Status Update

Mar 5, 2020

Slides

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. I would like to introduce Mrs. Karine Adam Grouzon, Director, Investor Relations of Bouygues. Thank you. Thank you. Good afternoon, ladies and gentlemen. Thank you for connecting to this teaching on Saint Malou aimed to give you a detailed overview of our projects 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 wwwbrig.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 Lecocque, CFO of Bouygues Telecom. Thank you, Kyle. Following my comments, we will be answering your questions. To begin on Slide three, Project Samalo aims to roll out a nationwide optical fiber infrastructures in FTTH 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 1,000,000,000 over seven years. Bouygues Telecom will build the infrastructures for the JV and will have long term master service agreement with the JV to wind these infrastructures. As shown on Slide four, Tamalo Ito Stream is pursuing two goals: first, to respond to growing demand from businesses for very high speed secure fiber network and 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 gigabytes per customer per month in 2019. According to Ericsson, profit per customer should continue to increase massively to reach 65 gigabytes 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 will participate in the 3.5 GHF auction process in April. And third, we need to increase the capacity of our backbone and backhaul network we already did on our own in the variance area. Let us now focus on Samalo infrastructures on Slide six and seven. Thanks to Samalo Infrastructure, our back hauling capacity will be multiplied between tenfold in five cities to one hundredfold on intercity lines. We will also be able to extend 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 and third, central offices. Moving to Slide seven. Project Samalo includes three structural elements: first, around 90 metropolitan offices, which will host core network equipment of Bouygues Telecom for five second, optical fiber networks inside cities and third, high capacity intercity lines. In order to do this, we had 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% of the total CapEx needed for Samarro. In such a scheme, we would have also rented incarcity 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 and second, the strong appetite from infrastructure funds for this kind of project. So we decided to take this opportunity to launch Project SAML. Indeed, the SAMLOS solution allows us to have access to a complete Nature one infrastructures with no short term impact on our free cash flow and spending 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 collection to recover control after twenty years. And finally, Samalo allows us to address a larger FTTO market. Turning to Slide nine. Building these infrastructures will cost us around €1,000,000,000 will cost, sorry, Samalo around €1,000,000,000 of which 70% due to the cost of intercity lines. Project Samalo will be mainly financed through bank debt as well as a shareholder loan from Cellnex. Bouygues Telecom will have a 49% stake in Samaroo for a limited capital injection of EUR 30,000,000. A master service agreement over thirty years will give Booke Telecom a reserved access to 70% of capacity in exchange for an annual fixed cost. Samalo JV will be also able to market the remaining 30% of capacity to the operators. To sum up, in Slide 10, Samallo is a high capacity nationwide 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 twenty years. Finally, Project Samalo 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 area. 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 have been to secure the access to FTTH. In the very dense area, we have accessed 100% of the horizontal infrastructures, thanks to agreements with Orange and SFL, and more recently with Cityfast. The Cityfast agreement aims at building 3,400,000 premises by end twenty twenty one, 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 SFA, 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 time. Then 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 through the agreements we signed with SFR and CTFAS, 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 winter. 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 this infrastructures through long term service agreement with the JV. Bouygues Telecom will also transfer existing co investment contracts and 5% tranches to the JV that will buy the FTTH connections currently leased by Bouygues Telecom from optimize its FTTH cost in the medium dense area. The FTTH access financing project involves only the Orange Medium Dance area for 11,000,000 premises. Today, this can be rented for EUR 13.2 per month per customer or be bought at a cost of EUR $5.13 or more via job investments. In case of purchase, additional maintenance costs must be added for around €5 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, and 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 ten, twenty 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 Samalo, Bouygues Telecom will have a 49% stake for injection of capital. The JV will buy back existing 5% tranches already bought by Bouygues Telecom. Bouygues Telecom should receive around EUR 200,000,000 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, on Slide 15, Project ASTRX will allow Book Telecom, first, to speed up the rollout of its FTTS network in the Lyndon 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 twenty years and finally, this project reflects our smart CapEx and OpEx management while skipping differentiation. In Slide 16, we have updated our flexible FTTH access strategy, including asset project. This concludes my presentation. Operator, please open the floor for questions. Thank you very We do have a question from Nicolas Caudel Loisin from HSBC. Please go ahead. Nicolas, your line is unmuted. Please go ahead with Sorry. Your Excuse me. Sorry. Yes, my question is about your total CapEx budget for the group, taking into account all these infrastructure deals. So 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. So as I explained, this project, one shows our CapEx guidelines because, for example, for Assayx, in this case, we would have leased the line to Orange. So it will be with Assayx now. And for Samalo, without Samalo, we won't have spent EUR 1,000,000,000 CapEx. We would have only spent CapEx for the lines inside the city and also for the metropolitan offices. So 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 remind you, our guidance for CapEx for 2020 is between EUR 1,100,000,000.0 and EUR 1,200,000,000.0 in terms of growth CapEx and the same for 2021. Okay. And if I may, just a follow-up one. You will receive EUR 200,000,000 in cash for selling your existing contracts, yes? Yes, it will be disposal, exactly. Okay. It will be a disposal, so it will not be deducted from the gross CapEx. It will be It will be deducted from the gross CapEx. So the net CapEx will be between 900,000,000.0 and EUR 1,000,000,000. Okay. That's clear. Thank you. Thank you. Our next question comes from Andrew Lee from Goldman Sachs. Please go ahead. Hello. It's Nicolas speaking from Goldman Sachs. I just was wondering if you could explain the financing structure a little bit more of St. Malo. I understand you're putting in GBP 30,000,000 equity contribution. Then will a shareholder loan be taken out by Cellnex? Can you just explain that a little bit for us? Thanks. We will put yes, we said one week ago that we will put less than EUR 50,000,000. So the exact figure is EUR 30,000,000 that Bouygues Telecom will put in Samalo. It's the same for CEMEX because we will have 49% of CEMEX 51%. Then the rest of the financing of this project will be made by bank loan mainly and also shareholder loan with CEMEX. If you want to if you have question 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 Robbia from Barclays. Please go ahead. Yes. Good afternoon. Thank you. A 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 €1,000,000,000 spread over seven years that will be incremental to Bouygues Telecom. But also, what kind of margins will you be making on that, if any? And with regards to Asterix, will you be also building part of the infrastructure there? Or is it that there's absolutely no build, it's just taking infrastructure from our industry, therefore, there's no construction revenues or margin associated? And 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. So first about your first question is about the contribution revenue. So it will be EUR 1,000,000,000 during seven years, as you said. We will recognize that in the other revenues. So it won't be in the telecommunication or service revenues. I mean, news that we disclose two kind of revenues: the service revenue, which is purely telecom revenues and then the total revenue also. The margin on this project are very, very low. It's I can't disclose any figures, but it's very, very low. Your second question was about Asterix. There is no construction in Astex project. It's only by Astellix will only buy FTTH assets or FTTH tranches from Orange, and we will access to these FTTH premises. Construction revenue for Asterix. And your last question was about SFR. While we decided to launch Asterix project, I think it was one or eighteen months ago. At this time, we decided that it could be we will begin with Orange, that's what we did and what we are doing. So 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. In fact, we have our number of customers in SFR area is very low, very small. And so today, it's not relevant to already do that with SFR. Okay. I mean I guess that 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. So that could have created a further incentive to do it, but then I guess you will receive 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. But today, it's 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 who are ready to finance such a scheme, you need to already ask the customers to fill the infrastructures because they will spend some money to buy the infrastructures, and 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 Cowdry from Bryan Garnier. Please go ahead. Yes. Hello. Thank you for taking my questions. Actually on Samalo, I wanted to know if we could have a little bit more insight on the OpEx consequence of the deal. So you're talking about a fixed OpEx that Bouygues Telecom will pay to Samalo. I guess that fixed amount is evolving in time actually with the rollout of the network. And 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. So in terms of OpEx, just we'll speak about two things. First, what we will pay what Bouygues Telecom will pay to Samalo? So Cellnex has provided information about Samalo's EBITDA. They said that it will be at the end of the seven years, the construction period, it will be around EUR 80,000,000 per year. You have in mind that we will have 70% of the capacity. So it's very simple to calculate. Even if we will pay, of course, a bit more than the 70%, It's very easy to calculate the Bouygues Telecom part on CCBDA. That's the first point. The second point is that Samalo, of course, will cost us we'll have to pay something to Samalo. But without Samalo in, I would say, seven, eight, nine, ten years, we would have paid more to Orange, SFR motorways companies to rent these infrastructures. So Samalo is not more OpEx in the future. It is less OpEx in the future compared to a situation without Samalo. Thank you. If I can have just a quick follow-up then. How would have your OpEx base increased then without some allot because, I guess, yes? Today, this is very small because the traffic on our backhaul and backbone networks are quite small. And for example, we are using some microwave link, so without any cost in terms of EBITDA OpEx and impact on the EBITDA. And 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 ten years. So the cost will be multiplied by 50. So today, the cost is very small, a few million euros in ten years, it will be huge and it will be higher than that we will pay to St. Helane. Okay. Thank you. Thank you. Our next question comes from the line of Nawar Cristini from Morgan Stanley. Please go ahead. Thank you very much. I have two questions, please. Firstly, on CapEx. In 2009 if we compare the CapEx in 2019 versus 2020 in the guidance, the CapEx has increased quite significantly despite the fact that Recitifast, Tamalo, the towers would sell next and also Asterix coming up. So could you walk us through the different moving parts explaining this increase? And importantly, going forward, how should we think about CapEx beyond 2020? Will the €1,100,000,000 to €1,200,000,000 envelope enough to cover the investment needs? And lastly, thinking of the next steps, you have been quite pragmatic in the management of your infrastructure. Do you see more opportunities beyond Samalo and Asterix to optimize the CapEx on telecoms? Thank you. So first, just to remind you, Samalo and Asek's projects are not here to optimize CapEx. These two projects are to optimize OpEx. So there is no impact for about on our CapEx lines, except for the 25% of Sam Allococks cost related to the inside city, fiber and metropolitan offices. So we are speaking about EUR 300,000,000 or between EUR 200 and EUR 300,000,000 split over seven years. So it's between EUR 30,000,000 to EUR 40,000,000 per year. So the impact of Samalo on the CapEx is very, very small. The main impact of Samalo is our level of OpEx in ten years. And why are we doing Samalo now or not in ten years? It is because the financing conditions that we can have on the market now because of the low interest rates, because of the appetite of the infrastructure funds are very they are very pushing to find this kind of infrastructures. And so we are able to find good financing conditions. That's why we are doing that now. You, about yes, about the level of CapEx for Bouygues Telecom in twenty nineteen and 2020, I remind you that in 2000 and between 2016 and 2018, we have been rolled out Crozon project, the mobile network shared with SFR in the medium area. And at this time, we add around EUR 200,000,000 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 term of level of CapEx last year. For 2020, what we saw now what we are seeing now is that our we are facing a huge need in term 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. So we need to invest a lot in four gs for capacity. And at the same time, we'll also need to roll out five gs to begin the rollout of our five gs network. That's why our CapEx will be higher this year and also next year. That's helpful. Thank you. And about more opportunities, well, we will see. Are now we Samalo we signed Samalo one or two weeks ago. We are now working a lot on a sales 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've 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? And if so, why is it possible for the joint venture to achieve better terms than Bouygues would be capable of on its own? And second question is related to Sao Malo. It seems to me that Bouygues Group is not particularly heavily geared and has pretty good access to capital. So 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. So your first question is about ATAG JV. No, of course, the ATAGs will buy the tranches of 5% at the same price as Bouygues Telecom would have been able to do. This is regulatory regulated So there is no change in terms of conditions for Asterix compared to the conditions that arranged as today with all the French operators. So no impact. The reason why we are able to went why Bouygues Telecom is able to went at a lower price to a stake than the rental agreement we could have with Orange is simply because the wage average cost of capital of Orange is very, very, very, very high. If you take the EUR 13,200,000.0 per sub per customer, 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, infrastructures. €8 multiplied by twelve months per year lead to €96 per year per customers to have access to the infrastructures, except the maintenance costs. 96 divided by the investment of EUR $5.13 leads that the WACC of Orange is 19% per year, 19%. I'm sure that we can find quite easily some infrastructure fund at lower need of return, that 19% per year. So that's why we decided to put in place a stake. And I think we are not just alone to do that in France. And the question related to Saint Malo? Yes, sorry. Why is it not to be for week 12? Yes. Samalo the advantage of Samalo the main advantage of Samalo is the fact that the infrastructures will be shared with other operators. So that's why the cost will be lower for us. So it's CEMEX's marketing expertise to sell the additional 30% capacity that warrants this? Senex already had around, I think, thousand mobile sites in France. With Samalo, they will be able to market a complete infrastructures with these 5,000 sites link together. So I think that this is very important for them, and it is very valuable for them because of that. This is not only 5,000 sites alone in France, but 5,000 altogether connected, thanks to Samalot. So for Cellnex, I think it is very, very valuable. Okay. Thank you. Thank you. We do have one further question from the line of Stefan Bayazian from MainFirst. Please go ahead. Yes. Thank you. Sorry if I missed that and you said it at the beginning. But how is Samalo articulated with the Crozon project basically Altice? Because I'm not saying Altice there, but perhaps Altice may join at a later stage. And I was wondering whether you could make a comment or not on whether you think auto operators have already as an infrastructure that is comparable to what you'll be doing. Let's say differently, if if 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. So about your last question, Range, of course, already has this kind of infrastructures. I think that SFR also due to what I will call plon cab in France. So thanks to Numericabre, they now, I think, have this kind of infrastructures. I don't know about Gilead, but I think that they have some things because all these three operators, in fact, were in the past fixed operators. And as fixed operators, they rolled out equipment all around the territory to link their fixed network. That was not the kind 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. And 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 and also to cope with the huge data increases that we have today. But this is for the big operators. You also have some little operators, B2B many B2B operators that, of course, doesn't have don't have this kind of infrastructure today. And these operators will be a client could be client of of Samalo Samalo infrastructures. You I don't remember the beginning of your quest of your question. How the Sorry. Causal. Causal. Sorry. So Samaloo infrastructures, in fact, as I said, you will have some network inside the city. So it will be mainly inside the city where Bouygues Telecom is leader in the Croson project. And you will also have anterior city link. So the Samalo project will be more dense in Crozon areas where Bouygues Telecom is leader than areas where SFR is leaders. I understand. Thank you. Thank you. We do have one further question from the line of Alex Rondier 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 those assets. But I think from Samuel, if I'm not mistaken, you also add and were retaining only 0% of the economic rights. So first the first one, do you have with both of the structure an option to buy back a couple of percent to reconsolidate those assets in the near future? And secondly, how those how are those 0% economic ownership affecting potential minority dividends, if any, should be paid in the near future? Thanks. So your question is about the dividends for Samalo? Yeah. Exactly. Because I think I mean, if I'm not mistaken, on your full year slide, you said you were having, well, 50% ownership, but 0% economic interest. Exactly. So yeah. Okay. Okay. So in fact, we will we will have 49% ownership of the of ThermoDoge GB. To to be to be clear on this on this subject. In fact, the project we decided with Select that there will be no dividends between the for the first twenty years. In fact, we won't add dividends, and Select won't should not have also dividend during this first period of twenty years. At the end of this period, we could either buy 100% of the company, first option, or second option, women at 49%. And in this case, and only in this case, all the dividends between year twenty to year thirty five will go to CEMEX. So nothing for us during this fifteen years period. But so we will not receive any dividend during the first twenty years because nobody will have won't nobody have will have any dividends. And after that, if we decide to not exercise the corruption, we won't have dividend during fifteen years. So that's fifteen years after the twenty years? Yes. If we not exercise if we not exercise the corruption. Okay. That makes sense. And and about and we have not any option to to to reconsolidate Samalo in the near future. Nor nor Asterix, I guess. We will have good question. We will have a call option to go from 49% to 51% in Asterix project quite quickly. I don't know exactly because we are negotiating, but probably in four or five years. Okay. Well, that's very So our takes will have a we will be at 49% at the beginning, 49%, then 51%, four, five years later and then 100% at the end of the twenty 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. Caroline Adam Croussant for further remarks. Thank you. Thank you for joining us today. We will be announcing our first quarter twenty twenty sales and earnings on fourteen May twenty twenty. And this concludes our week conference call teaching on Samalo and Asterix projects. Once again, thank you. Thank you very much for joining in this week's conference call. You may now disconnect your lines.