Ladies and gentlemen, welcome to the Bouygues first quarter 2019 conference call. At any time during the presentation, you can press 01 to enter the queue for the question and answer session. I will now hand over to Karine Adam-Gruson, Head of Bouygues Investor Relations. Karine Adam-Gruson, please go ahead.
Good morning, ladies and gentlemen. I would like to remind everyone that you can find on the company website at www.bouygues.com the earnings press release, the presentation we will be commenting on during this conference call, an Excel file with historical key figures for the group and each business, and the company financial statements. 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 statement. Before starting our presentation, I would like to share with you on slide three the impact of the application of IFRS 16 on the group results as it is effective since the 1st of January 2019.
We already provided full year restated 2018 results at the group level with the year-end announcement. In Q1 2018, the impacts are, first, an increase in net profit attributable to the group of EUR 2 million from EUR 12 million to EUR 14 million. Second, a positive impact of EUR 17 million on the current operating loss, which is reduced from EUR 111 million to EUR 94 million, mainly at Bouygues Telecom. A restatement of the 2018 quarterly results that are fully comparable with 2019 is available in the notes to the consolidated financial statement. The new IFRS 16 presentation in the financial statement splits the lease payments between amortization expense and interest expense. Therefore, the application of this new standard leads to a discrepancy between the lease expense accounting treatment and its effective disbursement. To continue to treat lease charges as operational expenses, we have adopted new KPIs.
First, EBITDA will be replaced by EBITDA after leases, including lease expenses. Second, we will comment on two new indicators in this presentation, current operating profit after leases and operating profit after leases, including both lease expenses. Third, we have changed the definition of net debt and free cash flow. We now exclude lease obligations from net debt and repayment of lease obligation from free cash flow and free cash flow after working cap. These new indicators more closely align with how we manage our businesses. All definitions are detailed in the glossary of the presentation on slide 15, as well as in the press release published this morning. I would now like to turn the call over to Mr. Philippe Marien, Deputy CEO of Bouygues.
Thank you, Karine. Good morning to all of you, and thank you for joining us. I would like to welcome everyone to our conference call to discuss Bouygues' first quarter results. With us in the room is Christian Lecoq, CFO of Bouygues Telecom. Following my comments, we will be answering your questions. To begin on slide five, I remind you that like every year, first quarter earnings are not indicative of the group's full year results. Turning our attention to the key highlights of the quarter. First, all three sectors experienced strong commercial momentum, confirming their good positioning in their respective markets. Second, the group current operating profit improved significantly year-on-year, boosted by strong results at both Bouygues Telecom and TF1. In this context, we can confirm the full year outlook shared with you in February. Turning to group key figures on slide six.
Sales were up 16% year-on-year at EUR 7.9 billion. The strong increase reflects the positive impact of the acquisitions, including notably Miller McAsphalt, Alpiq Engineering Services, and Aufeminin, that were not consolidated in Q1 2018. Like for like and at constant exchange rates, sales increased by 8%. Current operating profit and current operating profit after leases improved sharply in Q1 2019 compared to one year ago. Q1 2019 current operating profit after leases was a loss of EUR 73 million compared to a loss of EUR 108 million in Q1 2018. The sharp improvement in first quarter 2019 was driven by the strong results of both TF1 and Bouygues Telecom, despite an unfavorable comparison impact at Colas.
Colas indeed recorded losses of EUR 37 million in Q1 2019 from Miller McAsphalt due to the usual business seasonality in Canada, whereas no contribution was consolidated in Q1 2018. Operating profit after leases decreased slightly year-on-year by EUR 5 million, mainly due to a decline in non-current income from EUR 61 million in last year's first quarter to EUR 15 million this year. As anticipated, the decline is mostly due to lower capital gains at Bouygues Telecom, with 58 sites transferred to Cellnex in Q1 2019, compared to 331 one year ago. Finally, net profit was down by EUR 73 million from a year ago, notably impacted by Alstom's contribution of EUR 33 million in Q1 2019, a EUR 40 million decrease from last year's first quarter contributions. Let us take a closer look at group current operating profit after leases on slide seven.
You can see that the EUR 35 million year-on-year improvement came from, first, Bouygues Telecom, during solid revenue and EBITDA growth. Therefore, Q1 current operating profit after leases rose from EUR 53 million to EUR 84 million year-on-year. Second, TF1 posting a EUR 24 million increase in profitability in the first quarter 2019, compared to one year ago. Moving to the construction activity, Q1 2019 current operating profit after leases included Miller McAsphalt seasonal losses of EUR 37 million, whereas no contribution was consolidated in Q1 2018. Excluding Miller McAsphalt losses, the construction business's current operating profit was at EUR 14 million year-on-year. Let us now turn to slide eight to review the financial structure of the group. You can see that the group maintains a strong financial position. Net debt was EUR 5.1 billion at end March 2019, compared to EUR 3.6 billion at end December 2018.
The increase mainly reflects the usual seasonal impacts from Colas. Net debt increased EUR 1.3 billion from end March 2018, mainly due to the acquisitions of Alpiq Engineering Services by Bouygues Construction and Colas, Aufeminin by TF1, and Keyyo and Nerim by Bouygues Telecom. I remind you that we expect net debt of approximately EUR 3.7 billion at end 2019 at the group level, stable compared to 2018. Please keep in mind that this amount does not include the payment of a EUR 5.5 per share dividend that will be proposed by Alstom at its shareholders' meeting in July. Owning close to 62.1 million Alstom shares, we should receive EUR 341.5 million in Q3 2019. As previously mentioned, net debt was EUR 5.1 billion at end March 2019, up EUR 1.5 billion compared to end December 2018.
The increase over year end is mainly explained by the traditional seasonality at Colas, an outflow of EUR 157 million in acquisition and disposal, coming mainly from, first, the acquisition of 100% of Nerim shares and the success of the takeover bid of 85% of Keyyo in March 2019 at Bouygues Telecom. Second, the acquisition by TF1 of De Mensen, a leading Belgian audiovisual producer. You can also see that change in operations is stable in the first quarter of 2019, compared to the first quarter of 2018. Turning to the breakdown of operations on Slide 10. You can observe that we have highlighted a new box on the graph called repayment of lease obligations. This new presentation will help you calculate the net cash flow after leases. This indicator is more relevant than the net cash flow, as it aligns lease expense accounting treatment with its effective disbursement.
At EUR 124 million, net cash flow after leases year-on-year was stable. Net CapEx was up EUR 68 million compared to Q1 2018, mainly due to Bouygues Telecom. While gross CapEx year-on-year was steady, proceeds related to the sale of sites to Cellnex were lower than in the same period last year, as already explained. Last, change in working capital requirement was stable, in line with our full-year expectations. I will now turn the review of operations, starting with the construction businesses. Let's begin with the backlog on Slide 13. In the first quarter, we maintained good momentum with the backlog at a record level of EUR 34.4 billion at end March 2019, up 9% year-on-year, and up 4% at constant exchange rate and restated for major changes in the scope of consolidation.
Overall, the share of order booking international markets remained unchanged at 61% from end December 2018, higher than 57% recorded at end March 2018. The backlog remained stable in France, as you can see on Slide 14. It reached EUR 14.6 billion at end March 2019, compared to EUR 14.4 billion the previous year, after restatement in 2018 of Axione's backlog following the deconsolidation of the business. The backlog at Bouygues Construction was EUR 8.5 billion, up 2% excluding Axione. At Colas, the backlog reached EUR 3.8 billion at end March 2019, increasing 7% over the previous year, which reflects growth in rails and roads in France in a pre-election year.
Looking at Bouygues Immobilier, the backlog was EUR 2.3 billion at the end of the first quarter, a decline of 9% compared to last year, reflecting, as anticipated, the decrease of the French residential market, as well as the rescheduling of some commercial projects that should be signed in Q4 2019. Turning to slide 15, you can see that in international markets, the construction businesses remain strong. The international backlog was up 19% year-on-year and up 6% at constant exchange rates and after restatement for major changes in the scope of consolidation. Some significant contracts booked in Q1 2019 include the University of Brighton's Moulsecoomb campus for EUR 181 million, and a rail maintenance contract in the U.K. for EUR 60 million. Now, let us turn to the key figures in the construction businesses on slide 16. Sales were up 17% year-on-year and up 8% like-for-like and at constant exchange rates.
As usual, first quarter earnings are not indicative of full year results. Current operating profit after leases was a loss of EUR 213 million in first quarter 2019, a decrease of EUR 22 million compared to the first quarter of last year. Colas current operating profit after leases benefited from growth in roads in France and improvement in specialized activities, thanks to recovery measures, especially in rail in France. This good performance was able to offset the negative contribution from Miller McAsphalt's operation, which recorded a loss of EUR 37 million this year, while they were not consolidated in the first quarter of last year. Bouygues Immobilier's performance was negatively impacted by low activity in commercial property development, as projects should be finalized in Q4 2019, as mentioned previously. Furthermore, a buoyant French market related to 2017 peak reservations has strained resources, resulting in pressure on margins.
Now let us move to TF1 on slide 18. I will briefly review TF1 since they have already released earnings on the 29th April 2019. Sales were strong in Q1 2019, up 11% to EUR 554 million. More specifically, we can mention first, the acquisitions in 2018 had a positive impact, notably in digital with Aufeminin. Second, that TF1 had good performance in linear and nonlinear broadcast ratings. And third, you can say that premium agreements signed with operators contributed incremental revenue. On the chart, you can see that current operating profit rose by EUR 24 million and current operating margin increased 3.6 points to 11.4%, as TF1 maintained tight control over costs of programs. For the year, TF1 confirmed its target to double-digit current operating margin. Now let me turn the call over to Christian.
Thank you, Philippe. Bouygues Telecom published a very good first quarter set of results. Let's start with the commercial performance on slide 20. You can observe that Bouygues Telecom commercial momentum remained very good in both mobile and fixed during the quarter. In mobile, the market was less agitated than one year ago, as shown in the recent release of ARCEP postpaid figures. Although there were some promotions in the first quarter 2019, the price of the plans was higher at EUR 10 per month compared to EUR 5 last year. Therefore, the level of postpaid growth adds and churn was significantly lower than in Q1 2018. In this context, we won 459,000 new mobile customers in the first quarter of 2019, of which 149,000 were new plan customers, excluding M2M. At March 2019, Bouygues Telecom had 11 million customers, excluding M2M, a 26% increase compared to four years ago.
This success is the result of our strategy in mobile to differentiate through the quality of our 4G network and through our customer experience. As a matter of fact, we are beginning to see the first positive signs of the core simplicity program launched in 2018 for a more seamless user experience. In fixed, FTTH net adds have accelerated again this quarter. Bouygues Telecom won 94,000 new FTTH customers in the first quarter of 2019, with 663,000 FTTH customers at March 2019. Our FTTH customer base has doubled compared to one year ago and represents 18% of our fixed customer base. We expect this positive trend to continue, supported by an increase in market premises and the success of our offers. Indeed, at March 2019, Bouygues Telecom had a total of 8 million marketed premises.
The number of premises marketed will continue to accelerate in 2019 to meet our goal to market 12 million premises by end 2019 and 20 million premises by 2022. Overall, the total customer base reached 3.7 million broadband users at March 2019. Slide 21 highlights the strong results of Bouygues Telecom in the first quarter of 2019. Revenue growth was solid with total sales up 13% and sales from services up 6% year-on-year. Sales benefited from the continued growth of our customer base and the ability of Bouygues Telecom to stabilize mobile ABPU at EUR 19.2 per month for two years in a row. EBITDA after leases rose significantly by EUR 60 million in the first quarter of 2019 compared to the same period last year. The margin of EBITDA after leases and sales from services was up 3.2 points to 27.4%.
However, operating profit decreased by EUR 14 million compared to the same period last year due to lower non-current income, which is mainly related to the transfer of fewer sites to Cellnex in Q1 2019 compared to last year, as previously explained by Philippe. Gross CapEx is stable at EUR 327 million, and we confirm our expectations of less than EUR 1 billion gross CapEx in 2019. I would like now to focus on our B2B segment as Bouygues Telecom has finalized the acquisitions of Keyyo and Nerim in the first quarter of 2019. The key characteristics of the acquisitions are detailed on slide 22, including summary financial data, their size, and market focus. Keyyo provides Bouygues Telecom with simple, reliable, and competitive solutions for SME and SOHO, while Nerim brings expertise in core network, voice, IP, and hosting services.
Those two acquisitions allow Bouygues Telecom to accelerate its development in the SME market in both mobile and fixed. Keyyo has been fully consolidated by Bouygues Telecom since January 1st of 2019, following the acquisition of 43.6% of its shares. The takeover bid that followed exceeded the 85% holding threshold. As a result, a public tender offer followed by a squeeze out for all outstanding shares is now taking place. Nerim was acquired on March 13th of 2019 and will be fully consolidated in the group's accounts as of the second quarter. The total price paid for this acquisition is around EUR 120 million. The first goal of these acquisitions is to increase Bouygues Telecom's market share in the SME and fixed markets.
The second goal is to expand our addressable connectivity market in growing new segments. As of today, Bouygues Telecom is the third operator in the EUR 7.5 billion B2B connectivity market, as shown on slide 23. The global French B2B market represents an overall value of EUR 30 billion and includes, first, hardware supply, for example, with Cisco. Second, connectivity, which is the core market of Bouygues Telecom and where we are the third operator. Third, managed services, which is closely related to telecom. Fourth, network security. Fifth, cloud, for example, with AWS or OVH. Sixth, IT applications with Microsoft. Without seeking to directly compete with the big leaders in the sector, Bouygues Telecom is focused on extending its footprint beyond connectivity to address managed services, network security, and cloud services. This represents an additional addressable market of EUR 12 billion. Slide 24 presents Bouygues Telecom market share in the connectivity market.
You can see on the two graphs how the EUR 7.5 billion market is split between small and middle enterprises and large companies, and between fixed and mobile. Bouygues Telecom has built a strong position in the large companies mobile market based on the quality of its 4G network, with around 30% market share. In the fixed, it has remained a small player so far. In the SME market, Bouygues Telecom's market share is quite low in both mobile and fixed, providing opportunity for growth. Keyyo and Nerim will help us achieve this target. I will now explain our strategy to address the connectivity market and to expand into services related to connectivity. Going to slide 25. The goal of Bouygues Telecom Entreprises is to provide customers with global offers, including connectivity-related services.
We planned the acquisitions of Keyyo and Nerim to address the SME segment, and in the large company segment, we will partner with well-known companies. In the connectivity core market, Bouygues Telecom will continue to develop very high-speed offerings thanks to its best-in-class network. More specifically for large companies, we will rely on our partnership with Telefónica. To summarize, Bouygues Telecom Entreprises has three strategic priorities for the coming years. First, to be a leading connectivity operator with enriched service offerings directly or through partnerships. Second, to expand in the small and middle enterprises market. Third, to reinforce our positioning in large companies. Thanks to this strategy, we expect Bouygues Telecom Entreprises to contribute to the growth of Bouygues Telecom in the coming years.
Thank you, Christian. I would like to briefly comment on the financial statements. We have already looked at sales on slide six. The line other operating income and expenses on slide 27 shows a decrease of EUR 40 million year-on-year. This includes the transfer of fewer sites to Cellnex at Bouygues Telecom, with 58 sites transferred in Q1 2019 compared to 331 in Q1 2018. Cost of debt is stable year-on-year. Turning to slide 28. Income tax was EUR 25 million compared to EUR 54 million one year ago. As usual, changes in income tax expenses in the first quarter is never relevant because of the very low level of tax base. The negative change in associates and joint ventures line is explained by Alstom's net contribution.
As announced, Alstom contribution was EUR 33 million in the first quarter of 2019 versus EUR 73 million in the same period of last year. As you can read on slide 30, and as stated at the beginning of this call, we confirm the outlook shared with you in February. This concludes my presentation. Operator, please open the floor for questions.
Ladies and gentlemen, if you wish to ask a question, please press 01 on your telephone keypad. We already have a question from Nicolas Colisson, HSBC. Nicolas Colisson, I give you the floor. Please go ahead.
Thank you. Hi. I've got two questions. One, to start with construction. Can you tell us a bit more on the next steps regarding the Grand Paris and what is the timing on the big next steps and when you can win new projects? In telecoms, just going back to your strong fiber net adds. I wonder if you could tell us what is the mix between co-investment and rental in your net adds, but also the total base. What is also the dynamic between very dense and less dense area? Very last, just to come back on CityFast, your fiber infrastructure operation. Can you precise what are the financial flows between CityFast and Bouygues Telecom? Thank you.
Good morning, Nicolas. First, about the mix between co-investment and rental, we don't disclose this information, and this information is moving quarter after quarter. We do not give any figures on this part. Your third point, what was about CityFast. As you know, we are building the infrastructure, and the infrastructure is paid by CityFast. We get some revenue coming from CityFast. Of course, we have also some OPEX, and the margin is quite small. Very small impact on EBITDA. I don't remember what is your second point. It was?
It was the dynamic between very dense and less dense area.
We are selling a FFTH offers on all territories. The dynamic is very good on both. There is no big difference between radius area and middle dense area.
Okay.
Regarding the Grand Paris, in term of new attribution, new tenders. The main decision will be online 15 East and West, two packages and the result will be probably more beginning of 2020 than before the end of this year. That's for the two large next packages. On Line 18, you have some smaller lots. The lot 2 is expected in this year for the lot 2, so Palaiseau-Billancourt portion. For the two others, the one and the three, all these tenders are in process, but we have not the final result, and both of them are for the time being in a hold position. Clearly we anticipate big news before end of this year, but more probably, beginning 2020.
Okay. Thank you.
We have another question from Josep Pujal, Kepler Cheuvreux. Josep Pujal, I give you the floor. Please go ahead.
Joseph Pujal. I have three questions, please. The first one is on Colas. In Q1 2018, you had some difficulties in rail and other areas. Do you have a view on how much those losses have been cut? In the EUR 37 million improvement in Colas EBIT, if we exclude the Miller McAsphalt deterioration. This is how you present it. How much is the recovery of these sources of losses? I have other questions, but you want them all now? Or one by one?
As you want, Joseph. Good morning. Regarding the difficulty of Colas Rail, clearly we have taken a series of measures to deal with all these difficulties. Clearly, the positive impact in the Q1 2019 is very small. In fact, because the most important difficulties came during the Q2, Q3 and Q4 in 2018. The improvement is mainly due to a very good situation in the roads activity in France.
Okay. Still on Colas, is the margin improvement the key focus, or is it a combination of top-line growth and profitability? Because when I see the order book, which is very strong, +18%, part of that is external growth. Even if we look at like for like, it's +11%. One could say that, okay, this is not, I would say as selective as it could be. Yeah. Maybe if you grew your order book by less, you could make sure that the margins embedded are even higher. Is this the right way to think about that? That margin is not only the key focus or how should I see that?
Well, you know that in the business with a fixed cost basis, it's a little bit different than a business with a pure variable cost. Clearly, in Colas, it's very important to have a certain level of activity because you have a lot of fixed costs, the asphalt plants, the carriers, the equipment, and so on. Clearly, we said always that for building and civil work, it's very important to be focused only on the quality of the new orders. For Colas, the situation is a little bit different, because you need to have a sufficient level of activity to reach at least breakeven. When you reach breakeven, after that, you are in a very good situation to increase your margin.
The way to increase the margin in the Colas business is obviously to manage your costs, but also to have a very good level of activity. It was the reason why in 2018, it was more difficult to have a good level of margin because of the lower level of activity. It's the contrary this year, probably for the full year, thanks to a good level of activity. We can say that we focus more on volume than on margin. In Colas, you need to have a certain level of activity to increase your margin, because it's a fixed cost business.
Okay, understood. One on real estate, please. The margin was cut to half in Q1.
Yeah.
I think that the guidance that you give for the full year is a margin drop of around 1%.
One point.
One point. Okay. Instead of three. This remains valid?
Absolutely. There is no change in our guidance. The fact is that, in Q1 2018, we had some significant commercial operation with a very high level of gross margin, which is not the case in Q1 2019, first. This element will not be for the full year, obviously, because we hope to get some good contracts before the end of 2019 in the commercial activity. The second element is for the full year, for the first quarter, but also for the full year, a pressure on the cost of works because of the buoyant situation. This effect will continue during all the year, and it will be the explanation at the end of this year to a decrease, but no more than 1% on the margin in real estate activity.
Okay. Thank you very much.
Bye.
Ladies and gentlemen, as a reminder, if you wish to ask a question, please press zero one on your telephone keypad. As a reminder to our participants, please limit yourself to two question, please. We have another question from Eric Lemarié, from Bryan Garnier Please go ahead.
Yes, good morning. A couple of questions then. First on Bouygues Energies & Services, could you maybe give us some rough indication of the profitability of Bouygues Energy in Q1? What about the contribution of Alpiq, maybe? And are you happy with the integration of Alpiq Engineering so far? This is my first question. And I got a second question on Colas. You mentioned 2020 is the Europe election in France. Are you a bit afraid of a slowdown of the roadworks market in France next year? Thank you.
Okay. We are not afraid because it's the usual cycle in term of road activity. You have the two years before election, then less incentive activity during the election year, and you come back to a good situation the year plus two or plus three after the election. We are not afraid. It's the normal cycle, and we manage that for years now. We will see exactly the same trend in the coming year. Regarding the road activity on the municipal part of the business, don't forget that in top of that, we will have, and started in 2020 and after, the positive effect of the Grand Paris development, which will be good for Colas, either for rail, but also for road in the future.
Clearly, we will consider that we will have obviously a decrease in the road activity regarding the municipalities activity, but an increase in term of roads around the Grand Paris development.
Okay. Do you think the increase from the Grand Paris will offset the decrease?
Well, we will see. It's always very difficult to have a long-term view in Colas because the backlog is very short. We will discuss 2020 beginning of 2020.
Okay, thank you.
Regarding energy and services, obviously, we consider that we are on the right way to recover a good situation for this activity within reconstruction. Clearly, in the first quarter, we move from a negative situation with a negative margin in Q1 2018 to a positive one in the first quarter of 2019, and the profitability was very low, obviously, 1.1%, but positive compared to a negative figure one year ago.
Okay. You said 1.1%, right?
Yes.
Yes, okay.
I said that.
Yes.
Which is the right figure. Regarding integration, nothing specific to say, nothing more than at the beginning of the year. The process is ongoing with no particular surprise for this integration.
It's fair. Thank you very much. Thank you. We have another question from Mathieu Robilliard from Barclays. Mathieu Robilliard, I give you the floor, sir. Please go ahead.
Yes, good morning. Thank you. I had a question on construction first, about the order intake in France, which, if I read correctly, was down 29%. I wondered if you could give us a little bit of color in that number and how you expect it to develop throughout the year. Second, I had a question on telecoms. If I look at the slide where you show B2B exposure, rough, I get to maybe revenues of around EUR 400 million. Is that correct? Can you also give us what kind of growth rate you're experiencing in that segment at the moment? Lastly, if I may very quickly, could you share what was the loss in Canada of McAsphalt in Q1 2018, just so that we can see how the performance has developed in that business between Q1 2018, I understand you didn't own the company, and now.
Thank you.
Okay, first, telecom.
First on telecom, on the B2B side, sorry to always answer the same thing, we do not disclose the B2B revenue, but I think we gave you some more detailed information as usual today. Our main goal is to increase our market share in the fixed segment. Our goal is probably to double our market share in the fixed, to increase our mobile market share for the so-called business and SME, and also to get some more new formats. We explained the presentation from the service linked to the connectivity market.
Regarding your construction question. For Miller McAsphalt, we had no figures for the first quarter 2018 because the reporting of Miller McAsphalt before the acquisition was not on a quarterly basis. We don't know what was the result for the first quarter of 2018. Obviously, as usual in this activity, and it's the case for the Colas activity, it's clearly a loss during this period. In our figures, nothing, obviously, because we have only consolidated Miller McAsphalt in the second quarter of 2018. Regarding the evolution of the new orders for building and civil work in France, you're right, the figure is decreasing. Two reasons for that. The first one, as I have mentioned, there is no, we don't win any big contracts regarding the Grand Paris program. The big loss will be more for 2020. That's the first explanation.
The second one is the fact that clearly, we said that previously, based on the fact that we have reached a high level in term of backlog at the reconstruction level, clearly, we are more and more selective in term of new orders. There is no reason to enter into a very harsh competition only to get contract. We don't need a very high level of new order because of the level of our current backlog, which is good in France and very good outside France. Clearly, we fly to selectivity and quality, and clearly, to come back to the question of Joseph Pujal, clearly, we want in building and civil works to be very selective and to prefer margin than volume.
Thank you very much
We have another question from Jakob Bluestone from Credit Suisse. Jakob Bluestone, please go ahead. The floor is yours.
Hi, good morning. I've got a few questions as well. Firstly, on the telco side, can you maybe comment a little bit on what sort of margins you think you'll generate, within the B2B segment? Is it, do you think, a higher or lower margin area compared to the consumer side of your business? I guess if I look at the operating margins for the two acquired assets, they're actually pretty similar to what you do on your current business. Sort of any color you can give on, whether you think this will be accretive or dilutive to your margins. That's the first question. Secondly, can you maybe comment a little bit on the Alstom dividend? What do you intend to do with the proceeds? Do you see yourselves passing them on to shareholders? Is it just going to be for de-leveraging? Are you looking at any M&A?
Just any thoughts on how you might use those proceeds. Finally, just on Colas. As mentioned earlier, you obviously have very strong performance in French roads. I think your French roads revenues were up 17% this quarter, as a result of strong pre-election market. I think typically the local budgets are set around the beginning of the year, you've probably got a little bit of additional color now on what the outlook is for this pre-election boom. Should we think of that plus 17% as representative for how big a surge we'll see this year, or how should we think about the French roads business for this year? Thank you.
Okay. Regarding your last question, unfortunately, we don't anticipate so huge increase for the full year. In fact, the good figures for the first quarter of 2019, is linked to, first, good momentum in term of road activity in France, thanks to municipal election. Also, because of a very, very good and smooth weather during the winter, which was not the case in 2018, by far. The combination of good weather and good climate condition and a good general trend, the result is a very, very good growth in the first quarter. Definitely, it's not representative of the full year, and it's big growth, but big growth on a relatively small basis. The first quarter is not one quarter of the full year net sales for Colas.
You're right, the trend remains good. We'd anticipate, not a double-digit, but a single-digit growth in the road activity in France for 2019. All the budget are in place. We have no fear on the level of the growth in the road activity. Second question regarding the dividend of Alstom. It's a very good news, obviously, to receive this more than EUR 300 million. Nevertheless, it's not a massive amount. EUR 300 million, it's a big, big amount of money, but not sufficient to think about return to shareholder, share buyback. We will use this proceed for the refinancing of our existing bonds and for development and some acquisition, if we have some good opportunity, which is not the case for the time being on the table.
We will use this money on our regular activity. Nothing specific regarding this good amount, but not massive amount.
About your question about telecom and the B2B, the margin generated by the B2B segment. First, I would say that we do not have any EBITDA for the B2B activity, compared to the B2B, as we do not split our fixed assets, for example, network or a G&A between B2C and B2B. Excluding these fixed assets, I would say that the growth margin in the B2C and in the B2B are quite comparable. We do not have a big discrepancy between those two activities. About the effect of the two acquisitions, as you can maybe see in the slide, the EBITDA or the operating margin for Keolis and AIM is around 10% because they do not have any network assets.
It will be a dilutive impact at the beginning for us. It will take time to move them from assets to our network or to our IT and so on. At the beginning, we'll have dilutive impact due to that and also due to integration cost that we'll have during this year or maybe a part of next year. After that, the effect will be, of course, positive.
That's very helpful. Thank you.
Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad. As a reminder to our participants, please limit yourself to two question, please. We have another question from Rémi Adam from Oddo BHF. Please go ahead.
Hi. I have one question on the construction side. In Q1, you have organic growth of 1.2%. Could you help us understand what contribution you have from energy and services versus building and civil works, and how it is splitting between France and international markets? The question on Bouygues Telecom is, one of the actors on the French market is mentioning a new directive from 2020, which could have a material impact on the subsidized market. What's your view on this? Thank you very much.
About the subsidy, a judgment was taken on April of this year in the case against SFR. We read carefully the judgment, we think it does not imply the end of the subsidy. This judgment concerns only SFR's specific former offer. Today, we are not affected by this decision, we continue to use subsidy to be able to offer to our clients handsets.
Regarding your construction questions. For Bouygues Construction, the 1.1% roughly growth, same perimeter, same exchange rate, the international is a decrease in the French activity. Regarding split between energy and services and building and civil work, I have not the figures in mind, so Karine will answer later on your question.
Thank you.
We have another question from Frédéric Boulan from Bank of America. Please go ahead.
Hi, good morning. On the construction side, to follow up on previous comments on the acquisitions you've done on Alpiq and Miller. It was interesting to see the contribution in Q1. If you could just remind us, in terms of incremental revenue and EBIT you see for the two assets, Miller and Alpiq, I guess in 2019, and in 2020. On a normalized basis, where you see those assets going, once you're done with the integration costs that you're incurring initially. Then secondly, just to come back on the very strong service revenue performance in telecoms. You mentioned your billed ARPU remains stable at more than EUR 19, despite very constant promotions at around EUR 10 for 40 GB of data.
Could you explain a little bit what are the actions you're taking in terms of the back book pricing to limit the dilution from the new customers? Thank you.
I will answer on your question on telecoms. About the step from service increase. The increase in, as you said, reflects the positive volume effects both in mobile and fixed. Second, the stability of mobile ARPU. We have been able to stabilize our mobile ARPU for now two years. I think we already explained that. We had many promotions during two years or more than that, but in the same time, we have been able to increase our prices on our install base. For our existing clients. Mainly, not on the similarly mobile market, but on the premium offers, where we are able to offer I would say more strategy. More for more strategy. We are able to increase prices by offering more services or more things in the bundle to the clients. We did that last year.
That's why you have in the Q1 2019, you have the full effect of the increase in pricing we made last year.
Yes. Regarding your construction question, Karine, if you have some detail.
Regarding Colas. Regarding sales at Colas in Q1 2019, the contribution in sales for Miller McAsphalt plus Alpiq Catenaries is roughly EUR 100 million. For reconstruction, I will give you later the numbers for that. Okay.
Maybe more broadly.
I don't have it in front of me.
Okay, thank you. Maybe more broadly, now a couple of quarters after the acquisitions, if you can share versus the initial numbers you shared in terms of annual revenue and EBIT for both.
For Miller McAsphalt, it's the same.
No change.
We confirm what we have said at the period of the acquisition. No change.
Okay.
For Alpiq, again, no change in term of revenue. Clearly in term of margin, we said that we will be able to increase the total margin of energy and services in the coming two, three years to reach the 3.5%.
Okay. Thank you very much.
The next question is from Jerry Dellis from Jefferies. Jerry, please go ahead.
Yes, good morning. Thank you for taking my questions. I've got two questions, please. First question is also in terms of telecom pricing. You were describing a few weeks ago, obviously, how the promotional environment in the market was easing off a little bit. I just wondered if you could clarify what's been happening very recently now that we're sort of halfway through Q2. Is that still the situation that you see? Are you confident that you can continue to sort of extend the more-for-more pricing approach on the main brand into further such list price increases over the next few quarters? Or have you essentially done the more-for-more price increase for 2019, and therefore the next pricing action wouldn't be until we get into next year? My second question has to do with the 5G spectrum auction.
It looks like the government has drafted a letter to ARCEP, setting out some of the basic parameters for the awards process. It's reported that that does include within it, as expected, some fairly robust conditions around geographical network coverage, including in some of the more rural areas. With that in mind, perhaps you could clarify for us how much visibility you feel Bouygues Telecom has on its CapEx budget beyond the year 2020. Thank you.
Your first question is about the level of competition in the market in Q2. This is the same as in Q1. No change. You always have some tactics offer made by all competitors, but no big move and you don't have very low prices. When you have some promotion, everything is around EUR 10 per month, no big impact. About our ability to continue to increase our tariff for our existing customers, we will see what we'll be able to do this year. This year we will have the positive impact of what we did last year. We will see for the coming quarter. Your last question was about the frequencies, the 3.5 GHz frequencies. We have exactly the same information as you. We are waiting for the ARCEP guidelines.
It should be communicated at the end of this month or maybe beginning of June. There will be a public consultation on coverage in June. As we don't have the result of this consultation coverage, it's difficult to know what will be the operator's obligations. The allocation process should be at the end of this year. About our CapEx for 2020, we do not give any guidance for CapEx for 2020. Our guidance is on free cash flow, and it is to be at more than EUR 300 million, excluding, of course, the cost of if we have to pay the 3.5 GHz in 2020.
Thank you. Could I ask a quick follow-up, please? The 6% service revenue growth rate that Bouygues Telecom reported this quarter, would you view that as being a sort of sustainable level for the balance of 2019? Was there anything particularly exceptional or one-off in nature within the Q1 result, please? Thank you.
Okay. The 6% is not at the same perimeter. Excluding Keyyo, I think it's only 5.3%. I remind you that Q1 last year, it was around 5%. We are quite the same speed as last year. It's a good result, it's not a tremendous result, I would say. We do not give any guidance for this year. Of course, we expect to be at more than zero.
Thank you.
A positive increase for telecom services.
Thank you.
I remind you that our goal is to be at EUR 300 million free cash flow, and the telecom services increase will help us to achieve that.
Thank you very much.
As a reminder to our participants, please limit yourself to two questions, please. We have another question from Andrew Li from Goldman Sachs. Madam, please go ahead.
Hello. It's Nicola Gifford from Goldman Sachs. I have one question on your telecom business. You mentioned the lower non-current operating profit in 1Q, mainly related to the capital gain on the transfer of site to Cellnex. I was wondering how tower sales to Cellnex and other players have impacted profitability, especially or more specifically at the EBITDA level. Is this an overall benefit or headwind? Going forward, could you perhaps quantify the overall impact on your EBITDA from tower sales at large? Thank you.
About the tower sales, the profit, the capital gain is not recorded in the EBITDA. You have that in the non-current income, between current operating income and operating income. I think that the figures are very detailed in the slide.
Okay.
Via net, you have the exact profit we got from Cellnex. On EBITDA level, it's more a loss as when we have sold the tower to Cellnex, then we have to pay rent to Cellnex each month or each quarter, recorded in EBITDA. Negative impact in EBITDA, positive impact in the non-current income.
Okay, that's clear. A positive impact for this quarter.
Not in EBITDA. Positive impact in.
No.
Sorry. Compared to last year, it is a negative impact as we sold less towers than last year.
In absolute value, you have a positive impact in the non-current income, not recorded in the EBITDA.
Yes, very clear. That negative impact on EBITDA, is that something that-
Yes.
will continue going forward then, if you've got rental?
Yes, of course.
Thank you.
We have another question from Stéphane Beyazian from MainFirst. Please go ahead.
Thank you. One question on Colas, if I can. The good weather was quite obvious in the first quarter in Europe. I can see as well that North America pro forma was up by 10%. I'm just wondering, is that entirely also due to positive good weather conditions? Is this a boost from Miller? Is there also pickup in North American market that we've been expecting to do better for quite some time? I've got a second question, perhaps on Telecom. We've seen Orange doing quite many acquisitions in cybersecurity, in cloud services. I was just wondering whether you think that with Telefónica Global Solutions, you think you're addressing the full scope of services and that Orange is not trying to increase again the gap in terms of services versus what you're doing, and whether that could be a challenge or not in your plan.
Thank you.
Our partnership with Telefónica is mainly to address very big companies, worldwide companies. Bouygues Telecom is offering to these companies services in France, when Telefónica is doing the same abroad. Our strategy in the B2B, we consider that our core business remains telecoms, and that's why we decided to acquire Keyyo and Nerim and not to acquire more cloud services company and things like that. Also, I think you had a question about the fiber. We are rolling out our FTTA and FTTO own infrastructures to be able, first, to link our mobile antennas to our core network by fiber, and second, to address with our own infrastructures companies with FTTO offers.
Regarding Colas in North America, clearly we are benefiting from a good weather condition, for sure, which is a part of the explanation. Also a relatively good structural situation. Don't forget that the figures of the first quarter, especially for North America, is very small compared to the full year.
All right. Thank you.
It's a good news, but clearly, we speak about very, and especially for North America, very small figures.
Okay. Thank you. You wouldn't extrapolate to North American market growth returning to positive basically this year?
We have another question from Alexandre Roncier from Exane. Sir, please go ahead.
Hi. Thanks for taking the question. I would just like to come back on the other revenue line for Bouygues Telecom, and if you can tell us a little bit about the change year-over-year, and more specifically, the drop-through to margin and what kind of mix we're seeing in profitability. Secondly, still on Telecom, if you could share us a little bit more about the net adds and the performance of your 4G box, and how has that evolved over the last few quarters. Thanks.
Your first question was about the sales from services.
It's more about the other line of revenue. X services, your revenue in Bouygues Telecom.
About other revenues. The difference between the total revenue and the cellphone.
Exactly.
We got two things. The first one is the revenues we have from CityFast for the construction of the FTTH infrastructure in the relevant area. Second, we add in this quarter an increase in handset revenue, due mainly to higher
On the 4G Box.
Sorry. 4G box. Well, we still have some good commercial performance for 4G box. No big change in dynamics with this offer. We are still very happy. The eligibility area is evolving in parallel with our advanced network. Now it includes around 10 million homes. Our customers are very satisfied with this offer. Today, satisfied or very satisfied. It's a good thing for us. Good offer.
That's very clear. Thank you very much.
Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad. We have another question from Thomas Coudry from Bryan Garnier Sir, please go ahead.
Yes, hello. Good morning. Just one question on telecoms, please. I would like to have your view on the fixed market and where the fixed market might be going. You have been the price leader in the fixed market for several years now. Orange is pushing ahead with its 2P offer. On the other hand of the market, Iliad has launched its Delta offer. I would like to have your point of view if we can really see a market going into premium and if there is room for price increases there also on the backlog as you are doing on the mobile side. Whether we should stick to a low price business as far as you are concerned. Thank you.
About the fixed market. The main subject is the fixed market is moving from DSL to FTTH. It is the big change from now maybe 18 months. About the two offers, one from Orange, the 2P offer, and the other from Iliad. We do not have a big impact from this offer. First, about Orange, just because it is a 2P offer, so without any TV. About the Delta box from Iliad, we do not have any impact, mainly because of the price, I think, which is very high. The fixed market now, we do not have a big competition in this market. This is still the same kind of offers with a 12-month period of promotion. One year promotion and then the regular price. The prices are mainly evolving to be more up, I would say, evolving up.
When we are moving customers from DSL to FTTH, we usually offer them a 12-month period of promotion. That's why at the same time you have increase in prices and more promotions due to the migration of customers from DSL to FTTH. As a result, even if our ABPU, we have a decrease in ABPU in the fixed, this Q1 compared to Q1 last year. If you look at the figure, we have been able to stabilize this ABPU compared to Q4 2018.
Okay, thank you.
Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad. We have another question from Giovanni Montalti from UBS. Sir, please go ahead.
Hello. Thank you. Two quick follow-up. Previously, among the other revenues you mentioned fiber and handsets. You didn't mention the build-to-suit towers you agreed with Cellnex. Any clarification on this point? Thank you.
Yes. That's right. My comment was on the difference on this line compared to Q1 last year. Last year, we already had a build-to-suit agreement with Cellnex. We still have it. There's no big change on this subject, on this line.
Okay, clear. Can you give us a broad indication of what's the breakdown between these three elements in your other revenues?
I'm sorry, I do not have the figures.
Sorry, a very final follow-up. Another analyst asked previously about the mix of your fiber net tasks in between wholesale and proprietary network. I understand you don't want to comment on this point, but maybe, if I look at slide 33, looking at your targets in terms of coverage in the different areas. You talk of 4.5 by the end of 2019 in dense areas, 6.5 million dense and 1 million in the RIP area. Can you give us an indication of which share of this coverage would be proprietary, and what would be wholesale agreements? Thank you.
In the very dense area, I think we presented that last quarter, with a big detail on the CityFast agreement. I would say that half of the very dense area will be proprietary of the infrastructures shared with SFR, and the other half it will be a rental fixed cost. Not a wholesale agreement, but a fixed rental cost. On the medium dense area, as you know, we are able to buy tranches by 5%, or to rent the infrastructure. The percentage of customers we have on the CapEx side compared to the OpEx side, I would say, evolving quarter after quarter. When we buy tranches, we are moving customers from a rental agreement to the CapEx side. That's why it's very difficult to have a precise figure of that because it's evolving each month.
On the public initiative network, we are mainly on a rental agreement basis.
Okay, thank you.
It seems that we don't have any more questions. I give the floor back to the company.
Okay, thank you much for joining us today. We will be announcing first half 2019 sales and earnings on the 29th of August. Should you have any questions, please contact our investor relations team. Thank you very much and have a good day. Bye.
Ladies and gentlemen, this concludes Bouygues first quarter 2019 results conference call. Thank you all for your participation. You may now disconnect.