Bouygues SA (OTCPK:BOUYF) Q2 2022 Earnings Conference Call August 2, 2022 5:00 AM ET
Company Participants
Olivier Roussat – CEO
Pascal Grangé – Deputy CEO and CFO
Benoît Torloting – CEO, Bouygues Telecom
Frédéric Gardès – Chairman and CEO, Colas
Pascal Minault – Chairman and CEO, Bouygues Construction
Conference Call Participants
Mathieu Robilliard – Barclays
Nicolas Cote-Colisson – HSBC
Eric Ravary – CIC
Virginie Rousseau – ODDO
Nicolas Mora – Morgan Stanley
Sam McHugh – BNP Paribas
Olivier Roussat
Good morning to one and all. Thank you for joining us for this presentation of Bouygues’ Interim Results First Half of ’21-’22. I’d be presenting with Pascal Grangé who will do the financial part of the presentation just after me, and after that, we will take your questions with the five heads of our business segments and members of general management.
Let’s begin by giving you an update on the acquisition of Equans. On this slide, which is Page 4, we’ve met the various milestones. First of all, 12th of May 2022, we signed the sale purchase agreement, so far as we received the go-ahead from the employee representative bodies of both Equans and Engie.
The second milestone was on 19th of July, when we received the green light from the European Antitrust body to authorize us to acquire Equans, subject to we complying with its commitment to divest Colas Rail Belgium within a maximum of nine months. The third milestone was when the CMA, the U.K.’s Competition and Markets Authority, which had down the decision on 9th of July, underlining that this transaction would potentially worsen competitive conditions, concerning the current tender relating to catenary systems for the High Speed 2 railway line, HS2 as it’s known, North of London.
So this morning, we reached a further milestone with the CMA decision, authorizing us to agreeing to test the remedies we have put forward. Again remedies aimed at correcting the anomalies they had identified. So they have a few weeks to answer, give us feedback after testing these remedies with the various stakeholders.
So on this slide, we’ve mentioned that the closing of the acquisition is still expected to be completed in the second half of 2022, bearing in mind that the final milestone is the U.K. Antitrust body known as the CMA.
The second acquisition is the – or proposed acquisition is the proposed merger within TF1 and M6. On the 22nd of July, we received the report issued by the French Competition Authority’s investigation teams. It should be pointed out that the final decision will be taken by the college of the anti-trust authority, and not the investigation teams.
The investigation teams will put forward proposals which the college who will accept or reject. The college being a sovereign institution decision, but the investigation teams raise a number of significant competition authority, just especially in relation to the advertising market.
Clearly, if remedies, we have put forward to the investigation team were to be accepted or will not be accepted, the project would not be longer be relevant. For the moment, we intend to not to make any changes to the original plan and we’ll inform the authority within the next three weeks, around the 15th of August, at which time, we will comment item-by-item the points raised by the investigation teams, then we will meet with the college of the authority of the authority’s board next September 5 and 6.
Moving on to Page 6, the main figures – the main highlights of our interim results. The first half of 2022 was marked by the start of the war in Ukraine. We actually, presented our annual results the very day the war started in Ukraine. The first half was also marked by continued health care restrictions in China, which of course, had a considerable impact on global trade and the supply lines. There are also macroeconomic and geopolitical effects that are quite complex and difficult to anticipate.
So in this somewhat peculiar environment with a much stronger inflationary trend that we’ve had in the last 30 years, we’ve nonetheless succeeded in publishing good results with €18.5 million in sales. So our half-year sales are up 6%, mainly thanks to Colas sales. With that on a like-for-like basis, that increase would have been 3%.
Our current operating profit was €492 million, up €21 million on the same period last year. Media and telecom, both improved significantly and improved their operational profitability. However, profitability in the construction and service businesses have been impacted by Colas, but I’ll come back to Colas a little bit later on.
The current operating margin was stable during the period at 2.7%. Net profit attributed to Group was €147 million, and this year includes €44 million in non-recurring expenses, essentially costs relating to the two proposed acquisitions or the merger of TF1 and M6.
But when we compare this with the previous year, the net profit for the first half of last year included a €219 million contribution from Alstom, mainly due to the disposal of shares. And once they’ve been sold, they can’t be sold the second time. And of course, a non-recurring income from the sale of data centers for a total of €80 million. Again, once they’ve been disposed, so once they can’t be sold again.
So that said, we are now confirming the outlook – the Group’s outlook for 2022. Page 7 on the presentation, a few words about the funding of the Equans acquisition. On the 17th of May, we received a very good welcome from investors with €6 billion syndicated loan which a clear evidence of the quality of our signature two tranches, a €1 billion tranche over period of seven years at 2.25%. Now we took out pre-hedging instruments as a result of which the actual economic cost for the Group was slightly below 0.95%.
The second tranches over a 15-year period with a coupon at 3.25%. Again, thanks to these pre-hedging instruments that we acquired, the economic cost for the Group was slightly below 1.9%. Now, these bond issues are the first step in refinancing of the syndicated – €6 billion syndicated loan that we subscribed in December 2021, with a view to the acquisition of Equans.
I should say, in passing that, Bouygues has an A3 three-year rating with a stable outlook with that Moody’s, and the Standard & Poor’s have us at A minus with a negative CreditWatch. These ratings have been unchanged since the 10th of November 2021.
I now proposed to have a look at our SE initiatives that we have taken in our various business segments. We have continued to work for the climate and biodiversity, and on this slide, we just have five examples of initiatives we’ve taken in each of our segments.
Let’s begin with Bouygues Construction on the left, which rolled out its BYSprong offering which involves energy renovation. This is our R&D, the part of Bouygues Construction, which has come up with very innovative solutions, which converts energy losing buildings into active energy buildings. While industrial working methods on the photograph, you will see what we did at Longueau, EMEA, North of Paris where 12 houses from 1960 were renovated.
The second example is with Bouygues Immobilier. Bouygues Immobilier launched its more sustainable, more comfortable and more modular housing called Coeur de Vie, but also its concept called Jardin pour la Vie. This is a concept which we apply on all Bouygues Immobilier projects being designed 2022. The idea is to bring nature back into our cities. These gardens are systematically designed with environmentalists and with the landscape gardeners.
In June, Colas dedicated the second – its second biodiversity day to a broader initiatives in favor of biodiversity. Since 2012, the group has set itself the target of doing something for biodiversity in each and every one of its gravel pits and quarries by 2030. As for TF1, at the Deauville Green Awards, the TF1 won eight prizes. This was thanks to a number of films and documentaries raising awareness about sustainable development. Another initiative is in Bouygues Telecom where we have applied for SBT approval for our climate targets at Bouygues Telecom.
Let’s now take a look at our review of operations, beginning with construction and services. At the end June 2022, the backlog for construction and services is €35.1 billion, up 6% on the constant exchange rate, and not including main disposals and acquisitions, it’s only up 1%.
You can see on the orange bar that there is a consolidation that Colas’ order book there is up 25%, 14% on an equal scope and exchange rate basis, which means that there is good business on – where the road business is thriving both in France and the U.S. But this business is also driven by Colas high with significant contracts signed such as the metro in Cairo, Egypt in Q1, then the extension of a renewal and modernization of the railway tracks in the U.K. for another five years.
The order book stands at €20.5 billion for Bouygues Construction, a good visibility for the future. It’s slightly down compared to 30th June 2021, that’s because there is no major public works contract on this order book to major tunnel or metro and we didn’t sign anything in H1.
But conversely, there is a hike in Bouygues Energy & Services order book. Order taking is buoyant there, up 7%, and that includes the regular business below €100 million. These contracts are doing well, and when they are – well, these contracts – well, there is more competition and the fact that we are drawing them, means that we are very competitive.
Now on Immobilier property, residential property is doing well, demand is high. So office buildings there are sort of more – are less active, that’s for residential. Of course, we – the reservations are down because – down 14% because we have fewer building permits. The stock is low, so that’s why there is less demand, but also there is a lag in the sale in blocks of apartments that will be done in H2 rather than H1. All in all, Bouygues Immobilier’s order book is up 12% compared to – sorry, it’s down 12% compared to June ’21, but stable compared to December 2021.
Let’s look at the key figures for the construction and services business, and that takes us to Slide 13. Revenue for construction was €13.7 billion, up 7% including 3% on an equal scope and exchange rate basis, and that’s mostly driven by Colas. Colas’ revenue is up 17% with the 9% on an equal scope and exchange rate basis basically because of its international business, but also because of the increase in the price of raw materials and energy.
Bouygues Construction revenue was stable, whereas Bouygues Immobilier was down 11%, that’s because as I said, there was less sales in residential and there is the lackluster aspect of the office building business for H1 2021. There was a significant operation with Suez, and that’s of course not there this year.
Current operating profit for the construction business was €41 million. You have to remember that H1 is not significant because for Colas in North America, that’s a period where there is no business, so we only have losses then. So the current operating profit in H1 is not representative of the profit or the income for the year.
Our current operating margin stands at 0.3%, down 0.3 percentage points for that period. If you zoom in on the various profit margins, Bouygues Construction current operating profit margin is 2.9% compared with 2.6% in H1 2021.
The good performance of Bouygues Energy & Services is why we were able to grow there because that profit margin was 3.2% compared with 2.3% in H1 2021. Building and public work is stable at 2.8%. Regarding Bouygues Immobilier, in spite of the lower sales, costs were kept under control, and that’s why current operating profit was in line with that of last year, standing at 1.8%.
Let’s take a closer look at Colas’ current operating profit because that stands at minus €160 million for H1. Now there are explanations well, regarding – comparing to H1 2021. In H1 2021, we had businesses because of the weather – favorable weather in Canada or early spring or less late spring meant that business started early in 2021, which is a less favorable basis of comparison for 2022. There was a distortion effect of inflation and Colas was not in a position to pass on the increased price of raw materials and energy to its customers.
You have to remember that in the – our costs include bitumen and gas. Gas is needed to heat up bitumen and because the price of gas went up, that means our own cost went up and we were not able to pass that on – that it’s not all of it to our customers. Revenue that was locked in as orders, some of that did not include the price hikes.
Some of the price increases can be passed on, some partially and some are index-linked. But the index do not always reflect the actual reality of prices. Then of course when prices go up, this is dilutive on profit margin because the clauses – the cost indexing clauses enable us to revise the cost, but not the profit margin and so that mechanically goes down.
And for bitumen, especially the bitumen business works on the ton basis. And if you have a fixed margin on the ton, when the price of the ton goes up, if the margin remains stable, well, that means the – well, if the profit remains stable, the profit – the percentage goes down if the price goes up. And then in H1, we generate losses, especially in North America, and on top of that, the exchange rate is punishing because if the price – the dollar goes up and the losses go up, well, then this combines – this compounds the phenomenon.
Let’s – well, Gil and Frédéric give you the details of TF1, so I will go over that quickly. TF1 had a good operational performance in H1. Revenue was up 5%, reaching €1.2 billion. There were two factors that involve the media and Newen Studios were involved in that growth. The advertising revenue was up 2%, but you may remember that we had in June 2021, the Euro Football Cup, which created more revenue, so the basis of comparison is less favorable.
Newen and Newen Studios acquired two studios in Spain and Germany, and that made a difference to its production. And current operating profit stood at €189 million in H1, and that’s because we kept the programming cost down. As a result, profit – current operating margin was 15.9%, higher than what it was in H1 2021.
On Page 16, you have the outlook for TF1. The macroeconomic environment, inflation, the Ukraine has not made much of an impact on the financial performance on H1. However, for the second half, we’ll have to remain cautious and we will have to keep our costs under control there.
Let’s move on to Page 18, and that is Bouygues Telecom’s performance. Now, regarding the sales performance, that was the momentum to get going in H1. We have as many as 15 million contract customers, not including machine-to-machine. That’s an additional 193,000 new customers from H1 compared to H2 2021.
And FTTH has also gained new customers, 315,000 new customers in H1, and they were 143,000 in Q2. And you have to see that the premises marketed by – FTTH premises marketed was higher than expected. We expected 27 million marketed premises by end 2022, and at end June 2022, we actually reached that figure. In fact, we had 27.2 million premises marketed. The addition of the 6.2 million new premises, 60% were in what are known as the PIN areas where there is less competition and that’s good for us.
Now let’s move on Page 19. We had a good sales performance but we also had good unit income. The average bill per unit, that is what you actually built to our customers, that’s doing well. As you can see on this slide, mobile ABPU was up €0.2 over one year, reaching €19.8, not including roaming. We were not able to recover on roaming because this as it was in pre-pandemic times.
In the fixed business, ABPU was up €1 to €28.7. In parallel, the entering messages revenue, that’s voice messages and text messages, that was down. The rates are regulated, but there are two reasons why for the downside.
Well, the regulated price was down, and then there are – there is increased uses of OTT apps which do not generate any incoming – income in incoming revenue. But in any case, that makes no difference to the P&L because what – there may be revenue generated from incoming services but then this is offset by outgoing expenses because when you receive a text message, you respond and so it cancels out.
Regarding the revenue of services, it was €2.8 billion, up 3% over one year, less than expected. The overall revenue was up 5% for the period, and that’s mostly in the others line and that’s the handsets business. Because costs were well kept under control, EBITDA after leases was up 9%. Mechanically, EBITDA after leases was 29.4% compared to 27.6% in H1 2021.
Over the same period, capital expenditure was up €150 million, and that is in line with our investment – our CapEx strategy. Our annual objective was €1.5 billion in capital expenditure. Disposals over the period were €32 million, and that is in line with the data centers, compared to €80 million in H1 2021.
Next slide, that’s Slide 20, move on to well a status report on 5G. Bouygues Telecom now has reached a new stage in that. It signed a partnership – a strategic partnership with Ericsson in June, and that means that we will be able to address a new core network – the standalone network. And that enables us to take – to leverage the full benefits of 5G because we can bring together all the improvements of 5G, including those in latency times that are reduced, and also we can extend private mobile networks to companies. and that’s a bit technical, but it means we can address issues of criticality, security, and performance using the benefits – the gains on latency.
And another aspect in the spring, we launched a 5G Open Road project for mobility players enabling to cars and vehicles to connect to each other, but to devices on the road that makes traffic more fluid in dense areas. In urban areas, we’ll be looking at pedestrian safety, reducing the carbon footprint of mobility, logistics of the last mile, and using autonomous shuttle vehicles to reduce – to control – to regulate demand.
Move on to Bouygues Telecom, well, other than financial objectives, we have – we want to look more specifically. Instead of service revenue, we look at revenue billed to the customers, so we restate this, we take out the incoming and outgoing text message revenue. Now the services revenue, you have to remember, whether incoming outgoing, well, incoming revenue is completely offset by outgoing charges whenever you receive an SMS and you use – you responded. And so incoming cancels that outgoing.
In any case, we find that – we expect revenue build to the customer to be – to grow 5% – to increase by 5%. We’ve reached that objective and so we do not – we’re not renewing that objective since it has been reached. Now because of its good half-year performance of EBITDA after leases, Bouygues Telecom has revised upwards its annual growth rate to 8% for EBITDA compared to 87%, and we confirm CapEx €1.5 billion,
Now, Pascal will give you details about the accounts. Thank you.
Pascal Grangé
Thank you, Olivier. Good morning or good afternoon to you all.
Just a few additional explanations on the accounts as of June 30th. Concerning the income statement Page 23, I’m not going to dwell on sales and current operating profit that have already been commented.
Non-recurring items are up minus €144 million, as explained, or minus €44 million, after a non-recurring income of €80 million last year. As already explained, the amount at the end of June 2022, mainly includes expenses relating to the Equans acquisition of the proposed merger between TF1 and M6. Bouygues Telecom had non-recurring income due to the data center disposals in this quarter too or this half-year I should say, but to a much lesser extent than in the first half of 2021.
The net cost of debt or cost of net debt has been broadly speaking stable between the two-half years. Working our way down in the income statement, income tax was €103 million, down from €146 million in 2021. This calculation reveals an effective tax rate of 30%, after 34% in 2021. This level of effective tax rate was because of losses abroad which do not give rise to deferred taxes.
The decrease of the share of net profit to joint ventures between the end of June 2021, the end of June 2022, is due to the absence of any contribution from Alstom, which was €219 million, last year, just for the record. Overall, the net profit was $100 million at Group share, that’s $147 million, after $408 million at 30th of June, last year. That’s a decrease of €261 million, entirely due to non-recurring income and losses, and the absence of any contribution whatsoever from Alstom.
Page 24, as you can see, the Group’s net debt at the end of June was €3.705 million after €2.8 billion at the end of June 2021. Now, the net debt ratio gearing is still very low at 29%, even though it’s up slightly by comparison with the end of June 2021.
The next pages, I’m going to talk to you about the change in net debt in the first half of the year, reminding you that the first half year is traditionally subject to the seasonality of our business. So Page 25. As I’ve said, our net debt totals €3.7 billion, or total €3.7 billion at the end of June 2022, after net debt of €941 million, and this same time last year, which was a record level. That variation over six month period is explained as follows.
Acquisitions for a total of €172 million, and this mainly includes the payment of €130 million to Engie, when we signed the share purchase agreement on the 12th of May last. This amount will be deducted from the amount to be paid to Engie at the date of closing of the deal. This also includes the buyback of TF1 shares and of course the disposal of Gamned! to TF1 or at TF1.
Buyback of treasury shares for a total of 107 – €104 million, I’m sorry. Dividend payout at Bouygues mainly, but also the dividends paid to minority shareholders in TF1 and Colas, dividends for a total of €775 million. Variation in the value of swaps on interest rates that we acquired for the purchase of Equans totaled €769 million, a plus €769 million, and operations at a cost of €2.48 billion, which I will explain in the next slide.
At the end of June 2022, the just – fair value of these pre-hedging swaps was €765 million, after €38 million at the end of December 2021, and €429 million at the end of March 2022. Of course, this value fluctuates over time. On the 28th of July, it was €626 million, for example. So the fair value of the €765 million in swaps includes €245 million in contingent swaps which have been engraved in marble since we issued our bonds on the 17th of May. Likewise, at this issue – at the time of this issue, a €42 million cash component was received for the swaps which were not contingent swaps.
Let’s now look at the details in the change of – this is Page 26, change in net debt, breakdown of operations. Ney cash flow, including the payment of leases was €1 billion, so largely due to expenses paid before the Equans and TF1 and M6 transactions. Net CapEx was €1.064 billion, up to €264 million. This is a reflection – mainly a fraction of the increase in investments made at Bouygues Telecom in line with its ambition 20226 plan.
The change in operating working capital requirements and others was minus €2.437 billion, after a minus €1.4 billion at the end of the first half 2021. This deterioration comes after two years of strong improvements in working capital requirements as mentioned on numerous occasions over the last quarter.
This change in WCR is quite logical, particularly in the first half which was March by Colas by an increase in the values of the inventory due to the increase in raw materials and trade receivables because of the substantial increase in sales during the quarter.
That brings me at the end of my presentation of the financial statements. Thank you for your attention. And Olivier, I give back the floor.
Olivier Roussat
Okay. Let’s wrap up this presentation with a review of the outlook for the Group.
You will see here that this is based on information we have to date, and it excludes any further deterioration in situation due to COVID-19, and does not include the acquisition of Equans or the merger between TF1 and M6. So once we factor all of these things out, in 2022, we expect a further increase in sales and current operating profit.
In 2021, we received SBTi certification regarding our decarbonization targets, when in 2022, we aim to receive SBTi approval for the – our other segments. And given the macroeconomic changes and all the direct or indirect consequences, this can have on our activities and results, we will be as a result, very vigilant regarding any other changes. And before moving on to questions and answers, let me remind you that our next communication will be for results for the first nine months of the year, which will take place on 17th of November.
This brings us to questions and answers, which we will take with all our senior managers.
Question-and-Answer Session
Operator
[Operator Instructions] First question is from Mathieu Robilliard from Barclays.
Mathieu Robilliard
Thank you for that presentation. I have a question concerning construction. In the first half year, a lot of provisions were written back. I was just wondering, is anything you’d like to tell us about this write-back of provisions? And now we do expect anything in the second half year further more concerning the margin at Colas? I can see you’re not giving us any guidance for 2022, but for the record, it was – I think you were targeting 4% in 2023. But given the results of the first half year, do you feel that despite that the margin will be increased this year – will increase in 2022?
I also have a question on telecommunication. There’s a good EBITDA growth. ARPU is also up, but EBITDA is up even better. I’d like to understand this increase in EBITDA. Could this be due to maybe better synergies due to the acquisition made? Or will there be a substantial or was there a substantial contribution from other parts of the business?
Olivier Roussat
I would explain this improvement in EBITDA. I got to ask Pascal to explain while Benoît is preparing the telecom’s question.
The first question concern the provisions in the construction business. Well as you know, traditionally, the provisions in construction have a number of explanations, particularly with the volume of provisions is high, fluctuations not, so there is no real phenomenon concerning how we provision for our construction activities in any of the three business, Colas, Bouygues Immobilier or Bouygues Construction. So nothing unusual there.
The second question concerns the guidance we gave regarding Colas. For 2023, this is a 4% guidance we gave you. I’d like to stress the fact that there is nothing – no real lesson to be learned from the first half year, except for the fact that the increase in sales which isn’t due to what the volume effect, but due to inflation actually dilutes margins.
As Olivier Roussat explained, when inflation is compensated because we have an index formula or whatever, obviously, this boosts our sales, but also our costs. But we’re not increasing sales to increase or improve our margins. This is particularly notable in 2022. However, we haven’t got the visibility we need to be able to tell you if this will have an impact on 2023. So it’s too soon to say. I should point out on this particular aspect that if you look at purchases consumed by Colas, we’ve increased from an average of 46% of sales to 52%, which is clear evidence of the fact that there was a sharp increase in the cost of raw materials.
Benoît, if you’d like to answer that second question concerning Bouygues Telecom’s EBITDA improvement and the reasons behind it?
Benoît Torloting
Yes. Other revenue does not contribute significantly to our Bouygues Telecom EBITDA. It’s simply that we – our costs have been well-contained. Costs have increased slower than sales. We’ve contained our cost very well. That’s why our EBITDA has improved by over 8% at a time when sales only rose by 6%.
Next question.
Operator
Nicolas Cote-Colisson from HSBC.
Nicolas Cote-Colisson
My first question concerns construction of Bouygues Telecom. So in construction, what about global demand for public works and infrastructure? More generally speaking, the underlying question is as you’re positioning and more complex projects going to protect you against margin and volume effects, as for public works contracts, what about the impact of the increase in costs despite demand, and further expect – what proportion do you expect for PPP projects?
Regarding telecoms, could you tell us a little bit more about your ability to increase your prices for new clients? How do you explain the slowdown in the ABPU in mobile phones, despite the fact that fixed ABPU is rising? Was this due to different timing in the prices?
Olivier Roussat
Let me – I just point out that prices have been increased in both cases, which is quite remarkable before talking about the increase, first answer to your question will be from Pascal concerning market developments in construction.
Pascal Grangé
Yes. Good afternoon. Regarding our markets, particularly the public works and public contracts market. Yes, there is strong demand for large infrastructure projects, particularly in two areas. First of all, transportation, particularly with large public transport infrastructure projects in a number of very large cities. The Greater Paris project, of course, Grand Paris as it’s called, but also in the U.K., with HS2, the high speed line, or Australians, Sydney and Melbourne, very, very large infrastructure projects where we’re involved in construction, but also involved in tendering.
The second area is energy-related projects, low-carbon projects. Nuclear projects, of course, as you know, we’re involved in the Hinkley Point project in the U.K., they’re also tenders ongoing in France and elsewhere for which we are the civil engineering partners for EDF.
This is the EPO nuclear power plants. We’re also involved in Sizewell C, alongside the EDF and other partners. So these low carbon projects in the nuclear sector, one thing, but there is also wind power projects we’re involved in the offshore – the second offshore. We built our first base camp of the 60 wind farms we’re building.
We’re also working on projects in Asia and to a lesser extent in France and the U.K. So the first type of business, low carbon energy projects and public transport, they are the two big areas. There are also projects emerging around maritime or coastline infrastructure, or sometimes land extensions into the sea. We’re involved in other projects, there’s others in the pipeline, but, so, yes, a lot of demand for these projects throughout the world.
Second part of the question in terms of the share of PPP, public-private partnerships. Relatively low proportion of PPP projects. They’re a handful at there, but it’s very small. I think we have three concessions in the tender stage. At the moment, there is nothing else brings to mind in the public-private partnerships.
Benoît?
Benoît Torloting
Concerning telecoms, concerning the increase in ABPU and telecoms. While recent years, we have – we propose what we called MorphaBond. We offer additional services, additional data in mobile phones in exchange for a few euro cents. We will continue that MorphaBond strategy. It’s targeted by cohorts at different times of the year as a result of which the increase in ABPU isn’t always linear from one quarter to another.
But it is regular over time, if you look at the growth of ABPU over the last year or two. So there’s constant growth. There was sometimes it isn’t always linear growth. So that’s still the rationale and we will pursue – continue to pursue that. In fixed lines, it’s a little sharper and mostly, there is a seasonal effect. Sometimes we have price increase campaigns in the course of the year, but in fixed lines, we also have the benefit over long-term of the penetration of fiber. This is at a higher price than the ADSL.
So when customers finish their promotional period, that’s in year two, the ABPU increases more substantially in the fixed lines than in mobile. That will be – continue to be our strategy. In particular, when you look at fixed lines, the ABPU of our competitors gives us a reason to believe that we have some leeway in.
Next question.
Operator
The next question from Eric Ravary from CIC.
Eric Ravary
Hello. My name is Eric Ravary from CIC. I have three questions, one on Colas. In its press release, Colas announces an action plan to address the rise in the price of raw materials, just what is it about. On Energy & Services, we can see their profit margin was up in H1. Can you —
Olivier Roussat
Sorry. You have to repeat your question.
Eric Ravary
Okay. We’d like to know about that. And in Equans, question number three. Because of the reservations expressed by the Antitrust British authorities, can you give us details about the closing? You’re talking about the closing in H1.
Olivier Roussat
Sorry, we didn’t get the beginning.
Eric Ravary
On Bouygues Energy & Services, can you give us details on the potential profit margin and having done well in H1?
Olivier Roussat
All right. In CMA, the market authorities in July, they told us that – the British Authority told us, there was a competitive impact on the HS2 line if we merged. So what we offered were remedies to address the weakened competition. Because of that, the British CMA will be publishing a press release this morning, saying they have received our proposed remedies. They will test it out with the various stakeholders.
This is a call for a bid, so they are not that many stakeholders, and so the response should come in before 28 September, 28 November. But that is the final stage because before we can conclude the Equans operation, and so we are confident that we will be able to complete that in H2. And I think that’s what we said about this on the slides.
There was a question about Equans, and Frédéric Gardès answer the question about – will address the question about Colas, and then Pascal will tell you more about Bouygues Energy & Services, Pascal.
Benoît Torloting
Yes. Well, on the – can you pass on the increased cost to the customers? As things stand today, we only take contracts where there are clauses to revise prices, and unless there is exceptions decided at higher level, we only take these revisable contracts likewise with private customers because, of course, if there are no clauses for – to revise the prices, then we have to find the compensation on the bitumen market, which is under pressure there.
Our worldwide bitumen strategy which we started two years ago is providential because we will precisely be able to address part of the problem. In particular, we’ve been investing in two bitumen ships that will be delivered earlier – early next year, and that means we will be able to seek bitumen at further field where we can buy at more competitive prices. So we need the logistics to do just that before – until such time as we get these ships, we have been leasing smaller ships and that enables us to address this to some extent.
Olivier Roussat
Thank you. And then Pascal Minault.
Pascal Minault
Regarding the better profitability of Bouygues Energy & Services, this is because the markets have kept up. We had good profitability in France, in the U.K., in Italy, in Canada, and we are very selective looking at dynamic markets. We keep our operational cost under control, and pricing is right. And that’s the formula for good profitability in H1.
Olivier Roussat
The Head of Bouygues Energy, Pierre Vanstoflegatte has started a plan to readdress the profit margins, and that – well, he has an overall plan – an action plan, which is also coming to fruition in terms of profit margins.
And in fact, precisely because we’ve seen what we were able to do on that business which is worth about €4 billion, and we were able to increase the profit margins there. This now we are reaching at about 5%, and that means that on – well, Equans, we’re looking at €12 billion, well, hopefully, we should get the same or similar performance. And that means that when we are in a position to include these Energy & Services within Bouygues, the whole overall rate should be close to 5%. And what is the revenue of Energy & Services, about €2 billion. Do you want to an exact figure, I know, €1.9 billion – over €1.9 billion, there you have it.
Operator
[Operator Instructions] Then we have Virginie Rousseau from ODDO.
Virginie Rousseau
Yes. Good morning. I have in fact three questions. And I heard about Colas’ performance, you have, of course, on the profit margin. You had to address the bitumen situation and you are – you have facing challenges. Some of the contracts were in fixed prices and so there, it was difficult to pass on the increased costs to the customers. Do you still have many such contracts in your order book? Will that have an effect on H2? Or have you basically completed all these contracts?
The second question is, WCR, you have higher requirements in H1 to meet inflation issues. What about H2? Do you expect the same phenomenon where you have deepening the WCR requirements? And on the receivables accounts, do you expect some deterioration because of the higher rates?
Finally, on CapEx, you said €1.5 billion for Bouygues Telecom, but inflation is there. Will you maintain this CapEx objective there, or will you revise downwards the project because the costs are going up?
Olivier Roussat
All right. Regarding – well, Frédéric will tell us about Colas.
FrédéricGardès
Right. The first part of the question regarded the contracts at fixed prices. What’s left in the pipeline? Well, not much. Basically, this was mostly in H1. The contracts that we signed – these were contracts that we signed last year.
On average, the contracts is short cycle, so we have lots of core business. So with current average duration of the contract is about three months. So now as things stand, that’s pretty much been absorbed in H1, all these fixed-price contracts. Now, if we got more increases, we would we consider this because we are not taking on any new fixed-price contracts, this should not rise in H2.
Olivier Roussat
Thank you. Pascal Grangé on the working capital requirement, WCR.
Pascal Grangé
Yes. Regarding WCR, in the construction business, you should not take — pay too much attention to H1 because they are seasonal effects that will be readdressed over the year. What we need to compare is compared with 30th June of last year, and compare to 30th of June 2021, deterioration is about €900 million. Out of this €900 million, there is about 60% to be found at Colas with two phenomena, first inventories up because when raw materials go up, the value of inventory goes up, and then you have about €300 million right there.
Revenue was also up in Q2, and so mechanically, in the WCR, you will find the receivables, knowing that our payment policy for our suppliers and supply chain is very demanding. We don’t want to bear the cost of the financing of this operation. Then you have about €200 million left on reconstruction.
Now reconstruction generates a surplus in working capital. By and large, they reached a high point last year, so €200 million compared to that is still well within normal fluctuations of WCR. And then finally, Bouygues Telecom. Now, if you compare again with 30, June of last year, you will find that of course, we paid for the licenses year-on-year. So that was a – well, there was a resource over time for a few years, but they were €80 million paid out last year.
If you want an outlook, even though there is an inflation of raw materials and that may not continue at the same pace as we had in H1. I mean, it won’t come down much. Well, the €300 million will probably stay there in the WCR. There will probably be an increase in business, that is revenue might increase but less – the increase will be less in H2, and that is why there is seasonality in WCR in the construction business.
And then looking at the degradation of our payments because of the higher interest rates, we haven’t found anything to let us – to lead us to believe there will be major movements there. So pretty much regarding payments, we are very much on track. But one thing that explains variations in WCR. When the COVID crisis came out, there was a surge in payments in the construction business. We were rather taken it back but that continued to some extent. Now, it may be that there was some – that phenomenon can sort of settle down over the months to come.
Olivier Roussat
All right. Thank you, Pascal. Benoît, can you tell us about CapEx?
Benoît Torloting
Yes. Well, you had a question about the effect of inflation on CapEx. We announced a guidance of €1.5 billion. There are two source of cost, the network infrastructure and telecom equipment. There, the inflation hasn’t made much difference because the price has been set, and so our CapEx program on the network is on course.
As we announced in mobile 2026, to ensure that the network can take on the new sites needed to dispatch the additional traffic caused by 5G. The other cost in CapEx are the set-top boxes for the Internet. These we need to purchase before we lease them out. On the cost of leases come up because early on at the onset of COVID, our supplier wanted more time to pay for the goods, and so we allowed for that to the tune of €40 million, and that’s been already integrated in our outlook.
Olivier Roussat
All right. Thank you. Next question then?
Operator
Nicolas Mora from Morgan Stanley.
Nicolas Mora
Hello. Good morning. About the provisions, especially in Q2, there is a volatility from one quarter to the next, so one half year to the next. But you pretty in H1 in the construction business, Bouygues Construction and Colas, you still have significant provisions, and some provisions were reversed. I understood Frédéric Gardès explanation, but still, it would be good to know just what happened in Q2. You have all three divisions in the construction business, where there were movements in provisions.
On Colas, if you look at the margin – profit margin on Q2, it’s mostly Canada. France is doing all right. But can you give us some color on, well, France and Europe, I suppose there, you’re in a position to boost the profit margin in the European side of the business, even though there is less business in North America?
Regarding Equans finally. And at the end of June, early July, we heard about the cleaning up of fiber optics contracts. Can you tell us where we stand at Equans? You’re talking about this —
Olivier Roussat
Well, cleanup on fiber, well, there were fiber optics contracts that where Equans is, but we haven’t closed yet, and I wouldn’t be in a position to answer. And even if I had the answer, that would be almost bad news. So in that case, I mean we haven’t got – we do not have access to Equans’ accounts. It’s only Engie that has access to that information.
But now Frédéric can answer the first part of your question, and then Pascal will give us – no, Pascal Grangé. We said all divisions, so first Frédéric.
FrédéricGardès
Well, I’m happy to tell you about the good news. A few words about North America. As you know, usually in H1, we suffer losses, and if the losses are denominated in the strong currency, the impact is stronger but conversely, when business picks up with the strong currency in H2, we will be able to offset that.
Last year, in Canada, there were exceptional incoming, especially because the year started early. Now the weather is more in line with standard years, and so we – this year is more like previous years.
Regarding orders, the backlog now is on higher margins than the previous orders, so no, we’re not concerned about that. Other than that, well, this has been a very volatile period indeed but the business was able to stand up to this. Indeed in France and in Europe, the markets were still buoyant, a good order taking.
And of course, we’ve been conducting this transformation plan for the past three years, and especially in operational excellence, especially in cores and bitumen, we’ve been improving efficiency. Now, it’s on this particular H1, this may not be as visible, but by and large, we can see the effects over time.
In North America, it just turns out that the trading business on McAsphalt, and that business is in Canada, as I said in the presentation, there we have a fixed margin on the ton of bitumen purchase. Now, if the price of bitumen – if the price increases, well, that dilutes the current operating profit. And that business that is doing well was impacted by the high – the increase in the price of bitumen.
Pascal, on the first question now – well.
Pascal Grangé
Yes. About these provisions, no, really there is no special phenomenon on provisions in the construction business. The situation is very much the same as last year in terms of reversals of provisions and indeed new provisions. And so I can only confirm that there is nothing special, no new trends, no – nothing can be derived from that – from this year.
Olivier Roussat
Thank you, Pascal. Next question.
Operator
Nicolas Cote-Colisson from HSBC.
Nicolas Cote-Colisson
I have a brief question on telecoms in the 5G, the standalone solutions and the network backbone. When do you expect the standalone to be operational? And have you already got a demand for private networks? Could you tell us a little bit more about that?
Olivier Roussat
This standalone part is really the second part of the 5G, so the standalone is one thing, the backbone is another, but the radio part is already set up. Where you’re looking at, let’s say, late 2023 for our offers, three types of function and much less time lag. Secondly, the ability to set up private or hybrid networks, let’s call them local networks in a given plant or distribution platform or harbors, meaning that industrialists will have a local 5G network and then be able to conserve their data locally and process them locally.
And the third category is what we call slicing which is tantamount to virtual private networks for people who need specific time lags or other, so late 2023. But as of now, we’re already experimenting. It will be possible to have a completely specific private network in a pilot test with a number of pilots ongoing in industry. Regarding functions, that would be rolled out more generally from, let’s say, mid to late 2023 and thereafter. Thank you.
Next question? Okay. Questions in English. It’s a long way away from English then. No? Okay. Let’s stick with French questions then. I can’t hear anything. There is nothing coming through. Yes, gentlemen from Morgan Stanley.
Unidentified Analyst
I have a question on telecom. You talked about costs in 2022 which have contributed to a good performance of your EBITDA. I’d like to ask you a question about 2023. a number of operators are already commenting the impact of inflation on their margins for 2023. So I’d be curious to know what particular cost items you’re scrutinizing. It seems that you have a good hedge on energy costs, but I’d be interested in other cost items that are exposed to inflation, if you’d like to comment on that, please.
Olivier Roussat
Well, as regards our expectations for 2023, and over and beyond the impact of inflation on our cost. Operating expenses, while the impact of inflation will be I think quite limited. To clarify that, in our OpEx, we have €200 million on terminals. So far we can’t foresee any increase in terminal costs. So if we did have them, then we pass on directly to our consumers.
After that, we have a large volume of approximately €1.3 billion in what we call regulatory costs into connections of fixed in cost that we ran through other operators. And these costs are regulated, so the fixed unit cost had no impact as a result of inflation. We also have leases for about €600 million, while there are index links, but these are index on fixed rates and not on inflation. So no problem there.
Energy, we’ve already mentioned. We have our energy costs, but last year, we secured the energy prices up until the end of 2024 with renewable sources. So we’re secured until the end of 2024. We’re already working on securing over beyond 2024. And finally, we have wage costs and freelancers for approximately €1.4 billion, about half in wages, half in freelance costs.
Here we have to see what we can do in terms of wages. We’ve negotiations currently underway with our social partners, with CEO, what the purchasing power level will bring out. Negotiations are underway, but the impact will be limited with a wage bill of €700 million, a 1% increase would be €7 million. So the impact is actually quite limited. There you have I covered all our operating expenses. As for CapEx, well, network infrastructure, no impact. Boxes, we’ve already anticipated these costs in our budget.
Is this really in English?
Operator
Yes. It’s Sam McHugh from BNP Paribas. Please go ahead.
Sam McHugh
Yes. Good morning, guys, thanks for the presentation. I have three questions as well. So on Colas, you’ve been very clear about the input costs are not matching the revenue during the spike in inflation. Consensus has about an 8.5% EBIT margin in the second half of this year versus the 7% in the second half, last year. Do you think that is right, or should we expect a bit more contraction in the margin to it?
On the telecom business, you grew and build revenue 6%, EBITDA 9% in 1H. I think it only growth of 5% and 8% growth in the full year, implying a bit, I mean 2H. Are you just being conservative, or should we expect a bit of a slowdown in some reason?
And then lastly on the CapEx in the telco business, just interested in how much of your purchases are made in U.S. dollars, and whether you forward hedge, the currency and acquisition of network equipment from the vendors, and how far you hedged? Thank you very much.
Olivier Roussat
Okay. We start with telecom. The last part of the question was telecom, but – so we hedge our investment in the U.S. dollar. Please, Benoît.
Benoît Torloting
Yes. The part of our investment in dollars is very low, and it’s covered by this positive. And also a question about margin and EBITDA. In H2, we announced new guidance of more than 8% evaluation year-over-year on EBITDA. Are we optimistic or pessimistic? I think we are realistic, and thus there are always some new things to come in. We have to pass the summer period for the roaming revenue to really see what will – how will the roaming be and so that’s why we announced over 8% EBITDA at the moment.
Olivier Roussat
Okay. For your first question, I ask Frédéric to answer.
FrédéricGardès
Yes. We’re not giving any specific guidance for the end of the year. But what I can say is that we’re confident that our operating profit at the end of ’22 will be higher than last year. Now, to which extent the increase in revenue will erode that in terms of percentage margin, that’s hard to predict at the moment.
There will probably be an impact of that kind to which extent it’s like I said hard to say. It will mostly come from the bitumen – the impact of the increase in bitumen costs because not everywhere, but especially in Canada, a large portion of our margin is fixed per ton. So if the price cost basis of that increases because the cost per ton of bitumen increases, the margin does not increase in the same range. So there could be that impact.
Olivier Roussat
Thank you. Next one. No question anymore? It was the last one? Okay. In that case, thank you all. I wish you all a pleasant day. Thank you for your attention, and wish you all a very pleasant holiday.
Be the first to comment