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Edited Transcript of EN.PA earnings conference call or presentation 29-Aug-19 9:00am GMT

Half Year 2019 Bouygues SA Earnings Call

Saint-Quentin-en-Yvelines Cedex Aug 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Bouygues SA earnings conference call or presentation Thursday, August 29, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Frédéric Gardès

Colas SA - CEO of Colas

* Martin Bouygues

Bouygues SA - Chairman & CEO

* Olivier Roussat

Bouygues SA - Deputy CEO

* Pascal Minault

Bouygues Construction SA - CEO of Bouygues Entreprises France-Europe

* Philippe Bonnave

Bouygues SA - Chairman & CEO of Bouygues Construction

* Philippe Marien

Bouygues SA - Deputy CEO, CFO & Senior VP of HR, Information Systems & Innovation

* Richard Viel

Bouygues Telecom SA - CEO & COO

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Conference Call Participants

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* Eric A. Lemarié

Bryan Garnier & Co Ltd, Research Division - Research Analyst

* Josep Pujal

Kepler Cheuvreux, Research Division - Head of Building Materials & Construction Sector

* Nicolas Cote-Colisson

HSBC, Research Division - Head of European Telecoms Equity Product, Telecoms, Media and Technology

* Thomas Coudry

Bryan Garnier & Co Ltd, Research Division - Financial Analyst

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Presentation

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Martin Bouygues, Bouygues SA - Chairman & CEO [1]

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Okay. Ladies and gentlemen, I propose that you take your seats. Thank you. Ladies and gentlemen, it's always a pleasure to welcome you here for our half yearly results. And it's an even greater pleasure as our results are quite encouraging. So what about the highlights for the first half year. First of all, good commercial performance in all 3 of our sectors' activity: construction, telecommunications, and media. Strong growth in the results of Bouygues Telecom, more about that later on. An increase in Q2 current operating profit in the construction business year-on-year that compares with Q2 2018. Also a significant improvement in the group's profitability in the first half year. That's again year-on-year. And of course, we are confirming our outlook, the outlook that we've already given you guidance on before. Beginning with the group's sales which totaled EUR 17.446 billion, up 11% over the full year. There was a positive impact from the acquisitions made in 2018 but restated for the main acquisitions and at constant exchange rates, sales still rose 5%. One of the landmark events of the first half year or highlights, I should say, is the significant improvement in the profitability year-on-year, in line with the guidance.

Now this significant improvement has been driven by the very good performance of Bouygues Telecom but also of TF1, despite the fact that the basis for comparison at Colas was not favorable. You will remember that this time last year, we bought a Canadian company called Miller McAsphalt. Now Miller McAsphalt posted losses of EUR 28 million in January and February of this year. This is because the Canadian market is, as usual, highly seasonal. This is particularly in Canada. This is in roadways in Canada. And of course, in 2018, we didn't consolidate Miller McAsphalt for January and February because we hadn't yet acquired the entity. So the comparison isn't favorable or doesn't stand. So current operating profit, up EUR 120 million to EUR 453 million by comparison with the first half year 2018. The Group's current operating margin rose 0.5 percentage point over the period to 2.6%.

Finally, net profit attributable to the group totaled EUR 225 million, down EUR 36 million over the year. This was notably due to the lesser contribution from Alstom, but as you know, last year Alstom's contribution included a number of exceptional items.

Financial structure of the group. Net debt at the end of June 2019 was up EUR 1.2 billion year-on-year. This was mainly due to the acquisitions of Alpiq by Bouygues Construction and Colas and the acquisitions of Keyyo and Nerim by Bouygues Telecom and at -- a development in Bouygues Telecom's corporate markets. The increase in net debt by comparison with year-end 2018 reflects essentially the usual seasonal effects of Colas' business as I've already mentioned. Net debt at the end of June 2019 does not include the EUR 341 million dividend paid out by Alstom on 17th of July. This is a dividend of EUR 5.5 per share.

Finally concerning our financial structure. The news, which you've probably heard already, is very encouraging that is Standard & Poor's has upgraded our rating from BBB+ to A- with a stable outlook. All that is very encouraging and of course, means that we will continue along those same lines. Moody's credit rating of A3 was maintained recently. That's it.

Now let me now give the floor to Olivier Roussat to take you through our review of operations. Olivier, have the floor.

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Olivier Roussat, Bouygues SA - Deputy CEO [2]

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Good morning, everyone. Let us start with the construction business. What you have on this slide is a picture the harbor -- the Port of Calais, which was built by Bouygues Construction. On the right-hand side, you have roadwork in Devils Tower done by Colas. And then in the middle, you have a new building built by Bouygues Immobilier. It has got a low-carbon building. It's -- the building is called ENJOY. It's an office building, low-energy building, low-carbon building. The first one of its kind and it's part of our strategy to decarbonize the business. Now looking at the backlog, so Bouygues Construction, we're stable at a high level, EUR 33.8 billion. In France, business is marked by good road activity. You know that in election years, the year prior to municipal elections, the municipalities start public works and projects, and it means that you have an increase -- a 10% increase in road activity orders, I mean 10% increase year-on-year. Around the city of Toulouse, there is the beltway. That project is EUR 150 million. It's Bouygues and Colas together. The -- in property, Bouygues Immobilier, the backlog is down because of the -- the residential property is down because some commercial property projects are not due to start till the end of the year. So there's been a slight delay there and we expect that to happen in Q4, in the fourth quarter, and that will also have an effect on profit margins. Internationally, infrastructure requirements -- infrastructure needs remain high. I'm talking about the service buildings, especially -- and both indeed in emerging economies and developed economies, in spite of uncertainty due to Brexit. In the international context, we find that the backlog is growing well. [61%] (corrected by company after the call) of the overall order book in Colas and Bouygues Construction was done internationally. It was only 57% a year ago. So there's a 4-point increase there in the international part of that business.

If you look at the financial numbers, we decided to zoom in on the issue we find worth mentioning. And the EUR 11 million increase in current operating profit on Bouygues Construction compared to a decline in the previous half year. That's Bouygues Construction and Colas bringing this improvement, an EUR 11 million improvement between Q2 2018 and Q2 2019.

Regarding the rest of the construction business, as Martin Bouygues said, is improvement in Bouygues -- Colas' profitability, even though the comparison was not favorable because Colas was only integrated in the 1st of March of last year. So the first 2 months you had, well, there's no revenue, only losses, EUR 28 million this year that we recognized compared to what we had last year, which was nothing because it was not integrated then. Still, profits are up EUR 31 million. That's because of significant business mostly in the Mainland France Road, the fact that we disposed of Smac, and there was a pickup in the rail business, rail activity. That started end of 2018, beginning of 2019, and we're' having the results right.

Now regarding Bouygues [Construction] (corrected by company after the call), we still have EUR 6 million improvement over 1 year. Bouygues Immobilier's current operating profit is down. There are 2 reasons. First, because construction cost is a 100 basis points and that's the result of a peak of sales that occurred in 2017. And so that created some tension in the construction business because of course, we had to find people to build these properties. And then in commercial property, there was a decline because most of the -- well, the main operations for commercial property are expected to happen in Q4 of this year, so a decrease in that operating profit.

Before moving on to TF1, we decided to zoom in on our decarbonizing activity in the construction business. This is becoming more and more relevant. All stakeholders, investors, our customers, are -- have decided -- have taken a keen interest in this. So this is part of our new strategy that we are rolling out gradually. We will see where we stand. And some things are still in the making. So there are 3 dimensions to all this: First, we try to bring down the gray energy of materials, that is the energy you require from the extraction to recycling of building materials; second is to develop energy efficiency solutions or energy -- or power generation in renewable energies; and number three, to facilitate what is known as decarbonized mobility. So to reduce gray energy in building materials, if you want to reduce the type of, what, the energy you need in -- during the life cycle, you need to choose innovative materials with low-carbon footprint. So there are 2 aspects here. There is a partnership that we have between Bouygues Construction and the Hoffmann Green Cement Technologies. We use a concrete whose carbon footprint is 70% to 80% less than the footprint of existing cements, and that will become widespread in 2020, will be fully rolled out in 2020. And the second part, we have the ENJOY building using timber. Timber of course is a natural carbon sink. And Bouygues Construction has been working with WWF to make sure we can trace the origins of the timber, the wood that we use. I mean it's all very well to use wood, but we shouldn't destroy forests unduly to get that wood. So Bouygues Construction and Bouygues Immobilier have an expertise in not only designing this building but rehabilitating such buildings. And since 2005, Bouygues Construction and Bouygues Immobilier have completed as many as 100 timber property development projects, either new or rehabilitated. On the right-hand side, you have the so-called Sensations building. It's a high building -- high-rise building, a 100% timber-built in Strasbourg, and it got the BBCA label, that is a low-carbon building. That's what BBCA stands for in French.

The second aspect of our approach consists in promoting the circular economy. The construction business of course generates lots of waste. 70% of the waste is generated by that activity, and so to develop the circular economy, there are 4 aspects to that. Number 1, as I said, we try and select, at the designing stage, sustainable materials with the lowest possible carbon footprint. You have timber but you also have the new types of concrete. Then the second thing, we try to use less materials, and that's -- you have ecodesigning. And number 3, recycle raw materials, such as bitumen or concrete. And by the way Colas managed to recycle 290,000 tons of -- almost 300,000 tons of bitumen. It's equivalent to the production of a midsized refinery with an annual -- the annual production of a refinery right there. The second thing is to -- recycling materials from waste and other product. And 50 million tons were recycled and that's the equivalent of 10% of the total output of our quarries and so that was a huge saving. But it's not just for buildings. We find that the -- running the operation of buildings, 40% of the footprint can be due to that throughout the life cycle. For instance, you have air conditioning, lighting and so on and so forth. And we work with our customers to provide energy efficiency -- efficient solutions so we can save on energy. And so we work with ambitious and demanding labels, BBCA, the low-carbon buildings, but we also work with the B-pos buildings, and these are positive-energy buildings. So these are buildings billings that actually generate more power than they use. We now have what is known as a B-pos plus so that also includes the ecomobility. And we have specific know-how in renovating existing buildings to improve their energy performance while respecting the existing architecture. In some cases we can change the energy performance while the occupants are there, tenants are still there. 10% of -- or 13% of the order intake included commitments on energy performance, and we expect to bring that to 70% by 2020.

We built also as many as 190 solar farms throughout the world in Asia and in Europe and so the installed capacity is as much as 1,079 megawatts. And that's enough to fuel a city of 430,000 inhabitants or to provide electricity for such a city. And the last aspect is what is known as soft mobility. So of course, there are areas where lots of energy is spent organizing transportation and that's a huge cost. Now of course, there's public transportation and we've been working on tram with Colas Rail, and you have bicycle lanes and that sort of thing. But we're also working on new aspects, for instance, when buildings are being designed, there are what are known as ecomobility solutions, and BYES has been -- is now operating as many as 10,000 charging points for all sorts of electric vehicles. We have a start-up company from our own program known as Flexy Moov, where you can share electric cars as part of the buildings that we deliver, and that of course can bring down the energy bill on transportation.

And then we're also working with Colas to -- towards a more shared mobility, and we have a solution for the Saclay campus called MoovHub where you can manage car movements and parking. And one last aspect we would like to highlight, and that is Flowell. That's a dynamic road-marking solution should. You have it on the right-hand side of the screen, the pedestrian crossing in Mandelieu. It's experimental right now, but we have an agreement with Google on that and a subsidiary called Sidewalk Labs. So it's a subsidiary of the Alphabet group. And the idea is part of the experiment right now, and it's being run by Google in the Quayside smart city in Toronto. Now what's -- the concept there is that you can change the use of a road using this dynamic road-marking process. Now it's a gradual approach. As early as 2018, we joined back the Carbon Disclosure Project, A List. That company distinguishes those companies that try hard to address climate change. And we have a few objectives by 2030. Bouygues Immobilier proposes to reduce greenhouse gas emissions by 30% compared with 2017, and Bouygues Construction's commitment is to have a 20% decline -- cut by 2030 compared to 2015. And we are working on an objective for Colas, which we'll get back to you about that.

Now TF1, Gilles Pélisson produced the numbers on 24th July, so I'll go through the highlights, but you are already familiar with the numbers. TF1's performance in H1 was good. The audience share is up by 0.2 percentage point for women aged under [50] (corrected by company after the call) [who are purchasing decision-makers] (added by company after the call) and up 0.4 percentage points for individuals between 25 and 49. Sales are up 6% compared to H1 2018, and current operating profit stands at EUR 163 million, up EUR 61 million. Current operating profit margin stands at 14.2%, up 4.8 percentage points compared to what it was last year. And that is of course because we're able to keep programming costs under control. Now for 2019, TF1 is now reiterating its guidance for double-digit current operating margin.

Looking now at Bouygues Telecom, the sales performance in H1 2019, the momentum was maintained both for the fixed business and mobile phones. Not including machine to machine, we have as many as 11.2 million mobile-paying customers, with an additional 280,000 customers in H1, including 132,000 in Q2. Regarding fixed customers, growth is continuing. We have 176,000 new customers, FTTH customers in H1, including 82,000 in Q2 and the penetration rate is improving. We now have as much as 21% of our installed capacity in -- with FTTH compared with 11% a year ago. At 31 June, we had 745,000 FTTH customers. The total number of customers being 3.8 million. A comment here, you -- apart from one telecom player, everybody has published their numbers, but I saw this morning a news release, one of the large operators has been saying that they are leaders in recruitment in FTTH. Well, let me just remind you one simple fact that 2 -- when you have a fixed -- well, you have to look at the number of new customers, new subscribers. And then the migration of your base to FTTH, for us, 50%, while most of our competitors are moving their ADSL bases to FTTH, whereas we don't have that problem because most of our customers already opt for FTTH and have it. Any case, while we say that the market is aggressive, we find that in 2019, the market is less aggressive than it was in 2018. We have a good illustration of this. We have 2 charts, which are a bit unusual, maybe. The fixed churn, it's down 17% and so that reflects, on the one hand, well, better customer retention, customer loyalty and less sort of turbulence in the market, and on the right-hand side, the plan churn for mobile phones then is down 48%. And so that means of course that the market is very stable indeed.

Now let's look at the financials. For the last 2 years, Bouygues Telecom has had an improvement, a significant growth in sales from services, up 8.5% year-on-year. If you look, well, we have mobile sales services and -- from services and fixed sales from services, there's a difference there. That reflects of course -- well, we're developing our base both in fixed and mobile subscriptions, but we are the only ones to publish these indicators. We have what is known as average billing per user. That's what our customers pay on average, and we can find that ABPU over the past few years has been stable at EUR 19.5 for mobile and EUR 26 for fixed contracts. Well, if you have a stable ABPU and a growing base of customers, well, that means that the numbers -- I mean, arithmetically, the numbers naturally grow. But that indicator has been missing from presentations. I don't see. It's pretty easy to work out and you work out the sales divided by number of customers. Maybe people haven't got the right calculators, but we can produce these numbers, no problem.

Regarding the financials then. The performance has improved considerably. Total sales up 14% at EUR 2.9 billion, 13% only if you restate this from -- the businesses from Keyyo and Nerim. EUR 280 million, so we have on the operating profit, an improvement of EUR 26 million. That includes EUR 50 million capital gains compared to EUR 91 million last year sales to Cellnex. You have EBITDA after leases up EUR 102 million, EUR 653 million compared to EUR 551 million. And the margin is 29.3% on EBITDA after leases, up 2.7 percentage points. CapEx is EUR 530 million, down EUR 91 million compared to last year. This is because of our strategy we've been rolling out for the past 2 years. Two aspects to that: We try to improve the quality of fixed and mobile networks; but also we try and differentiate the experience delivered to customers. So the quality of networks first. Both in mobile phones, Bouygues Telecom was recognized by Arcep as being the prime operator in rural areas in France. And we were number two on the country overall. That's because the mobile network had 21,000 -- 28,000 sites -- sorry, 21,000 sites and we expect to bring it to 28,000 sites by 2023. We have a target of 12 million FTTH premises marketed by the end of 2019. That's the quality of the network. But also the customer experience, we're improving there. We have started a program to improve customer experience in 2018, and so you have a number of projects. As many as 200 individual projects were launched and they are bearing fruit as it were. On the chart upstairs, you can see customer satisfaction. We ask our customers on a quarterly basis. We have -- they give us a mark for mobile and another one for fixed. We add up the 2. Out of 200, the average grade -- score came from 157 to 161, and of course, our target is 168. That's customer experience. But in customer -- well, customer experience depends to a large extent on the relations with the Bouygues Telecom employees. And we like to see how own employees are happy to provide services to our customers. And this is a survey, it's a fully democratic survey, 97% of our customers (sic) [employees] say they give their best at work. And the second question, people are proud to belong to the company, to work for the company, and 94% of our employees are proud to be part of the company. And you may remember that 5 years ago, we went through a very difficult time because we had a massive layoff plan, where people -- voluntary redundancy plan, and that was rather painful 5 years ago. Any case, now we have beautiful prospects. Regarding the general public, we still have market shares to gain in less dense areas. Those rural areas we've profoundly changed the network. We have added an extra 50% in mobile sites. So we are strengthening also the sales network. We have an additional 50 point of sales through our partnership with Fnac Connect. We started after our competitors on the fiber part, so we're catching up right there. And so there's also potential gains on the -- in the fiber business. And we are quite confident that we will be able to acquire new customers there. We are present in as many as 83 departments and 2,600 municipalities, and wherever we go, we are very well received. And one last aspect is the B2B market that we decided to strengthen that market as well, especially for the fixed line business, especially through the acquisition of Keyyo and Nerim. We started off with a low market share in the fixed business whereas elsewhere, B2B market can be 20% for the mobile business. So if we can make -- achieve the same performance in fixed as we do in mobiles, where we only have 3% market share, that would be great. So that's about the performance. And I will now give the floor to Philippe Marien for the financial details.

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Philippe Marien, Bouygues SA - Deputy CEO, CFO & Senior VP of HR, Information Systems & Innovation [3]

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Good morning, ladies and gentlemen. Just a few additional comments on interim accounts. So sales up 11%. This has been driven by the acquisition mainly of Alpiq by Colas and Bouygues Construction. On a like-for-like basis, we still grew sales by 5%. So good growth momentum over all our businesses. Current opening profit, no need to dwell on this. It's already been described sector by sector by Olivier, so up EUR 120 million. Net noncurrent items, down over the first half-year. This decrease was due to the fact that the Cellnex accords have progressed. We have fewer sites sold in 2019 than in 2018.

Net cost of debt was stable over the period by comparison with last year. Income tax totaling EUR 132 million, which is an effective tax rate, which is well above the effective tax rate we experienced last year when we were at 20%. We're now up to an effective rate of 36% in the first half of 2019.

Two explanations for this increase in the effective rate. First of all, the transformation of the CIC tax credit into a decrease in expenses, which mechanically increases the taxation line. And the second impact is in the breakdown of the group's sales. The proportion of France's contribution is higher than last year. And as you all know, taxes are slightly higher in France than in most other countries in the world. So this dual or combined effect increased our taxation in the first half year.

Share of net profit of joint ventures and associates, down EUR 29 million to EUR 59 million in the first half year. The main impact was that of Alstom, whose contribution to result was the same at the 30th of June as the 31st of March because Alstom only publishes its results twice a year, at the end March, at the end of September. So down from EUR 73 million to EUR 33 million. Last year, EUR 73 million of course was very favorably impacted by the end of the power disposals to General Electric. The fact that it exited various joint ventures meant that its nonrecurring income was quite substantial.

So in the first half of this year, we are back to business as usual at Alstom. And for Alstom Transport, very good results but lower than what we experienced last year. Conversely, we lost EUR 40 million despite the fact that the share of net profit of joint ventures and associates was minus EUR 29 million. The positive impact of Tipco, which is a contribution that Colas already, participation that Colas has in Thailand, it was affected adversely in the first half year by crude oil implications from Venezuela. Now that didn't happen again in the first of this year. So Tipco improved its results and the positive impact for Colas was EUR 12 million. So Overall, net profit of EUR 225 million, down EUR 36 million on first half of last year due mainly to the lesser contribution of Alstom to the group's results.

Moving on to the balance sheet. Just a few comments. Noncurrent assets were up by EUR 416 million. Property plant equipment, up EUR 151 million, mainly at Bouygues Telecom for some EUR 136 million. So we are investing substantially at Bouygues Telecom. As we've said, we are setting us apart by way of the quality of our network. That is part and parcel of Bouygues Telecom's strategy and of course, entails investments at a sustained rate. The second important reason for this increase was goodwill. Total increase in goodwill of EUR 170 million mainly due to the impacts of Keyyo and Nerim at Bouygues Telecom and De Mensen, which is a television production company purchased by the Newen in the first half year. And of course, the investment in joint ventures and associates rose EUR 47 million. This was the outcome of these -- essentially, Alstom under Tipco minus the dividends we received from these 2 same companies over the period.

Now assets held for sale -- assets and operations held for sale at year-end 2018, the EUR 340 million corresponded to the value of the Smac assets. Smac was in the process of being sold. That sale was closed in May 2019. So at the end of June, we had no longer any assets and operations held for sale.

Shareholder's equity. The variations are quite typical of this time of the year. Net profit, plus EUR 297 million; dividends, an outflow of EUR 708 million; and capital transactions of minus EUR 28 million, these were to buy back shares. This is customary for the middle of the year. We haven't got the full year results yet, but dividends have already been fully paid out.

And other comments on an item that changed quite considerably, EUR 1.2 billion increase in noncurrent liabilities. These are noncurrent financial debt. EUR 562 million at Colas. This is something that recurs every year. We -- Colas draws down its long-term facilities particularly in the U.S. to cover the shortfall in cash. Remember, there's a highly seasonal effect of Colas' business in this part of the world with a very low level of cash in the mid of the year and an improvement in the second half. So that is absolutely customary. What is less customary is, particularly under non-current debt, is Bouygues SA, which in order to fund the group and cash for the period, didn't draw down one of its bank facilities as it usually does but made a significant commercial paper issue of EUR 595 million. So these are commercial paper at negative rates of interest even when well negotiated and not too dear -- always too dear, should I say, to you bankers in the room, but facilities are always more expensive. So it's in our interest to use this commercial paper, and in accounting terms, these are classified under noncurrent debt, a phenomenon that would be rectified in the second half year because the group's cash requirements are much lower in the second half.

We have the same impact on liabilities with regard to Smac, the EUR 340 million in -- under assets held for sale have disappeared giving us net debt of EUR 6.2 billion, up almost EUR 2.6 billion by comparison with the end of December. So how do we explain this variation? So beginning with the EUR 3.6 billion in net cash at the end -- or net debt, I should say, at the end of the year. Acquisitions in the first half year totaled EUR 170 million, mainly Keyyo and Nerim by Bouygues Telecom and De Mensen at TF1. This is a far cry from the figure in the first half of 2018, figure of EUR 972 million, which was due to the acquisition of Miller McAsphalt by Colas. Capital transactions and others, as we explained earlier on these, mainly share buybacks. The dividend payout, EUR 708 million, I've already explained that while talking about the changes in shareholder's equity and operations, which used up EUR 1.7 billion in cash. Now this is a structural outflow but higher than the figure we had for the first half last year, EUR 227 million higher.

If we look at operations in greater detail in the first half year. Okay. Our net cash flow. Since the introduction of IFRS 16 on the 1st of January this year, our bridge chart is more complex than usual. It's because of the miracle for IFRS 16, we have cash flow which increases very substantially, by the way, since rent is no longer considered as an outflow but an amortization, which of course improves your cash flow quite substantially.

This we feel is not a true reflection of the economic reality. So we include lease expenses, which was situation before IFRS 16. This is the real operating cash flow as we see it, which gives us a more complex chart. That said, our net cash flow was comparable to last year at EUR 165 million. You may say that's comparable because your net cash flow increased so with that corresponding cash flow. That's not true, in fact, not true at all because net cash flow is measured with taxes paid.

Now as far as we are in the middle of the year, taxes paid are in the form of down payments on taxation. Now just to go back in time, in 2018, we paid tax on the basis of our results in 2017, which, just for the record, were relatively low. So our down payments on taxation were relatively small in 2018. In 2019, we're paying tax on the basis of our performance in 2018, which was much better. So the down payments on taxation are much higher and the variance between the 2 down payments, that's taxation paid, was EUR 92 million to be precise.

If you rectify this EUR 92 million impact, here, you'll find group cash flow which is similar or has evolved similarly to our current operating income -- or current operating profit, I should say. So over the half year, our operating profit actually saw our cash situation improve. No comment on net CapEx. Same order of magnitude as last year. The change in working capital requirement did however deteriorate. Once again the very substantial amount of cash used up was unusually high, much higher than last year, mainly in the construction sector. The additional outflow was EUR 227 million, but we are confident about the fact that this deterioration is temporary and limited to the first half year and that we will be on target for our guidance with the change in working capital requirements, which will be close to 0 for the period. That's what I can say regarding our financial statements for the first half year. Thank you for your attention.

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Martin Bouygues, Bouygues SA - Chairman & CEO [4]

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Thank you, Philippe. And now if I may, a few words of outlook. The outlook, of course, has been confirmed. In 2019, we intend to improve group profitability and generate as much as EUR 300 million in free cash flow at Bouygues Telecom. By -- in 2 years, we improve -- we intend to generate EUR 1 billion in free cash flow for the group as a whole after WCR, with contributions from all 3 sectors. So we're completing H1 in a satisfactory manner, and we are very confident looking forward to the future.

Now by the way, Phillip Marien has just given you a presentation of the financials, and well, like the rest of us, he's gaining age every year. He -- in a few months' time, he will reach retirement age and after the presentation of the annual results for 2019 early in 2020, he will be -- he will step down and Pascal Grangé will take his stead. He's been with the company 33 years. We have a company tradition in this company to keep people who have their whole career with this us. He's well familiar with the construction business and indeed, the other businesses of the group. And he will be in a good position to take over from Philippe. Philippe took over from Olivier Poupart-Lafarge and those of you who've been with us for some time may remember him. And I'm sure that Pascal will ensure that he follows in Philippe's footsteps as well. Olivier Roussat has had a quite remarkable career with us. Now he is a VP. Well, he's the Managing Director of this company standing by me, and he's given an outstanding performance, and again, I have every reason to be very happy with him.

Now if you have any questions, this is your chance to ask them.

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Questions and Answers

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Martin Bouygues, Bouygues SA - Chairman & CEO [1]

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Please.

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Josep Pujal, Kepler Cheuvreux, Research Division - Head of Building Materials & Construction Sector [2]

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Josep Pujal from Kepler Cheuvreux. I have 3 questions. Number one, regarding the guidance, EUR 300 million in free cash flow for Bouygues Telecom for 2019. Now in H1, there's been a significant EUR 40 million increase in free cash flow. Why are you so confident that you will be able to meet that objective? You still have to improve even more in H2 than you did in H1 to reach that figure. Second question, Colas Rail. You had concerns about Colas Rail last year. Could we have sort of -- take stock, where do we stand? What's the level of profitability so far? What you expect for the year as a whole and for next year as Colas Rail? And then question number three, there is talk of a dearth of shortage of bitumen. We read about that in the papers late in the French media. Are you concerned? Is there any concern on your side?

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Martin Bouygues, Bouygues SA - Chairman & CEO [3]

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Right then, on free cash flow, I will ask a Richard to say a few words. But that guidance, nobody believed it when we announced it and -- at the time. Richard.

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Richard Viel, Bouygues Telecom SA - CEO & COO [4]

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Well, yes, we still believe we can meet that target. I do sense some skepticism on your part, but there are seasonal factors between H1 and H2. You have 2 positive factors on free cash flow on H1. EBITDA gained EUR 100 million or so. The second aspect, and that also helps improve FCF, and that's lower CapEx, capital expenditure down to the tune of about EUR 100 million right there. Now -- so plus EUR 100 million in EBITDA, minus EUR 100 million in CapEx, so EUR 200 million. But we have other seasonal effects, taxes. Compared with 2018, seasonality was different. So you have an unjustified degradation of tax. But that only happens in H1, EUR 80 million right there. And on the last aspect, and that's disposals. There we have about EUR 70 million. So all in all, the EUR 40 million you've got right there is EUR 200 million that is normal and outside phenomenon to the tune of about EUR 150 million. These are rounded up figures. I can give you the exact figures. But -- so it doesn't look like much on H1, but we're confident for the years as a whole.

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Martin Bouygues, Bouygues SA - Chairman & CEO [5]

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Right, on Colas Rail, Frédéric Gardès will give you some details.

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Frédéric Gardès, Colas SA - CEO of Colas [6]

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Yes. Well, last year, the performance wasn't so good. We stepped in with a number of new measures. Number one, to reduce exposure to a major client in France. SNCF is a complicated client. So now we do -- we have other clients, street cars, tramways, the Greater Paris. Another aspect is the freight business was not profitable so we cut that down and we're moving on to an asset-light aspect that is we outsource such thing as engines. About 60 of them have been outsourced. So that this year should be more profitable, and we're looking at breaking even next year in France for Colas Rail.

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Martin Bouygues, Bouygues SA - Chairman & CEO [7]

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Frédéric about bitumen. Bitumen -- the shortage. There was a question.

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Frédéric Gardès, Colas SA - CEO of Colas [8]

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Ah, yes. Now there is a tense situation right now, but just as we had last year, last year by the way, we were not as badly hurt as the competition. At least that's what we believe. We fared rather well. We had emergency supply solutions. What we have is framework agreements with suppliers, and we have spot purchase agreements. We expected trouble this year again, so we reinforced the selfsame measures and so far, but of course, touchwood, things have been going rather well as regards bitumen in what is rather tense situation. You should also know that because we are well spread out around the world, bitumen of course is something that we carried from one part of the world to the next. So just because we're short one -- in one part of the world, we can make up for -- from someplace else.

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Martin Bouygues, Bouygues SA - Chairman & CEO [9]

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Yes, sir. Mr. Garnier -- no, Eric Lemarié from Bryan Garnier. I beg your pardon.

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Eric A. Lemarié, Bryan Garnier & Co Ltd, Research Division - Research Analyst [10]

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A question about France. With local elections in 2020 coming up, what's the effect on the construction business, the road business in particular and property development? A question on BYES. Could you tell us about the performance of Bouygues Energy & Services in H2 because this is a very promising company? But on profit margin for 2019, on the construction business, you gave a guidance, you're talking about 100 basis points less for Bouygues Immobilier. You still confirm -- stating -- sticking by that figure, 100 basis points less? And can you give us -- not so much of guidance on Colas and Bouygues Construction, but can you give us, well, the sort of operating margin you're looking at for these businesses in 2019? And then a question on Bouygues Immobilier. Why is there this delay, the fact that the property -- the commercial property projects have been pushed back? Are customers becoming more demanding? What's going on?

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Martin Bouygues, Bouygues SA - Chairman & CEO [11]

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Right, says Mr. Bouygues. On elections, well, I have been around for a while and I've seen elections come and go. That phenomenon, what happens is after the elections you have of course new business. During the election period, you have, well, retention less in terms of delivery of building permits. So we expect that after the elections, as soon as the elections are over, we should get more building permits and new construction sites starting precisely because of that. Now regarding BYES, well, of course, Philippe Bonnave will tell you more. Philippe.

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Philippe Bonnave, Bouygues SA - Chairman & CEO of Bouygues Construction [12]

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Right. At the end of H1, we find that BYES -- well, we have BYES and other acquisitions. So Energy & Service, we have 2.1% current operating profit, which is an improvement compared with last year. On BYES proper, it is also looking up with operating profit slightly less but same order of magnitude as the activity as a whole.

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Martin Bouygues, Bouygues SA - Chairman & CEO [13]

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Right. And on Bouygues Immobilier, Pascal Minault, who's head of Bouygues Immobilier, will say a few words.

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Pascal Minault, Bouygues Construction SA - CEO of Bouygues Entreprises France-Europe [14]

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I believe you had 3 questions. Number one, the market, the effects of the 2020 elections and it is we can feel the effect, and indeed, we've been feeling it for the past 6 months. When we gave our guidance at the beginning of the year, we were looking -- the reference -- the benchmark was 128,000 sales that's for property developers. We were looking at a 5% decline. But if you look at the numbers for H1, we are looking at a lower decline, only 1% decline. So believe that all in all, the market will be slightly down. We're looking maybe at 100,000 to 125,000 units sold. In that selfsame market, reservations are down 10%, so the -- further down than the market as a whole. There are 2 reasons for that. Number one, well, just prior to elections, it's always difficult to start some of our programs, and we have -- we're experiencing more difficulties than our customers. And also when you have block sales, they account for about 30% of our sales at Bouygues Immobilier, and they only accounted for 15% of the sales so far. We're looking at projects with a few dozens -- indeed, hundreds of housing units and these have been postponed to H2. But all in all, for reservations of Bouygues Immobilier, we're looking at a slight declines, and so we expect to maintain our market shares, give or take. We're looking at the same ballpark as last year.

The second topic you raised, the fact that some of these commercial property projects have been pushed back, have been postponed. Well, we're looking at a sizable amount, so of course, it makes a big difference in terms of sales and in profits. And of course, Bouygues Immobilier's profit numbers depend on those projects. They've been delayed or postponed for a number of reasons, for marketing, for administrative authorization and such like. So it's true that some of these projects will only be signed in Q4. So of course, that impacts our profitability because there are so many sales didn't happen in H1 for Bouygues Immobilier. And in commercial property, traditionally, these projects are more profitable than residential projects. And so both in terms of sales and in profits, we have an effect because of course, profits are higher for commercial properties.

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Martin Bouygues, Bouygues SA - Chairman & CEO [15]

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Well, there you have your answer. Thank you so very much.

Yes.

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Nicolas Cote-Colisson, HSBC, Research Division - Head of European Telecoms Equity Product, Telecoms, Media and Technology [16]

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Nicholas Colisson from HSBC. I had a question on Telecom. It was just on the pricing environment that was referred to earlier on. You talked about last year's market, but Bouygues Telecom put out very aggressive prices, particularly, in fixed lines during the summer. And the trade-off between volume and price, when do you feel that you will be able to reduce the price impact and increase your ARPU? What about your critical mass in fixed lines, which I believe was 4 million customers?

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Martin Bouygues, Bouygues SA - Chairman & CEO [17]

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Richard Viel will answer that.

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Richard Viel, Bouygues Telecom SA - CEO & COO [18]

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Concerning the promotional side of telecommunications. In mobile phones, in 2018, drives were around the EUR 5 mark last year, EUR 10 this year. In fixed lines, promotions have been at a constant level. In the first 12 months, the prices are slashed. And then value is reinstated all the more so that newer technologies generate a higher billing, and of course, options sell better after the first 12 months. So we're very confident about this price development and this slowing down of promotional drives. As Olivier said earlier on, this will have a direct impact. This has had a direct impact on the rate of churn. Your second question concerned the critical mass. Okay. I don't know if you saw the curve, but it would appear that the curve is not flat. It's rising constantly and significantly because almost every half year, we're adding 300,000 new customers or thereabouts each year. So we continue to grow. Our first level of ambition was 4 million. We're very close to that. Let's say, the momentum suits us. We're happy with the momentum as it stands. But this growth continues to be good, strong. There's no reason why we should stop at -- we've actually -- we will have achieved the 4 million mark in the next couple of months, so we'll be setting ourselves new targets. Well, we're on the way towards, well, to the future.

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Martin Bouygues, Bouygues SA - Chairman & CEO [19]

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Any more questions? Yes, gentleman at the back.

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Thomas Coudry, Bryan Garnier & Co Ltd, Research Division - Financial Analyst [20]

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Thomas Coudry from Bryan Garnier. I have 2 additional questions on telecommunications. I take the guidance issue the other way around. You're quite comfortable about the EUR 300 million mark, but you've told us that the market is fairly encouraging. Now if on the contrary, you were to exceed EUR 300 million, what would your strategy be? Would you allocate that to earnings or earmark that amount to -- or that surplus amount for CapEx? Second question, could you give us more information on the corporate segment, which is an important part of your telecommunication strategy? Could you tell us about the corporate segment's contribution to Bouygues Telecom's results from a more operational point of view? How are you going about acquiring market share, the market share that you need to grow in this segment?

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Martin Bouygues, Bouygues SA - Chairman & CEO [21]

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Well, concerning surplus free cash flow, over and beyond EUR 300 million, we'll see. We'll see. For the second part of your question, we'll have to think about it before we give you a more specific answer.

Now we don't give you the breakdown of sales in B2B but let me reassure you on 2 accounts. First of all, mobile sales continue to grow, and in fixed lines, our market share, historical market share, this is a very buoyant market for us, all the more so that we have made 2 acquisitions for small businesses, Nerim and Keyyo, who are both contributing now that we've integrated them, both helping us address this very dynamic segment. So our target is to be the real third player in the B2B segment.

No other questions? Yes, gentlemen here.

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Eric A. Lemarié, Bryan Garnier & Co Ltd, Research Division - Research Analyst [22]

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Eric from Bryan Garnier again. Concerning the operating margin, could you confirm Bouygues Immobilier's -- are we still -- could you just confirm that the margin is expected to drop 100 basis points? What about Bouygues Construction and Colas, their operating margin for the full year?

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Philippe Marien, Bouygues SA - Deputy CEO, CFO & Senior VP of HR, Information Systems & Innovation [23]

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Yes. We can confirm everything you've just said. This is what we said at the start of the year. So improved margins in Bouygues Construction and Colas and indeed at Bouygues Immobilier. The additional costs that we have to handle have led us to revise our margin downward by 100 bps, provided that the commercial market continues to evolve as we anticipate it between now and the end of the year.

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Unidentified Analyst [24]

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(inaudible) I have 3 questions. Just a word about Miller McAsphalt. This is a big acquisition. Could you tell us what you found since you took ownership? Secondly, there's been a lot of external growth but is there more in the offing? There are any other potential acquisitions you're looking at? Or how do you foresee external growth in the second half year? And the never-ending question of consolidation in the telecom market. Could you confirm that all is calm in the telecom market?

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Martin Bouygues, Bouygues SA - Chairman & CEO [25]

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Let me begin with your third question, consolidation in the telecommunications market. I was very clear about this. I don't believe in it. I don't believe in consolidation for several reasons. Firstly, it's difficult or would be difficult to explain to the market that 4 profitable operators would be better off if there were 3, even more profitable operator, so it's a very difficult to make that point to the market.

In the past, I explained that it cost more to depreciate 4 networks as opposed to 3. Apparently, this was a rationale that was too complex and wasn't well taken on board. And now we have the 4 networks. We're going to have to live them. Let me add that when I see what happened in Italy, where they reduced the number of networks and operators from 4 to 3 and now they're considering increasing from 3 to 4., well, I'm not sure that that's very convincing, certainly not in terms of reducing the number from 4 to 3. I think that that is something that has become impossible. It's a political -- it was a political decision. We have to live with that. It generated billions in losses. Tens of thousands of jobs were lost. Considerable investments had to be made up. Okay, that's all been done and dusted. We have to live with it.

This brings me to external growth. Well, as you saw, we made a number of very good acquisitions in 2018. That was the case with Colas. That was the case with (inaudible) and Bouygues Construction, also at Bouygues Telecom. So a lot of good acquisitions. I think, we must now take the time needed to integrate all these acquisitions.

It takes a few weeks, even months, to negotiate a transaction, but -- and then you check it out. But there's also a different phase when you have to share cultural values and goals, objectives, that takes time. This is what we call integration and that's what's happening.

Let me add that in terms of our thoughts on external growth in all our businesses, there are plenty of opportunities. Thank goodness. There's no shortage of consultant bankers doing their job of coming to offer us this or that transaction, no shortage of employees telling us, well, in your strategic plan, this or that form of growth would be a good thing. But as always, it has to be -- or there has to be a trade-off between integrating new acquisitions or even sometimes, new businesses and of course, our financial ability to fund all this.

This has to be done in a way that suits us. And by that I mean, let's be clear that it suits Bouygues' shareholders. I'm sure you'll have noticed that we have been extremely respectful of our shareholders for a very, very long time. Concerning Miller McAsphalt, maybe I could ask Frédéric to tell you how we're getting on.

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Frédéric Gardès, Colas SA - CEO of Colas [26]

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Of course. As you know the Miller McAsphalt acquisition is 2, McAsphalt and Miller. Concerning McAsphalt, I think we found exactly what we thought we were buying, in other words, a leader in the bitumen distribution market in Canada. Everything is going to plan and we are now working on synergies between McAsphalt and the other entities of our group in the same line of business.

McAsphalt is now selling bitumen to our entities in the U.S., which is something we intend to expand. Concerning Miller. Miller is in the -- a more traditional business, is a good geographic complementarity with Canada with our historical entity. So it's a big group that we're integrating. This just takes a certain amount of time. But so far, what we found corresponds well with what we expected to find. Again, we're working on integration and synergies, and we're very glad that we've made these acquisitions.

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Martin Bouygues, Bouygues SA - Chairman & CEO [27]

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Concerning bitumen, I'd like to add a word. Colas is now the biggest purchaser of bitumen in the world. It may be perceived as a weakness but it's also a strength. When you are the biggest buyer of bitumen in the world, that improves your negotiating clout and constitutes, to my mind, I'm convinced with this, a strategic advantage. We'll have to work on this. Colas operates in Asia, in Europe and North America. And Colas uses, transforms and purchases bitumen on a very large scale.

We have transportation means, trucks, wagons, storage and transportation possibilities. That's a very big, heavy industry business and we're very confident about it.

Do I see another hand raised? No. In that case, ladies and gentlemen, thank you.