Bouygues SA
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Bouygues SA
PAR:EN
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Earnings Call Transcript
Earnings Call Recording
Other Earnings Calls
Ladies and gentlemen, welcome to the Bouygues 9 months 2018 results conference call. [Operator Instructions] .I am now handing you over to your host, Karine Adam, 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' 9 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 4, 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 9 months period, driven by the FIFA World Cup and back-to-school programs. And the construction businesses are well positioned in upbeat markets in France and internationally, with the backlog remaining at a record level at end September. And 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. As shared with you on October 18, Bouygues Energy & Services have faced difficulties in the completion of 3 projects, and Colas has experienced some challenges in its special activities in France in the rail business and on the pipeline work site. This led to a decrease in the 9 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. Turn to key figures on Slide 5. 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. And 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 acquisitions 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 noncurrent income of EUR 110 million in Q3 2018 related to the 1,800 megahertz frequency charges at Bouygues Telecom. Let me explain this. At end 2014, the Conseil d’Etat [ consoled ] the decree published in March 2013, increasing the tariff of the 1,800 megahertz frequency field 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 [ consoled ] the charges accounted for prior 2018, generating noncurrent income of EUR 110 million. Finally, net profit attributable to the group increased from a year ago, including Alstom's contribution of EUR 230 million in 9 months 2018, a EUR 125 million increase over last year's contribution. Let us now turn to Slide 6 to see the net debt evolution from end December 2017 to end September 2018. On Slide 6, 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 year-end is explained by several items. First, an outflow of EUR 1.6 billion in acquisition and disposals, coming mainly from the following 3 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. And 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 7. 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. And last, working capital requirement 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 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 trend. Indeed, the group construction business strengths 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 trends we explained to you during our Capital Market Day. 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 the 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. And third, 49% of Bouygues Construction's backlog at end September 2018 has an execution date of more than 2 years versus 35% 10 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 the backlog at end September 2018 up 5% year-on-year. This momentum is driven by tenders for the Grand Paris project, demand for renovation of building 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, southeast of Grand Paris for EUR 108 million; the renovation of the 17 Boulevard Morland and all administrative city in Paris for EUR 146 million. This project is one of the 22 sites in the call for tenders for reinventing Paris. And outside of Paris, CO'Met, a unique program bringing together a concert hall, an exhibition center and a sport hall in Orléans for EUR 107 million. Let us now move to international market, 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 2 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 Cambridge University's physics laboratory for EUR 281 million. Let's now move to the 9 months 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 businesses' current operating profit was EUR 406 million compared to EUR 579 million in the 9 -- in 9 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 9 months 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 9 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 9 months. Sales in the roads business were up 10% in France and current operating margin was up 0.4 points in the first 9 months of 2018 compared to the same period last year. Now let me turn the call over to Christian.
Thank you, Philippe. As you will see, Bouygues Telecom's very good commercial momentum has continued with 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 MtoM. 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 9 months of 2018. This success is the result of our strategy mobile since end 2013 to differentiate through the quality of our 4G network, which improved customer service. According to ARCEP's latest survey as shown on Slide 16, Bouygues Telecom is ranked #1 in rural areas and all the towns of less than 10,000 inhabitants in voice, SMS and mobile broadband. And 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 industry for 4G ], so coverage [ of citation ], optimized frequency and network management. At end September 2018, Bouygues Telecom attained 98% 4G coverage and expect to reach 99% at end 2018. In the dense areas, Bouygues Telecom is finalizing the completion of the shared network with 87% roll-out 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 [ parlor ], Bouygues Telecom has optimized its network configuration on reallocating bandwidth to 4G to offer higher speed to customers through spectral aggregation. After the 700, 800, 1,800 and 2,600 megahertz bandwidth, it is now the 2,100 megahertz that can be used for 4G. Moving to Slide 17. We see that FTTH net adds have accelerated in Q3 2018. Bouygues Telecom won 71,000 new FTTH customers in the third quarter of 2018, resulting in the total number of FTTH customers of 467,000 at end September 2018. FTTH customer base has more than doubled compared to 1 year ago and represents 13% of the fixed customer base. We expect this positive trend to continue, supported by an increase in premises market and the success of our new range of offers launched last April. At end September 2018, Bouygues Telecom had a total of 6.3 (sic) [ 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 9 months of 2018. Total sales were up 6.5% year-on-year. Sales from services rose 5%, thanks to continued growth in the customer base and the positive impact 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 brand 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 9 months was EUR 931 million, an increase of 15% year-on-year. Moreover, EBITDA margin on sales from services was up 2.7 points to 29.4%. Excluding the impact of the 1,800 megahertz frequency charges, EBITDA margin would've 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 [ 1,800 megahertz ] frequencies. Operating profit was 44% compared to the first 9 months of 2017. In Q3 2018, it notably includes noncurrent income of EUR 110 million related to the 1,800 megahertz frequency charges accounted for prior to 2018, as explained previously by Philippe, and EUR 16 million related to the transfer of sites to [ Cendex ]. Gross CapEx of EUR 920 million in the first 9 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 enterprise is today the third B2B telecom operator in France, thanks to continued investments in proprietary mobile and fixed infrastructure 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 SME. In fixed, the market share is lower at around 3%, but growing steadily. Our ambition is to strengthen Bouygues Telecom [ into a prized ] position in both mobile and fixed. First, by expanding fixed market share on new innovative services for large companies and midsized businesses. And second, by increasing mobile and fixed market share in the fast-growing SME segment, notably through external growth. This explains why we decided to enter into negotiations to acquire a 43.6% interest in Keyyo Communications. Let us now move to Slide 20 to give you more details on this campaign. 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 digitization, 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 digitization to Bouygues Telecom enterprise. 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 sale and current operating profit shown on Slide 5. Let us now have a look at order 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 noncurrent income of EUR 110 million at Bouygues Telecom, as 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 9 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 9 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 18. This concludes my presentation. Operator, please open the floor for questions.
[Operator Instructions] Okay, so our first question comes in from the line of Nicolas calling from HSBC.
First question on telecoms. Mobile ARPU growth has accelerated in Q3 despite a very strong push on promotions in September. On the other side, your broadband ARPU is under tremendous pressure at minus 5.6%. Can you explain the underlying factors driving both ARPUs? And my second question is on the Energy & Services. Obviously, you had big losses in the U.K. Just wondering if you have a specific strategic plan to reorganize the other operation? If yes, what could be the role of Alpiq? And eventually, what could be done in France where Energy & Services appears to be at subscale to me?
So 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 the like 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. And we also have a mix effect because the weight of the cable offer in our installed base is coming smaller and smaller, and this kind of clients have a higher ABPU. Just on the fixed about the mobile, we are very happy to be able to stabilize our ABPU. This is 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 -- similarly [ over these statements ].
So regarding Energy & Services. So first, the very, very poor result and the losses are coming from 3 very specific and unique projects, in fact. So first, we have to deal with these 3 projects. One is under contractual and legal discussion with the client and the 2 others under commissioning phases. So we are totally under an operational issue and set of measures. More generally, regarding Bouygues Energy & Services, we have to improve the profitability of this business activity as a whole and mainly by moving from lower-margin generation type of businesses to higher-margin generation business. It was, in fact, the move that we have done with these 3 projects. Unfortunately, the start was not good, but the idea remains the same, to move to more industrial activity. So we will put that in place in the coming months. That's for Bouygues Energy & Services. Alpiq will help Bouygues Construction to reinforce its Energy & Services activity as a whole, but we don't want to merge the 2 companies. Clearly, Alpiq has some very good expertise in term of industrial activity, in term of power stations, construction and activity. So we will reinforce the general activity, but we don't want to use Alpiq to help Bouygues Energy & Services. We will continue to split the 2 activities under the leadership of Bouygues Construction.
The next question comes in from the line of [ Thomas Marino ] calling from UBS.
I just had a question about your Australian JV with Lend Lease. I had 2 questions, actually. The first one being, are you consolidating the results of this JV? My second question is Lend Lease announced last week that -- announced last week the USD 350 million provision due to difficulties in NorthConnex, which is a project that is managed by this JV. Would you -- do you expect to report any losses in relation to this project going forward?
Yes. So the -- regarding the press release of Lend Lease, unfortunately, for them, the only reason of their provision is not the NorthConnex project. NorthConnex project is part of their provision. For sure, we are facing some difficulties on this project with Lend Lease, and obviously we already booked overruns on this project in the 9 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. It demonstrates that we have also very, very good projects in front of this one project with some overruns for sure. That's the reasons for the NorthConnex project. Obviously, we are totally involved in this project, and we take our share of overruns. But as you have seen, these overruns on this project have no negative impact as a whole for the profitability of the building and civil work division.
[Audio Gap] recognize losses in relation to this project during the 9 months results?
Yes, but it's part of the very, very good profitability of building and civil. 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 3 projects regarding Bouygues Energy & Services specifically and the balance was not good in the Q3. But life is made of good and bad projects in this business. And again, I'll repeat, the explanation of the whole provision of Lend Lease is not linked only to the NorthConnex project.
Sorry. And in relation to my first question, you are then consolidating -- fully consolidating the results of this JV?
Yes. For our share, yes, for our share. It's a joint venture, so we take the -- our share, so 50% on this project. But it's part of our operational result. As for every JV, there is no difference between this one and all the JVs we have all over the world.
The next question comes in from the line of Frederic Boulan.
Fred at Bank of America. First of all, I would like to come back to the previous question on mobile ARPU, in particular. We've seen offers from Bouygues Telecom at EUR 5, EUR 10. So I'm just trying to understand what's the percentage of gross adds you're making on those very cheap offers? And what's the dynamic you're seeing elsewhere in terms of upselling to drive overall ARPUs to increase? Secondly, we're seeing strong growth in other telecom revenues outside of service revenues. Can you detail, for instance, for this first 9 months, out of EUR 760 million of revenues, what's the margin hardware versus tower cell? What's recurring from nonrecurring if we look at this business stream in a couple of years? And then more broadly on the construction side, after the warning, 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?
Okay. So I start with your last question. So 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 3rd -- the 2nd of October during the Capital Market Day. So we remain with the same idea of what we call a normative margin in the construction for Colas, Bouygues Telecom, Bouygues Construction and Bouygues Immobilier. So absolutely, no change around the 3.5% for building and civil works and Bouygues Construction, between 3.5% and 4% for Colas and around 8% for Bouygues Immobilier. So 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 achieved our plans, and we will present our 2018 results. So same target for 2019, we will speak about that beginning of 2019.
[ All right. ] But your 2 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. [ Specifically ], is explained by mainly 3 -- follow 3 elements. First, we had an increase in the term 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. And last point that you will see also the next coming year, due to the way we are accounting for the connecting -- the revenue on the cost for connecting FTTH customer, so we have a revenue coming from the building operators. We have also costs compared to the building operators. And third, we have a second cost to pay to the subcontractor. So you have kind of revenue, but we are [ working with everything ], and this is including -- it is increasing this year because we have more FTTH subscribers and will continue for the next years. About the mobile ABPU, we'll just remind you that in the mobile market, there is 2 segments. First, the [ sole ] segment, which represents less than 1/3 of the mobile market in term 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 the promotions, flash sales, lifetime tariffs and so on. And so the volume of gross adds is very high on this market and the churn rate is also very high. So -- but it is not very important because we do not have some viable commercial cost for gross adds made on this market because this is a new web-only market. On the other hand, 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. On the strategy agreement, continue to focus on monetizing the quality of our network, of our 4G network. We present to you that we are now ranked #1 in rural areas in France, #2 in average for our mobile network quality [ and that's so ] to monetize on this market, the quality of our service. On this market, we are able to upsell our clients to sell them more services, to upsell there to a bigger offer with newer services, newer -- more data and so on. And that's why the mix of that, that we are able to stabilize our ABPU, while we are able also in the same time to continue to increase our number of clients.
Maybe just to follow-up on other sales. If you could give us a rough idea, at this stage, for the first 9 months, what the split in the 3 different brackets into what handsets, what's [indiscernible], very broadly.
Sorry, we do not disclose that.
The next question comes in from the line of Thomas Coudry.
A question on the telecoms and your guidance. Actually, given the performance that you've delivered over the 9 first months of the year in terms of EBITDA and the growth in services revenue, I'm wondering why you're not being more specific or ambitious in terms of a full year guidance as far as sales from services growth is expected and also as far as EBITDA margin is expected? And 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 megahertz frequencies?
So about the total guidance, we do not change our guidance. It is more than 3%. I always said that the important term is more. So it will be more than 3%. We do not have any guidance in EBITDA level, on EBITDA margin. And about the cancellation of charges, what is exactly your question, sorry?
Well, you have a guidance of EBITDA margin should be higher than in 2017.
Yes. What?
And I was just wondering if that guidance was also true if we were taking the 2017 basis, excluding the provision on the 1,800 megahertz fee?
The 2018 EBITDA is, I would say, the weird one because we do not have any more these 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, and 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 different at 9 months -- for the 9 months between last year's EBITDA without [ 1,800 megahertz ] frequency charges, and the EBITDA of this year is 2.1 points, if I [ valued the ] figures, yes.
You have all the figures to calculate.
The next question comes in from the line of Jakob Bluestone.
It's Jakob here from Crédit Suisse. A couple questions, please. Firstly, just on the construction side. When you preannounced, you mentioned that you weren't expecting any spillover effects aside from the rail strikes, I think, into Q4. Can you just confirm that, that is indeed still the case? So as Q4, I guess could be a slightly cleaner quarter. And then just secondly on the telecom side. On the Keyyo acquisition, can you maybe comment on what sort of synergies you see? And presumably, you need to get to majority ownership before you can realize those synergies. And then just finally on spectrum in France. Can you maybe comment a little bit on your sort of expectations about the 3.5 gigahertz 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?
Okay. So regarding your first question, definitely, we confirm that we have taken all the negative impact in Colas Rail. So we will have what you call the cleaner quarter. And for the fourth one, we'll be definitely clean regarding the negative impact of the -- in Colas Rail.
So first, for your question of 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 term of IT, good clients.
Processes.
Good clients, processes.
They are very digital.
And they are very digital, and so very, very good things for us. I cannot speak to you about the synergy level as there is -- there will be an IPO, and so I cannot disclose anything before the IMF prospectus. Your last point was about 3.5 gigahertz frequency. We do not know now there will be some option or not. Of course, if there is some option, we will look at them on the -- if there is no option, we will also look at this band because this band is very important for 5G. Well, we expect that -- we hope that the price won't be the same as 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 4 operators and the government.
The next question comes in from the line of [ Josh Hallett ].
My first question is just on -- I mean 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? And 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? And the final question on that consolidation point is, is [ that ] like 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?
So regarding consolidation. Again, there is -- the consolidation is absolutely not at the agenda for many reason, and the first of them is the fact that there is no seller. So if there is no seller on the market, obviously, consolidation is not possible. Again, I repeat that in case of a 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? But again, there is absolutely nothing today leading to think about that. And so 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. There is a type of good dynamic, it's the result of our strategy in mobile. We are now increasing our market share in [ London server ], thanks to the shared network we rolled out with SFR. And it is also [ the work that relieved ] asset to put us in the first place for the quality of our network of mobile network in this area. So it's only the result of the job we've done for now, 2 or 3 years.
Yes. So bigger network, good quality of the network, good quality of our customer care processes and the quality of our outlet network. So again, quality, which was the 1 of the 3 pillars of our strategy in 2015, and the result is the fact that we are able to grow despite the very competitive environment. Again, we consider that the mobile business is not a commodity business because there is difference between the various operators. And when you offer more quality, you are better and you are in a better dynamic than competition, despite again very aggressive price on one part of the market.
The next question comes in from the line of Jerry Dellis calling from Jefferies.
First question is related to the fee reduction on the 1,800 megahertz frequency. Does that have a cash flow impact on Bouygues Telecom? In other words, were you actually paying out cash at the higher provided level in the past? And to that extent, would there be a reversal going forwards? Second question is on fixed broadband. It'd be interesting to know, please, what proportion of your fixed broadband base is currently on some form of promotional price. And then finally, also on fixed broadband. You mentioned that one of the reasons why the ARPU trend appears a little soft is because of the dilutive effect of cable customers coming out. Wondered if you could confirm, please, how many cable customers remain and for how much longer that cable attrition is likely to remain a drag.
So first question about the impact of the frequency. So there was in noncurrent income of the EUR 110 million related to the [ 1,800 megahertz ] frequency charges has 2 effect. First, an increase in term of cash flow from operation before tax. And so an increase in term of free cash flow, excluding working capital requirements. But in the same time, as it was only a provision, we have a deterioration in term of working capital requirements. So in total, the impact of the free cash flow is neutral, on the free cash flow after working capital requirement is at 0, excluding taxes because, of course, we have some tax due to -- on the profit we made this year. Your second question was about our percentage of clients in our fixed broadband that are in a promotion. So we do not disclose this kind of information. And it's very difficult to give you an answer because you have clients, of course, at maybe EUR 5, you have the clients at EUR 10, you have clients at EUR 15, at EUR 25. So what is the level -- where do you put the level below the one you have some -- you consider your clients are in promotions? And I remind you that in the fixed market, all operators have lower tariffs for the first year for their clients. So the first year, when you take some clients during the first year, the clients are at the lower level. But not at this very big level of promotion. There could be clients, for example, at EUR 19 for the first year and then maybe EUR 20, EUR 29 the years or the year after. Your last question was about our number of clients in cable. So we do not disclose this kind of information also. But the number of clients is decreasing very quickly, and they were very high in the past. And now we are migrating this kind to our FTTH infrastructures.
Could I just follow up, please? 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. And as those customers go back to list, would that make -- an ARPU should improve?
So in the fixed market, our strategy is still the same. We want to attain 4 million customers in the mid-term, so let's say 2 or 3 years. And we -- our marketing strategy is focused on that and not on ABPU. And also, I remind you that, globally, we are not focused on our level of ABPU. What is important for us is the growth in terms of turnover on -- turnover and billed to the client -- revenue billed to the client. That is the important figures.
The next question comes in from the line of Eric Lemarié.
I've got 3 question, if I may. The 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 more, but just checking. And the last question regarding Bouygues Immobilier. Reservations are down 9% in the residential segment. When do you think this decline will be translated into revenues decline?
So Alpiq has absolutely no impact in our end of September figure, neither in term of backlog, nor in term of net sales, not in term of results. So no impact on -- for Alpiq, except obviously in our balance sheet in term of acquisition. But no impact in term of operational figures. Regarding Bouygues Immobilier, clearly, we have a decrease in reservation, mainly for private -- in the private investor segment. You know that we have seen that since the beginning of the year, in fact, and compared to 2017 when this segment was at the very high level, thanks to low interest rates and the P&L loss or the buy-to-rent scheme. The effect is decreasing in 2018, and it's true for the whole sector, Nexity and [ Coffman ] have the same comments 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 term of reservation on this segment. As a -- despite that, despite that, and even if it is a decrease compared to 2017, if you look at the 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. And what about your perception of the margin today in your backlog for construction and Colas. Do you think they are above or below the [indiscernible] margin.
No, no. There is no specific comment on the margin in the backlog. We see no real movement, increase or decrease.
The next question comes in from the line of Alexander Roncier.
I just wanted to come back on the 1,800 impact at the telecom unit. Can you just clarify if the impact and the adjustment is evenly split across every quarter and if you can extrapolate the 9 months into the full year for the comparable basis next year? And then secondly, on the profitability and the organic improvement still on telcos, is there any specific action you've had on your cost base? Or is that just like directly flowing through from your increased service revenue? And secondly, in 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.
So first, about the [ 1,800 megahertz ] frequencies. As the decree, taken by the government, has been published in Q3, all the impact has been taken by us in Q3. So we are accounting for these charges, these provisions last year and the year before and also in Q1 and Q2 2018. And we reversed this provision in noncurrent income for the period before the end of 2017. And in EBITDA for the charges, we have taken in Q1 and Q2. So you have a positive impact in Q3, but no impact if you look only at the 9 months period because there is no more [ 1,800 megahertz ] frequency charges in our account for the total year -- for this total year.
So clearly, 2018 -- the first 9 months 2019 are a total normal year regarding this item.
Okay. And thus, if I can just follow up on that, I can -- if I want to just rebase 27 -- 1Q to June 3Q, I can evenly spread the difference between your organic improvement and reported improvements?
Sorry. I didn't catch what you said there.
It's just with the fee that you were provisioning before, were your provisioning the same amount across every quarter? Or...
Yes, yes.
Yes. Okay, that's great.
Your second question was about the improvement on our EBITDA. So 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, and we expect to have in the next coming years improvement coming from FTTH due to the fact that we won't have to pay anymore the fees to Orange for the [indiscernible]. And your third question was about...
How much driven by shared network.
What is our market share driven by our shared network with SFR. Yes, we are improving our market share in the rural areas, thanks to this network. In some part of France, our market share was very, very low. And we are also increasing our commercial presence in this part of France, and we will roll out some shops in this part of France, the next year. [indiscernible]
The next question comes in from the line of Giovanni Montalti.
Can you give us some more color about the current trading in France on the telecom market? Is there any sign of improvement or any sign of further deterioration? And leaving consolidation aside, do you think current dynamics that apparently 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?
So about the current trading in telecom in France, I just would like to remind you that the Q4 is always at each year, a very promotional period because in Q4, you have Christmas sales. And unfortunately, Christmas appears each year. So I think it will the same this year. We will see. But the current dynamic is still the same, so very high level of promotion in the mobile business on the -- [ similarly what ] we market. As I said, the premium market is much quieter with the ability to sell quality to our clients. And on the fixed, we picked up some promotions. It was again especially in Q3, because you have the back-to-school period in the September, which is a special period for the fixed because this is when family is moving from [ a house ] to another one, and so that's in September especially. You are able to take some clients in the fixed better than on other periods.
And sorry, if I may on the 2019 outlook, do you think market dynamics day after day are sustainable? Do you think selling...
I don't know. I don't know. It's not -- what we will see. But what is important for us is the growth in term of sales. It is not by ABPU that we will increase our profitability, it is with our sales growth. We will continue to focus on this next year. So you can have a -- sorry, you can have a decrease in ABPU just because of a mix effect. For example, if you take a huge number of clients in the [indiscernible] market but still have a stable level of clients in the premium market, you will see a decrease in term of ABPU, but this is a positive impact in terms of total sales. So don't focus too much of ABPU, it is not the good indicator.
No, that's clear, that's clear. But if I may, I just wanted to understand if very aggressive promotions like selling SIM-only for EUR 5 with [indiscernible] that allowances for life, these type of dynamics, at some point, aren't you worried that this may represent a drag also for the premium market because -- I mean, 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 concern on this side?
We are not the best to answer to this question because we never start the promotion. We only answer to promotion. So please, ask this question to the promoter of this very aggressive policy and you will have an answer. For us, we only be in the position of duplicate promotions. So if the promotion continue through some actors, definitely we will continue to reply. If there is no more big promotion, then we will come back to a more smoother situation. So clearly, the aggressivity of the market doesn't depend on us.
We currently have no further questions coming through. [Operator Instructions] We have no further questions coming through.
Okay. So thank you for joining us today. We will be announcing full year 2018 sales and earnings on the 21st February 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 handset.