Bouygues SA (EN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Bouygues Conference Call on EQUANS. I'll now hand you over to Karine Adam, Head of Bouygues Investor Relations. Please go ahead.

So this is not Karine Adam speaking. It's Olivier Roussat speaking. Good afternoon, everyone, and thank you for being with us to discuss the proposed EQUANS transaction. With me in the room, there is Pascal Grange, Deputy CEO and CFO of Bouygues. Before starting this call, I remind you that we cannot talk about the 9 months 2021 figures as we are in the quiet period. They will be disclosed next week on Tuesday 16th. So now this clarification has been made, let's talk about our strategies. Let's go to the Slide 3. As we had explained during the first half 2021 results, our strategic target intend to strengthen the positioning of the existing business segments as they are all present in promising markets. In our environment, driven by energy transition and the growing needs of our customers to decarbonize, we also want to grow the portfolio of sustainable products and services to save new business opportunities. Last, we want to differentiate through innovation, quality and proximities. Our development strategy is selective and disciplined to maintain a robust financial structure and promote value creation. In the first half 2021, we achieve a first milestone with a proposed merger of TF1 and M6 to create a major French media group. Colas has also announced the acquisition of Destia to reinforce its exposure in Northern Europe. Today, we achieve a major strategic move in the Energy & Services sectors with the proposed acquisition of EQUANS. Slide 4, indeed the 3 major transitions underpin the Buoyant multi-technical services market, as we show on the Slide 4. First, the energy transition with the expected increase of energy demand in electricity in Europe; second, the digital transition resulting from the surge of data and need for connectivity; and third, the industry condition with increased automation and IT integration. These 3 global market trends offer long-term growth opportunities. Slide 5. Furthermore, as we have a light on this slide, the energy and services market offer an attractive and resilient business model with strong value enhancing fundamentals. First, a wide diversified and loyal customer base with a low average contract value, providing resilience and a high level of recurring revenues. Second, this is asset-light activity, recurring limited CapEx. Third, they generate strong cash flow, providing a solid financial profile. Slide 6. In this environment, as shown on this slide, we consider EQUANS has a unique opportunity to boost Bouygues development into multi-technical services. Indeed, the combined entity will be a French-based -- France-based global player in the strategic sector with strong development opportunities. It will become the group's first business segment in terms of number of employees and also in terms of turnover, and it would strengthen the resilience of its business model. Moreover, we have a long-term vision and are committed to supporting the combined entity. I will now hand over the floor to Pascal Grange, who is going to present an overview of EQUANS and the rationale behind the proper transaction.

Thank you, Olivier, and good afternoon, everyone. Let me start by reviewing the main businesses of EQUANS. EQUANS is present in 5 key segments of multi-technical services, HVAC and refrigeration, electrical engineering, mechanical engineering and robotics, facility management as well as digital systems and telecom networks. It also has other smaller activities such as apartment building renovation activities and asset-based activities. EQUANS brands are strong. In particular, Axima is identified as a leader in HVAC. Ineo is well known in electrical services and Fabricom is a recognized brand in multi-technical installation services in Belgium. EQUANS is the world's #2 player in the energy and multi-technical services market with strong positions in France, Belgium, the Netherlands and the U.K. and sizable footholds in North America, Central and Eastern Europe, Latin America as well as Australia and New Zealand. The combination with Bouygues Energy & Services will offer promising development opportunities. As we highlighted on Slide 8 and based on 2020 revenue, the combined entity will become the second largest multi-technical services company following [ Vacin ] Energy, combined with ATS Energy business and well ahead of the next competitors. Just a quick word on the structure of our operations. Bouygues SA will buy EQUANS from ENGIE. Following the closing of the acquisition of EQUANS from Bouygues SA, Bouygues Energy & Services will be separated from Bouygues Construction and will be contributed to [ recourse ] to build a strong and unified business dedicated to multitechnical services. Bouygues SA will own 100% of the combined entity. As you can see on Slide 9, the new entity will have very good graphical -- geographic complementarity with limited overlap. It will operate in more than 20 countries worldwide with robust positions in the main European countries and promising opportunities for expansion in North America. In combined entities, we enjoy a significant share of its revenues in international markets as shown on the right side of the slide. This new entity will also enjoy a dense branch network in France and Switzerland that will bring the business closer to local customers. Geographic complementarity is not the only strength of this deal. The combined entity will be perfectly placed to grasp new business opportunities and to accentuate its differentiation by leveraging its innovation capability, business quality and local footprint. The new entity will offer services along the whole value chain that will be enhanced by the respective strengths and the expertise of each group. EQUANS is well positioned in electrical engineering and telecom via Ineo in climate control via Axima and in multi-technical installations via Fabricom, EQUANS also has an established expertise in specialized segments such as the public transport, process industries and defense and marine industries. Bouygues Energy & Services is strong in telecom, transport and energy infrastructure as well as facility management and industrial and property maintenance. This business [ on ignition ] will also provide opportunities to employees who are the heart of the Bouygues group approach. As evidenced on Slide 11, the combination of EQUANS and Bouygues Energy & Services will create a team of around 96,000 employees united by common values. The deal will generate many attractive long-term carrier opportunities within the group business segment, both in France and internationally. Employees will have access to high-quality skills development and training programs. Furthermore, the Bouygues Group pledges to carry out no forced redundancies in France and Europe for at least 5 years from the deal's date of completion. The group also commits to create over 10,000 net new jobs over the next 5 years in response to the expected strong demand growth for the various services provided by EQUANS. Finally, EQUANS employees will have a strong incentive to drive value creation within the new entity. We have the phased alignment of employee benefits to match gradually those already offered by Bouygues. We estimated that the potential for synergies at the current operating profit level under normal operating conditions are between EUR 120 million and EUR 20 million, as we explained as we explained on Slide 12. The vast majority of these synergies are in procurement coming from volume massification and price alignment. The other part will come from revenues on the selling, general and administrative expenses. Ahead of these synergies will have some one-off cumulative costs of around EUR 60 million to implement them. We are convinced that this deal will clearly create value over the long term, as shown on Slide 13. Value creation will come from 3 main sources: first, the strong improvement in EQUANS profitability; second, the contribution of Bouygues Energy & Services already ahead in terms of margin compared to EQUANS; and third, synergies we have already mentioned. EQUANS will aim to generating a midterm current operating margin over 5%. When I say midterm, I mean midterm beginning after the transaction closing date. This will be achieved by rolling out an operational efficiency plan in the new entity based on what we have already delivering at Bouygues Energy & Services. But before, keep in mind that EQUANS has been set up very recently and gathers many different entities. The first step in the short term will be to unify processes and IT systems, which could require, as a first estimation, additional CapEx of around EUR 150 million over the first 2 years. Future OpEx will include expenses related to the new EQUANS consulting as well as IT expenses like cybersecurity and reinforcement, licensees, et cetera. As a result, the current operating margin of the combined entity according to Bouygues definition should gradually improve from 3% to more than 5%. In parallel, we will activate synergies on work on quick wins. We will start with procurement, benefiting from a bigger size through, for example, alignment price and [ massification ]. And we will support the strategy already implemented by EQUANS management regarding the improvement of efficiency and profitability. Efforts will focus on improving contract management with management of loss-making contracts and better pricing of new contracts. We will also leverage the transformation plan deployed for 2 years at Bouygues Energy & Services based on increasing commercial selectivity, optimizing operating performance and expanding a cash-focused culture. We are confident that EQUANS will follow a similar path as this plan already bears fruit at Bouygues Energy & Services. As a matter of fact, the commercial margin of new contracts in the backlog has increased from 3% to 4% in the past 18 months. Regarding cash, client receivables were reduced by 2/3 in number of days between end June 2019 and end June 2021. In the medium term, value creation will also come from growth opportunities in attractive segments, commercial and operational excellence and M&A. In terms of price, as you can see on Slide 14, I want to clarify some points. The enterprise value of EUR 7.1 billion communicated by ENGIE is inflated by the lease obligation debt for an amount of around EUR 0.4 billion as of 31st of December 2020. We consider that these charges must be factored in our P&L to reflect the reality of cash expenses. This explains why we report an EBITDA after leases at Bouygues Telecom. As a result, we consider that our offer of EUR 6.7 billion in enterprise value provides a better economic view. This view is in line with the price ranges indicated in the press remarks between EUR 4 billion and EUR 6 billion at the end of the process on EUR 6 billion to EUR 7 billion lately. Our valuation not only reflects the expected improvement in EQUANS' future cash flows, but also part of the synergies generated by the combination with Bouygues Energy & Services activities. The net debt impact should be slightly below EUR 6.7 billion based on the unusual adjustments between enterprise value and equity value such as pensions and working capital adjustments and the estimated financial debt consolidated by Bouygues at closing. This deal will also be significantly aggressive for Bouygues Group earnings per share in year 1. Based on 2021 consensus for Bouygues net income, the element I gave you during this call and attractive financing cost on the figures of EQUANS circulating in analyst reports, EPS accretion reaches more than 10% before taking into account any synergy. Last, I would like to say that this acquisition is already fully secured through the group's existing resources on the fully secured bank loan from partner banks. This loan will ultimately be subject to a bond refinancing. I want to emphasize that this loan does not include any covenants or rating clauses. I am now returning the floor to Olivier for the conclusion.

So to conclude on Slide 15, I would like to say that the transaction has already received the unanimous agreement of the relevant employee representative bodies within the Bouygues Group. Those of ENGIE and EQUANS will be conducted in accordance with the legislation in force. The completion of the transaction is subject to condition precedent in particular of the finalization of the constitution of the EQUANS business cost and the control procedure of ownership and for investment controls and the red jurisdiction in which EQUANS operates. The finalization of the deal is anticipated to be in second semester 2022. We are quite confident that it will be -- it could happen next summer. Finally, on Slide 16, let me conclude by saying that, first, EQUANS is a unique opportunity to boost Bouygues to a global leadership position in multi-technical services. Second, it reinforces the resilience of our business model. With EQUANS the group will benefit from a highly strategic positioning and attractive financial profile and a strong cash generation. Third, this deal offers significant value creation over the long term. Last, this proposed transaction in a major strategic move -- is a major strategic move for Bouygues in line with its financial discipline. I thank you for your attention. Please, operator, open the floor for questions.

[Operator Instructions] Our first question comes from the line of Sam McHugh of BNP Paribas.

Two questions, please. So on one of the slides I noticed you mentioned the synergies exclude Colas and Axione. So first question will be, could there be additional synergies there as well? And then secondly, on the bank loan, I wonder if you could give any detail on kind of how much is tick-floating, how should we think about interest rate risk over the next 12 months?

Okay. For the synergy, the synergy we mentioned, this is a synergy that we will do straight with the new company -- with a new combined company where we put at the same place, Bouygues Services and EQUANS. If there is more synergy for revenue with the rest of the group, we didn't calculate anything around this. But it's clear that it's possible to get some. But the first thing is when we put them all together, we give you the level of synergy we are expecting.

As far as the financing is concerned, we have banks which are committed and the conditions of this loan is in line with what we obtained in the context of corporate financing. Let's say that it will be a bit lower than what we obtained for our life bundle issuance.

Our next question comes from the line of Mathieu Robilliard of Barclays.

The first question was about the synergies and their pace. Can you explain to us what is the difference between the scenario of EUR 120 million per year to EUR 200 million? What are the variables there? And also what is the pace of progression? Is it very back-ended? Or is it more front ended? So that would be the first question. And the second question was about the starting point. So we don't know what is the EBIT of EQUANS today or maybe I missed it in the presentation. But if you could help us with that starting point, that would be great.

Sorry for -- I start with your second question. Unfortunately, we are unable to provide any figures coming from ENGIE because we are committed not to provide this information. And this is the reason why we are unable to do so. What I can say is that in our -- when we think about EBIT, we consider all charges at week level. But you have to see that probably when ENGIE provide figures, they have 2 set of figures, EBIT before EBIT and below EBIT adjustments. But as far as we are concerned and for the figures we did for the future, we are considering all charges related to these activities. The second question?

Okay. So about the pace of the synergy, what we could say is, of course, when we consider the global value of EQUANS, we consider the final value in 2026. So it means that, obviously, we do the synergy before. And when you look at what is possible to do in a reasonable way, we consider that it will be done within the 2 -- the 3 first year of the deal, and it will be obviously progressive. And this is at the end of the 5 years that we will get the final target of the EUR 200 million.

So it's fair to understand it's relatively linear -- maybe, I mean, the first year is always maybe the tougher one with the litigation cost...

Not especially linear because just -- you just need to put together 2 company, and it means that the first year, I'm not sure we didn't take any synergy. It will at least on the year 2, we can say, top from day 1.

Okay. Great. Since you couldn't have answered the first one, can I ask another one?

Yes.

So you talked about a 5% margin midterm, but I guess an interesting point is on what kind of revenue because I think we understand that the revenues today are 12.5%. I mean is that your assumption that these revenues are going to grow at mid-single digit or something different in the next few years?

In fact, we consider that the first priority is to do selectivity. So probably during the first year we will maintain approximately the level of activity of the combined entity, EQUANS and Bouygues Energy & Services. And after a few years, we will start growing at a level which is equivalent to the level of the market, let's say, 3% to 4%.

Our next question comes from the line of Akhil Dattani of JPMorgan.

My first one is just going back to the financials of EQUANS and I guess some of the disclosure that you provided. So you say that the transaction implies a 11.4x EV/EBIT multiple in 2026. I just really wanted to understand exactly how that math works? Because that implies about EUR 600 million of EBIT in 2026. And if you're saying that the margin by then is 5% or more, that implies revenues of less than EUR 12 billion, which would mean the revenues would be no better than where they are today. So obviously, something in that math, I'm misunderstanding. So maybe if you can help us understand that multiple and the math that underpins that? So that's the first question. And then I guess the second question is just regarding the growth trajectory. Obviously, you kind of helped us kindly on the near term where you said revenues would be stable. But I guess for -- maybe for a couple of years. But thereafter, you obviously said in your press release that the market is growing 3% to 4% with -- the industry, sorry, is growing 3% to 4%. And I guess I'm just trying to understand how we should think about your midterm growth outlook. Because, I guess, on the 1 hand, ordinarily, we would assume that you grow with the market. But I guess, as you're trying to improve the profitability, I presume that means renegotiating contracts. So what have you assumed in that for contract renegotiations and what sort of impact that may or may not have around revenues?

Starting with second? Okay. Just to explain what we intend to do with the -- you're right, the market is a growing market, a growing industry. And in that sector, we consider that we cannot push 2 different topics. We cannot push the top line and simultaneously push the level of operating margin. Our goal is to increase the operating margin, and we consider that if we want to do this, we need to be selective in the project. And it could be because of this, even if the market is growing, we could -- we won't be aggressive because we want to have a better operating margin instead of a better top line. So you're right. Besides the fact that -- despite the fact that the market is growing, well, our goal -- our first goal is the increase of the level of margin. So we will focus on this first.

So in terms of multiple, you have to consider it's 3 elements considering our future profitability, the profitability coming from the EQUANS perimeter, Secondly, the profitability coming from Bouygues Energy & Services activity, which will continue to grow. And thirdly, the synergies. And when you consider these 3 elements, you have the multiple we are mentioning.

Our next question comes from the line of Nicolas Cote-Colisson of HSBC.

You talked about the year 1 EPS accretion. Can you tell us a bit more about your tax and cost of debt once we finance assumptions underlying this prediction? And maybe to insist on the first question from time. So how do you hedge the risk of rising interest rates by the time you close the deal? And my second question is around the competition drivers. This market, is it mainly about prices, quality, range of offerings? I'm just wondering what you can expect in terms of a competitor's reaction while you are closing the transaction. If you can tell us a bit more about the churn and the dynamics there and whether the portfolio of contracts could be at risk from SPIE deciding to go after your clients?

Just to start with the second question first. When you look at the reality of the market, I mean this is not very good one, it's very real view of the market. This is a market where we have a lack of resource to be able to build the project. So in that case, there is really -- it's irrelevant to try to imagine that it could be cost -- race to reduce the price, it will be very stupid and we have a lack of resource, all of us, including SPIE, who had the same comment when they were talking about redundancy when you were studying the EQUANS project, we are quite confident in the fact that there is no real risk about to what pricing was the main.

Considering the financing now. Obviously, we will have to refinance our bond close, buy bonds, and we have time to do so. But we will start quite early and probably we will cover part of the financing in the near future. I just want to remind you that we have issued some bonds a few days ago for EUR 800 million and the coupon was 50 basis points. And as we were covered for part of it by -- in advance, the economical cost for this financing was 40 basis points.

Okay. That's clear. And if I may, just to follow up on the first one, sorry. You mentioned that everyone is facing lack of resources and therefore, pricing is not really something that you're worried about. How does it go in terms of material shortages? Is that something that is not really helping the industry right now?

In fact, if you consider EQUANS or Bouygues Energy & Services activity, they are working on short-term pricing. So when prices increase, they pass through the client the cost of these equipments or on raw materials. There is no major impact, I would say.

Our next question comes from Josep Pujal of Kepler.

Two questions on my side, please. The first one is on the working capital. Could you tell us more about what is the position there? Are we talking about positive or negative working capital? And if you could be more precise and give a figure in terms of days of sales, it would be great. And also how do you expect to make it evolve? What are you targeting in terms of days of sales? And my second 1 is if you could come back on 2 figures that you gave during the presentation when you were talking about the implementation costs of this merger. I think you mentioned EUR 160 million and a few seconds or minutes after EUR 150 million of -- if I understood well is on CapEx on the IT side. Could you talk more about those 2 costs, please?

In fact, starting with the second question.

No, no, we start always with the second question.

Starting with the second question, I would say that EQUANS was operated within the ENGIE group. So a lot of services and IT services were provided by the ENGIE group. So when we carve out the EQUANS activity, we need to bill the EQUANS team, in fact, already started to build a new IT system in order to be able to be stand-alone. And these costs are obviously, for accounting purposes, for share purposes, for operating management and so on. So they have to -- the most important CapEx they have to pull to you is IT systems and ERP and so on. And this is the reason why we consider that we have to develop quite early these IT systems in order to be able, for instance, to manage purchasing, where we mentioned previously that we aim to have some synergies in terms of purchasing, they need to have an IT system to be able to catch up -- to capture these IT efficiency costs. So that's for the CapEx question. The second...

Sorry, this is EUR 150 million, right?

Yes. Over 2 years.

Not far from that, including all IT systems, yes, over a few years, probably 2. But I have to precise at this stage that we have -- we did not have any opportunity to work with EQUANS and its -- Jérôme Stubler and his team in order to prepare the plan. So we have done that on the basis of what we have obtained in the data room during the competition process. And we will have to refine these figures working with the EQUANS team. This was your second question. And frankly speaking, I don’t remember the first one.

Working capital, negative or positive.

At the moment, the working capital is positive, but there is an important seasonality and an important and it's quite difficult to modelize working capital in general. What we know perfectly, I was the former CFO of Bouygues Construction. And I can say that when you push people in order to improve the working capital, you obtain significant results. And this is the reason why we have such a level of working capital at Bouygues Construction level, but let's say that Bouygues Construction has a different activity. But if you consider what we have already done on Bouygues Energy & Services, having very simple processes in order to improve the working capital, we have improved by EUR 200 million and something -- EUR 200 million over the past 18 months or 2 years, the working capital of Bouygues Energy & Services. On the business of an activity, which is -- which represents EUR 5 billion -- EUR 4 billion, sorry. If you consider that we will use the same method at the EQUANS level, we will obtain a significant amount that we -- what we are seeing at the present time.

Understood. And just to get it right, was the figure of one-off costs of EUR 160 million? Did you mention that also? And if yes, what are we talking about?

Excuse me. Could you repeat your question, please?

Yes. Before you talking about the IT and those EUR 150 million, I think that you also gave the figure of EUR 160 million of one-off costs.

EUR 60 million. 6-0, 60, 6-0.

Okay. Okay. Perfect. And this is, okay, one-off cost linked to the integration?

Implementation of synergies. For instance, if you want to have some synergies in term of purchasing, you need to have a purchase team. You need to have an IT system in order to develop the synergies.

Our next question comes from the line of Jerry Dellis of Jefferies.

I've got 2 questions, please. Be interested to understand a little bit more about the workforce commitments that you're making over the next 5 years. You mentioned in the press release that you would be making 15,000 to 20,000 new hires to cover estimated staff turnover in the new entity. And on top of that, there's a commitment to create over 10,000 net new jobs over the next 5 years. So the question is sort of the nature of the departures and the people joining. Is it possible to envisage that the cost of the employees departing might be different, higher perhaps than the blended cost of the new people arriving? I'd be interested to understand that, please. And then secondly, to understand a little bit more about the purchasing synergies that you've talked about extensively on the call. Could you talk to us, please, a little bit more about the process for establishing these synergies? Is it a matter of going through contracts individually to work out what is being acquired from where? Or are there any sort of quick wins that you can do before getting into that detail, which presumably is quite difficult as Nancy was saying on their call the other week?

So just to understand 1 thing about the purchase saving we could do. It's very easy to have a global contract to buy something. It's much more difficult to be sure that all the branch office we've got all over the world will use this big contract. So it takes time to be sure that all the decentralized organization is utilizating -- utilize the new contracts we set up with the main supplier. We consider that to do this with the tools. This is 1 of the reasons when we say we did invest in a one-off cost of EUR 60 million to be able to set up a new organization for this. But when we do this, it's reasonable to say that after -- and we consider this is why this is not something you get from the first year because you need time to be sure that we use it. This is why I told a few minutes ago, I told that we consider that kind of synergy will appear more in the year or 2 than in the year 1 of the deal.

2 pillars. In fact, price alignment and massification are the 2 pillars of the synergies in terms of purchasing. As far as the turnover is concerned, let's say that when we speak about the 10,000 to 15,000, we are talking about the natural growth turnover, retirement and dilutions and so on. So there is no specific reason. So when we replace these people, we are replaced by people which are in average younger, but for the same task, I would say. And the additional resources we will need will be related to the growth of the company, so that's all.

Could I just ask a quick follow-up, please? There's a question about pace of margin improvement was asked earlier, but I wasn't entirely clear on the answer. The route from sort of 3% operating margins to 5%. You said that's not necessarily linear. Could you just clarify what you're anticipating, please?

Frankly speaking at this stage, we don't see any reasons for not to have linear curve over the midterm guidance we were mentioning. So -- but I remind you that we have not yet worked with the EQUANS team in order to have the precise, well, not road map in terms of results. We know perfectly what we have to do. We know perfectly we will do that during the 5 years of the -- after takeover. But we don't have the precise figure at that stage. It's too early.

What we observed in Bouygues Energy Services to increase the level of operating margin, it's something that we do gradually. It should take, for example, what we did through our Bouygues Energy & Services. Initially, when we have a new offer, we asked people to not do any offer below 3% operating margin. And after this, we -- after a few months, we asked them to now below 4% operating margin. So it takes time to be sure that all the teams are using this guidance. And this is why this is something we could say it's quite linear for this part of the increase of the operating margin. And the part of the increase that you do through the purchasing department, it's something which should take sometimes, as I explain you because you need to be sure that all the teams will use a new contract we set up. So all in all, finally, this is something that will be gradually between -- during the 5 years before 2026.

Our next question comes from the line of Eric Lemarié of Bryan Garnier.

First, have you already identified some assets within EQUANS that could be disposed once you -- once the acquisition will be closed, some noncore assets that maybe can be divested? That's my first question. Second question on return. Do you -- when do you think the return on this operation will exceed the [ what ] of Bouygues? A third question on the management of the new entity, of the new energy arm of Bouygues. How would you plan to split the role and responsibilities between Jerome Stubler and Pierre Vanstoflegatte? It looks to me there is 2 buses here. And maybe last question, just to understand properly. So you confirm that today the EBIT margin of EQUANS is among 3%, that you target 5% around 2026, and that is 5% will be generated with EQUANS combined with Bouygues Energy & Services, plus some synergies?

Sorry, concerning your last question, we do not confirm any profitability concerning EQUANS. We are committed not to provide any figure considering the current profitability of EQUANS. So we do not confirm anything. What we say is that we -- when we will be in 2023, we will be at around 3% profitability overall, meaning EQUANS and Bouygues Energy & Services activities. And then we will have this profitability increasing gradually to reach the level of 5%.

Okay. Combining the 2 entities EQUANS and Bouygues Energy?

Combining the 2 entities.

Okay, that's clear, okay. And just 3% refer to 2023?

2023. Which will be the first year combined for the combined entity because before we will close. We don't know, probably during the summer 2022. So we won't have any impact on the 2022 year to start. The real life will start in 2023 for the combined entity.

Yes, it makes sense. It makes sense. And this 5%, is it fair to assume it will be -- it can be reached by 2026? So...

Frankly speaking earlier, we are not committing there to be in 2026 or 2027. Hopefully, we will start -- it will be midterm. We have to build something. We do not know precisely where we will be there. But...

About your question about the management team and the role of Jerome Stubler in the new organization. When we consider the acquisition of EQUANS, we consider 2 things. First, this is a domain where the EQUANS because this is a very growing market and a resilient market. And the second is the management team that we saw on the company. We consider that Jerome Stubler, when you look at his past, is someone who is really able to work in a group like us as he was spending 30 years in Vinci Group. So we are quite confident in the fact that we could work together and we have quite good selling with him. We consider that you will give to the new entity first his experience of EUR 12 billion company because he was in charge of such business before. He has very interesting experience in international markets as he was running, for example, when we start -- was really based on a bunch of very decentralized and very international business. And at the same time, we would like to use the experience of Pierre Vanstoflegatte. Pierre Vanstoflegatte has very big interest because it was part of the SPIE organization a few years ago. He had the real experience in the turnaround. What we start 2 years ago in Bouygues Energy Services give some results right now, and we are quite consistent with the fact that we will reach quite fast this 5% target that we set up initially. And we consider that the combination of Jerome Stubler as the Head of the new entity and Pierre Vanstoflegatte as the manager working with Jerome is a strong team to be able to deliver the goal we set up with the level of operating margin. So this is something that we think is -- will give us some confidence in the fact we will be -- we will be able to deliver the result at the end of the day.

If we consider now the potential divestment, it's too early to speak about that. We have no specific idea of any investment at that stage. And secondly, as far as how we assess the investment, obviously, we don't assess its investment in terms of IRR. We are not a financial fund. We are not [ bank ]. So we aren't calculating on 5 years what will be the IRR of that business. We are considering the -- these investments in terms of -- in terms of ROCE. And at the group level, we will stay at ROCE, which is far higher than our WACC. So there is no specific issue in that respect.

Finally, when you consider what we just did, as I told you in conclusion, we moved the group in a new sector, which is much more resilient than the one we've got before. This is -- we changed the profile of the company. It gave us last exposure the cycling construction business. And this is a very asset-light business with a strong cash generation. So this is the main reason, if we did this.

Our next question comes from the line of Nicolas Mora of Morgan Stanley. As we have no response, we'll move on to our next caller. We have Nicolas Cote-Colisson of HSBC.

It's going to be short. Can you tell us a bit more about your debt rating and how your discussions with S&P have structured your final offer? And maybe linked to that, you just mentioned, Olivier, the recurring nature of the business. What does it say -- what kind of message do you want to pass regarding your dividend policy looking forward?

Considering our rating first, our rating is A- at Standard & Poor. And we didn't have yet any element from our -- from [ Standard & Poor ] or Moody's we are discussing but we are not anxious about our rating. We don't know yet. But there is no rating issue in that respect. They didn't say that we will maintain that rating. But it's too early. It's too early, let's say.

And as for the dividend policy, it's too early to answer your question, Nicolas. The cash for the shareholders this you know that this is 1 of our main priority. As Colas business is cash generating, we will be able to give you something in the future, but definitely too early to answer this right now. But I remind you that you have seen in the past what has been our dividend policy, which is in the past, we already -- we've always managed in order to be able to have a dividend at least equal to the level of the previous year. So it's too early to speak about that. But we have -- you have a 20-year cyclic order in order to imagine what an [indiscernible].

At this time, we'll try one more for Nicolas Mora of Morgan Stanley.

Sorry for before. First question would be why do you set a target for 2026 that sounds a bit odd to us? I mean nobody in the industry has ever restructured a business like this in 4 years. It's taken 10 years to some of your peers to restructure and get to 5%. We're a little bit surprised you're that aggressive? So that's number one. Number two. Just on the synergies, we're talking about procurement. So procurement is around 30% of revenues in this business. We are a little bit surprised that you can extract 2.5% to 4% savings on procurement on this business, especially since [ ENGIE ] has take over. That's number two. And then number three, can you just tell us a little bit geographically where you see the -- the key strengths of the combined business? I mean we know there are some weak links, especially in the U.K. and Belgium. Where do you think you need to put extra pressure to get the business back on track?

First -- to answer to your first question. We didn't say that we will be at 5% in 2026. And we are not starting from 0. Secondly, we have already started at Bouygues Energy & Services level to restructure and to reorganize the activity in order to improve the profitability since a few years. And obviously, we are not starting from 2021, but from the past year. So we have said that it would be gradual. And I think that the past experience, we are mentioning -- prove that precisely, the improvement comes gradually. If you consider our payers, you can see that, no reason not to be able to do so. But for your first -- your second question. And the third 1 was related to?

The geographic strength and with excess. We consider that, for example, when you say that there is geographic weakness at EQUANS, you were mentioning U.K., this is what you mean?

You've got the U.K. local 30s regeneration business. You've got the Belgium's EPC business, which within the industry, we know are quite low margin, and some of your peers is quite skeptical. As a whole, you can get to 5% without massively downsizing these businesses?

So we consider when you look at the geography, do you know the figures of Bouygues Energy & Services by country?

No, no, we don't disclose them.

We don't disclose them. Okay.

You find several accounts here and there. I mean you've done acquisitions, the other. So we've got a relatively fair idea big picture. But just to understand how as a whole?

Just for example, when you look at for example to give you an example of what you were mentioning about U.K., for example, U.K. is definitely a weakness in EQUANS, not a weakness in Bouygues Energy & Services because it's not the same kind of business. So there is no real reason if we are able to do it with Bouygues Energy & Services and not able to do it with the EQUANS. There is few activity, for example, in EQUANS who are definitely really not really good in the U.K., especially when you look at the construction business. And definitely, when you look at this, you could discuss with the management team of EQUANS and to consider with we need doing to dispose it or not. But when you look at our figures in the U.K. for Bouygues Energy & Services, you realize that we could create value on this, but maybe you don't know them. And for the weakness, there is for me 1 country where we need to improve really a lot. This is the Switzerland position, which is the same one in the EQUANS and Bouygues services, and this is a subject we work in it. And for the rest of the business, when you consider its position by [indiscernible] in Belgium or Netherlands, when you look at the density of the business they've got in this country because this is #1 position in both of them, we consider that there is an increase possible on this business. And we are quite confident when you look at the action plan proposed by EQUANS in the management price.

We have a lot of experience. And if you consider precisely our peers and competitors on the increase of profitability, some funds go far quicker than that in order to add the higher they are expecting on 5 years.

If I try to sum up what I told you about the improvement on the level of margins, what I would like to tell you is what we saw of what we did during the last 2 years in Bouygues Energy & Services. We really considered that finally, there is a lot of things going on very complex, but where you need to maintain a high level of constraint and you need to engage really a lot of manager to be able to succeed because this is really centralized business. So when I mentioned that, for example, for the purchasing strategy, it's 1 thing to define it, and this is another thing to use it. We consider it takes time to engage all the 2,000 manager we need to turn around the way we make the offer and to increase the level of operating margin we sell to the customer. But even if it takes time to do it, at the end of the day, there is very simple rule that you could use that for example, figures, where it helps you to warranty that you could reach that level of operating margin. And we observed, we were able to do it with our own organization, which is not a EUR 12 billion organization, it's only EUR 4 billion organization. But I don't really see any problem to expand what we do for EUR 4 billion, the EUR 12 billion organization, definitely. This is the same range of problem. There is no different problem or something which is really much bigger. So this is why we continue the stabilities possible. And when I told you that we want to combine the management of the new team, of the new entity, a team made of the industrial experience of Jerome and the services experience of Pierre Vanstoflegatte, what I mean is to combine those 2 skills to be able to set up this kind of rule to enhance and to have this action plan to enhance the level of operating margin as you already know. So at the end of the day, I'm afraid we are quite confident. You are not, but I am.

No, no. We are -- don't get me wrong. It's a question of -- what we understand is these are people's business. It takes a very long time.

Yes, you are right. This is a services business. This is made on people. And without the commitment of the people, you cannot succeed anything. You're right. Definitely, you're right. It's not an industry with a factory. It is an industry where the people make the job every day. And the only way to make it with the right level of profitability is a strong commitment of the people. You're right. Definitely, this is bang on this. This is what we do.

And if I may, just a last one on -- because you're buying a carve-out, which doesn't have actually a real cost base, do you think from day 1 at EQUANS you can already get overheads in line with best-in-class? And you've got once in lifetime opportunity to start from scratch there because this has been the main driver of cost savings at many of your peers comprising overheads to around 7% to 8% and turn margins to 5%. Do you think the specificity of a cost gives you a head start there? Or this is going to take a while we need revenue growth?

You are right. It could be an opportunity because at the present time, [indiscernible] and his team is organizing the company. So obviously, they will start to optimize. They want high people and then reorganized in order to be at the most efficient level. They will start with what is needed, knowing the current organization of the subsidiaries which constitute the EQUANS perimeter. So I consider it will be an opportunity for EQUANS. You're right.

We have our next question from Nuno Vaz at Societe Generale.

I just had a quick question on the cash generation for the business. We know from data from ENGIE from -- on EQUANS that EQUANS has around the CapEx to sales of around 1.5%, and the depreciation/amortization to sales is slightly higher at around 2.5%. So I was just wondering if you have any view on how these margins might -- may develop by 2026, how that would impact your cash generation on the multiples you've guided for?

So at that stage, we don't have such figures. We know that in a region in this business, at least 40% of the net result is transformed in cash. So we don't -- having a certain level of growth. So this is -- but we don't have any -- the figure you were mentioning. So at this stage, it's too early.

So you said -- so which type of cash generation are you expecting by 2026 for this around EUR 600 million EBIT you've guided for roughly? Around 40% you said?

No. It's an average for the sector, the whole sector. It's not our forecast at that stage.

And our final question is from Matthieu Boulai of CIC.

Yes, my question was also on the impact of this acquisition on your credit rating with S&P and Moody's, but it's been answered already.

We have one last question that's come through from Jerry Dellis of Jefferies.

Yes. Just in relation to the midterm 5% margin target. You said not 2026, but you also said that you're quite confident. So what parameters can you put around the sort of year that you're targeting the 5% for, please?

We won't precise it because we have to work with Jerome Stubler and his team in order to refine our -- some forecast. Remember that we were not allowed to work with Mr. Stubler and his team in order to do so. So we have -- we will do so in the next future, but it's far too early.

At this time, we have no further questions. I'll return the presentation to your speakers for concluding remarks.

Okay. Thank you for joining us today. I hope we answered your question, and it's more clear for you now. And I remind you that we will announce our 9 months 2021 sales and earnings next week, Tuesday, 16th of November. And in the meanwhile, you should have any questions -- if you have any questions, you should contact our Investor Relations team under Karine management. So thank you very much.

Thank you.

Ladies and gentlemen, this concludes the Bouygues conference on EQUANS. Thank you for your participation. You may now disconnect.