Bouygues Sees Margin Growth on Phone Unit Cost Reduction

Bouygues SA forecast that profitability at its phone division will rise as job cuts and reductions in marketing helped 2012 earnings beat analyst estimates. The stock jumped the most in 18 months.

The company, which controls France’s third-largest mobile-phone operator and also has construction and television assets, plans to “stabilize” the telecommunication unit’s earnings before interest, taxes, depreciation and amortization, and “improve” Ebitda excluding investments, it said in a statement.

The Bouygues Telecom business reduced prices, pared marketing spending and introduced new services to respond to Iliad SA, which started a discount mobile-phone service in January 2012. Paris-based Bouygues, which also is France’s second-largest building company, said today that it’s seeing “excellent commercial activity” in construction.

“2012 should mark the low point in Bouygues group’s profitability,” Chief Executive Officer Martin Bouygues said at a press conference. “Results reflected the upheaval on the mobile telecoms market and a challenging economic environment.”

Beating Estimates

Bouygues rose as much as 9.5 percent to 21.24 euros, the biggest intraday gain since Aug. 31, 2011, and was trading up 9 percent at 1:39 p.m. in Paris, valuing the company at 6.85 billion euros ($9 billion). That pared the stock’s decline this year to 5.6 percent.

Net income fell to 633 million euros in 2012 from 1.07 billion euros a year earlier, Bouygues said today. Profit beat an average estimate of 584 million euros from nine analysts surveyed by Bloomberg. Bouygues will pay a dividend of 1.60 euros per share in 2013, unchanged from last year.

Sales, which rose 3 percent to 33.5 billion euros in 2012, may be little changed this year. A 7 percent drop in Bouygues Telecom’s revenue to 4.85 billion euros this year will be offset by Bouygues’s construction backlog, which rose 8 percent from a year earlier to 26.8 billion euros at the end of 2012, the company said in a presentation.

Bouygues Telecom will complete its 300 million euros of savings in mobile-phone operations this year after achieving half of the target last year, the company said. The strategy includes introduction of faster so-called fourth-generation technology, additional services and further growth in its fixed-broadband business.

‘Ambitious’ Forecast

The forecast for unchanged Ebitda this year at Bouygues Telecom “looks ambitious,” Stephane Schlatter, an analyst at Societe Generale in Paris, wrote in a research note.

CEO Bouygues said he was “surprised” that the government may ask phone operators to pay 62 million euros a year to use the 1,800-megahertz spectrum to provide fourth-generation mobile phone services.

The company isn’t in merger talks with Iliad or cable-operator Numericable, the CEO said. The regulator should allow phone operators to share networks provided only that it doesn’t create an imbalance, he said.

The construction unit’s operating margin is unlikely to change significantly in 2013, as 45 percent of the order book is in markets abroad such as Hong Kong, Qatar and Canada, which are less affected by the European sovereign-debt crisis, the CEO said.

The pace of margin improvement at the road-building business will depend on French and North American markets, he said. Cost cuts in the U.S. will have a positive effect of $30 million in 2013 at the unit. The division also plans to improve earnings from its refined oil products, which were hurt by rising raw-material costs in 2012, he said.

The margin at the real-estate division, which has frozen hiring, may be slightly eroded this year by a slowdown in the French residential-property market, he said.

TF1, the French television company 44-percent owned by Bouygues, is accelerating a plan to cut costs to offset an expected drop in advertising revenue this year, the CEO said.

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