Ladies and gentlemen, welcome to the Bouygues nine months 2018 results conference call. For the duration of the call, you will be on listen-only . However, at the end of the presentation, you will have the opportunity to ask questions by pressing star one on your telephone keypad. I am now handing you over to your host, Karine Adam-Gruson, Head of Bouygues Investor Relations, to begin today's conference.
Thank you. 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's 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 statements. 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' nine months results. With me in the room is Christian Lecoq, CFO of Bouygues Telecom. Following my comments, we will be answering your questions. To begin on slide four, I would like to highlight the very good commercial performance in all our businesses, as well as the strong results of Bouygues Telecom and TF1. First, all our businesses have achieved robust commercial performance. Bouygues Telecom net adds have accelerated in Q3 in both mobile and FTTH in a highly competitive market. At TF1, year-on-year TV advertising revenues increased by 7% in Q3 and by 2.5% for the nine-month period, driven by the FIFA World Cup and back-to-school programs.
The construction businesses are well-positioned in upbeat markets in France and internationally, with the backlog remaining at a record level at end September. Second, Bouygues Telecom continued to deliver strong earnings growth thanks to a strategy focused on reliable and high-quality networks and a simple and seamless customer experience. I share with you on October 18th, Bouygues Energies & Services has faced difficulties in the completion of three projects. Colas has experienced some challenges in its specialist activities in France in the road business and on a pipeline worksite. This led to a decrease in the nine months 2018 profitability for the construction businesses. However, net profit attributable to the group is up EUR 83 million year-on-year, benefiting from an increase in Alstom's net contribution. Turning to key figures on slide five. Sales were up 6% year-on-year, driven by all businesses.
Like-for-like and at constant exchange rates, sales increased by 4%. Nine months 2018 current operating profit of EUR 820 million was driven by the following factors. First, we benefited from a significant increase in the profitability of Bouygues Telecom in a highly competitive market with a year-on-year growth of EUR 51 million. Second, TF1 delivered good results despite the cost of airing the FIFA World Cup, thanks to an increase in TV advertising sales, new revenue sources such as the TF1+ Premium offer, and the business ability to adjust its cost structure. Third, Bouygues Immobilier's current operating profit grew EUR 17 million year-on-year, excluding the one-off impact of Nextdoor capital gain of EUR 28 million in Q3 2017. Lastly, we experienced a decline at Bouygues Construction and at Colas, as previously explained.
Nine months 2018 group current operating profit also included EUR 17 million related to the cost of acquisitions, as well as the purchase price allocation recorded in TF1's Q3 2018 accounts. Please keep in mind that the PPA related to the recent acquisition will be booked in current operating profit as soon as they are finalized. Operating profit was stable compared to the same period last year, slightly above EUR 1 billion. It included notably non-current income of EUR 110 million in Q3 2018 related to the 1800 MHz frequency charges at Bouygues Telecom. Let me explain this. At end 2014, the Conseil d'État cancelled the decree published in March 2013, increasing the tariff of the 1800 MHz frequency fees used for 4G. While waiting for the publication of the new decree establishing the tariff, Bouygues Telecom maintained a prudent approach and continued to book charges at higher levels.
At end Q3 2018, the French state confirmed that it was maintaining the tariff at its historical level with no increase. As a result, Bouygues Telecom cancelled the charges accounted for prior 2018, generating non-current income of EUR 110 million. Net profit attributable to the group increased from a year ago, including Alstom's contribution of EUR 230 million in nine months 2018, a EUR 125 million increase over last year's contribution. Let us now turn to slide six to see the net debt evolution from end December 2017 to end September 2018. On slide six. Net debt was EUR 5.5 billion at end September 2018, up by EUR 3.6 billion compared to end December 2017. Compared to September 2017, net debt was up by EUR 1.8 billion. The increase over a year end is explained by several items.
First, an outflow of EUR 1.6 billion in acquisitions and disposals coming mainly from the following three acquisitions: Miller McAsphalt by Colas in Q1, aufeminin by TF1 in Q2, and Alpiq Engineering Services by Bouygues Construction and Colas in Q3. Second, EUR 138 million decrease in the line other, due mainly to share buybacks and the exercise of fewer stock options. Third, the usual business seasonality. Regarding change in operations, you can see that it is improving compared to the same period last year. Turning to the breakdown of operations, slide seven. You can observe that net cash flow increased by EUR 123 million year-on-year, driven by Bouygues Telecom and TF1. Net CapEx is up EUR 216 million, due mainly to Bouygues Telecom. Last, working capital requirements decreased by roughly EUR 150 million year-on-year, benefiting from an improvement related to operating activities.
We still expect net debt of around EUR 4 billion at year-end. I will now turn the review of operations, starting with the construction businesses. Let's begin with the backlog on slide 10. The commercial momentum in our construction businesses remained strong in the third quarter of 2018, in line with the first half trends. Indeed, the group construction business's strength and its positioning as developer, builder, and operator bring us favorable competitive advantages in markets demonstrating strong worldwide demand over the long term. The backlog evolution at end September 2018 reflects the trend we explained to you during our capital market days. First, the backlog at end September 2018 of EUR 33.8 billion reached once again a record level, up 13% year-on-year and up 15% at constant exchange rates, reflecting a higher demand for more complex and sophisticated projects.
Second, the Bouygues Construction and Colas international backlog was 59% of total backlog at end September, compared to 56% over the same period last year. This demonstrates growing globalization in the construction sector. Third, 49% of Bouygues Construction's backlog at end September 2018 has an execution date of more than two years, versus 35% ten years ago, illustrating the longer duration of the projects. Let us now turn to France, where we have good visibility, as illustrated on slide 11. In France, commercial momentum is good, with a backlog at end September 2018 up 5% year-on-year.
This momentum is driven by tenders for the Grand Paris projects, demand for renovation of buildings and infrastructure, the construction of new complex projects, and the need for maintenance in roads and rails. Some significant contracts have been booked in Q3 2018, including the laying of track and catenary on Line 15, South-East of Grand Paris, for EUR 108 million. The renovation of the 17 Boulevard Morland, an old administrative city in Paris for EUR 146 million. This project is one of the 22 sites in the call for tenders for Réinventer Paris. Outside of Paris, CO'MET, a unique program bringing together a concert hall, an exhibition center, and a sports hall in Orléans for EUR 107 million. Let us now move to international markets, where the construction businesses achieved strong commercial performance. International markets are globally dynamic, especially in countries where the group has a long-standing presence.
In this environment, the international backlog was up 20% year-on-year, excluding Miller McAsphalt and at constant exchange rates. Orders for the quarter notably include two major contracts. The construction of the main tunnel for the M4-M5 WestConnex link in Sydney for around EUR 650 million, and the construction of University of Cambridge's physics laboratory for EUR 281 million. Let's now move to the nine-month results for the construction businesses. Turning to slide 13. We're up 6% year-on-year and up 4% like-for-like at constant exchange rates, reflecting the good commercial performance of our construction businesses in France and abroad. The construction business's current operating profit was EUR 406 million compared to EUR 579 million in the nine months last year. I would like to focus on the following points. First, the increase in profitability at Bouygues Immobilier, excluding the Nextdoor one-off impact of EUR 28 million in Q3 2017.
Bouygues Immobilier's ninth-month current operating margin reached 6.5%, up 0.9 points year-on-year. Second, the strong performance of building and civil works activities at Bouygues Construction, with current operating margin at 4.1% in the nine months, improving by 0.4 points year-on-year. This level of margin is particularly high compared to a normative level of 3.5%. You know perfectly that we can be above or below this level, depending on the start date of new projects in the pipeline. Third, Colas performed well in roads in France in the nine months. Sales in the roads business were up 10% in France, and current operating margin was up 0.4 points in the first nine months of 2018 compared to the same period last year. Now, let me turn the call over to Christian Lecoq.
Thank you, Philippe Marien. As you will see, Bouygues Telecom's very good commercial momentum has continued, with a strong financial performance in Q3 2018. Starting with slide 15, you can observe that we maintained very good performance in mobile during the quarter, despite heavy promotional activity in the market. We won 475,000 new mobile customers in the third quarter of 2018, of which 199,000 were new plan customers, excluding M2M. At end September 2018, Bouygues Telecom served 15.8 million customers. All in all, 1.4 million mobile customers have joined us in the first nine months of 2018. This success is a result of our strategy in mobile since end 2013, to differentiate through the quality of our 4G network, which improves customer service.
According to ARCEP customer survey, and as shown on slide 16, Bouygues Telecom is ranked number one in rural areas and all the towns of less than 10,000 inhabitants, in voice, SMS, and mobile broadband. Bouygues Telecom is recognized second on average in France, thanks to the quality of its mobile network. This excellent position is acknowledged notably in rural areas, where we are ahead of SFR, while we have the same coverage and share the same network. It demonstrates the quality of our technical network teams. Bouygues Telecom continues to strengthen its leadership in 4G through coverage, densification, optimized frequency, and network management. At end September 2018, Bouygues Telecom attained 98% 4G coverage and expects to reach 99% at end 2018.
In urban areas, Bouygues Telecom is finalizing the completion of the shared network with 87% rollout at end September 2018, and 95% expected at end 2018. In dense areas, we anticipate having 2,000 additional sites by 2022 to densify the number of sites and prepare the arrival of 5G. In parallel, Bouygues Telecom has optimized its network configuration and reallocated bandwidth to 4G to offer higher speeds to customers through spectrum aggregation. After the 700, 800, 1800 and 2600 MHz bandwidth, it is now the 2100 MHz that can be used for 4G. Moving to slide 17, we see that FTTH net adds are accelerated in Q3 2018. Bouygues Telecom won 71,000 new FTTH customers in the third quarter of 2018, resulting in a total number of FTTH customers of 467,000 at end September 2018.
FTTH customer base has more than doubled compared to one year ago and represents 13% of the fixed customer base. We expect this positive trend to continue, supported by an increase in premises marketed and the success of our new range of o ffers launched last April. At end September 2018, Bouygues Telecom had a total of 6.3 million marketed premises. The number of premises marketed will continue to accelerate in 2019 in order to meet our goal to market 12 million premises by end 2019, and 20 million premises by 2022. Overall, the total customer base reached 3.6 million broadband users at end September 2018. Slide 18 highlights the sharp increase of Bouygues Telecom's profitability in the first nine months of 2018. Total sales were up 6.5% year-on-year.
Sales from services were 5%, thanks to continued growth in the customer base and the positive impacts of the launch of a new range of fixed and mobile offers in Q2 2018 in a highly competitive market. In the third quarter of 2018, mobile plan ABPU slightly increased compared to the third quarter of last year, and fixed ABPU stabilized at EUR 25.5 per month compared to Q2. EBITDA for the nine months was EUR 931 million, an increase of 16% year-on-year. Moreover, EBITDA margin on sales from services was up 2.7 points to 29.4%. Excluding the impact of the 1800 MHz frequency charges, EBITDA margin would have been up 2.1 points. This is due to the fact that 2017 EBITDA would have been higher without the provision we accounted for last year for the use of our 1800 MHz frequencies.
Operating profit was 44% compared to the first nine months of 2017. In Q3 2018, it notably includes non-current income of EUR 110 million related to the 1800 MHz frequency charges accounted for prior to 2018, as explained previously by Philippe, and EUR 60 million related to the transfer of sites to Cellnex. Gross CapEx of EUR 920 million in the first nine months is in line with expectations for 2018. I would like now to focus on our B2B segment. Looking at slide 19, the B2B market represents a strategic priority for Bouygues Telecom. Bouygues Telecom Entreprises is today the third B2B telecom operator in France, thanks to continued investments in proprietary mobile and fixed infrastructures and high-quality customer service. It offers a full range of mobile, fixed internet, and network innovative solutions, as well as related services such as digital, cloud, and security.
Its mobile market share is over 20% in France, with a presence in 35% of large companies and 10% of SMEs. In fixed, the market share is lower at around 3%, but growing steadily. Our ambition is to strengthen Bouygues Telecom Entreprises' position in both mobile and fixed. First, by expanding fixed market share on new innovative services for large companies and mid-sized businesses. Second, by increasing mobile and fixed market share in the fast-growing SME segment, notably through external growth. This explains why we decided to undertake negotiations to acquire a 43.68% interest in Keyyo Communications. Let us now move to slide 20 to give you more details on this company. Keyyo Communications is a telecom operator targeting exclusively SME and mid-sized businesses, which represents a market of around EUR 3.5 billion. Keyyo Communications benefits from strong assets.
A well-known brand with an excellent customer satisfaction level, a strong expertise in marketing and advanced digitalization, and simple, reliable, and competitive solutions with a fully internal control technical platform. It will bring complementary virtual and convergent offers in fixed with a strong expertise in advanced digitalization to Bouygues Telecom Entreprises. Keyyo Communications has a customer base of 14,000 clients and 200,000 end users. For 2018, sales are expected to be up 30% compared to 2017, with current operating profit of EUR 3.1 million. Keyyo Communications is a Paris Euronext Growth-listed company. Bouygues Telecom will acquire a 43.6% interest in Keyyo Communications in an off-market block trade priced at EUR 34 per share. The EUR 34 price share values 100% of the share of Keyyo at around EUR 67 million. The public tender offer is expected to close during H1 2019, and the completion of the transaction is subject to usual conditions.
Thank you, Christian. I would like to briefly comment on the financial statements. We have already looked at sales and current operating profit shown on slide five. Let us now have a look at other income and expenses contributing to operating profit on slide 22, which shows an improvement of EUR 116 million year- on- year. This improvement is explained mainly by the non-current income of EUR 110 million as Bouygues Telecom has said before. Cost of net debt decreased slightly. Turning to slide 23. You can see that income tax expenses increased slightly, leading to an effective tax rate of 30% for the first nine months 2018. Moving to the associates and joint ventures line, the change is explained by Alstom's net contribution of EUR 230 million in the first nine months 2018, versus EUR 105 million in the same period of last year.
Finally, we will turn our attention to the outlook for the full year. As you can read on slide 25, and as stated at the beginning of this call, we confirm the outlook shared with you on October 18th. This concludes my presentation. Operator, please open the floor for questions.
Okay. As a reminder, we do have some questions coming through. But if you would like to ask a question, it's star one on your telephone keypad. Okay. Our first question comes in from the line of Nicolas Cote-Colisson from HSBC. Please go ahead.
Hi, good morning. First question on telecoms. Mobile ARPU growth has accelerated into three, despite a very strong push on promotions in September. On the other side, your broad ARPU is under tremendous pressure at -5.6%. Can you explain the underlying factors driving both ARPUs? My second question is on energy and services. Obviously, you had big losses in the U.K. Just wondering if you have a specific strategic plan to reorganize the overall operation. If yes, what could be the role of Alpiq and eventually, what could be done in France where energy and services appears to be a subscale to me? Thank you.
About the ABPU. First, on the fixed, yes, we have a decrease in ABPU compared to Q3 2017, but the level is stable compared to last quarter. The decrease compared to last year is the same things as last quarter. We have a decrease in commissioning costs from around EUR 60 paid at the beginning by the customer to EUR 30. We still have the effect of the promotions, we also have a mixed effect because the weight of the cable offer in our install base is becoming smaller and smaller, and these kinds of clients have a higher ABPU. It is undefined about the mobile. We are very happy to be able to stabilize our ABPU due to the fact that we are able to monetize the quality of our network and the quality of our services while following promotions made by competition in the SIM-only mobile segment.
Regarding energy and services. First, the very poor results and the losses are coming from three very specific and unique projects, in fact. First, we have to deal with these three projects. One is under contractual and legal discussion with the client, and the two others are under commissioning phases. We are totally under operational issues and a set of measures. More generally, regarding Bouygues Energies & Services, we have to improve the profitability of this activity as a whole, mainly by moving from a lower margin generation type of businesses to higher margin generation business. It was, in fact, the move that we have done with these three projects. Unfortunately, the start was not good, the idea remains the same: to move to a more industrial activity. We will put that in place in the coming months. That's for Bouygues Energies & Services.
Alpiq will help Bouygues Construction to reinforce its energy and services activity as a whole, we don't want to merge the two companies. Clearly, Alpiq has some very good expertise in terms of industrial activity, in terms of power stations construction and activities. We will reinforce the general activity, we don't want to use Alpiq to help Bouygues Energies & Services. We will continue to split the two activities under the leadership of Bouygues Construction.
Okay, thank you.
The next question comes in from the line of Tomas Moreno de Guerra calling from UBS. Please go ahead.
Hi, good morning.
Good morning.
Hi, good morning. I just had a question about your Australian JV with Lendlease. I had two questions, actually. The first one being, are you consolidating the results of this JV? My second question is, Lendlease announced last week a $350 million provision due to difficulties in NorthConnex, which is a project that is managed by this JV, with you. Do you expect to report any losses in relation to this project going forward? Thank you very much.
Yes. Regarding the first query of Lendlease, unfortunately for them, the only reason of their provision is not the NorthConnex project. NorthConnex is part of their provision. For sure, we are facing some difficulties on this project with Lendlease, and obviously, we already booked overruns on this project in the nine months, for sure. However, as you have seen, we were able to deliver a global margin of 4.1% in our building and civil works activity to demonstrate that we have also very good projects in front of this one project with some overruns, for sure. That's the response for the NorthConnex project. Obviously, we are totally involved in this project, and we take our share of our overruns. As you have seen, this overruns on this project has no negative impact as a whole for the profitability of the building and civil division.
Recognize losses in relation to this project during the nine months results.
Yes.
Okay. Thank you.
It's part of the very, very good profitability of building and civil. You know, our life is made on a daily basis with a series of good projects, a series of very good projects, a series of bad projects, and a series of very bad projects. In fact, the point is to have a good balance between all these elements. Unfortunately for us, during Q3, we had these three projects regarding Bouygues Energies & Services specifically, and the balance was not good in the Q3. Life is made of good and bad projects in this business. Again, I repeat the explanation of the whole provision of Lendlease is not linked only to the NorthConnex project.
Sorry, in relation to my first question, you are then fully consolidating the results of this JV?
Yes, for our share. It's a joint venture, so we take our share, so 50% on this project.
Okay, thank you.
It's part of our operational results. As for every JV, there is no difference between this one and all the JVs we have all over the world.
Okay, thanks.
The next question comes in from the line of Frédéric Poulin . Please go ahead.
Hi, Fred at Bank of America. Thanks for taking the question. First of all, I would like to come back to the previous question on mobile ARPU in particular. We're seeing offers from Bouygues Telecom at EUR 5, EUR 10. I'm just trying to understand what the percentage of gross adds you're making on those very cheap offers, and what the dynamic you're seeing elsewhere in terms of upselling to drive overall ARPU to increase. Secondly, we're seeing strong growth in other telecom revenues outside of service revenues. Can you detail, for instance, for the first nine months out of EUR 760 million of revenues, what's the margin hardware versus tower cell? What's recurring from non-recurring, if we look at this business stream in a couple of years?
More broadly on the construction side, maybe a month after the warning, if you could come back a little bit on your view on what you call normalized margins. For instance, in the construction side overall, do you think as early as 2019, we can go back to above 3% levels and towards your normalized margins? If you could shed a bit of light on phasing here. Thank you very much.
I start with your last question. Regarding the evolution of the margin in construction, there is absolutely no change from our point of view with what we have said on the October 2nd during the capital market day. We remain with the same idea of what we call normative margin in the construction for Colas, Bouygues Construction, and Bouygues Immobilier. Absolutely no change. Around 3.5% for building and civil works and Bouygues Construction, between 3.5 and 4 for Colas, and around 8% for Bouygues Immobilier. We remain with this idea. Again, the counter-performance of 2018 is only due to these one-shot issues. Regarding the precise target for 2019, we will explain that at the beginning of the year, when we achieve our plans, and we will present our 2018 results. Same target for 2019. We will speak about that beginning of 2019.
I will answer about your two telecom questions. I will begin with the amount of other sales revenue. The other sales revenue has increased by EUR 30 million in Q3 2018 compared to Q3 2017. This increase is explained by mainly three elements. First, we had an increase in terms of accessories and handsets sold to our clients. Second, as you said, we have the effect of the Cellnex contract with a positive impact on sales but a margin impact on EBITDA. Last point that you will see also the next coming year, due to the way we are accounting for the connecting the revenue and the cost for connecting FTTH customers. We have revenue coming from the building operators. We have also costs to pay to the building operators. Third, we have second costs to pay to the subcontractor.
You have a kind of revenue, but it's not a real revenue, I would say. It is increasing this year because we have more FTTH subscribers, and it will continue for the next years. About the mobile ARPU, we'll just remind you that in the mobile market, there are two segments. First, the sole segment, which represents less than one-third of the mobile market in terms of value. We value this market at around EUR 4 billion. The competition on this mobile market is very, very strong on the sole market, with promotions, flash sales, lifetime tariffs, and so on. The volume of growth add is very high on this market, and the churn rate is also very high.
It is not very important because we do not have some variable commercial costs for growth adds made on this market because this is a new web-only market. You have the high-end offers. The market is quieter, so around EUR 8 billion per year in term of value. We are very happy with our market share on this market. We meant to continue to focus on monetizing the quality of our network, of our 4G network. We present you that we are now number one in rural areas in France, number two in average for our mobile network quality. Also, to monetize on this market the quality of service. We are able to upsell our clients, to sell them more services, to upsell them to a bigger offer with newer services, more data, and so on.
That's why the mix of that we are able to stabilize our ARPU, while we are able also at the same time to continue to increase our number of clients.
Thank you. Just a follow-up on other sales. If you could give us a rough idea at this stage for the first nine months, what is split into three different brackets into what handsets, what sellback contract-
Sorry, we do not disclose that.
Thank you.
The next question comes in from the line of Thomas Coudry. Please go ahead.
Yes. Good morning. Thanks for taking my question. A question on the telecoms on your guidance, actually. Given the performance that you've delivered over the nine first months of the year in terms of EBITDA and growth in services revenue, I'm wondering why you're not being more specific or ambitious in terms of full year guidance as far as sales from services growth is expected, and also as far as EBITDA margin is expected. Concerning specifically the EBITDA margin guidance, can you please confirm that the guidance is also true if we're excluding the impact of the cancellation of the provisions of the 1,800 MHz frequency? Thank you very much.
About the turnover guidance, we do not change our guidance. It is more than 3%. I always said that the important term is more, it will be more than 3%. We do not have any guidance in EBITDA level and EBITDA margin. About the consideration of charges, what is exactly your question? Sorry.
Well, you have a guidance of EBITDA margin should be higher than in 2017.
Yes.
I was just wondering if that guidance was also true if we were taking the 2017 basis, excluding the provision on the 1,800 MHz fee.
The 2018 EBITDA is, I would say, the real one, because we do not have any more this kind of charges in our EBITDA. What you should do is to restate the 2017 EBITDA to have the real level of last year EBITDA. With that, you will be able to compare the margin of last year to the margin of this year. I think that we gave you all the figures to be able to do that. As we said to you, that the difference for the nine months between last year's EBITDA without 1800 MHz frequency charges and the EBITDA of this year is 2.1 points, if I recall the figures. Yes.
Okay, thank you.
You have all the figures to calculate.
The next question comes in from the line of Jakob Bluestone. Please go ahead.
Hi, good morning. It's Jakob here from Credit Suisse. Couple of questions, please. Firstly, just on the construction side. When you pre-announced, you mentioned that you weren't expecting any spillover effects apart from the rail strikes, I think, into Q4. Can you just confirm that is indeed still the case? As Q4, I guess it'd be a slightly cleaner quarter. Secondly, on the telecom side, on the Keyyo acquisition, can you maybe comment on what sort of synergies you see? Presumably, you need to get to majority ownership before you can realize those synergies. Finally, on spectrum in France, can you maybe comment a little bit on your sort of expectations about the three and a half GHz license allocation, which I guess is next year?
Given what we've seen in Italy, do you see any risk of sort of runaway auction in France, or is your sense just generally that the French authorities are pretty rational these days and not trying to maximize proceeds? Thank you.
Regarding your first question, definitely we confirm that we have taken all the negative impact in Colas Rail. We will have what you call a cleaner quarter. The fourth one will definitely be clean regarding the negative impact in Colas Rail.
First, for your question on Keyyo. Our main goal by acquiring Keyyo is to be able to increase our market share, of course, but also Keyyo, as I said, very good assets in terms of IT, good client-
Process
Good client process and so on.
They are very digital.
They are very digital, very good thing for us. I cannot speak to you about synergy level, as they will be IPO. I cannot disclose anything before the AMF prospectus. Your last point was about 3.5 GHz frequency. We do not know now if there will be some auction or not. Of course, if there is an auction, we will look at them, and if there is no auction, we will also look at this band, because this band is very important for 5G. We hope that the price won't be the same as in Italy, because we think that the French government's main goal is to split frequency equally between all operators as they did at the beginning of this year with the New Deal signed between all the four operators and the government.
Thank you very much.
No more questions? Operator. Operator, please. No more connection.
Hello. I can confirm you are still connected in the conference.
Okay. Next question.
The next question comes in from the line of Josh Hallett. Please go ahead.
Hi, guys. Thanks for taking my question. My first question is just on your performance, particularly on mobile, is pretty remarkable given where the market is. I was just wondering if you could explain why you think you're doing so much better than competitors and where you think you're taking subscribers from. Then, that being the case, I was just wondering, is your view on consolidation still that you think this is something that's very positive and should be done, or are you kind of happy with just carrying on growing organically? The final question on that consolidation point is Altice the only realistic option, given you already have integrated? You've done a lot of work together on the infrastructure on the fixed and the mobile side. Does that mean that basically it's the only option if it came to M&A in France? Thanks very much.
Regarding consolidation, again, the consolidation is absolutely not on the agenda for many reasons. The first of them is the fact that there is no seller. If there is no seller on the market, obviously, consolidation is not possible. Again, I repeat that in case of possible consolidation, Bouygues Telecom will consider a consolidation deal as the actor of the consolidation. We want to remain in this business, and if we are able to grow in this business, why not? Again, there is absolutely nothing today leading to think about that. Our target is clearly to develop the company and to take benefit from our positioning and to continue to grow and to reach the level of free cash flow we want to reach. Regarding the dynamic of the market and the reason of our good dynamic, Christian?
Yes. The result of our good dynamic is the result of our strategy in mobile. We are now increasing our market share in total. The impact of the free cash flow is not all of the free cash flow after working capital requirement is at zero, excluding taxes, because of course, we have some tax due on the profit we made this year. Your second question was about our percentage of clients in our fixed broadband that are in promotion. We do not disclose this kind of information. It's very difficult to give you an answer because you have clients, of course, at maybe EUR 5. You have the clients at 10, you have clients at 15, at 25. Where do you put the level below the one you consider your clients are in promotion?
Remind you that in the fixed market, all operators have lower tariffs for the first year for their clients. The first year, when you take some clients during the first year, the clients are at a lower level, but not at a very big level of promotion. It could be clients, for example, at EUR 19 for the first year and then maybe EUR 29 the year after. Your last question was about our number of clients in cable. We do not disclose this kind of information at all. The number of clients is decreasing very quickly, and they were very high in the past. Now we are migrating these clients to our FTTH infrastructures.
Could I just follow up, please? Thank you for that. In terms of fixed broadband ARPU, in the grand scheme of things, are you confident that we will see some sort of improvement in that fixed broadband ARPU trend? I mean, there must be a lot of customers on promotional pricing at the moment. As those customers go back to list, would that make ARPU should improve?
In the fixed market, our strategy is still the same. We want to attain 4 million customers in the midterm, so let's say two or three years. Our marketing strategy is focused on that and not on ARPU. Also, I remind you that globally, we are not focused on our level of ARPU. What is important for us is the growth in terms of turnover billed to the client, revenue billed to the client. That is the important figure.
Thank you.
The next question comes in from the line of Eric Lemarié. Please go ahead.
Yes, good morning. I got three questions, if I may. First question, what is your current perceptions of the margin within your backlog today? Second question, what is the impact of Alpiq in your order intake and order book figures at end September? I suspect it is small, but just checking. The last question regarding Bouygues Immobilier. Reservations are down 9% in the residential segment. When do you think this decline will be translated into a new decline? Thank you.
Alpiq has absolutely no impact in our end of September figures, neither in terms of backlog, nor in term of net sales, not in terms of results. No impact for Alpiq except obviously in our balance sheet in termsreservations of acquisition, but no impact in terms of operational figures. Regarding Bouygues Immobilier, clearly, we have a decrease in reservation mainly in the private investor segment. You know that we have seen that since the beginning of the year. In fact, compared to 2017, when this segment was at a very high level, thanks to low interest rates and the Pinel laws, or the buy-to-rent scheme. The effect is decreasing in 2018, and it is true for the whole sector. Nexity and Kaufman had the same comment as us. Clearly, even if the product is a good one, the financial environment is good.
The general environment is not good for this type of investor because of a relatively negative speech from the French government and from the French president regarding real estate investors. The increase of all the taxes, the new tax regarding the property and no more financial investment. The withholding tax for the future income tax in the future. All this negative noise are not good, and the result of that is clearly a relatively big decrease in terms of reservation on this segment. Despite that, and even if it is a decrease compared to 2017, if you look at a longer period, clearly we have a relatively good level in absolute term in term of reservation. The consequence of that in term of net sales is with a time lag of 18 months, something like that.
Okay, 18 months. What about your perception of the margin today in your backlog for construction and Colas? Do you think they are above or below the other-
No. There is no specific comment on the margin in the backlog. We see no real movement, increase or decrease.
Okay. Thank you.
The next question comes in from the line of Alexandre Roncier. Please go ahead.
Hello. Thanks for taking the question. I just wanted to come back on the 1800 impact at the telecom unit. Can you just clarify if the impact and the adjustment is evenly split across every quarter, and thus if you can extrapolate the nine months into the full year for the comparable basis next year? Secondly, on the profitability and the organic improvements still on telcos, is there any specific action you've had on your cost base, or is that just directly flowing through from your increased service revenue? Secondly, on that same question, if you could give us a little bit more color on how much is actually driven from the shared network rollout with SFR and what's left, given your target of 95% rollout on your shared network by 2018 end. Thanks.
First, about the 1800 MHz frequencies. As the decree taken by the government has been published in Q3, all the impact has been taken by us in Q3. We are accounting for these charges, these provisions, last year and the year before, and also in Q1 and Q2 2018. We reverse this provision in non-current income for the period before the end of 2017 and EBITDA for the charges we have taken in Q1 and Q2. You have a positive impact in Q3, but no impact if you look only at the nine months period, because there is no more 1800 MHz frequency charges in our account for this total year. Clearly, the first nine months 2019 are a total normal year regarding this item.
Okay, if I can just follow up on that. If I want to just rebase 2017, Q1, Q2, and Q3, I can evenly spread the difference between your organic improvement and reported improvement.
Sorry, I didn't catch what you said there.
It's just with the fee that you were provisioning before, were you provisioning the same amount across every quarter or-
Yes.
Yes, okay. That's clear.
Your second question was about the improvement on our EBITDA. Of course, a big part of the improvement is coming from our service revenue growth. We also still focus, of course, on our level of cost. We expect to have in the next coming years improvement coming from FTTH due to the fact that we won't have to pay any more fees to Orange for the copper local loop. Your third question was about- How much driven by share network? Is our market share driven by our share network with SFR? Yes, we are improving our market share in the rural areas thanks to this network. In some parts of France, our market share was very low. We are also increasing our commercial presence in this part of France, and we will roll out some shops in this part of France next year.
That's very clear. Thanks.
You're welcome.
The next question comes in from the line of Giovanni Montalti. Please go ahead.
Thank you. Good morning. Can you give us some more color about current trading in France on the telecom market? Is there any sign of improvement or any sign of further deterioration? Leaving consolidation aside, do you think current dynamics that apparent are pretty tough, especially at the low end of the market, are sustainable into next year? You would expect the same level of commercial intensity, promotional intensity in 2019? Thank you.
About the current trading in telecom in France, I just would like to remind you that Q4 is always, as each year, a very promotional period because in Q4 you have Christmas sales, and unfortunately, Christmas appears each year. I think it will be the same this year. We will see. The current dynamic is still the same, very high level of promotion in the mobile business on the SIM-only mobile market. As I said, the premium market is much quieter with the ability to sell quality to our clients. On the fixed we still have some promotions. It was the case especially in Q3 because you have the back-to-school period in September, which is a special period for the fixed because this is when a family is moving from a house to another one.
In September, especially, you are able to take some clients in the fixed better than on other periods.
Sorry, if I may, on the 2019 outlook, do you think market dynamics as they are today are sustainable? Do you think selling-
I don't know. We will see. What is important for us is the growth in terms of sales. It is not by ABPU that we will increase our profitability. It is with our sales growth, and we'll continue to focus on this next year. You can have a decrease in ABPU just because of a mixed effect. For example, if you take a huge number of clients in the SIM-only mobile market, but still have a stable level of clients in the premium market, you will see a decrease in terms of ABPU. This is a positive impact in terms of total sales. Don't focus too much on ABPU. It is not the good indicator.
No, that's clear. If I may, I just wanted to understand if very aggressive promotions like selling SIM-only for EUR 5 with zero data allowances for life, this type of dynamics, at some point, aren't you worried that this may represent a drag also for the premium market? If the low end of the market goes too low, at some point there could be some spillover effect also at the higher end of the market. Do you have any concerns on this side?
We are not the best to answer to this question we never start the promotion. We only answer to promotion. Please ask this question to the promoter of this very aggressive policy, you will have an answer. For us, we only be in the position of duplicate a promotion. If the promotion continue through some actors, definitely we will continue to reply. If there is no more big promotion, we will come back to a smoother situation. Clearly, the aggressivity of the market doesn't depend on us.
Very clear. Thank you very much.
Operator?
We currently have no further questions coming through. One last reminder, it's star one on your telephone keypad if you would like to ask a question.
No more?
We have no further questions coming through.
Okay. Thank you for joining us today. We will be announcing full-year 2018 sales and earnings on February 21st, 2019. 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 the Bouygues third-quarter 2018 results conference call. Thank you all for your participation, and you may now disconnect your handsets.