Nexity SA (NXI) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Nexity 2019 Full Year Results Conference Call. For your information, this conference is being recorded. At this time, I would like to turn the call over to Julien Carmona. Please go ahead, sir.

Good afternoon, everyone, and thanks for joining this conference call. Today in the room, you have Eric Lalechère, Chief Financial Officer; Domitille Vielle and Géraldine Bop, Investor Relations, as well as myself. In 2019, Nexity achieved or exceeded all its targets. We've made a number of commitments to the market, and we're delivering on them. Let me start on Page 3 with our 2019 business activity highlights. Starting with Residential Real Estate. 2019 was a new record year for Nexity, with over 21,800 units booked and an 11%, sorry, growth compared with 2018, despite a challenging market, hampered by a lack of supply and challenges on the permitting side. The target that we said 2 years ago, which was to increase our national market share by 3 points in 4 years, was achieved in just 2 years. We also recorded a strong order intake for Commercial Real Estate with EUR 521 million booked during the year, recording our best performance since 2011, well ahead of the guidance, EUR 350 million. Goals were also achieved for services with 21 new residences opened during the year, 17 senior residences and 4 student residences. Finally, our backlog grew by 14% and our business potential by 7%, adding up to a EUR 20 billion total pipeline, which gives us visibility and a solid platform as we enter 2020. Moving on to our financial highlights on Page 4. Financial results were ahead of the guidance. Revenue came to EUR 4.5 billion versus EUR 4.1 billion in prior year, up 9%. EBITDA reached EUR 573 million versus EUR 523 million in 2018, a 10% increase. The EBITDA margin reached 12.7%. Looking back on our medium-term targets that we'd set in June '18, a 10% compound average growth rate for both revenue and EBITDA. From '17 to '21, you can see that at midpoint, we are slightly in advance with a 12% average growth rate for revenue and an 11% growth rate for EBITDA. If we look at the bottom part of our income statement, the results are less thrilling. And we do have a temporary divergence between EBITDA and EBIT and between the top and the bottom line. Eric will explain the details to you. But in summary, this comes from a slight decrease in the current operating income, EUR 353 million, minus 5%, a higher level of financial expenses and a 2 point increase in our effective tax rate, resulting in the current net income going down by 18% in 2019 versus 2018. Focusing on the operating income. Last year's evolution is partly explained by the fact that most of our growth came from EBITDA reached EBIT for activities, such as serviced residences, management of co-working spaces or digital projects. So essentially, more capital-intensive activities or businesses temporarily loss-making during the ramp-up phase. We also registered a significant volume of negative accounting artifacts with no underlying significance, such as the EUR 16 million item impacting profit on the development of serviced residences. Finally, our development margins, both residential and commercial, which matter a lot for the EBIT generation of Nexity, showed a limited decrease due to higher construction costs, while remaining at the best level in the French market. Looking at 2020 and beyond, we expect to see a recorrelation of the growth trends for EBITDA, EBIT and net income, as shown in the new guidance, which I will comment a little bit later. Final word on the debt, which stands at EUR 918 million at year-end, representing 2.3x EBITDA. We had a good control of working capital, good cash generation, no significant acquisition in 2019. Instead, we paid more attention to consolidating the past acquisitions and also refocused our portfolio, the sale of 2 minor businesses, NCT, our commercial client broker and Guy Hoquet, one of our 2 high street brokerage franchise networks. On Page 6, we are talking about synergies. You all know that Nexity has a specific model based on the combination of real estate development and real estate services. We are not just adding different business lines in order to diversify our business portfolio, we are really combining different products in order to provide our clients with integrated solutions for their real estate needs. There are many examples, such as rental management mandates, which we sell to our buy-to-let investors; or the senior housing business, where the sale of development projects is only made possible by the fact that our in-house service company, Domitys, commits to operate the residence in the long run. For the first time, we can quantify the benefits of integrated solutions between development and services. Revenue coming from these solutions came to EUR 725 million in 2019, EUR 680 million for the serviced residences and EUR 45 million for property management for individuals. This represents 16% of the group's total revenue, and we expect this cross-selling revenue to grow faster than the rest of our activities. Let me go to the French residential market on Page 7. On the demand side, the environment was good throughout 2019 and continued to benefit from very low interest rates, a competitive mortgage market, stable incentives and improving household purchasing power. The French market for new homes is expected to total 154,000 reservations in 2019, minus 2% year-on-year. Growth was mainly held back by a one-off supply issue linked to the approaching municipal elections. Although we are prudent as a rule, we don't see, at this stage, a lot of headwinds in the coming months. But there is one risk which we have to monitor and it relates to a potential tightening of mortgage lending standards requested by the French Central Bank. Last month, the High Council for Financial Stability told banks to avoid borrowers taking on debt with installments more than 33% of their income and to cap mortgages at 25 years max. At this stage, we're not seeing any impact and it looks like some exception will be tolerated. But this is definitely a risk that we are monitoring. Moving on to Nexity's performance in Residential Real Estate on Page 8. Reservations of new homes in France exceeded 21,800 units last year. We confirmed, once again, our capacity to outperform the market, thanks to our very broad product range, strong competitive edge in niches such as serviced residences and our ability to win and to carry out large and complex urban projects. Our market share increased by 1.8 percentage points to 14.2% in 2019. Excluding external growth, Ægide reservations were up 8% by volume, and by value relative to 2018. Our growth was well balanced across the country, up 14% in the Paris region and 10% elsewhere in France. And in the fourth quarter alone, net new home reservations in France were up 18% by volume and 15% by value, reflecting very brief business activity in the last months of the year. On top of these numbers, which we date only to new homes in France, Nexity booked 2,100 reservations for subdivisions and 640 reservations outside France, in Poland and Italy. While maintaining our prudent approach, we expect to see growth in our international business and possibly future expansion in Germany. On client segments, Page 9, the increase in reservations was mainly concentrated among individual investors, plus 19% in 2019 and professional landlords plus 18% -- 11%, sorry. 19% for individual, 11% for professional landlord. Sales were driven in particular by a very strong growth in reservation and serviced residences, plus 53% in 2019, which made up 29% of total reservations. Reservations by homebuyers remain nearly stable in volume, decreasing in terms of percentage. On prices, Page 10, the current market situation bears witness to a significant supply-demand imbalance in France. And this leads naturally to an increase in ASPs. The average price of our products for individual clients increased by 3%, totaling 2,300 -- sorry, EUR 231,000 per unit. Clearly, this increase in prices is positive margin-wise in the context of increasing land and construction costs, but it's not a very sustainable trend. And when we do our forecast, we do not rely on assuming steady inflation in selling prices. Quick look at the supply for sale, page 11. The supply of homes for sale for Nexity dropped 2% from the end of 2018 level, standing at 8,859 units at year-end due to a very swift absorption rate of 4.9 months compared with 5.5 months in 2018. The unsold completed stock is very low, hardly 100 units. And the average level of preselling booked at the start of the construction remained quite high at 73% for 2019 compared with 69% a year ago. Business potential on Page 12, plus 3%, above 55,000 units, which means 2.5 years of development operations. Moving on to real estate services for individual clients, on Page 13. We're showing here a few data on our serviced residences business line, which is growing significantly. Student residences first, the Studéa brand. We have 124 student residences under management, totaling more than 15,000 units. The occupancy rate increased to 94.7% versus 92.9% the year before. The Domitys brand in senior independent living facilities business posted strong growth with 17 openings during the year, increasing our portfolio of serviced residences to 100. At the end of 2019, the 58 residences that were opened more than 2 years ago had a very good occupancy rate of 95%. On the following page, that's Slide 14, we try to underline the value creation mechanism of our senior housing business. First of all, we have a strong and regular growth in the number of residences that we manage. We roughly doubled the size of the portfolio in the past 4 years, going from 52 to 100 senior residences. And the number of annual openings that we are forecasting in the coming years is close to 20 new residences opened every year. Given that senior residences have a relatively long ramp-up period, the high pace of openings generates positive results in our Residential Real Estate business, but ramp up losses on the service side. It takes 2 to 3 years on average before a residence reaches its breakeven occupancy rate. After that point, however, the occupancy rate stabilizes at or above 95% and does not decrease, and we are making money. On the bottom-left part of the slide, we're showing a split of the residences by maturity. The 58 residences which have been opened for more than 2 years have, as I said, an average occupancy rate of 95%. They contribute to 63% of the revenues of this business, 78% of the EBITDA and more than 100% of the total operating income. Whereas the 42 young residences opened less than 2 years ago are posting significant ramp-up losses. The more major category is already achieving a 5% operating margin rate, and we expect that it will reach its normative rate of 7% as soon as this year, 2020. Overall, the maturing of the portfolio should mechanically improve profitability over the coming years, helped by increase in the average occupancy rate as well as a steady growth in the monthly revenue per user, which we are showing also on this slide. On the more traditional service business, Page 15, property management for individuals showed a limited churn of 1.4%, with a total portfolio of 880,000 units under management. Rental management is better than condominium management, but both businesses showed positive pricing trends. Next is brokerage business, and the Century 21 franchise network delivered a very strong performance. And our distribution networks, iSelection and PERL, recorded 4,670 reservation in 2019, plus 9%. If we switch to Commercial Clients and Commercial Real Estate, Page 16, it was another very strong year for the French commercial investment market with nearly EUR 36 billion invested, higher than in 2018. As Nexity is concerned, we recorded, as I said, EUR 521 million orders in 2019 versus EUR 349 million in 2018, thus the best performance since 2011. And we had a good diversification of our business, 60% in the Paris region, 40% in other regional markets, Lille, Bordeaux, Lyon and so on. And no single order exceeding EUR 100 million. Our largest project, page 17, is, as you know, the Engie campus in La Garenne-Colombes, developed in partnership with Engie, future user, but which is also codeveloper and developing a total of 135,000 square meters. We signed in December a purchase contract subject to conditions precedent with Swiss Life Asset Managers for 100% of the campus. So this year, 2020, subject to planning permission being obtained, we expect the VEFA of plan agreement to be signed during the year, H2, actually, and this should represent the start of a project for which Nexity's share of revenue will be close to EUR 1 billion. This will, of course, have a significant impact on group revenue between 2020, the first year, up and until 2024. Quick word on real estate services to company, Page 18. The property management business returned to growth and the co-working business, which is new, dating from the acquisition of Morning Coworking in December 2018, did very well, too. We are now the leading operator in the Paris co-working space with 22 co-working spaces and more than 60,000 square meters, plus 35% in 2019. At this stage, I would like to leave the floor to Eric Lalechère, who will guide you through the financial statements.

Thank you, Julien. We now move to our financial statements. On Page 19, let's quickly run through the income statement. Nexity strongly improved its revenue and EBITDA in 2019, whereas the operating profit and the financial result decreased mainly due to the consolidation of Ægide-Domitys in the full year and the weight of leases with IFRS 16. So the net profit before nonrecurring items is down 18% at EUR 163 million. Revenue is up by 9% at nearly EUR 4,500 million. EBITDA grew by 10% at EUR 573 million, a EUR 50 million increase and an EBITDA margin of 12.7%, quite stable compared with 2018. Current operating profit decreased by 5% at EUR 353 million. Financial expenses increased at EUR 80 million versus EUR 52 million in 2018 due to higher finance costs under IFRS 16. It was EUR 9 million, mainly due to full year impact of Ægide and Morning Coworking, and weight of other financial income and expenses, plus EUR 15 million. The cost of Nexity's debt only slightly increased to EUR 2 million. We have a EUR 2 million expense in respect of the change in fair value of the ORNANE bond, and it will be excluded from current net profit as a nonrecurring item. Tax expenses include the CVAE tax and are down at EUR 104 million due to a lower effective rate. Effective corporate income tax rate, excluding the CVAE, is 33.7%, against 31.7% in 2018. The increase is mainly due to the discontinuation of the CCO tax credit in 2019 and nondeductible losses. There are no more equity accounted investment and minority interest moderately increased EUR 9 million. Net profit group share came in at EUR 161 million for the period, down 42% compared with EUR 277 million in 2018, which include the repayment of the investment in Ægide. The group share of net profit before nonrecurring items was EUR 163 million, down 18% relative to 2018. Earnings per share before nonrecurring items amount to EUR 2.92 versus EUR 3.53 in 2018, down 17%. To give you more details on the revenue, that's on Page 20. Nexity recorded revenue of EUR 4,499 million in 2019, up 9% relative to 2018 and up 4% on a like-for-like basis. The main perimeter effect is Ægide-Domitys with contribution of 6 first months of 2019, whereas Ægide was consolidated for only from 1st of July 2018. And the 1-year contribution from Morning Coworking and Accessite in services for commercial. The increase in individual clients, up 30%, was higher, the decrease in commercial clients, than 17%. If we analyze our business by activity, we can separate real estate activity from services. For real estate development, revenue is up 9% at EUR 3,433 million, mainly driven by the increase of Residential Real Estate, which for the first time ever, grew over EUR 3 billion. This is reflecting the strong increase of the backlog over previous quarters and buy and development at Edouard Denis. The consolidation of Ægide for the first semester represents EUR 77 million. Revenue from Commercial Real Estate is down 25% year-on-year to EUR 384 million in 2018, as we expected, from a low backlog at the beginning of the year. Revenue for real estate services increased by 10% at EUR 1,065 million, mainly due to new acquired companies. The consolidation of Ægide for one additional half year period represents EUR 100 million. On a like-for-like basis, the revenue is down 3% due to the decline in revenue from distribution activities, a one-off effect with fewer notary deeds of sales signed in 2019. Revenue from Real Estate Services to Companies is strongly increasing, mainly driven by external growth from Morning Coworking and Accessite, plus EUR 31 million and plus 12% on a like-for-like basis. On the following page, we have more details about the EBITDA. Nexity's EBITDA for 2019 was up 10% to EUR 573 million and is stable on a like-for-like basis at EUR 525 million, with the same effects as on revenues, increase in individual clients and decrease in commercial clients. EBITDA for other activities is showing a loss of EUR 29 million compared with a loss of EUR 26 million in 2018. That shows a good control of overheads. The margin rate of Nexity is stable at 12.7%, with some trends by business lines. EBITDA from real estate is quite stable at EUR 346 million. Increase in individual clients is offset by a decrease in commercial. The EBITDA margin in Residential Real Estate is at 10%, slightly lower than last year, down 0.7 point against 2018 but still at a high level, outperforming the market and reflecting tight control of our operating budget despite pressures on construction costs. The margin rate of commercial clients at 11.1% versus 12.7% in 2018 remains at a very satisfactory level. This change notably reflected higher construction costs. EBITDA from services strongly increased at EUR 255 million compared to EUR 201 million in 2018, with increase in individual and commercials. EBITDA from service for individual clients came to EUR 236 million in 2019, increasing by EUR 42 million, driven by the services residences. The EBITDA margin of real estate services increased at 24% against 20.7% in 2018. This increase is mainly due to the consolidation of Domitys' services business for the full year, the capital gains on the disposal of the Guy Hoquet l’Immobilier franchise network, offset by the decrease in EBITDA from distribution activities. EBITDA from services to company came to EUR 19 million in 2019, including a EUR 9 million scope effect with Accessite and Morning Coworking. The EBITDA rate from services to companies is at 19%. The increase is mainly coming from Morning Coworking with IFRS 16 effect. More generally, the increase in real estate services confirm this business's potential for growth and profitability, generating 45% of the group's EBITDA in 2019. We make a focus on the historical rate of EBITDA margin for our development activities over the past 5 years on the slide, Page 22. At the end of 2019, the level of EBITDA in Residential Real Estate reached 10%, near the normative levels. Based on the divisions of the book, the rate of margin should remain in the range of 19% over the next 2 years. For Commercial Real Estate, the EBITDA margin decreased at 11.1%, down from historical very high levels, reflecting the returns to the normative level. We also expect a [ normal ] level of around 19% for next years. We illustrate the reconciliation between EBITDA and current operating profit on the slide, Page 23. The difference between EBITDA and current operating profit, a negative impact of EUR 220 million against EUR 150 million in 2018, mainly results from the depreciation of right-of-use assets under IFRS 16 in the amount of EUR 154 million compared with EUR 94 million in 2018, which increased to a greater extent than EBITDA, which was only EUR 260 million. Current operating profit came to EUR 353 million at December 31, 2019, compared with EUR 373 million at end of December 2018, down 5%. The margin rate of Nexity is down at 7.9%. Again, 9% in 2018, reflecting the more important weight of noncash expenses. The change in the current operating profit, contrasted with the growth in EBITDA in 2019 and mainly reflected a temporarily negative contribution made by Domitys attributable to losses reported by residence opened less than 2 years ago, and the amortization of the client relationship, PPA, and the smoothing of the portion of development margins over the term of lease, leased back under IFRS 16 for EUR 16 million. Moving on the balance sheet to Page 24. Goodwill is quite stable at EUR 1,598 million. Right-of-use assets, which amount to EUR 628 million at 2019, up EUR 71 million compared with end 2018, increasing with new release from new senior residences and Morning Coworking spaces. The working capital requirement increased by EUR 123 million, and we shall explain this in detail in a minute. On the liability side, Nexity's consolidated equity was EUR 1,757 million at end '19 and quite stable compared to EUR 1,754 million at end December 2018. Net debt amount to EUR 1,826 million end of December 2019 compared with EUR 1,567 million end '19, up EUR 259 million. It corresponds to 3.2 EBITDA, including IFRS 16. Net financial debt before lease liabilities, IFRS 16, was only EUR 918 million and rose by EUR 161 million in 2019. The gearing ratio stood at 52% of equity. Working capital on Page 25. The working capital requirement at December 2019 is EUR 1,019 million versus EUR 896 million, up EUR 123 million from its level in December '18. The increase came mainly from Residential Real Estate. The rise reflects expansion of this business in line with the increase of numbers of reservation in backlog, which points to higher revenue in the upcoming quarters. The backlog represents the future revenues, and the working capital requirement to backlog ratio is stable compared to its historical levels, around 20%. Other sectors are quite stable. We should expect Nexity's working capital requirement to further grow in 2020 with the commercial division's working capital requirement remaining positive, continuing increase in the returns on shareholders divisions' working capital requirement, given the commercial activities. However, this growth remains well under control. Page 26, change in net debt position. Nexity's net debt increased at EUR 161 million during 2019 and amounted to EUR 918 million at December 31, 2019. This increase mainly comes from the increase in working capital requirement, up EUR 98 million. In 2019, net debt represent approximately 2.3x EBITDA after leases before the indicative 2.5x EBITDA target level that the group has set for itself. For 2020, due to rapid business growth, particularly in Residential Real Estate or potential external growth, we should be near this level as there is always a time lag between investment time and recognition of new revenues. And we show our financial debt schedule before IFRS 16 on Page 27. At end December 2019, the average maturity of Nexity's debt was 3.7 years and the average cost of debt was 2.3% versus 2.6% at 31 December 2018. In 2019, Nexity issued its first Green Bond for EUR 244 million. Nexity also set a negotiable European commercial paper program with a maximum amount of EUR 300 million, with EUR 120 million drawn at December 31, 2019. Cash flow statement is on Page 28. Cash flow from operating activities before interest and tax totaled EUR 545 million versus EUR 508 million in 2018, close to the EBITDA level. Free cash flow reaches EUR 230 million, slightly above the level of 2018, EUR 222 million. The increase in EBITDA is partially offset by higher operating investment, plus EUR 12 million. The increase in CapEx is coming from more IT spending and increased spend from Domitys and senior residences or Morning Coworking in co-working spaces. Net cash from financial investment, EUR 6 million, arose from the disposals of Guy Hoquet l’Immobilier and Nexity Conseil et Transaction for the acquisition of Accessite. Net cash from financing activities, EUR 440 million. Comprise new borrowings, less the cost of share buybacks, EUR 20 million and payments relating to commitments with minority interests, EUR 27 million versus earlier. And now Julien will conclude about the backlog and the guidance.

Thank you. On Page 29. So you have Nexity's backlog increasing by 14% from roughly EUR 4.5 billion to EUR 5.1 billion. The biggest part is, of course, the Residential Real Estate backlog, plus 11%. The commercial backlog increases by 48%. Overall, a 14% increase in the total backlog relative to December of 2018. Furthermore, the development business potential at the end of 2019 totaled more than EUR 15 billion in potential revenue, EUR 12 billion for Residential Real Estate, $3 billion for Commercial Real Estate, increasing by 7% year-on-year and amounting to more than 4 years of revenue from development activities. So if we do the sums, backlog plus potential equals pipeline, which is EUR 20.4 billion. Let me go to Page 30 on the market guidance. But first, a few words about our forecast and objectives for business activities. Looking ahead to 2020, Nexity is in a strong market position. We expect the French residential market to be roughly flat in 2020, but with 2 different periods over the year. A slight decrease in H1, still impacted by the local elections in March and a pickup in H2 in preparation for a probably good year in 2021. As far as Nexity is concerned, we expect to continue to outperform the market as we capitalize on our strength, once again, the depth and breadth of our product range, serviced residences and so on and so forth. With respect to Commercial Real Estate, we aren't giving a specific guidance for 2020; however, we expect it to be a record year, thanks, of course, to the forecast sale of the Engie campus. We do also anticipate further growth in our serviced residences business. After that, on our financial targets, we expect to grow revenue by at least 10% in 2020, and our EBITDA and current operating profit by 10%. This is all well in line with the medium-term plan, which was discussed to the market in June 2018. I have a couple of comments here. First of all, the growth will come from all our business lines with particularly a strong rebound of Commercial Real Estate, subject, of course, to the sale of the Engie campus during the year. Revenue growth is likely to expect EBITDA growth in 2020. We further expect a decrease in Commercial Real Estate's margin. That will converge as expected towards its normative rate, 9% to 10% margin. The other business lines should keep their margin rates overall in line with 2019. A second comment, and like 2019, we expect now to see our operating income to grow in line with our EBITDA. As I said, a recorrelation of these 2 KPIs, thanks, in particular, to an expected improvement in Domitys EBIT margin as well as the trending down of negative accounting items. That's for 2020. On '21, which is the last year of our business plan, we fully confirm and maintain our targets with another 10% growth guidance for EBITDA. At the end of next year, Nexity's revenue should be above EUR 5.3 billion, and EBITDA should exceed EUR 680 million, in line with the 10% CAGR announced in 2018. And as discussed, we're a little bit ahead of our road map to date. On the dividend, Page 31, we will propose to the next AGM a cash dividend payment of EUR 2.70 per share, and the Board is guiding to at least the same amount in respect of financial years 2020 and 2021. So EUR 2.70 is a floor. That's a strong signal that the dividend is sustainable and that Nexity's model combines growth, profitability, transformation and investment in new businesses and good return to shareholders. One last word on Page 32, where you can see Nexity's ownership structure. It's a company with strong inside ownership and strong alignment between shareholders and management. You will notice that the management and employees bought shares in 2019. Alain Dinin is still leading the shareholders' concert group, which brings together 20% of the share capital, New Port, management, employees, excluding the employee pension plans, as well as our partners from Crédit Mutuel. The governance changed in May 2019. And Alain Dinin, as Non Executive Chairman, is still very much present steering the group, deciding on the capital allocation, setting the strategy, although he partly stepped aside from the day-to-day management. It's a transition period. And I can say that so far, it's functioning very well and delivering good results. Thank you, and we are now ready to answer your questions.

[Operator Instructions] We will take our first question from Christophe Chaput of ODDO.

So the first one, the first question is on EBITDA margin on the real estate division. So you experienced minus 70 bps at 10%. And if I remember well, in the H1, you suffered from a negative impact in Italy, as a basis of comparison. How does Italy translate into the full year 2019, which means that out of the minus 70 bps, how much is related to Italy? And the second one is, just to be clear on the 2020 EBITDA margin for real estate division. You basically said 9% to 10%, or the 9% to 10% is the midterm, let's say, guidance? I just want to understand if the cost of construction is going to ease in 2020 versus 2019.

Okay. I will start, and Eric will comment. Yes, in H1, we mentioned, because it was a significant item on a 6-month basis, the fact that we didn't have negative impact from international. It's just that unlike 2018, we had no deliveries of projects coming from our international business, whether Italy or Poland, actually. And unlike France, there's no VEFA in foreign countries. And therefore, we only account and recognize revenues when a project is delivered. So low level of deliveries in '19, unlike '18 and unlike 2020, very likely. So that was an impact significant in H1, probably less significant on a full year basis. I would say, about 10 bps under your control Ægide. So it means that the rest, 60 bps margin decrease is due to higher construction costs, which, as I said, we have this well under control. I wouldn't say that the trend is over. We're not giving any really detailed guidance for 2020. But as you rightly understood, 9% to 10% normative margin rate for our development businesses, both resi and commercial. That's the midterm guidance. We -- this is where we should be on a kind of through the cycle vision. So for this year, we will see. But as I said, again, we don't anticipate a big deviation in the margin rate of Residential Real Estate, so roughly 10%. Whereas the Commercial Real Estate this time will convert from 12% to somewhere between 9% and 10%.

Will just add that we have a large backlog, so that we have a good visibility of our margin. So what we can see is that the embedded margin is quite clear to reach the normative level. And maybe we have less capacity to have upside of some good operation so that we will be nearer of the normative level. But what we see in our [ backlog ] of embedded margin is quite satisfying.

We will now take our next question...

If I may add something -- sorry, Christophe. You have more or less the same evolutions of real estate development margin. If you look at the current operating income, they are a little bit lower, so that's partly due to limited extent to some expenses impacting the EBIT and not the EBITDA, but the lower level is due to what we mentioned before, Eric and myself, meaning that part of the margin, development margin of serviced residences, is really taken out of the EBIT, whereas it's including -- included in the EBITDA. But the interesting thing is that the evolution year-on-year of the margin rate is comparable.

We will now take our next question from Nicolas Tabor of MainFirst Bank.

First question is very simple. Could you please remind me the exceptional gain from divestment of Guy Hoquet L'Immobilier, the amount for us to see was it successful or not? And then other questions on Engie. Could you please give us, let's say, a first idea of what you expect in terms of potential margin accretion or dilution? And if it's right to assume that the net working capital to sales will go down if the VEFA contract is signed in H2 2020? And then third question was on the timing of reservations you had this year fueling into revenue. I guess we should expect revenue only to start materializing in the second half even though the reservation is already booked, right?

Okay. Let me start. Guy Hoquet, I cannot really remind you of a number which I didn't give you. But I will say -- how can I put it, low double-digit in terms of million euro. We can't give a price because it's a confidential transaction with the third party. So it's positive, but it's not, I would say, significant. Very good question about the Engie project. At this stage, what we're anticipating is we need to have a margin inside this normative margin corridor, 9% to 10%. We basically know the selling price because it's the price we negotiated and finally signed with our buyer, which is Swiss Life. In terms of the construction costs, we are starting to have visibility. But of course, it's going to be the big question for this year to really put figures in that. We have a full team which is mobilized. We have -- of course, we're concentrating a lot of our attention and focus on this project. At this stage, we can anticipate a margin close to this normative level. On the third question for Eric and the time lag between reservation and revenue...

Yes. We are still on the same delay between reservation and revenue, you can count about 2 years. So that reservation in 2019 will be mainly driving revenue in 2021, so that revenue from 2020 mainly come from reservation 2018.

Okay. Can I just be clear on the net working capital outflow for next year? Should we expect something in the same line and slightly lower in percentage of sales, as you will have the contribution from Engie?

Yes, of course. Engie, which is about EUR 1 billion revenue, will represent a big part of the revenue end of 2020 because the size of the operation that we will have the revenue by completion of the expenses. So it will make revenue in 2020 and the next few years.