Bouygues SA (EN) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Bouygues conference call. For your information, this conference is being recorded. [Operator Instructions] I'd like to turn the call over to Mr. Pascal Grange, Deputy CEO and CFO of Bouygues. Please go ahead, sir.

Good morning, everyone, and thank you for joining us to discuss Bouygues' First Quarter 2023 -- sorry. Is it okay?

Yes, Please go ahead, sir.

Okay. With me today are Christian Lecoq, CFO of Bouygues Telecom; and Armelle Gary, Head of Investor Relations. Following our presentation, we will be answering your questions. Let's start with our key messages on Slide 4. First, let me remind you that like every year, and notably due to the seasonality of our activities, especially at Colas' level, Q1 earnings are not indicative of half year and full year results. That said, group sales were up 46% in the first quarter of 2023 compared to the first quarter 2022. This increase was mainly driven by the contribution of Equans, which was acquired in October 2022, but also reflects a solid performance from our business segments as well as inflation. Like-for-like and at constant exchange rates, group sales increased by 4%. The group COPA in the first quarter of 2023 increased by EUR 75 million compared to the first quarter of 2022 and reached EUR 9 million. As such, the margin from activities was a positive 0.1%, an improvement versus first quarter of 2022. Net loss attributable to the group was minus EUR 134 million level comparable to Q1 2022. I will provide you more details about it later during this call. Last, net debt was EUR 8.8 billion compared to EUR 7.4 billion at end 2022, the usual increase due to the seasonality of activities. Let's now turn to the review of operations on Slide 7. Let's begin with the backlog in the construction businesses. As a reminder, from January 2023, Bouygues Energies & Services backlog is no longer included in the construction businesses backlog as it is now included in the Equans backlog. To facilitate comparison and analysis, we have highlighted in gray color the impact of Bouygues Energy & Services backlog in the previous years. The backlog at end March 2023 was at the high level of EUR 29.4 billion, up 6% year-on-year, excluding Bouygues Energies & Services backlog from end March 2022 figures. The increase in the backlog was driven by both Bouygues Construction and Colas. Looking at backlog of -- for each business segment on Slide 8. Bouygues Construction's backlog excluding Bouygues Energy & Services increased by 8% to EUR 15 billion, offering good visibility on future activity. Order intake was up 57% in France and 127% outside of France. This momentum was driven by both the normal course of business on large contracts, of which around EUR 350 million for the Toulouse metro, around EUR 770 million of the Abidjan metro in Ivory Coast, 1 hospital in U.K. for around EUR 330 million and 1 hospital in Morocco for around EUR 130 million. At Bouygues Immobilier, the general market conditions remain challenging. Due to inflation, rising interest rates and difficulty to obtain loans, we continue to see a global wait-and-see mode from both residential and commercial property customers. Therefore, to adapt to the general context, we postponed the launch of some contracts which weighted on supply and reservations. As a result, Bouygues Immobilier's backlog was down 20% year-on-year. Just a few words to say that we recently got positive news on the Vivaldi commercial project near Paris related to the withdrawal of appeals. This project should contribute to revenues in the coming years. We will provide more details in the coming months once the project is fully launched. Last, Colas backlog was up 8%. The order intake increased by 17%. Colas achieved a good commercial performance in rail activities, notably with a significant order for the Abidjan Metro in Ivory Coast. Furthermore, Colas roads continued its positive momentum with good commercial performances in North America and in France. These performances were partially offset by Europe, Middle East, Africa. Let's now look at the construction activities' key figures on Slide 9. The construction business recorded figures which, like every year due to seasonality, are not indicative of the first half and the full year results. Again, to facilitate comparison and analysis, we have excluded Bouygues Energy & Services from the first quarter 2022 figures. Sales were up 5% year-on-year and also 5% like-for-like on that constant exchange rates. First, Bouygues Construction sales were up 6%, driven by International Building and to a lesser extent by Civil Works. Second, at Bouygues Immobilier, sales, including share of co-promotions were down 15%, impacted by the wait-and-see mode of both residential and commercial property customers, as mentioned earlier. And third, at Colas, sales were up 9%, of which international sales up 14%. Revenue benefited partially from inflation, which accelerated since March 2022. And therefore, first quarter 2022 results were not fully reflecting the new pricing environment. Current operating loss from activities of the construction businesses of minus EUR 243 million was very similar to Q1 2022. First, COPA at Bouygues Construction was stable compared to Q1 2022. Second, COPA at Bouygues Immobilier, including share of co-promotions, stood at EUR 7 million. And third, in Q1 2023, as usual, Colas had a nonrepresentative minus EUR 301 million, EUR 10 million below Q1 2022. The effects of the action plans implemented during 2022 to cope with inflation, continued to bear fruit. However, the effects were mitigated by the sale of the underperforming subsidiary Branscome in the United States as part of Colas' rationalization of activities. Let's now turn to the review of operations from Equans on Slide 11. As a reminder, starting from January 2023, Equans figures include those of Bouygues Energy & Services. The figures reported for the first quarter of 2022 include only those of Bouygues Energy & Services as Equans Q1 2022 pro forma figures are not available. Therefore, Q1 2023 constitutes the first quarter combining the 2 entities. The integration is on track with new organization in place in the main countries and the Perform plan launched in most business units. Equans commercial activity was solid. The backlog stood at EUR 26.7 billion, up 3% compared to end December 2022 figures, including Bouygues Energies & Services backlog for EUR 6.5 billion. This backlog offers a good visibility on the future activities. To be noticed that the Equans backlog, excluding Bouygues Energy & Services at end December of 2022 was adjusted from EUR 18.7 billion to EUR 19.5 billion following the standardization of the calculation methods for multiyear contracts in Belgium. As such, Equans backlog, including Bouygues Energy & Services at end 2022, stood at EUR 25.9 billion. One last important comment on Equans commercial activity, the underlying margin of the order intake improved, highlighting the first positive impacts of the Perform plan. Equans contribution to the group revenue on COPA represented, respectively, EUR 4.4 billion and EUR 98 million with a 2.2% COPA margin due notably to seasonality. Besides, don't forget that the Bouygues Energy & Services integration in Equans occurred very recently in January 2023, and that the new Perform plan has just been launched. This performance is therefore in line with our expectations. To end with Equans on Slide 12, let me just add that 2023 guidance are confirmed with Equans aiming for a slight increase in sales as a result of its selective approach strategy. A COPA margin between 2.5% and 3% on a cash conversion rate before working capital requirement of between 80% and 100%. Turning to Slide 14. Let's talk briefly about TF1's results, which were released on the 27th of April. First, TF1 demonstrated its ability to adapt to the general environment by controlling costs while maintaining good audiences within its main targets. In the first quarter 2023, as anticipated, sales were down. They decreased by 14% with Media sales down 14%, and Newen Studio sales down 20%. Regarding Media sales, as already explained by TF1, half of the decrease was due to a scope effect linked to the deconsolidation of Unify in fourth quarter 2022. Advertising revenue was down 10% and down 7% on a like-for-like basis, reflecting unusual macro uncertainties and sector-specific tensions, for instance, in retail, food or finance. Newen Studios posted revenues down 20% due to a high basis of comparison with one main programme which has been delivered in first quarter 2022. Costs of programme were EUR 201 million versus EUR 220 million in first quarter 2022, largely mitigating the decrease in advertising revenue. On the other side, Newen Studio low level of activity and IT expenses related to the digital acceleration plan impacted COPA and COPA margin. Turning to Slide 15. I will end on TF1 by saying that within the market offering a low visibility, the TF1 group will remain -- will maintain in the media operating segment its agility in programming costs while offering -- differentiating an event-driven lineup. After delivering numerous projects in 2022, Newen Studios will draw on the diversity of its talent pool to develop new growth driving projects for the years ahead. As such, 2023 outlook is confirmed. The TF1 group will cement its leadership position and maintain a broadly stable current operating margin of activities. And it will continue to generate cash flow in order to aim for growing or at least stable dividend policy over the next few years. I now turn the call to Christian Lecoq for Bouygues Telecom performance.

Thank you, Pascal, and Good morning to everyone. Turning to Slide 17. Let's begin with the commercial performance in mobile and fixed. At end March 2023, Bouygues Telecom had 15.2 million mobile plan customers excluding MtoM, thanks to 27,000 new customers in Q1. As you can see on the right side of the slide, we had 4.7 million fixed customers at end March 2023. FTTH continues to experience strong growth with 148,000 new customers joining us during the first quarter with a total of 3.1 million subscribers. FTTH customers represented 67% of fixed customer base, up from 55% 1 year ago. With 31 million FTTH premises marketed, we are ahead of our schedule to reach our target of 35 million premises by 2026. Let's have a look at the key figures on Slide 18. First, we achieved 6% growth in sales billed to customers. Mobile ABPU was up EUR 0.2 year-on-year at EUR 19.7, and fixed ABPU was up EUR 1.7 year-on-year at EUR 30.3. As for the mass market, roaming has returned to its COVID -- pre-COVID level. We no longer restate our Mobile ABPU for roaming impact. This performance was still partially offset by the continued decrease in incoming sales, leading to a 4% increase in sales from services. Other sales were up 20%, notably led by billed to sales customers. EBITDA after Leases increased by EUR 45 million compared to Q1 2022, and reached EUR 399 million. Consequently, the margin increased compared to last year, which is consistent with our goal to progressively deliver margin expansion. Don't forget that the reclassification to intangible assets of fixed annual fees for some frequencies that we made in Q4 2022 has a positive impact on Q1 EBITDA after Leases. Positive impact on EBITDA after Leases will last until Q3 and will be offset in Q4 as the reclassification was made in Q4 2022. The current operating profit from activities of EUR 126 million was EUR 32 million higher than in Q1 2022. Last, you can notice that gross CapEx was EUR 522 million in Q1 2023, a slightly higher level than in Q1 2022, mainly related to continued investment in our networks. On Slide 19, let me highlight some recent developments undertaken by Bouygues Telecom Enterprise in cybersecurity, industrial 5G and collaborative tools. First, the acquisition of Alleo, a specialist in integration, unified communication services and cybersecurity. Second, a new partnership signed with Alten and Siemens France to help the promotion and the deployment of industrial 5G solutions. The last development of this non-exhaustive list is the launch of the new platform, Bflex-Webex, developed in cooperation with Cisco and dedicated to small and medium-sized companies. This application offers fixed and mobile telephony solutions and collaborative features with a high level of data protection and privacy. Moving to Slide 20. We are on the way to achieve all our 2023 targets that are: an increase in sales billed to customers, an EBITDA after Leases of around EUR 1.9 billion and the gross CapEx of around EUR 1.5 billion, excluding frequencies. And now Pascal, I'll give you back the floor.

Thank you, Christian. I will now briefly comment on the financial statements on Slide 22. We have already discussed first quarter sales and current operating profit from activities at the beginning of this call. Few comments this morning. First, other operating income and expenses were negative at EUR 24 million in the first quarter. This amount notably includes noncurrent charges at Bouygues Construction in relation with the litigation [indiscernible] in Singapore. This dispute, as explained in our 2022 URD is associated with a building delivered in 1997 for which Bouygues Construction, Singapore has recently been sentenced. Bouygues construction could appeal. Second, financial results stood at minus EUR 98 million compared to minus EUR 47 million in Q1 2022. This increase is mainly due to the cost of financial debt that reached EUR 69 million compared to EUR 35 million in the first quarter of 2022, mostly due to Equans acquisition financing costs. Third, the tax charge was recorded for EUR 3 million compared to a tax income of EUR 27 million in first quarter 2022, consistent with the results of each period. And fourth, contribution of associates increased from minus EUR 3 million to EUR 15 million, notably thanks to Tipco Asphalt, a Colas subsidiary based in Thailand and the fact that Salto, a video platform launched by TF1 with 2 other partners and now stopped is no longer reporting losses this year. As such, net loss attributable to the group was minus EUR 134 million, very similar to Q1 2022. I will now turn our attention to the group financial structure. Moving to Slide 23. Net debt was EUR 8.8 billion at the end of March 2023. Compared to end December 2022, net debt was up EUR 1.3 billion. As every year, this change is related to usual seasonal impacts. As such, net gearing was 64%. I remind you that the group benefits from a particularly strong financial position and that our financial credit ratings remain strong. Let's now turn to Slide 24 to describe the net debt evolution between end December 2022 and end March 2023. Net debt increased by EUR 1.3 billion since the end of last year. This change is mostly explained by the following items. First, acquisitions net of disposals totaling EUR 38 million. There is nothing specific to highlight this quarter. This amount notably includes acquisition and disposals at Equans and Colas. Second, capital transactions and other for EUR 18 million, including Bouygues share buyback. And last, EUR 1.3 billion from operations that I will comment in the next slide. Turning to the breakdown of operations for the first quarter of 2023 on Slide 25. You can observe that, first, net cash flow, including lease expenses, increased by EUR 50 million. Second, net CapEx was up EUR 45 million, similar to Q1 2022. And third, you can see on the chart that the change in working capital requirement related to operating activities and other stood at minus EUR 943 million, a usual change for Q1 due to the seasonality of our activity, but to be noticed a lower amount this quarter compared to last year. As we do every year, we will remain proactive during all 2023 to manage the working capital. I will now conclude this presentation on Slide 27. We are confirming the group outlook for 2023. We expect sales close to those of 2022 as well as an increase in current operating profit from activities. I remind you that this outlook is obviously based on 2022 pro forma financial information that assumes the Equans acquisition was completed on 1st of January 2022. Thank you for your attention. Operator, please open the floor for questions.

[Operator Instructions] Our first question is coming from Nicolas Cote-Colisson from HSBC.

First question is on Equans because your guidance includes an improvement in working capital in 2023. Now Q1 is negative. So maybe you can help us with the phasing and the seasonality of the business for the coming quarters? And maybe still on Equans, if you can give us an indication of the margin you are achieving on order intake, please? And maybe a short one on Telecoms. You just mentioned the 200 basis points increase in EBITDA margin was benefiting from the impact of reclassification and frequencies. Is it the same amount as in the previous quarter, which was, I think, EUR 23 million?

Starting with Equans question on the working capital seasonality at this level. Probably, you have seen in the past that we had this seasonality effect for the working capital requirement for Bouygues Energy & Services. We have the same profile for Equans as a whole. You can see that also with our competitors' figures not at the quarter because they don't have any communication of their quarterly figures, but you can see that at the half year for our competitors. Concerning margins for new contracts, we don't publish these figures. What we can say, and that's what we have said during the call, the trend is good, that we see an improvement in the order intake margins.

So regarding Telecom, [indiscernible] -- so the impact of EUR 23 million fuel in Q4 of 2022 for the full year. So the impact in Q1 2023 is a bit more than EUR 5 million. Positive impact compared to Q1 2022. It will be the same in Q2, in Q3, and in Q4 you will have a negative impact compared to Q4 2022 of around EUR 17 million. On full year, this is total in [indiscernible].

Our next question is coming from Mathieu Robilliard calling from Barclays.

I had a question on Colas first. You posted a strong revenue growth. You do flag that part of it is due to inflation. Could you maybe give us a bit of breakdown in terms of what has been the volume trend and what is the impact on inflation? And following up on inflation at Colas and more looking at the margin, I realize this is a special quarter. But more generically, are you finding it now easy to catch up with all the cost increases that you've had throughout the last 12 to 18 months? Second, on Telecoms, could you qualify how you see the competitive environment? Obviously, we've seen a lot of price increases on the back book and the front book. More recently, there's been a bit more attention on the promotional side. So I was wondering if you're worried about some of the declines there. And lastly, on Telecom, very strong margin, and you explained the impact of the frequency was quite low in this quarter. So could you flag where are the savings coming from?