Start a journey in Ireland, and there is a very high chance that you will generate income for a group of investors many travellers here would not expect to meet along their way – French taxpayers. 

Two companies holding major road and rail infrastructure concessions in this country, Egis and Transdev, are majority-owned by Caisse des Dépôts et Consignations (CDC), an investment arm of the French state. While Transdev started a new contract last month to run the Luas in Dublin, Egis operates a whole range of toll roads and associated services across the country. Egis is also in a joint venture operating the GoSafe speeding camera vans.

Its top manager for Ireland and the UK may be British, but Egis Projects Ireland’s chief executive Steve Preece is quick to point out that he has an Irish mother. The trained engineer has lived here for two decades, despite a challenging welcome when he first moved to Ireland. The Go Ahead group had sent him to manage operations at Dublin Airport as part of its foray into aircraft ground handling with Aviance in 2000: “I was met by staff burning their uniforms, telling me to get back on the plane. The unions didn’t want to be run by people running buses.”

In 2005, Preece left Aviance and was happy to settle into early retirement – but after two years, “my wife said ‘go back to work or I’ll divorce you’.” This was the time when Egis needed to boost the management team of the Dublin Port Tunnel, its first project in Ireland. He signed up as duty manager and rose through the ranks of the new company.

I meet Preece at Egis’s Irish headquarters in a shared warehouse and office building on the edge of the Citywest campus in Dublin – nothing fancy. Preece says this is what he wants officials to see when they visit: “This is government money.”

To understand where this money comes from and where it goes, I first ask Preece about Egis’s portfolio in Ireland.

Steve Preece (SP): Egis Projects Ireland is the largest independent operator for road operations and maintenance, and as you highlighted, when a person gets into their car and makes a journey, one way or another they’re going to touch something about Egis. That could be coming onto its road network: it currently looks after over 600km of road in Ireland. It could go through one of the many toll plazas that Egis looks after. It can use one of the tags, the OBU [on-board unit] to help pay for their tools – it could be an Easytrip tag which belongs to Egis Projects. Also, to make sure that everyone is safe, we obviously have enforcement. We have GoSafe speeding cameras, which is part of a government contract. That also plays a part in Egis Projects.

Thomas Hubert (TH):  All those companies are, I suppose, integrated into your group. Where are the synergies? How did you build it up and how do they all work together in a coherent group in terms being efficient and making money?

SP: Each one is interlinked. If you take a look at our main flagship, which is Dublin Port Tunnel, it’s the largest infrastructure in Ireland. We have our expertise in running tunnels and running tolls. Running the tolls means it allows us to share experience in running all the other toll sections across the country. Having our experience in maintaining roads, i.e. the tunnel road, allows us again to bring that efficiency into running the major road networks in Ireland. 

With the journey, being Easytrip, being mobility, comes enforcement – comes GoSafe. You can think of a mind map and follow the map where everything touches, there’s always a vein going through. This is how it’s connected.

Every time we look at opportunities, we see where we can give our strengths, our competence, our expertise. It has to have that link. People have been successful in diversification completely off the spectrum, where they’ve touched things they’d not been involved with. For Egis, we have a philosophy to make sure we have that connection, which obviously allows us to drive efficiencies. 

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After obtaining the Dublin Port Tunnel concession in 2006, Egis expanded into traffic monitoring, won the speeding cameras contract in 2009 and acquired NTR’s 67 per cent stakes in the M1, N25 and M7-M8 concessions in 2011. 

It has also recently moved into the Irish rail sector as part of the Turas consortium with Deutsche Bahn and UK-Based CPC. Together, they were selected in early 2019 to roll out a new automated protection system, which will stop Iarnród Éireann’s trains or limit their speed where safety requires.

In addition, Preece and his Dublin-based management team oversee Egis’s UK operations, although the group’s businesses there are held by British-registered companies. In recent weeks, he has spent much of his time in Britain bidding for concessions into the Dartford Crossing tunnel under the river Thames and the maintenance of Birmingham’s streets.

It’s not easy to piece together the financials of Egis’s operations in Ireland. The group is structured in business units – companies managing each road concession, for example, are owned by the group’s French-based roads operations arm. Some include minority stakes for the construction firms that built those roads.

Road Safety Operations Ireland, the company behind the GoSafe speeding cameras, and Egis Lagan Services, a cross-border road maintenance joint venture with the Lagan family’s Belfast-based construction group, are unlimited companies with offshore ownership structures. 

In October, Egis Lagan won the renewal of its contract with Transport Infrastructure Ireland to maintain 329km of motorways and national roads in the south and south east. This is worth €124 million over the next five years.

Egis Projects Ireland Ltd, which employs the management team, doesn’t have any bricks-and-mortar operations itself but charges other group companies for its services. “The expertise is based in this office and they go out to the projects, so your quality, your health and safety, your finance, your HR, your IT – all the expertise is driven from this office. That allows also the strong connections to Egis’s head office in France,” Preece says. Of the 450 staff the group employs in Ireland, 31 are based in the Dublin office. 

ITS Road Services, a joint-venture between Egis Road & Tunnel Operations Ireland and Dublin-based technology firm Electro Automation, manages traffic monitoring systems including roadside CCTV and the gantries displaying journey times and safety messages on motorways.

Accounts filed by Egis holding companies in France show that its seven main Irish subsidiaries totalled €65.7 million in revenue in 2018 and €8.4 million in net profits – a healthy net profit margin of 12.8 per cent on average. These Irish companies transferred €3 million in dividends to France in 2018.

The Easytrip toll tags, the GoSafe speeding cameras and the Waterford bypass and toll bridge stand out as that year’s most profitable businesses. The Dublin Port Tunnel, by contrast, did not pay a dividend to its parent in 2018 and the Egis group currently books zero value for this business on its balance sheet. Although the subsidiary operating the tunnel is now profitable, Preece is candid about the difficult history of the project.

TH: If we take the example of the Dublin Port Tunnel, which is your flagship project, how did you come into it? When did you step in, compared to the construction phase, and how is the contract attributed and renewed?

SP: The construction phase was underway. Egis tendered for the O&M [operations and maintenance] side of the business and it was a successful tender. However, I think it’s very common knowledge that this was the very first structure of its nature for this country. The tendering detail required was different to the actual O&M requirement, so it went through a really difficult period of the first three to four years of trying to find its balance. That’s between the government and ourselves. 

“When the tunnel opened, it was closed more than it was actually opened. It was closing every five, 10, 15 minutes. It was actually ridiculous.”

An example can be that when we arrived, we had given in our response to the tender: “This is what we can do.” The client was looking for a lot, lot more. When we actually were sat in the seat, we discovered that articles that needed to be done were not part of the tender. This caused, as you can imagine, quite a few issues. 

I think it’s fair to say that when the tunnel opened, it was closed more than it was actually opened. It was closing every five, 10, 15 minutes. It was actually ridiculous, I don’t know if you remember. Was the infrastructure open too early? Probably. It should have been more tested, but obviously political pressure was driving the government body plus ourselves, and hence the tunnel was opened. It was a great learning curve for the client as well as for Egis.

Our success really, I think, was forged after those difficult three years. The client found itself, as did the operator, as did the government, with this large piece of infrastructure that they had to make work. The country was looking at them. That, for me, forged relationships where we could actually learn and work together.

TH: What is the revenue model for this tunnel? The main users – lorries and buses – don’t pay, so I’m assuming it’s public money. How is that worked out depending on traffic and how is your share calculated out of this? 

SP: We are on a fixed contract, so we’re paid a fixed fee no matter how much traffic goes through. You’re absolutely right, the tunnel was opened to reduce congestion in the city. So when you say, how much revenue is generated, is it self-sustaining – the original idea was for the tunnel never to truly generate any revenue. It wasn’t actually going to allow cars through. If you remember, it was only meant for HGVs. I think it was in the last 12 to 18 months before opening that they suddenly decided that they wanted to put toll booths in and to let cars in to create some revenue.

The economics of this design was to release the trucks from the city, which allows the city to flow, and therefore the economy can flow better and that’s obviously a greater return than whenever revenue can be generated from going through the tunnel. That was the concept of it all. 

Egis, a global group with over €1 billion in turnover, is 75 per cent owned by CDC. Iosis Partners, a group of Egis management and staff, is the main minority shareholder.

CDC is a sovereign wealth fund owned by the French state with €163 billion on its balance sheet, and much more in savings and pension funds managed on behalf of the public. It was founded in 1816 after the fall of Napoleon at the battle of Waterloo, when the new government realised that savings collected from the country’s population had been squandered on successive wars. 

Ever since, CDC has been accountable only to the French parliament and is free from ministerial control. “The President of the Republic cannot tell us where to put our money,” a CDC spokesman told The Currency. However, it is fully guaranteed by the French state and enjoys the same AA rating when it comes to refinancing. 

It invests directly in domestic public interest projects, such as housing and local development, but also in pure financial plays where it seeks a return like any other investor. This includes €226 million in Irish government bonds. Egis and Transdev, while originally part of CDC’s public interest drive to develop domestic transport infrastructure, now sit firmly among its money-making ventures and are encouraged to expand internationally.

“It’s the oldest French pension bank, strictly run by ethics and governance, which we have to abide by, which is only right,” says Preece. “Therefore we are very particular about what we invest in and very conscious about which countries we actually operate in.”

TH: Is there an advantage in that in terms of raising finance? You’re not building roads yourself, you’re not a heavy capital infrastructure company, but there is a very good-rated ultimate owner in CDC. In access to finance, is that a bonus when you’re going out to countries looking for contracts like here?

SP: It is, absolutely. When you look at certain countries, to break into a country, if you’re fortunate you can partner with a local person and you break in via a tender. But the majority of businesses will generally look to do an acquisition or a part-merger. Obviously our ultimate parent being CDC allows us to have that weight and authority to clearly state that we’re good for anything we go for.

TH: Is there also a strategy coming from CDC? Their role is to invest for France in strategic sectors internationally. Does it trickle down to you that there are some businesses they want to get in, that are important for them?

SP: Not from CDC. The strategy level would be done with the Egis group, and the group would then translate the strategy plan which is then given to the countries we operate in. Each year, we have a strategy meeting and the business units create what the strategy has to be. The principles of that strategy would be delivered already by the group on which way it needs to go.

TH: So you don’t feel you’re getting diplomatic directives from the French government?

SP: No. It’s fair to say only once have I known CDC to really step in and make a call on Egis’s acquisitions, to be honest with you. It’s given pretty much – not a free roam, but Egis conforms to CDC’s requirements.

TH: Was that intervention in Ireland?

SP: No.

The Phibsborough stop on the 2018 Luas extension. Photo: William Murphy (CC-BY-SA 2.0)

Transdev’s half-billion new Luas contract

On December 1st, Transdev – CDC’s other subsidiary in Ireland, separate to Egis – began a new contract to operate and maintain Dublin’s Luas tram network. The concession runs for six years, and may be extended for another five. Tender documents from Transport Infrastructure Ireland show the estimated value of the six-year contract to be €495 million. 

Under the contract, Transport Infrastructure Ireland keeps the revenue from fares (and carries the risk of a downturn leading to lower passenger numbers), while Transdev receives performance-related payments to run the service.

Transdev’s previous Luas operating contract was worth around €150 million over five years. However, it didn’t include maintenance. This time, the operator is in charge of looking after trams, tracks and stations – taking over the staff and depots previously contracted out to another French company, Alstom, the manufacturer of the trams.

Alstom, too, bid for the new overall Luas contract, partnering with Keolis, a subsidiary of the French national railways operator SNCF. The tender, an all-Gallic contest between these two shortlisted bidders, ended up with Transdev’s victory in the summer.

The winner is essentially the same company that has been running the Luas since the green line first opened in 2004, but it has changed hands – and names – several times in the intervening 15 years.

The tram network’s original concessionnaire, Connex, belonged to the transport arm of the privatised French utility group CGE, soon rebranded Veolia. In 2009, CDC merged its public transport business Transdev with Veolia’s. 

Veolia exited Transdev last January, selling its stake to the German privately-owned public transport group Rethmann. Transdev is now 66 per cent owned by CDC and 34 per cent by Rethmann.

Transdev Dublin Light Rail Ltd, the subsidiary operating the Luas, saw losses jump to €2.7 million in 2018. While revenues rose by €5.7 million to €38.7 million as the green line extension opened, direct costs increased concurrently by €2.3 million. Meanwhile, overheads jumped by €5.3 million, to reach €30.8 million. 

The company’s accounts attribute a €2.2 million current liability to bid costs for the new contract alone. It is also looking for ways to cut higher energy costs resulting from both increased electricity consumption on the green line extension and rising prices. It also notes that salaries rose higher than inflation in application of a settlement reached after the 2016 tram drivers’ strike. “Salaries are paid in line with the Labour Court Recommendations whereas there was no growth in CPI in the year,” the directors reported.

Back to Egis, I ask Preece about the revenue model for his company. While a number of road concessions are based on fixed contracts, the state of the economy also has an impact on traffic levels and intake at tolls. 

TH: How have you seen the boom and bust of the past few years affect tolls especially, and how does it affect your bottom line?

SP: It really depends. Certain contracts which we’ve signed with the government have a guarantee. The concessionaire is always guaranteed a return. The operators, these particular concessionnaires, are always on a fixed fee and it doesn’t really matter how the economy is doing.

We also have what we call a fixed fee and a payment on traffic going through, and that’s a variable payment. Certain projects did struggle. We had to look at how we could find efficiencies. Luckily enough, because we have such a vast number of projects, we were able to move people around and use our efficiencies elsewhere. That certainly helped during what we call the lean period, where you still work the fixed fee, but like everything else, you look at where your profits lie and normally they’re in your variables. When the variables were affected, and therefore your profits were affected, you had to take a look internally at where we can move people around to reduce costs.

TH: Looking to the next few months, you are cross-border company. I’m going to mention the word: Brexit is going to affect, I’m sure, some of your business. You have a maintenance subsidiary working across the border, you have the M1 toll as well. How are you preparing for this? Any particular plans you’re making for potential border difficulties?

SP: We’re working quite closely with the government. If I focus here in Ireland – Northern Ireland and Republic of Ireland – both parties, the UK and Ireland, are saying there is not going to be a hard border. However, we do have to have customs, we do have to have a process of how we check what traffic flows. We’re looking at different ideas for technology with cameras. 

How would it affect the M1 business profile? I really don’t see too much of an issue for Egis on the M1. 

In the UK, if you look at the fact that we have the operation shares on the M25 and we own the M40 outright, they operate in Sterling currency. The boys and girls operate out of local bases, our subcontractors that we have there are all local-based. We all expect when the UK  pulls out with Brexit, that it will suffer. The economy will suffer, we’re very much aware of that. But will it affect our business in Ireland, in France? No.

TH:  It’s more of a general recession potential effect that is worrying than technical issues at the border.

SP: Yes. In Ireland we have an Irish company, Egis Projects Ireland is an Irish-registered company. In the UK, Egis Road Operations, M40 UK, it’s a UK company, so therefore it will stay in the currency. The thing we have to look out for is exchange – when is the right time to bring money out of the UK.

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Unless the EU and the UK agree a long-term trade deal within the tight deadlines they have set themselves, the conundrum of border checks between the Republic, Northern Ireland and Britain may raise its head again. Egis is already considering registration plate recognition to combat tailgating by Northern-registered vehicles at its M1 toll. “Regarding border control on camera technology, we already mentioned GoSafe – we have the back office and we have a good chain of evidence programme. So that’s something we can help the government on,” says Preece.

In the meantime, mid-December, Egis took delivery of a new extension at the Port Tunnel building in Dublin’s East Wall. The building is Transport Infrastructure Ireland’s new Motorway Operations and Control Centre, which Egis is planning to open in the second quarter of 2020. “It will be the second largest control centre in Europe,” says Preece, with CCTV footage feeding in from the nationwide road network 24/7. “It’s holding 52 56in monitors, so it’s rather a big wall as you can imagine. We’ll be running that on behalf of the government.”

Once that’s done, Preece says Egis will look for other opportunities. “If there’s more development with the road network, we operate all of the government-owned tunnels in the country and we feel that we can do more for them on that aspect. As tunnels are getting older, infrastructure needs to be changed, with more opportunities for Egis to help out there.”