By Mathieu Rosemain
PARIS (Reuters) -French construction-to-telecoms conglomerate Bouygues (EPA:BOUY) dropped its 4% profit margin target for its road-building business Colas on Thursday due to uncertainty over rising costs.
Family-owned Bouygues, which has historically enjoyed stronger profitability at France's biggest private TV broadcaster TF1 and its telecoms business, said it was not relevant to give a profitability target for Colas in 2023.
Bouygues shares were down 3.9% at 0843 GMT, with its uncertain outlook for Colas coming after the failure of its attempt to merge TF1 with France's second-biggest TV network M6.
"Inflation is high," Chief Financial Officer Pascal Grangé told reporters on a call, adding that rates were above 20% in some European countries.
"There are territories where it is particularly strong: the United States... but even more so in Eastern Europe," he said.
Rising bitumen and energy costs are the two main drivers of inflation at Colas, Grangé said.
Inflation is also enhancing Bouygues' group revenue, which grew by 4% over the first nine months of 2022 from a year earlier to 29.7 billion euros ($30.9 billion).
Dropping its Colas forecast overshadowed a strong commercial performance at Bouygues Telecom, which added 368,000 customers in mobile and 473,000 in broadband in the nine months to the end of September.
Bouygues is betting on its recent acquisition of technical services group Equans from Engie to diversify its activities and improve its recurring revenue.
The merger between Equans and Bouygues' Energies & Services creates a new standalone business, Bouygues' biggest, with combined sales of about 17 billion euros and 97,000 employees in more than 20 countries, of which 75,000 will come from Equans.
Analysts at HSBC (LON:HSBA) have predicted the deal is likely to increase the proportion of sustainable recurring revenues at Bouygues, in contrast of the fluctuating sales momentum of other units, such as construction and media.
($1 = 0.9628 euros)