« Exchanges at Goldman Sachs

France in Focus: CEOs Playing Offense and Defense

2019-02-25

In France, Goldman Sachs Investment Banking clients are focused on key three risk factors, according to Goldman Sachs' Pierre Hudry: geopolitical outlook, market stability and rising shareholder activism. Amid the uncertainty, however, French management teams remain focused on scaling businesses to compete on the global stage. "Achieving scale and being able to compete notably with the US players, which are massively consolidating and the Chinese players, who are benefitting from the whole market is really top of mind for these corporates," Hudry says.

This podcast was recorded on February 1, 2019.

The information contained in this recording was obtained from publicly available sources and has not been independently verified by Goldman Sachs. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, as to the accuracy or completeness of the information contained in this recording and any liability as a result of this recording is expressly disclaimed. The recording should not be relied upon to evaluate any potential transaction. Goldman Sachs is not giving investment advice by means of this recording, and this recording does not establish a client relationship with Goldman Sachs.

Copyright 2019 Goldman Sachs & Co. LLC. All rights reserved.

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This is it in the Goldman Sachs. When we discuss developments currently shaping markets, industries in the global economy object, seaward, global, have corporate communications. Here, the firm. Today we can talk about France. The big business issues on the minds of our investment banking clients. How growth in France looks compared to the rest of Europe. make of the political landscape there and much much more to talk. All that through were joined by Pierre agree, that of the investment Bank for France, Belgium and Luxembourg, and part of the arms Paris office. Pierre welcome to the programme. Thank you dig. Thank you for having me. Let's start with, what
your clients, investment banking class. The firm are talking not what's top of mine for them when they look at the business landscape in France today he shoes which are top of mine for clients. I be declines today. Number one geopolitical macro look very focused on the: U S and China business cycle re focused on the situation in ITALY, refocused on breaks it very focused on the rise of populism and potential threats to the global world order, climate change, defends, etc, etc. So that would be topic number one topic number two, I would say: activism is differently top of mine. This is certainly a change from what has been and will have an opportunity to talk about that as well. Number three. I would also emphasise overall markets. Military people of going to the end of eighteen were quite focused on the level of activity that we are seeing in the market of she's been is worth ten year boron, the than among a lot of our french corporate clients is one is descended
What are the implications for me, as I think about funding as a about looking at him and the opportunities etc. So that, in terms of really focusing on the downside risks, but it doesn't prevent a lot of times from keeping to their strategic agenda, which is really focusing number one on scale, because the perception number of industries is that in the sort of globally cables, the french corporates have a bit ground, you have a number of industries where the French pray you used to be number one number two number three and is now in, ten the bottom of the top ten or is no longer premier League in the Premier League early death. Thank you for that, and so that sky,
on being able to compete, notably with the. U S, players which are massively consolidating and the chinese players who are benefiting from their home market is really top of mine. From this corporates and I'd say, the second thing in terms of what striving to strategic agenda is really the technology disruption you're, seeing in every single industry, from the auto sector to industrialists, and if he lets me to see and as a region component is being disrupted, so how to respond to that and that's really, so very high on the list of things we're talking about with our corporate line, to talk a little bit about the growth outlook as the economy, doing relative to the rest of the Euro Zone and what's the outlook in the medium term, what we ve seen in two thousand eighty noise, a clear declaration from two thousand: seventy we're ending up at about one point: five percent growth. That compares to two point three and seventeen. But that's broadly consistent with what we ve seen in the rest of the Euro Zone in Germany,
been driven by decelerating global growth, but also the fact that in seventeen, you had a number of tail winds, not on the other side and on the ethics side, which have turned into headwinds into fascinating and though she d, slow down of the global economy, has been a factor looking for I'd say two thousand nineteen, our researches forecasting. One point: six percent of growth broadly in line with the Consensus- is The big unknown I would see for this year this coming year is really consumer spending, because that has trended at about one percent. Since the financial crisis, to be a big engine of growth at about two point: five percent in the pride decade before the financial crisis- and this is very tight- I would say to the situation in the labour market where a number of the reforms that have been enacted by the my quantity astray are not giving their full effect. And, although we see Nay said they can decrease in unemployment over the past year. For years, there are still some uncertainty, that's affecting
the spending decisions are made by households, another factor on the employment front is the fact that a lot of the that's being done- is done on short term contracts as opposed to long term contracts. But we are I'd say fairly courage by a number of green shoots, notably to pick up in consumer confidence, that we are witnessing early in two thousand nineteen and the fact that a number of the schedule cuts in housing, tax and social contributions are gonna help purchasing power into this year. So that should turn out to be positive, but that's free. The main driver where we end up where we reached this one point six percent or able to trend at a higher level. Recording this in early February of twenty nine to be hard not to talk about breaks it, given the situation out there,
what does the range of possible outcomes mean hard to predict? But what did the range of possible outcomes mean for France in the years? On? More broadly, me now see Paris make you look at play to pick up some business from London, but in the larger scheme of things. What does this mean for a lot of french people? There was a real sense of shock and sad, yes, including for myself personally, when that we are about the results of the Rex, its referendum, why, The founding fathers of Europe always precede the EU as a whole to an end not only to achieve economic prosperity, but also to preserve peace on the continent after several centuries of inviting culminating, we won't were too so that aid the first is that that point second and in terms of economic impact, the french economies, fairly shielded from
saved. In any scenario, why? Because the UK, in terms of trading references, are fairly mothers trading partner, it's about four percent of imports, seven per cent of export, whereas the EU twenty seven is about. Fifty percent of that gives you a sense of how exposed we are there that I personally think that in this scenario, the hard rex it these numbers actually maybe stating the potential for disruption of global supply chains in a number of industries where you have some strong french players- and I am thinking specifically about the automotive sector and aerospace in defence of that's gonna- be an issue that being said, as you referred to, a crisis is a terrible thing to waste. So hopefully, this is also an opportunity not only to attract more business in the continent and hopefully in Paris in the rest of France, but also for the EU project to find some new momentum and take Europe to the next level in terms of integration and be more responsive to the needs of european people as a whole. In terms of what the data they benefits of the european project are
is, I think, there's a fair amount of confusion and, of course, you will be watching very closely. The european elections coming up in May present. A crime has been in power now for nearly two years and he certainly getting low pushed back. These days we seen some demonstrations in the streets since really midnight number of last year described, what's going on there and how that affected the sentiment of the people there and really whether its having an impact on the prospective people have, as France is a place for investment and to do business right. The important point to make here is that the protests were not challenging them forms of my client restoration. They were really focusing on the tax burden that the french individuals are supporting, which is not my question
it's been an issue that has been accumulating for decades now. To give you a sense, tax and social contributions as a whole represent forty four percent of national wealth that compared with forty percent for the rest of Europe, so that's really a very significant gap and that, obviously the frustration was widespread among all the social categories, but I think where it's probably hit the hardest is for a lot of these people who are working hard but still struggling to make, ends meet and that people were protesting were very active and had the jobs in their communities were fully integrated. So the response. to these protests has been to launch a nation wide debate on a number of topics, one of which is gonna, be public spending. There is still a lot to do relative to other countries in terms of cutting down, and the question will be whether these protests create an opportunity to accelerate the reforms on that front where it that's been so prominent in the reforms
and are ready to everything that my point menstruation are doing or wherever we're not in a position to actually do that. That is, but between opportunity to accelerate the reforms and on your question regarding the attractiveness of France for foreign investors, we have not seen any incidents at this point from these protests. I think what people will be continuing to focus on when they consider investments in France is really gonna, be the pace of reforms, harlots, that's gonna be progressing on public spending. We talked about on retirement reform, on the healthcare reform and other things, but that's really the focus, and I see more broadly France. Foreign investors remain a place where political, fiscal stability state of mind, see you mentioned earlier. The french business leaders are focused oversee on the spill over impact of the dispute between the- U S and China. On trade. We expect that have some consequences for corporate emanate strategy amongst french corporates, I'm not sure
It will obviously very little lemonade being done with China for host of reasons, but the U. S has been a very active market for french corporates looking to acquire platforms, and my personal expectation is that this will continue to be the case going forward. Based on this or of dialogues. We are seeing in the focus of the board level. Once you level for a number of our french clients. There is obviously downsides area where the current tensions turn into an all out trade war, which would lead to a rise in protectionism. Significant voluntary kinda equity mark it's so overall, that's gonna hurt Derriman activity, but that's not gonna, be a predator righteous. You thou be much broader issue, so much druggie in the easy, be them winding down. Cutie out front corporates responded to that charge. These should be has committed to reinvest in full the principal payments from the maturing security that they purchase under the US
purchase programme. So in two thousand nineteen alone. That means that they will reinvest an extra two hundred billion into credit, so it's going to continue to support credit as a whole. One keeping back that we're seeing from the end of the programming in Europe is an increased credit differential John, notably the weak investment, great and sub investment, great levels. That being said, is that something that is going to stop issuers or deter them from tapping the market? That's not something we have seen in early two thousand and nineteen, both in terms of the activity levels we ve seen the dialogue that we are having with corporates whew in general by the way are tending to pre fund there. Two thousand nineteen financing programme, given some of the political and the macro reset we talked about like Lillian Bricks Et Cetera peer. You mentioned earlier activism as a topic rising concern amongst french corporates. It's been
forever in the United States, or feels like forever. Our french companies reacting specifically to the rise of activism there. Now this is top of mine. Now. This is really something that, where senior seeing a lot of seals and boards focus on designing wishing awareness among the corporate community on this topic of activism and notably because a number of situations that I won't be named. Specific I've shown that a large reference shareholder was not necessarily protection against activism, so people are taking notes and activism
defence management is really becoming a key part of risk management strategy of a number of corporate. It wasn't a case historically and were now in this environment, where this is gonna, be looked at like any kind of re, such as liquidity risk or cyber risk and process. These need to be in place to deal with that with the french kinds were very well positions at one of the differentiating factor is obviously the experience we bring from the U S market, where there have been much more active, but also the fact that we don't advise activists as a matter of policy and so for a number of french clients who are very sensitive to conflicts of interest. We need to be able, demonstrate that in what can potentially turn out to be a nasty public campaign, we will be in the corner and not holding back punches just because we are thinking about the next mandate, with funding Swazi So Pierre you mentioned that many french companies have a large stakeholder large shareholder that make it
the company or may have provided a source of stability over the years, are activists particularly focused on those kinds of companies and how should accompany like that? Be thinking about activism. No, it's a great question. I think a lot of these companies where restoratives felt they were under the umbrella of this large shareholder and that whatever happened is there was a proxy fight. They would not lose touch because the knife at a general meeting just made it impossible for them to see it and activists impose its own agenda, but these corporates are also realizing that all the power, the activist today, in influencing the narrative and that, even though you may have a very large held a beat a family, be it the french state be some of her corporate to holding the stake. This is not offering you protection, because these activists funds, as we have seen, have actually done a lot of work to generate talk to the institutional along only base, and they have talked about some of the issues that these funds wanna corporates too
go on and in a way they are acting as a channel for discontent among the broader investor community. In the throat silent majority of investors, we ve seen some pretty big companies tried it actually clean up or simplify their portfolios. Companies is corporate simplification theme fur corporates, whether through spin offs or emanate. Yes, absolutely. I think it has not been the case historic in France, but we ve seen a number of recent transactions which, in caring, for example, getting up tomorrow, which is very recently I to send worldline being separated. So I'd say this is part of a broader european Tran, the newest trend that switching from shores. I don't think personally that has yet to reach its full potential, so you know, I think we would expect to see very systematic thinking around the report for years and optimization and potential litigation across the yard line base
I mean deserve flip side to that is the comment I was making european scale Galea because you know shrink to grow in inviting Where you're through concern about being able to compete with companies, there are two or three times your market gap as you compete for capital for assets except I that's also gonna be consideration. Every country wants to have a more vibrant technology. Industry and present Macrones been a pretty vocal proponent of France's startup industry and is done well in attracting new tech companies, but also getting some big tech companies to do more. Investing in France. So what's the future for France is a place to fact startup talent. Now that has been, as you rightly point out: Keaton Ethel, prisoner, Michelangelo policy, theirs,
raising amount of energy of ideas of talents, notably in the engineering front in France, given the focus on days and a recent step change in the administrations policies, the ecosystem as improved a lot on seat, funding, being availability of seed funding. For these start, ups on the infrastructure, the incubators that's available to them on the tax environment, for people who are taking risk and are creating beneath, but we also want to share, and you have signed the value creation there. So there's a lot that has been done, but I would say there is still a lot more to do just because these echo systems, notably the interaction with universities, etc. That will build up over time. The one thing that probably we need to do a better job on is basically taking these start up. Star success
well that are getting to twenty forty fifty million euros of revenues, allowing them to find capital to go to the next level, and that means potentially the stock markets. But that also means Aser Tech, focused private equity community, which today's television embryonic for you to have the universities disappoint me of some world class universities technologists coming out of those universes you ve got the pipeline, yes, evades all about connecting the dots and just making sure that this down pool and these resources are made at home in that they connect with Israel business side of things. In all. Your great entrepreneurs, gonna Silken Valley, so how do you visit omens? Business tackle a bit about Goldman growing in Paris, and what do you think the whole financial sector will look like of an ex ten twenty years may alot of imponderables, but with the outlet the outlook is very exciting. We value front ass. He ran over the past few years is growing our business. We have invested team. My two partners
Miss Sharp Sophia, Magna, Loo and Dvds run Fit, can equities on the security side so that the leadership team is strong. We got a fantastic group of managing director, VP he's all the way down. We really have a world class talent and team on the ground. We ve been rebalancing our model. A lot as the rest of investment banking is done from what used to be a very emanate and he shall focus to a surface. Pledged investment bank where emanate capital markets, financing risk management all contributory significantly to our businesses, and our business is not being operated as a gallop village, where very interconnected with the recipe
organization and there isn't a single week where we don't have dozens of visitors from the London office in New York off, is the Madrid Office, Frankfurt, etc, and so I say ten to twenty years from now. My expectation would be that our activity will have moved in line with what the firmest varieties are today, meaning a we're gonna be going deeper into the client base, so footprint expansion, where we ve already done a lot, taking their still more to do in going to tat mid market. Small market corporates so put critics mentioned, will be key, but also adding is going to mean we're gonna be closer in terms of what we offer to what a full suite of commercial banking products would be, and so that pudding could lending, wherewith, already very active, but there's more to do cash management. Other potential services do everything where feel that we have a lot of opportunities to scale up is in our divisions. We talked about equities, which Mark Indonesia would tell you that there is a lot of upside, also from penetrating and going deeper
the client base there's a lot of opportunity, also to be captured in our private wealth management, where you know, there's definitely room to grow and to increase our onshore presence, which obviously, as an ability to materially move, the needle of where our business can be on the iron decide. There's also a lot to do, and given the Polar Pension Fund of environment and on the envy decide investing seiners, that's all saw significant upside all these businesses. All these divisions grow the platform locally, adding that the expectation is that that will be also create a virtuous circle that our brand and our presence will be more felt in the local community that we will collect, it will benefit as a result, so it's again very, very exciting top domestic vision. So here how low? Indeed many Goldman. This is now my nineteen here Goldman added. You end up here and what's most surprised you about your career path. Here I actually started out in the civil service and then spent five years there.
and I was looking for another opportunity in my career. I actually met with the Goldman teens, had many interviews I'm sure you did case, and I would certainly very very impressed by the quality of the people, the culture and values coming from the public sector. That was really important, having a sense of purpose, and, I would say the most surprising part of my a journey so far, is that every year I sort of look back on the achievements, and there is always something I didn't find myself capable of doing and that I managed to do so. It's every year is actually a new challenge in a way which is fascinating and frankly, I don't think you could find any other place, offering an opportunity to interact with such an incredibly talented poor people and, where you're having fun, also engaging into the most significant transaction for the leading companies in the country. So that's very exciting and obviously, given the fact
cease corporate sir very focused on growing scale and expanding outside of their own market. We can be really a channel insarov sourcing opportunities and helping them development it their business to the next level and, let's report of the excitement Oh great will. Thank you very much for joining me here today. Thank you. That concludes this episode of exchanges. The Goldman Sachs thanks for listening and we hope you can join us again next time this pot gassed was recorded on February. First, two thousand nineteen. The information contained in this recording was obtained from publicly available sources and has not been independently verified by Goldman Sachs. Neither Goldman Sachs nor any of its affiliates makes
representation or warranty as to the accuracy or completeness of the information contained in this recording and any liability as a result of this recording is expressly disclaimed. This recording should not be relied upon to evaluate any potential transaction. Goldman Sachs is not giving investment advice by means of this recording, and this recording does not establish a client relationship with Goldman Sachs
Transcript generated on 2021-09-19.