Altice Europe N.V. (OTCPK:ALVVF) Q3 2020 Earnings Conference Call November 19, 2020 12:00 PM ET

Company Participants

Sam Wood – Head-Investor Relations

Patrick Drahi – Founder

Malo Corbin – Chief Financial Officer

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Dennis Okhuijsen – Vice President

Conference Call Participants

Frederic Boulan – Bank of America

Jakob Bluestone – Credit Suisse

Rob Grindle – Deutsche Bank

Andrew Lee – Goldman Sachs

Sam McHugh – Exane

Vivek Khanna – Deutsche Bank

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Altice Europe N.V. Q3 2020 Results Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Sam Wood, Head of Investor Relations. Thank you. Please go ahead sir.

Sam Wood

Hello, and welcome to Altice Europe’s third quarter earnings call. This is Sam Wood, Head of Investor Relations. On the line today are Founder Patrick Drahi; our CEO, Alain Weill; our CFO, Malo Corbin; and Dennis Okhuijsen, who will take you through the presentation.

As the presentation may contain forward-looking statements, please read the legal disclaimer on Slide 2. The slides are available on the company’s website, and a replay of this call will be available for the next month.

And with that, it is my pleasure to hand over to Patrick Drahi.

Patrick Drahi

Thank you, Sam. Hello, everybody. Happy to be with you today. So we had a good quarter, quarter three, robust performance with net gains in fixed and mobile, in all – most of our geographies. You saw that in France, it was a bit weaker than our competitors. Malo will come back on that.

Equipment sales recovered because the shop opened again mid-May. But roaming is still suffering a lot. And remember that the third quarter is usually a strong quarter, both in revenue and lower expenses. Because you have the reverse accrual of the holiday being taken by people. So we expect our fourth quarter to be negatively impacted, unfortunately, again, by the closedown of – due to the COVID, because although we left our shops opened since middle of October, people are in curfew or staying at home. So we have less visits in our shops. And of course, roaming is not coming back.

On the media side, we continue to see a decline in advertising revenue in our media division in France despite very good audience, but the market is declining and so are we. Our international digital platform Teads is doing better, much better and is doing well. And as a whole group, therefore, we had still growing revenue, 3.2% for the quarter and EBITDA grew by 5% with a slight decrease in free cash flow.

In terms of financing, we repaid the Altice corporate financing. So the whole debt now of Altice Europe is split between two silos, France, one side and international on the other side. And we also repaid a total of €1.4 billion of debt since the beginning of this year. Dennis will explain you. So we have a very easy to read financial structure today.

Total cost of debt has decreased on top of that to 4.5%, and we have a big liquidity and no major maturity until 2025. We maintained our guidance, both revenue and EBITDA as we disclosed it during our last quarter of 2019 presentation. And we continue to focus on deleveraging through organic growth of revenues, EBITDA and free cash flow.

And with that, please, Malo, if you can go through all the slides in details. Thank you.

Malo Corbin

Yes. Thank you, Patrick, and hello, everybody. On Slide 4 of the presentation, you can see that we achieved positive trends for the residential fixed activity with 38,000 net ads and 163 fiber net ads across all geographies. At the end of the third quarter, we served 9.4 million residential fixed customers, representing a 2% growth in the subs base year-over-year. 58% of the total fixed base is taking fiber compared to 53% one year ago, an increase of five percentage points in the mix towards fiber versus DSL.

In France, SFR gained 113,000 fiber net additions in the third quarter, with 60% of the fixed customer base, building on fiber. As a result, we ended the third quarter with more than 3.1 million fiber customers. Our fiber addressable footprint in France continues to increase and grew by more than 1.3 million homes in the third quarter, of which 270,000 homes we have drilled for SFR FTTH. We had more than 18.7 million fiber homes passed at the end of September.

In Portugal, MEO grew its fixed base in the third quarter with 42,000 fiber net additions. At the end of the third quarter, 65% of the fixed base in Portugal was on fiber. We have continued to expand our fiber footprint in Portugal also, bringing it to more than 5.3 million homes passed at the end of September. And during Q3, we built 51,000 homes for fast fiber, the slight slowdown following an accelerated rollout in the first half of 2020. We will build more in Q4 which will mechanically increase Q4 CapEx in Portugal.

In Israel, we also achieved positive net ads in the third quarter in an environment which remains very competitive on the pricing side for triple-play packages.

Moving to Slide 5. You can see the residential mobile postpaid net add in Q3 by region. Altice Europe overall gained 53,000 net ads in the third quarter of 2020, representing a 2% growth in the sales base year-over-year.

In France, SFR grew its post base by 25,000 net ads in Q3, We decided to maintain stable pricing on the RED brand through the quarter, while some of our competitors adapted more promotional strategies and a soft number of net ads this quarter. Portugal gained 32,000 net adds in the third quarter, a level which is similar to previous quarters.

Turning to Slide 6. You can see the group revenue performance in the third quarter. Altice Europe, overall, revenue grew by 3.2% on a reported basis. Total Telecom revenue excluding equipment and roaming, grew by 4.4%. Residential service revenue growth continues to be driven by sales-based growth in both fixed and mobile. The residential service segment excluding roaming, grew by 1.9% in Q3.

Business services revenue, excluding roaming, increased by 9.2% year-over-year in the third quarter, underpinned by France with a strong quarter in terms of construction activity. As explained previously, roaming revenue has decreased year-over-year, impacted by the pandemic. Whilst we saw some recovery in July, we expect roaming to remain very much impacted in the first quarter as well, following the quarantine measures and stay-at-home restrictions implemented since September. As you remember, roaming in Q2 was divided by three versus last year. And in Q3, roaming was around 50% of the level of Q3 last year.

Equipment sales grew by 1% year-over-year following improved commercial activity as shops were opened during the third quarter. Since early November, as mentioned by Patrick, traffic has strongly reduced in our SFR shops following the new confinements in France. Also, our shops in Israel has been closed since mid-September.

Finally, the media segment grew by 8% year-over-year. The decline in NextRadioTV in France was offset by the recovery of Teads and some positives at Altice TV such as the sale of the UEFA Champions League semifinal and final to TF1 as well as the early benefit from TELEFOOT customers. Remember that TELEFOOT-associated revenues will only last until the end of Q2 2021. As for the season starting in summer 2021, with cash revenue share mechanism will be put in place with Mediapro.

Slide 7 shows the revenue trends by segment for Altice France. Altice France overall revenue grew by 4% on a reported basis. Total Telecom revenue excluding equipment and roaming, grew by 6.1% in the third quarter. Residential service revenue excluding roaming, grew by 3.2% in Q3, This increase was driven by a 4.4% increase in fixed service revenue and a 2.2% increase in mobile service revenue, excluding roaming out. The decline of roaming out within the residential segment represented a headwind of 1.3 percentage points in Q3. And as mentioned earlier, we believe roaming will remain negatively impacted in Q4.

Business services revenue including roaming, grew by 11% in the third quarter of 2020. We built 270,000 fiber homes for SFR FTTH in the third quarter, as I mentioned earlier, and we continue to expect that we can deliver around one million homes for 2020. The closing of the Covage acquisition is expected in the coming weeks. The deal is still under review by the European Commission. We do not expect any additional contribution from Covage in 2020 financials, given where we – given that we are already in the fourth quarter.

Finally, equipment sales grew by 2.4%, and media revenue decreased by 7.6% in the third quarter. We remain cautious on the advertising market, especially in TV and radio. Since the beginning of the new containment in France early November, we have seen a few cancellations of advertising campaigns. Our restructuring plan and NextRadioTV is underway with the first departures at the end of Q4, and total staff reduction expected to be around 20% of all contracts.

Moving to Slide 8. Altice International reported revenue declines 0.3% for Telecom excluding equipment and roaming in the third quarter. Altice Portugal reported revenue growth of 3.1%, excluding equipment and roaming. Remember that sport TV premium channels were offered for free until the end of May, while the national soccer championship was suspended. This was a temporary headwind, which negatively impacted the second quarter trends and which has recovered in the third quarter.

Supported by fixed customer base growth, Israel revenue grew by 2.2% at constant currency. The EBITDA margin declined year-over-year, mainly as a result of higher low-margin equipment sales, a decline in high-margin mobile roaming revenue as well as the timing of certain OpEx items, mainly on the marketing side.

Dominican Republic returned to revenue growth in the third quarter with plus 3.6% growth at constant currency. The depreciation of the peso versus the euro in the third quarter resulted in a year-over-year revenue decline of 14% on a reported basis. A greater proportion of our costs are linked to foreign currencies and revenue. As a result, the FX move year-to-date has negatively impacted the EBITDA margin in the in this year. The easing restrictions have supported the recovery we see in prepaid revenues, which represents a material component of the residential service revenues in the Dominican Republic. Finally, Teads revenue grew by 13% in the third quarter, showing a solid recovery compared to previous quarter.

Turning to Slide 9. You can see Altice Europe consolidated financials for the third quarter of 2020. Altice Europe reported overall revenues of more than €3.7 billion, an increase of 3.2% year-over-year. Group EBITDA was €1.5 billion in Q3, representing an increase of 5% year-over-year. Telecom revenue grew by 2.7% year-over-year, while Telecom EBITDA grew by 0.7% year-over-year mainly as a result of lower margin in Altice International year-over-year, partly driven by the loss of high-margin revenues, as explained before.

CapEx for the group amounted to €818 million in the third quarter, we are catching up following low capital expenditures from March to May. Group operating free cash flow amounted to €663 million in the third quarter, a decrease of 3.5% year-over-year.

And now, I will hand over to Dennis Okhuijsen, who will take you through the rest of the presentation.

Dennis Okhuijsen

Thank you, Malo, and we’re moving on to Slide 10. As you can see on the slide, at the end of the third quarter, the group had a pro forma net leverage of 4.9 times on the last two quarters annualized basis or 4.7 times on a like for basis with the previous telecom perimeter, as we presented in previous earnings calls. The difference really being the Altice Corporate Financing Facility that is now refinanced down at the France and international level. We expect further organic deleveraging through EBITDA growth and free cash flow generation, as we outlined before. And as a result, we remain committed to further delever the group from here with a leverage target of four to four and half a times, consistent with our growth profile. We maintain a solid liquidity position of €3.5 billion. This consists of €1.3 billion of cash and €2.1 billion of undrawn revolvers.

The €1.3 billion of cash includes the €375 million earn-out to be received in December 2021 as a result of the fiber sale in Portugal. It excludes funding for the Covage acquisition, which we expect to close in the coming weeks. As you can see, the capital structure has been simplified at the end of the third quarter, following the repayment of the Altice Corporate Financing Facility. Altice TV now sits below Altice France, although it’s not included in the Altice France restricted group, as was the case before Altice TV will continue to be funded by Altice France. A weighted average cost has been reduced from five to four and a half percent, and almost 90% of our depth is fixed.

In Slide 11, we show you our usual free cash flow waterfall for Altice in the third quarter. As you can see on the left hand side, the group generated operating free cash flow of €660 million excluding Altice TV interest cost amounted to €480 million in the third quarter.

And this is a high interest quarter for us as is the first quarter and the pension cost with respect to Portugal in the quarter was €31 million. Cash Texas were almost 60 million and change in working and all their amounted to €7 million inflow in the third quarter, Excluding Altice TV, Altice Europe generated positive free cash flow of €97 million in the Alticea third quarter, the Altice free cash flow drag totaled €56 million only. We remain in discussion with the UEFA for compensation regarding the suspension of the Champions League football competition. At the end of the third quarter, we have no degree to final amount for the discounts. And as a result, $175 million payment initially planned in July as per previous years has another curve in Q3. And we will make the hundred and €75 million payment minus a discount in the fourth quarter.

As we outlined previously, we got for group organic free cash flow in excess of €1 billion in the mid-term, we expect this reach target to growing our operating free cash flow, alongside decreasing interest costs. Moving to interest

Moving to interest on Slide 12. As explained previously we execute and meaningfully on the opportunity you too reduce average cost of debt of the group, significant refinancings in the last quarter of 2019. And this year means that we have locked in material reductions to our annual interest cost as you can see on the slide.

For the full year 2020, we expect annual cash interest cost of approximately €1.56 billion as shown in column B. So this does not include the benefits of some of the savings we generated by debt repayments made since April, 2020. If you take into account the savings from the recent extensions and the repayment of the Altice corporate finance facility, you can see, we have now locked in €500 million of interest savings for the year 2020 on a pro forma basis.

As I said earlier, we remain committed to the leveraging and we continue to be opportunistic as we seek to optimize our cost of debt. Our targets remains that we want to save a total of €700 million on our interest bill. So there’s still €200 million to go.

Last slide, we are not changing our outlook. So, we continue to expect to accelerate residential revenue, surface growth and to grow group revenue as well as group EBITDA. As I explained earlier, we expect to further the level of the balance sheet underpinned by EBITDA and cash flow growth with target leverage remaining between four and four and a half times. We continue to assess the potential impacts of the pandemic carefully, notably the impact on the advertising markets roaming and traffic in shops in the quarters to come.

And with Patrick, Alain, Malo, and myself happy to address any questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] The first question comes from Frederic Boulan with Bank of America. Your line is open.

Frederic Boulan

Hi, good evening everybody. If I can ask a couple of questions, firstly, on the offer maybe some either a next perspective or also your view of the company? And then also have a few questions on the business. First of all, if you can come back on the methodology that has been used define the 411 [ph] of the price and whether you’ll publish the fairness opinion at the launch of your offer? Secondly, as Altice, will you stick to the minimum acceptance level of 95%? I think in the statement you reserve the right to waive this and then certainly just have a clarification on whether next we’ll be able to vote in AGM to decide on the cost of restructuring? Thank you.

Dennis Okhuijsen

Yes, I think this is, this is really a conference call on our third quarter earnings. I think we have made good progress with respect to preparing the offer and making an offering memorandum available in relatively short order. So, I think this is not the right time. I think to discuss the take private of Altice Europe and the process around it, as it will be described, I think in the offer documents that are currently in the review by the Dutch stock market regulator and we are intending to make them available to the public. And I think most of the questions that you have will be answered in the documents. I would ask everybody to be patient for that document to come out and then review it in detail.

Frederic Boulan

Okay, thank you, Dennis. And maybe if I may, on the business then. Maybe a word on the TV side. So, if you can discuss the impact of the agreements you’ve Mediapro on the extent of content and how that’s progressing? And second, on the French business, I noticed the fixed revenues accelerated quite nicely in Q3, if you can comment what’s behind that despite the fact maybe [indiscernible] additions and we’re not particularly strong. So, if you can discuss some of the driver there would be very useful. Thank you.

Malo Corbin

Yes, sure. So first on your question on Altice TV, so one we had a positive nonrecurring effect in Q3 as we sold the final and the semifinal to TF1. So, we moved through news we booked revenues with full margin. So, this has helped the performance of TV in Q3. But of course, you won’t see that effect in the coming quarters. It was a one-off. In addition to that, as the One championship started end of August, we start getting consumers who take the TELEFOOT option. And when they take the option, we book revenues at Altice TV. And there is no cost associated to those revenues. Because as you remember, we have a distribution agreement, a multiyear distribution agreement with Mediapro. The first year, we get access to take TELEFOOT under TF1. And Mediapro get access to the Champions League. So there is no OpEx or cash out for us and no OpEx or cash out for Mediapro. So the revenue we make are full margin.

At the end, on next summer, in August 2021, we won’t have the right of the Champions League anymore. This will be the end of our three-year right. So we won’t have anything to exchange for Mediapro to get access to TELEFOOT. So at this point in time, in September 2021, every time we make revenues with our consumers on TELEFOOT, a large part of this revenue will go back to Mediapro through a revenue share mechanism. And I think your second question on the residential fix trends in France.

So, as we said over the last quarters, one, we are still net add positive in fixed, and this has been the case for many quarters now. So the base is growing. Two, as you know, we are getting more and more fiber versus DSL, right now, 50% of the base is on fiber, which was not the case before, and the ARPU for fiber is higher than the ARPU DSL. So it has a positive mix effect. And in addition to that, the last item I would mention is, as you remember, in December 2019, we introduced a new box, okay, which is not for free. And the part of the base, we take the box, they pay a fee per month. And as you know, we continue to get customers taking the box. That service base increased. And the revenues coming from that box are also increasing in the mix. So, all this item in an environment since the beginning of the year, which was more or less stable in terms of pricing ended up in a growing fixed revenues in France.

Frederic Boulan

And maybe just a clarification on the TELEFOOT side. So you’ve seen now that the rights have been passed to Mediapro. You’ve seen all your competitors going out there with TELEFOOT offers. I mean, is this having an impact on your subscriber base or it’s manageable?

Malo Corbin

No, effectively, since the beginning of the championship, all the telecom players, they had the distribution agreements in place. I think we don’t see churn from other telco providers, taking TELEFOOT customer away from us. I think we have a base of our telco customers taking the TELEFOOT option on top of the RMC Sport option. We had a nice growth at the beginning of the championship. As you remember, League One is a championship, which is exciting from the first day. It’s a bit different from the Champions League for which you have the best games at the end. The League One, all the games the entire year is interesting. So we had an increase at the beginning. We don’t see a lot of churn. Interestingly enough, we also have some OTT customers coming to SFR to take RMC Sports and TELEFOOT, even without taking the telecom package. So I think as we have no cost associated to that product, it’s a business we welcome, of course.

Frederic Boulan

Perfect, thank you.

Operator

Your next question comes from Jakob Bluestone of Credit Suisse. Your line is open.

Jakob Bluestone

Hi, good afternoon. Thanks for taking the questions. I had two questions. Firstly, you obviously referenced the slightly low net ads in France, both on the fixed and mobile side. I’m just sort of interested in what your view is on that. Do you think you need to do anything different commercially? Or do you just sort of write it down to the normal noise and volatility that you get in a business like that? And then secondly, just curious if you can share any thoughts around the new entrant rules in Portugal, which came out recently. You’ve obviously made some comments there, but just if you can maybe expand a little bit on what do you see the risks to your business in Portugal from that? Thank you.

Malo Corbin

Yes. So the first question on the mobile net ads in France. I think you have seen in May, June and July, some increases in the phone book pricing. I think the four players had followed that trend, so same for SFR. And we took the strategy of maintaining those higher fund prices through the quarter. I think some of our competitors, and I think it was such, maybe they were a bit soft in terms of net ads. So they wanted to be a bit more aggressive late August and in September to get more net ads. But we were focused on value, and we decided not to follow this promotion.

Having said that, these lower net ads have – doesn’t have a lot of impact on the financials of this year. We are talking about very little number of net ads, if you compare where we are versus the competition. Regarding your other question on the new entrants in Portugal. So indeed, there is a 5G auction coming in Portugal. The Portuguese regulator ANACOM has released its guidance for the auction. It’s not as advantageous for the new entrants as it was a couple of weeks or months ago. Still, it provides some advantages for the new entrants, which we believe is not – it’s an anticompetitive measure. We don’t see that as a positive for the country for the investment of all the existing players in the country, especially at the time where we are all under pressure by the pandemic. I think the job of the state and the regulator should rather be to support existing players. We are innovating and spending for the consumer. Now, I think the auction will take place end of November, early December, we’ll have to see the results of that auction to discuss of what could be the impact of a new entrant, if any, in Portugal.

Jakob Bluestone

Thank you.

Operator

Your next question comes from Rob Grindle at Deutsche Bank. Your line is open.

Rob Grindle

Hi, thank you. Two questions from me, one is can you say anything about the nature of the difficulties with the antitrust with regard to the Covage acquisition? And secondly, one for Patrick. How would you manage the company differently, if at all, as a private one? I don’t believe that’s an offering question, just a sort of strategy question. Thanks.

Malo Corbin

Thank you, Rob. So, on the Covage acquisition, so we cannot discuss the details on this call. It’s a confidential review, which is currently done by the European Commission. I think we signed and announced the deal one year ago. So this process has taken much more time than what we had in mind. And I think the level of scrutiny from the commission on that specific transaction has been a bit surprising to us. So we expect to have the final decision from the commission by early December. And we will have to take this into accounts to pursue the transaction. So that could be part of Covage that we have to dispose. So be it, at the end of the day, we don’t make the rules that are applied to us.

Dennis Okhuijsen

And then maybe, on your question on the rationale or how would we operate the business differently on a private basis versus a public basis. I don’t think we can comment on that. I think the rationale, why we think the private version of Altice will be beneficial, will be detailed, I think, in the offering document. But I think we can ensure people that I think we are still very focused on the leverage that – and the guidance around that. So that certainly will be a key focus go-forward. And then like I said, I think we will be describing the rationale for the tech private you will see in the offering document. And clearly, also on a private basis, we will have continuous quarterly conference calls. So we will update everybody, as we always do.

Rob Grindle

Okay. Thank you.

Operator

Your next question comes from Andrew Lee of Goldman Sachs. Your line is open.

Andrew Lee

Yes. Good evening, everyone. I had two questions. The second one probably goes down the line of you not being able to answer too much, but I’d try anyway. First is on free cash flow. Obviously, you went positive free cash flow in Q3, partly thanks to the lack of payment for Champions League fees. So, I just wondered where you are on the progress on your free cash flow. And if you still think that plus/minus zero is a realistic goal for the full year after TV costs? And just checking that, that includes the Champions League fees to be paid in Q4 that you mentioned. And then second question, just in terms of cash usage over the coming years, given – any thoughts or color on that, given I presume you remain comfortable with net debt-to-EBITDA at four to four and a half times? And obviously, the buyback option has already been taken. I wondered if you or Patrick could comment on value that you see for – in Europe you can take advantage of. Or any thoughts as to how you spend the cash Altice starts to throw off? Thank you.

Dennis Okhuijsen

Yes. I think on the free cash flow, I think we are – we were clearly making good progress, I guess, to this medium-term target of €1 billion. If you look at our cash flow, it was indeed positive this quarter. It certainly would have been impacted, I guess, by the Champions League payments that we had not made in the third quarter. So we have given, I think, pretty good guidance, I think, on operating free cash flow. We are spending interest of €1.5 billion in 2020, while the run rate is closer to €1.3 billion as we have on Slide 12. So that with the pensions and the guidance, I think, on cash taxes, which is around €350 million, where we are today. And then some of the dividends that we’ve talked about in the past, you can constrict the cash flow. We are clearly not necessarily targeting a number for this year. But if you do the pro forma on the cash, you can see that the €1 billion in the medium-term is still a realistic target.

And the closing where we are today towards that €1 billion needs to come from EBITDA growth and cash flow growth as well as another €200 million on reducing the interest bill. Then – and the interest bill can be reduced in the next 18 months or so. And then I think on your second question, on the capital structure, we feel comfortable with the four to four and a half times leverage for the group. I think we’re paying the price in our depth that we have the flexibility to take cash out within that metric. But we might also recycle it into accretive acquisitions. And I think that is – so I think that, that dynamic remains the same on a private basis. So, we’re certainly not guiding that we will continue to delever further than what we have in our target range today, because we think this is appropriate leverage given the business that we own.

Andrew Lee

Thank you.

Operator

Your next question comes from Sam McHugh at Exane. Your line is open.

Sam McHugh

All right, guys. Just three quick questions from me. In France, I think your broadband figures include fixed wireless access now. And in 2Q, you had about 8,000 net ads on the 4G box. I just wondered how many of the 21,000 in Q3 were from 4G boxes. And in terms of 5G, do you think 5G is a way to grow that business further to gain more scale and kind of continue growing the subscriber base in broadband? And then on Portugal, just to kind of clarify a little bit more. So I guess your expectation is the auction will still go ahead in November, December. I think we had bode from the last week being quite vocal about how they’ve been willing to postpone investment in Portugal because of the rules. Is that anything that you would consider to? Or you think it’s kind of any action would have to be taken after the auction in terms of legal challenges, et cetera? Thanks very much.

Malo Corbin

Yes. So, on the first question on the broadband subs in France. I think we don’t disclose anymore the number of subs we had on the 4G box. I think we believe that in the French market, you still have overall positive net ads each and every quarter. I think as we always said, we want to have a fair share of the net ads of the market. We don’t want to be too aggressive and take all the net ads of the market. We don’t believe that, that makes sense, but we want to continue this strategy we have been following over the last quarters.

Dennis Okhuijsen

Yes. And I think on Portugal, I think we can probably echo the frustration that the other operators already disclosed, I guess, around the auction process, I think Portugal is a market where you already have four players. And the success really that has been brought to the company – to the country with respect to technology is really already there where you had – was the first country that was fiberized in Europe. 4G coverage was also done very early on.

So, the existing operators has made a tremendous investment to make Portugal one of the leaders in this space in Europe. So, it’s very counterintuitive now that the Portuguese government seems to change tactic on the market that has brought all of this technology to the Portuguese customers today. So, I think we are certainly aligned with the statements of our competitors on this front.

Operator

Our final question comes from Vivek Khanna of Deutsche Bank. Your line is open.

Vivek Khanna

Hi, good evening, everyone. I have three questions if I may. First, a simple one. Q2 SFR Netco construction clearly surprised on the positive, especially since – from where we were sitting, the country wasn’t locked down. What should we expect in Q4? Is any potential lockdown this time going to be sort of similar – not impact the growth – the construction rate as happened in Q2? Or is this quarter going to be different? So that’s the first question. The second question is on business services. So I mean, this clearly is a good result, both in France and in Portugal, flat in Portugal year-on-year and up in France. In France, even if you strip out the incremental contribution from greater Netco construction this quarter versus last year, I still calculate growth over about €45 million to €50 million. So I’m just trying to figure out in both markets, what’s driven the improvement? Is any of it due to incremental equipment sales? I guess, in light of what we’ve seen from a GDP perspective, both these data points are somewhat surprising, albeit positive and constructive? And then the final question, people have asked on mobile trends in France on postpaid net ads clearly weaker than the rest of the market. Now you mentioned that you didn’t want to chase promotional activity. The narrative, however, from all operators, I think that the pricing environment is actually getting better. So just trying to reconcile that comment and also to figure out whether some of this on the margin promotional activity, which you did not match in Q3 is also slipping in or flowing in into Q4? Thank you very much.

Malo Corbin

Hey, Vivek. So, on your first question on the construction activity. So as you remember, in the first quarter, we built 192,000 homes, 268,000 in Q2 and 270,000 in the third quarter. I think the Q1 was soft because March was very reduced because it was the first log down in France, and the team has to adapt, as we told you back a few months ago, we did everything we could to catch up during the second quarter. I think as I mentioned before, we have a target for this year to be around one million home. I think today, the confinement for Q4 doesn’t prevent the teams to work in the street. So they continue the job.

Now, we’re also entering the winter season where it’s a bit more challenging to work. I think people are a bit more efficient during the summer, but I think, as mentioned, we should end up around one million homes. So by deductions, you can get a sense of what we’re going to do in the first quarter. Business services is a fixed trend. So on the business services side. So one, of course, the trend benefit from the construction activity, which is growing versus 2019.

Also, remember that we have an average price around €800 per home, but it can also depend on geographies. Sometimes it’s a bit more expensive. Sometimes it’s a bit more expensive. Sometimes it’s a bit cheaper. So all in together, this can also impact the revenues. That’s one. Two, equipment sales. Indeed, and especially in Portugal, but also in France, quite some equipment sales in the third quarter, which helps on the revenue side, but which dilutes the EBITDA margin because, as you know, we make a much lower margin on the equipment compared to the connectivity product. And finally, negative on the business services, you need to remember if you’re winning.

So in the residential segments, we have the roaming out when SFR consumers are saving abroad. But more importantly, in the business services, you have the roaming out for the B2B consumers driving abroad and the roaming in from visitors, tourists, et cetera. And as I said, the roaming was divided by three in Q2 compared to last year, divided by two in Q3 compared to last year, and it will remain impacted necessarily in Q4. And for next year, it’s difficult for any of us around the table to judge how the virus will evolve and if the measure from the various governments will evolve.

Last question you had, I think, again, it was on the postpaid net ads in France. So yes, indeed, you had some improvement on the front-book side versus where we were 18 months ago. Now having said that, it’s never a straight line. So, it’s not because, it improved that for one week or two weeks, you have one guy in the market being aggressive. And during these two weeks, it can take a loss of net ads. I think the aggressiveness and the promotional activity, when you are for player, still remain, but not same as two years ago, but still, there are some promotions today in the market.

Vivek Khanna

Okay. Thanks.

Operator

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.

Malo Corbin

Thank you.