Welcome to the Bouygues conference call. Please be aware that each of your lines is in a listen-only mode. At the end of the call, we will open up the floor for questions. We will then provide instructions for the procedure to follow if you would like to ask a question. If any participant has difficulty hearing the conference, please press star zero on your telephone keypad, and you'll be connected to the operator. I would like to introduce Mrs. Karine Adam-Gruson, Director, Investor Relations of Bouygues. Thank you.
Thank you. Good afternoon, ladies and gentlemen. Thank you for connecting to this teaching on Saint-Malo, aimed to give you a detailed overview of our project and answer your questions. We will also take advantage of this call to give you some more information on Project Asterix. I would like to remind everyone that you can find on the company website at www.bouygues.com the presentation we will be commenting on during this conference call. Statements made on this call are forward-looking statements. Such statements reflect objectives that are based on management's current expectations or estimates and are subject to a number of factors and uncertainties that could cause actual figures to differ materially from those described in the forward-looking statements. I will now turn over the call to Christian Lecoq, CFO of Bouygues Telecom.
Thank you, Karine. Following my comments, we will be answering your questions. To begin on slide three, Project Saint-Malo aims to roll out a nationwide optical fiber infrastructures in FTTA and FTTO to satisfy the growth in data usage on networks. It consists in connecting fiber, Bouygues Telecom's network equipment, both mobile antennas and central offices, to propose very high-speed fixed broadband offers for businesses on the wholesale market. Bouygues Telecom and Cellnex have signed a partnership to roll out our market infrastructures and manage operations through a JV, of which Bouygues Telecom will be a minority shareholder with a 49% stake. The project represents around EUR 1 billion over seven years. Bouygues Telecom will build the infrastructures for the JV and will have a long-term master service agreement with the JV to run these infrastructures. As shown on slide four, Saint-Malo is pursuing two goals.
First, to respond to growing demand from businesses for very high-speed, secure fiber network. Second, to satisfy the growth in data usage in a growing mobile market. Indeed, our mobile postpaid customer base has risen by 35% over the last six years, and the data traffic per customer has increased 25-fold during the same period of time to 10.7 GB per customer per month in 2019. According to Ericsson, traffic per customer should continue to increase massively to reach 65 GB per customer per month in 2025. Turning to slide five. In order to address this huge increase in data usage, Bouygues Telecom needs to expand its network capacity through three different ways. First, by adding more sites to densify our network. We should have 28,000 sites in 2023, compared to 21,000 in 2019. Second, by reinforcing our portfolio of frequencies.
Thus, we'll participate in the 3.5 GHz auction process in April this year. Third, we need to increase the capacity of our backbone and backhaul network. We already did it on our own in the very dense area. Let us now focus on Saint-Malo infrastructures on slides six and seven. Thanks to Saint-Malo infrastructures, our backhauling capacity will be multiplied between tenfold inside cities to one hundredfold on intercity lines. We will also be able to expand FTTO offers for businesses and to develop wholesale. We have shown in blue on the infographic below the three different areas where fiber will be rolled out to connect our equipment to the backhaul and backbone network. First, our mobile sites. Second, B2B business. Third, central offices. Moving to slide seven, Project Saint-Malo includes three structural elements.
First, around 90 metropolitan offices, which will host core network equipment of Bouygues Telecom for 5G. Second, optical fiber networks inside cities. Third, high-capacity intercity lines. In order to do this, we have two options as shown on slide eight. Notably, as mentioned in Option A, we could have built our own metropolitan offices and inside cities backhaul network. This solution would have cost some CapEx estimated between 25%-30% of the total CapEx needed for Saint-Malo. In such a scheme, we would have also rented intercity lines leading to high OpEx in the long term due to a surge in the need for capacity. In addition, we would not have been able to boost our FTTO footprint and to market wholesale offers. We decided to find another option. Some technical and financial analysis demonstrated two things.
First, the possibility to share the infrastructures, second, the strong appetite from infrastructure funds for this kind of project. We decided to take this opportunity to launch Project Saint-Malo. Indeed, the Saint-Malo solution allows us to have access to a complete national WAN infrastructures with no short-term impact on our free cash flow and pending lower OPEX in the long term compared to option A. Please note that this positive impact will be very gradual. We benefit also from a call option to recover control after 20 years. Finally, Saint-Malo allows us to address a larger FTTO market. Turning to slide nine, building these infrastructures will cost Saint-Malo around EUR 1 billion, of which 70% due to the cost of intercity lines. Project Saint-Malo will be mainly financed through bank debt as well as a shareholder loan from Cellnex.
Bouygues Telecom will have a 49% stake in Saint-Malo for a limited capital injection of EUR 30 million. A master service agreement over 30 years will give Bouygues Telecom a reserved access to 70% of Saint-Malo's capacity in exchange for an annual fixed cost. Saint-Malo JV will be also able to market the remaining 30% of capacity to the operators. To sum up in slide 10, Saint-Malo is a high-capacity national WAN optical fiber infrastructures that Bouygues Telecom will use for backhauling mobile and fixed broadband sites and developing FTTO. The financial structure gives Bouygues Telecom access to the infrastructures at a lower cost with no short-term impact on the free cash flow. Furthermore, Bouygues Telecom will have a call option to get control of the company after 20 years.
Finally, Project Saint-Malo is a real opportunity to strengthen our competitiveness, to accelerate in fixed B2B, and to develop the wholesale business. Let's now talk about Project Asterix, which is related to the financing of FTTH access in Orange medium areas. Before starting the presentation on Project Asterix, let me remind you that Bouygues Telecom has access to FTTH in all areas in France as explained, slide 11. Indeed, our first goal has been to secure the access to FTTH. In the very dense area, we have access 100% of the horizontal infrastructures thanks to agreements with Orange and SFR, and more recently with CityFast. The CityFast agreement aims at building 3.4 million premises by end 2021, representing 50% of the area. Bouygues Telecom will have access to all the premises in exchange for annual fixed OPEX.
We can have access to the vertical infrastructure via joint investment or via rental. In the medium dense area, a sole operator builds the horizontal or vertical infrastructures. The main cost concerns the vertical infrastructures. As of today, Bouygues Telecom has signed rollout agreements with both Orange and SFR, investing by tranches of 5% and increasingly renting premises, thanks to the success of our FTTH offers in this area. Concerning public initiative networks, we also get access here on terms. Our objective has been to optimize the financial conditions related to FTTH access in these different areas. We already did it in the very dense area, so the agreements we signed with SFR and CityFast, we now want to address the Orange medium dense area. This is the aim of Project Asterix, as described in slide 12.
As of today, in the medium dense area, Bouygues Telecom accesses Orange FTTH vertical network via joint investments by 5% tranches of completed lines in one area or through rental. A call for tenders has been launched in order to choose a partner to create a JV to co-finance the rollout of FTTH in the medium dense area, to market infrastructure and to manage operations. Bouygues Telecom will be a minority shareholder. The JV will buy from Orange the FTTH connections in tranches of 5% of completed lines in one area, in keeping with growth in the number of customers. Bouygues Telecom will have access to these infrastructures through long-term service agreement with the JV. Bouygues Telecom will also transfer existing co-investment contracts on 5% tranches to the JV that will buy the FTTH connections currently leased by Bouygues Telecom from Orange.
Slide 13 highlights how Bouygues Telecom will optimize its FTTH cost in the medium dense area. The FTTH access financing project involves only the Orange medium dense area for 11 million premises. Today, this can be rented for EUR 13.2 per month per customer or be bought at a cost of EUR 513 or more via joint investments. In case of purchase, additional maintenance costs must be added for around five EUR per month and per customers. Bouygues Telecom made already a co-investment with Orange. Thanks to the success of our FTTH offers, our needs have increased, we are now mainly leasing the premises. This situation is likely to last in the future. Thus, the purpose of this financing project is to lower the rental cost per premises.
It also offers the opportunity to buy at a cheaper price the premises after 10, 20 years, as you can see on the graph. As you can read on slide 14, our goal is to choose a partner who will be the majority shareholder of the JV. Like Saint-Malo, Bouygues Telecom will have a 49% stake for a small injection of capital. The JV will buy back existing 5% tranches already bought by Bouygues Telecom. Bouygues Telecom shall receive around EUR 200 million in proceeds from this disposal. Also, the JV will buy from Orange the tranches of 5% in relation to premises currently rented by Bouygues Telecom. Finally, the JV will buy additional tranches in line with growth in the number of customers.
To sum up in slide 15, project Asterix will allow Bouygues Telecom, first, to speed up the rollout of its FTTH network in the medium dense area. Second, to optimize the rental cost of the premises. Keep in mind that the positive impact of this optimization won't occur before three years. This is because during the first three years, savings on unit rental costs will be offset by the rental costs on the existing premises sold by Bouygues Telecom to Asterix JV. Third, to have the opportunity, through a call option, to take control of the JV after 20 years. Finally, this project reflects our smart CapEx and OPEX management whilst keeping differentiation. In slide 16, we have updated our flexible FTTH access strategy, including Asterix project. This concludes my presentation. Operator, please open the floor for questions.
Thank you very much. If you would now like to ask a question on today's call, please press star one on your telephone keypad, and please ensure your line remains unmuted locally. Once again, if you would now like to ask a question, please press star one on your telephone keypad. We do have a question from Nicolas Cote-Colisson from HSBC. Please go ahead. Nicolas, your line is unmuted. Please go ahead with your question.
Sorry. Excuse me. Sorry. Yeah, my question is about your total CapEx budget for the group, taking into account all these infrastructure deals. If we can have a kind of a guidance of how much you think you can spend in the coming years. Thank you.
Hi, Nicolas. Your question is for Bouygues Telecom or for Bouygues group?
Yes, for Bouygues Telecom.
Sorry. As I explained, this project won't change our CapEx guidelines, because for example, for Asterix, in any case, we would have leased the line to Orange. It will be with Asterix now. For Saint-Malo, without Saint-Malo, we won't have spent EUR 1 billion CapEx. We would have only spent CapEx for the lines inside the city and also for the metropolitan offices. The gain in term of CapEx is very, very small during the next coming year, and we don't change our guidance of CapEx. To remain use our guidance for CapEx for 2020 is between EUR 1.1 billion and EUR 1.2 billion in term of gross CapEx and the same for 2021.
Okay, if I may, just a follow-up one. You will receive EUR 200 million in cash.
Yes.
For selling your existing contracts, yeah?
Yes, it will be disposal. Exactly.
Okay, it will be a disposal. It will not be deducted from the gross CapEx.
It will be deducted from the gross CapEx.
Oh, okay.
The net CapEx will be between EUR 0.9 billion and EUR 1 billion.
Okay, that's clear. Thank you.
Thank you. As a reminder, if you are wishing to ask a question on today's call, please press star one on your telephone keypad. Our next question comes from Andrew Lee from Goldman Sachs. Please go ahead.
Hello, it's Nicola speaking from Goldman Sachs. I just was wondering if you could explain the financing structure a little bit more of Saint-Malo. I understand you're putting in EUR 30 million equity contribution. Will the shareholder loan be taken out by Cellnex? Can you just explain that a little bit for us? Thanks.
Yes, we said one week ago that we will put less than EUR 50 million. The exact figure is EUR 30 million, that Bouygues Telecom will put in Saint-Malo. The same for Cellnex, because we will have 49% of Cellnex 51. The rest of the financing of this project will be made by a bank loan, mainly, and also a shareholder loan with Cellnex. If you have questions about the conditions of the shareholder loan, you should ask that to Cellnex.
Great, thanks.
Thank you. Our next question comes from the line of Mathieu Robilliard from Barclays. Please go ahead.
Yes, good afternoon. Thank you. Few questions on my side. First, in terms of the construction, in the case of Saint-Malo, you mentioned in the slides that the construction revenues linked to the project will be booked by Bouygues Telecom. I just wanted to make sure, therefore, that you will have EUR 1 billion spread over seven years that will be incremental to Bouygues Telecom. Also, what kind of margins will you be making on that, if any? With regards to Asterix, will you be also building part of the infrastructure there? Is it that there's absolutely no build, it's just taking infrastructure from Orange, therefore there's no construction revenues or margin associated?
Secondly, with the Project Asterix, you mentioned in the slide that this will be deployed in the areas where Orange is actually rolling out fiber, but apparently not in the areas where SFR is doing the same. Can you explain exactly why and how it's going to work with SFR?
Okay. First, about your first question is about the construction revenue. It will be EUR 1 billion during seven years, as you said. We will recognize that in the other revenues. It won't be in the telecommunication or service revenues. I mean, news that we disclose two kinds of revenues, the service revenue, which is purely telecommunications news, and then the total revenue also. The margin on this project are very, very low. I can't disclose any figures, but it's very, very low. Your second question was about Asterix. There is no construction in Asterix project. Asterix will only buy FTTH assets or FTTH tranches from Orange, and we will access to these FTTH premises. No construction revenue for Asterix. Your last question was about SFR. Well, we decided to launch Asterix project, I think it was one or 18 months ago.
At this time, we decided that we will begin with Orange. That's what we did and what we are doing. We will see after Orange, if we want to go with others or not. The point is that many of our customers in the medium dense area are in Orange area. Our number of customers in SFR area is very low, very small. Today it is not relevant to already do that with SFR.
Okay, thank you. I guess one of the reasons why I was wondering why you didn't do with SFR is that it seems the wholesale costs are actually significantly more expensive than in the case of Orange. That could have created a further incentive to do it. I guess you will consider that.
This is better to do that with SFR just because of what you said. The cost for SFR, the rental cost is very high. Today, we decided to begin with Orange because this is where our customers are now.
Thank you very much.
In fact, to find some banks and some investors ready to finance such a scheme, you need to already have the customers to fill the infrastructures because they will spend some money to buy the infrastructure. They need from the beginning to have some customers on the infrastructures.
Thank you.
Thank you. Our next question comes from the line of Thomas Coudry from Bryan, Garnier. Please go ahead.
Yes, hello. Thank you for taking my question. It's actually on Saint-Malo. I wanted to know if we could have a little bit more insight on the OPEX consequence of the deal. You're talking about a fixed OPEX that Bouygues Telecom will pay to Saint-Malo. I guess that fixed amount is evolving in time, actually, with the rollout of the network. I'd like to know if we can have more view on how it will impact EBITDA in 2020 and in the coming years. Thank you.
In term of OPEX, just we'll speak about two things. First, what we will pay, what Bouygues Telecom will pay to Saint-Malo. Cellnex has provided information about Saint-Malo's EBITDA. They said that it will be at the end of the seven years, the construction period, it will be around EUR 80 million per year. You have in mind that we will have 70% of the capacity. It's very simple to calculate. Even we will pay, of course, a bit more than the 70%. It's very easy to calculate the Bouygues Telecom part on EBITDA. That's the first point. The second point is that Saint-Malo, of course, we will have to pay something to Saint-Malo. Without Saint-Malo, in I would say seven, eight, nine, 10 years, we would have paid more to Orange, SFR, motorways companies to rent these infrastructures.
Saint-Malo is not more OPEX in the future, it is less OPEX in the future compared to a situation without Saint-Malo.
Thank you. If I can have just a quick follow-up then. How would have your OPEX base increased then without Saint-Malo? Yes.
Today this is very small because the traffic on our backhaul and backbone networks are quite small. For example, we are using some microwave link, so without any cost, in terms of EBITDA, OPEX, an impact on the EBITDA. For example, in the backbone, we are wanting today, two optical fiber for our traffic, and we know that we will need probably 100 optical fiber in 10 years. The cost will be multiplied by 50. Today the cost is very small, a few million EUR. In 10 years it will be huge, and it will be higher than that we will pay to Saint-Malo.
Okay. Thank you.
Thank you. Our next question comes to the line of Nawar Cristini from Morgan Stanley. Please go ahead.
Thank you very much. I have two questions, please. Firstly, on CapEx. If we compare the CapEx in 2019 versus 2020 in the guidance, the CapEx has increased quite significantly despite the fact that there is CityFast, Saint-Malo, the towers with Cellnex, and also Asterix coming up. Could you walk us through the different moving parts explaining this increase? Importantly, going forward, how should we think about CapEx beyond 2020? Will the EUR 1.1 billion-EUR 1.2 billion envelope enough to cover the investment needs? Lastly, thinking of the next steps, you have been quite pragmatic in the management of your infrastructure. Do you see more opportunities beyond Saint-Malo and Asterix to optimize the CapEx on telecoms? Thank you.
First, just to remind you, Saint-Malo and Asterix projects are not here to optimize CapEx. These two projects are to optimize OPEX. There is no impact, no impact for Bouygues on our CapEx lines, except for the 25% of Saint-Malo cost related to the inside city fiber and metropolitan offices. We are speaking about EUR 300 million, or between two and EUR 300 million, split over seven years. Between EUR 30 million to EUR 40 million per year. The impact of Saint-Malo on the CapEx is very small. The main impact of Saint-Malo is our level of OPEX in 10 years. Why are we doing Saint-Malo now and not in 10 years?
It is because the financing conditions that we can have on the market now, because of the low interest rates, because the appetite of the infrastructure funds, they are very pushing to find this kind of infrastructures. We are able to find good financing conditions. That's why we are doing that now. Your cost question. About the level of CapEx for Bouygues Telecom in 2019 and 2020. I remind you that between 2016 and 2018, we have been rolled out Crozon project. The mobile network shared with SFR in the medium area. At this time we had around EUR 200 million per year of CapEx due to that. This project ended at the beginning of last year, of 2019, and that's why we saw a decrease in terms of level of CapEx last year.
For 2020, what we are seeing now is that we are facing a huge need in terms of capacity. We have to cope with the demand of our clients to use more and more their phone and to spend more and more data traffic. We need to invest a lot in 4G for capacity. At the same time, we'll also need to roll out 5G to begin the rollout of our 5G network. That's why our CapEx will be higher this year and also next year.
That's helpful. Thank you.
About more opportunities. Well, we will see. We signed Saint-Malo one or two weeks ago. We are now working a lot on Asterix project. Well, after that we will take some holidays, I think.
Fair enough. Thank you.
Thank you. Our next question comes from the line of Jerry Dellis from Jefferies. Please go ahead.
Yes, good afternoon. Thank you for taking my questions. I have got two questions, please. On Project Asterix, is the joint venture going to be buying access from Orange more cheaply than Bouygues would be buying that access today? If so, why is it possible for the joint venture to achieve better terms than Bouygues would be capable of on its own? Second question is related to Saint-Malo. It seems to me that Bouygues group is not particularly heavily geared and has pretty good access to capital. Why is it not possible for Bouygues, of its own volition, to get funding for these infrastructure projects? Why is it necessary to pay a share of the upside away to Cellnex? Thank you.
Your first question is about Asterix JV. No, of course, Asterix will buy the 25% at the same price as Bouygues Telecom would have been able to do. This is regulated prices. There is no change in terms of conditions for Asterix compared to the conditions that Orange has today with all the French operators. No impact. The reason why Bouygues Telecom is able to rent at a lower price to Asterix than the rental agreement we could have with Orange is simply because the weighted average cost of capital of Orange is very high. If you take the EUR 13.2 million per sub per customers, so you have around EUR 5.2 related to the maintenance cost, and so you have EUR 8 per month per sub for the infrastructures.
Eight multiply by 12 months per year lead to EUR 96 per year per customers to have access to the infrastructures, except the maintenance cost. EUR 96 divided by the investment of EUR 513 leads that the WACC of Orange is 19% per year. 19. I'm sure that we can find quite easily some infrastructure fund at a lower need of return, that 19% per year. That's why we decided to put in place Asterix, and I think we are not alone to do that in France.
The question related to Saint-Malo?
Yes. Sorry. Why is it to be for week 12? Yes. The main advantage of Saint-Malo is the fact that the infrastructures will be shared with other operators. That's why the cost will be lower for us.
It's Cellnex's marketing expertise to sell the additional 30% capacity that warrants this.
Cellnex already had around, I think, 5,000 mobile sites in France. With Saint-Malo, they will be able to market the complete infrastructures with these 5,000 sites linked together. I think that this is very important for them, and this is very valuable for them because of that. This is not only 5,000 sites alone in France, but 5,000 all together connected, thanks to Saint-Malo. For Cellnex, I think it is very valuable.
Okay. Thank you.
Thank you. We do have one further question from the line of Stephane Beyazian from MainFirst. Please go ahead.
Yes. Thank you. Sorry if I missed that and you said it at the beginning, but how is Saint-Malo articulated with the Crozon project by Altice? I'm not seeing Altice there, but perhaps Altice may join at a later stage. I was wondering whether you could make a comment or not on whether you think other operators have already an infrastructure that is comparable to what you'll be doing. Let's say differently, if they're all doing the right thing, or you think some will be struggling as they are not realizing how much traffic will be coming over the next decade. Thank you.
About your last question, Orange, of course, already has this kind of infrastructures. I think that SFR also, due to what I will call Plan Câble in France. Thanks to Numericable, they now, I think, have this kind of infrastructures. I don't know about Iliad, but I think that they have some things, because all these three operators, in fact, were in the past fixed operators. As fixed operators, they rolled out equipment all around the territory to link their fixed network. That was not the case for Bouygues Telecom. We are coming from the mobile world, and so that's why we decided at the beginning to use microwave link, for example.
That's why now we need this kind of infrastructures, because, as we said, we need that for the fixed in the B2B and in the wholesale market, also to cope with the huge data increase that we have today. This is for the big operators. You also have some little operators, mainly B2B operators, that of course don't have this kind of infrastructure today, these operators could be clients of Saint-Malo infrastructures. I don't remember the beginning of your question.
How Saint-Malo-
Yes, about Crozon. Saint-Malo infrastructures, in fact, as I said, you will have some network inside the city. It will be mainly inside the city where Bouygues Telecom is leader in Crozon project. You will also have intercity link. The Saint-Malo project will be more dense in Crozon areas where Bouygues Telecom is leader, than areas where SFR is leader.
I understand. Thank you.
Thank you. We do have one further question from the line of Alexandre Rondot from Exane. Please go ahead.
Hello, guys. Thanks for taking the question. I just had one. I think on your full year slides, you mentioned that you were selling 50% of ownership of both those assets. I think from Saint-Malo, if I'm not mistaken, you also add and were retaining only 0% of the economic right. Just the first one, do you have, with both of the structure and option to buy back a couple of percent to reconsolidate those assets in the near future? Secondly, how are those 0% economic ownership affecting potential minority dividends, if any, should be paid in the near future? Thanks.
Your question is about the dividends for Saint-Malo?
Yeah, exactly. Because I think, if I'm not mistaken, on your full year slide, you said you were having, well, 50% ownership but 0% economic interest.
Exactly.
Yeah.
In fact, we have 49% ownership of Saint-Malo JV. To be clear on this subject, in fact, the project we decided with Cellnex that there will be no dividends for the first 20 years. In fact, we won't have dividends, and Cellnex should not have also dividend during this first period of 20 years. At the end of this period, we could either buy 100% of the company, first option. Second option, remain at 49%, and in this case, and only in this case, all the dividends between year 20 to year 35 will go to Cellnex. Nothing for us during this 15 years period. We will not receive any dividend during the first 20 years because nobody will have any dividend. After that, if we decide to not exercise the call option, we won't have dividend during 15 years.
That's 15 years after the 20 years?
Yes.
Okay. Very clear.
If we not exercise the call option.
Okay. That makes sense.
We have not any option to reconsolidate Saint-Malo in the near future.
Nor Asterix, I guess.
Good question. We will have a call option to go from 49%- 51% in Asterix project quite quickly. I don't know exactly because we are negotiating, but probably in four or five years.
Okay. That's very clear. Yeah.
For Asterix, we will be at 49 at the beginning, 49%, then 51%, four or five years later, and then 100% at the end of the 20 years period.
That's very clear. Thank you very much.
You're welcome.
Thank you very much for your questions. I would now like to hand back to our host, Mrs. Karine Adam-Gruson, for further remarks. Thank you.
Thank you for joining us today. We will be announcing our first quarter 2020 sales and earnings on 14th May 2020. This concludes our brief conference call teaching on Saint-Malo and Asterix projects. Once again, thank you.
Thank you very much for joining this brief conference call. You may now disconnect your lines.