HS1, as it is a consortium of financial participation will not be consolidated in the accounts of GET.
It will explore opportunities in due course depending on available cash.
VI - Jumble
• We also asked if the commitments EUROSTAR up to € 34 million to implement the recommendations of Experts' report on outages and incidents of winter 2009 were acted upon: Mr.
GOUNON confirms that the lesson has been understood and that work is proceeding as agreed.
• IGC and distortion of competition you have said "now as Himalayan debt is behind us, we need
attack other injustices such as distortions of competition "where are you?
Mr Gounon confirmed that he will tackle these problems at States and at European level, if necessary ... this is only a matter of timing.
We wanted to confirm the figure published in our March report on the IGC, especially firefighters: 8 M €! !
EUROTUNNEL pay under the IGC 5M € / year, directly
States which pay their workers, regardless of the actual cost operation of the IGC. This amount has been set and accepted by agreement at the signing of the Treaty in 1987 and indexed to inflation.
Regarding the € 8 million, they include firefighters and police from Kent Police on the French side is not at the expense EUROTUNNEL:
- Kent Police = £ 3 million
- 1st level intervention of firefighters four million pounds (2 to Kent, 2 for the Pas de Calais)
• Shuttles: There was talk of a new study to shuttle trucks? What is it?
"Those currently in use will increase from 30 to 32 cars that will generate productivity gains, they are being maintained satisfactorily ... there is no reason to change yet. "
• Vigipirate: we asked him why I have taken over the hosting fees Military?
"The security is my responsibility remains a major factor in decisions EUROTUNNEL; having the military on duty 24 hours a 24 (they were located several kilometers far from the site ) confirms that security. Anyway, it was necessary to strengthen ahead of Olympics And if he had to wait for grants, it would not have been done! "
• Planning: development of a BIA is almost finished; golf Sangatte opened in 2013 which should boost the terminal.
• Communication S1:"
sustained activity loss of 45 million ... € ": at first as this is contradictory and confusing; sustained activity suggests, for many people, a positive result then sufficient activity to balance the books, only the reading of the analysis of results confirms the recovery of activity compared to last year and helps us understand hiatus! Mr Gounon said he took note of our observation.
• It seemed interesting to have a retrospective on the last 5 years, Mr Gounon has considered that the idea was excellent. We will publish it here soon.
Our RV has completed the usual handshake ... with the arrival of lunch. RV next to you on October 18 with the publication of Q3 sales!
