Nexity SA (NXI) Earnings Call Transcript & Summary

Good day, and welcome to the H1 2021 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Nadia Ben Salem-Nicolas. Please go ahead, ma'am.

Thank you, operator. Good afternoon, everyone. Nadia Ben Salem-Nicolas speaking, Co-CEO in charge of Finance. I'm very pleased to meet you through this call today, and I hope we'll have soon the opportunity to meet for real. Thanks for being with us for Nexity half year results. I'm here with Véronique Bédague, new CEO of Nexity; as well as our CFO, Eric Lalechère; and the IR team. We'll first go through the presentation before taking your questions in our second step. Before we start, I draw your attention to the disclaimer on Page 2 related to forward-looking statements and also to the definition of financial indicators. Notably, given the change in scope we experienced during this semester, we decided to provide distinct disclosure for the disposed activities of Ægide-Domitys and Century 21 on one side and the so-called new scope that we'll continue to manage, to help you to better understand our numbers. So we hope you'll appreciate this effort in our communication. With that, let me hand it over to Véronique.

Thank you, Nadia. Hello, everybody. Good afternoon, and thank you for joining us today. Today is an important milestone in our dialogue with you with me taking part since my new role of CEO and Nadia in her new role for finance. We'll really focus today's call on the numbers for the semester and the outlook for the rest of the year, and we are pleased to present to you a very strong set of results, and that's probably the main point of our call today. Let me begin with the key highlights for the first half, which has been a period of intense construction for us. The first achievement I would like to highlight on Slide 4 is about the completion of the strategic review launched at the end of last year. Following the sale of Century 21 and Domitys, we now have a platform clearly refocused on Services, maximizing the potential for cross-business synergy opportunities. This move has also contributed to increase our financial capacity, since the transaction led to an overall decrease in net debt of EUR 1.2 billion, EUR 70 million, EUR 72 million (sic) [ EUR 772 million ] in IFRS 16 debt and EUR 400 million in net financial debt. It has also an accretive effect on operational margin since the discontinued activities, as you well know, were loss-making. On top of everything, and it's very -- it's a point which is very important for us, we have reached a long-term agreement with AG2R La Mondiale. We are committed to produce serviced senior residences for Domitys. And AG2R La Mondiale is now a key shareholder of Nexity, part of the concert group with 3% of the capital as of end of June. We are very satisfied with the outcome of the strategic review, which has been concluded in less than 6 months, and I think it's really an achievement with terms maximizing creation value for our shareholders. Let's turn to page -- let's turn the page and go to Slide 5, concerning the reshuffling of the executive committee, which has been, as you can imagine, a top priority for me since I have been appointed CEO. In addition to Nadia, now leading finance, Jean-Claude Bassien is becoming my deputy. Helen Romano, with a very experienced housing real estate developer and has been with Nexity for the last 15 years, has been appointed as VP of Housing Real Estate. I have also recruited Stéphane Dalliet, who was the Chief Executive Officer of Pitch. This is a strong and experienced team, mixing people who have been with Nexity for a long time and people who have more recently arrived. They will together steer the transformation ahead, while nurturing the specific Nexity culture. The third highlight for the first semester is our strong delivery as indicated on Slide 6. Our new home reservations are stable in value compared to last year. And all the signs show that we are back to a profitable growth path. We experienced a strong revenue rebound at 34% versus 2020 and 26% versus 2019. And our percentage of current operational profit at 6.6% in the first semester for the new scope is consistent with the levels we have in the first semester of 2019. And of course, our balance sheet is strengthened. Our net debt went further down to 1.7x EBITDA at the end of the semester. So as I told you when I began my intervention, we have a very strong set of results to show you today. Finally, on Slide 7, and it's the fourth highlight for this webcast. I am particularly pleased and proud to remind you that Nexity has been selected as the #1 developer in France in 2020 in residential real estate. And it has been the case, as you remember, for the last -- for the past 6 years. But this year, we have also been nominated as the #1 developer in commercial real estate as well, which is the first time in Nexity's history. We also stand out for our commitment to an inclusive and low-carbon city, as you can see with the Innovapresse certification. After having set the stage with the key highlights, let's now move to the detailed business review for our main lines of activity, and that will be Slide 9. So let's begin with Residential Real Estate, which represents 70% of our revenue. The main topic of concern in this area is, of course, the shortage of building permits. We are facing a very unusual political cycle with -- while the number of granted building permits usually rebound 6 months after the local elections usually in September. And it almost happened last year, as you can see on the graph. This didn't really happen in last year. On the graph in the left part of the slide, you can see a rebound in May from the low point of February, but the trend still needs to be confirmed. This shortage has become a political issue, and the Prime Minister has set up a commission called Commission [ XMN ], of which I am a member. We plan to make a list of propositions in September to try and solve the problems. In this tense environment, we were able to keep our sales supply stable. The number of granted permits remained steady compared to last year, and we were able to solicit twice as many permits, and that's very important for us. We, therefore, have a very dynamic portfolio in the making, which gives us the strength to deliver this year again around 20,000 new home reservations for the full year. Moving to the demand on Slide 10. You can see in the graph on the left side of the slide that we faced a strong retail demand, up 31% compared to first semester 2020. We expect a boost in bulk sales, which are nonlinear throughout the year during the second semester. The consequence of lack of supply and strong demand is that prices are still rising, up 4% compared to last year, as you can see on the right side of the slide. Now moving to Commercial Real Estate on Slide 11, which represents 10% of our revenue. You are aware of the main features of this market, of course, which is cyclical and is definitely at the bottom of the current cycle. The vacancy ratio is peaking and the office rental demand remains tepid. In this context, we signed EUR 307 million worth of order intake. We are counting on our product offer called Nexity@work geared towards helping companies to steer the transformation through their office layout to stay very close to our clients during this period. On the next 2 slides, you will find example of what we are doing. For instance, on Slide 12, to illustrate Nexity know-how in connecting its skills together to build the city of the future, you can see the office building name NEW, which has been completed during the first half of 2021. On the following slide, you can see that we are part of the largest ongoing French urban project, Le Village des Athlètes, and it's really a nice time to talk about it because it will be for the next Olympic. So it's a district development named The Athletes' Village. Let's conclude this business review with the key figures on Slide 14 for Services, our third business line which represents 20% of our revenue. In a nutshell, property management is growing, distribution is buoyant and operations are recovering. The student residencies are 92% full, but the occupancy rate is still 80% for co-working, yet quickly improving. Speaking about co-working, you will find in Slide 15 an interesting project offering by Morning. It is operating in Clichy an entire building for L’Oréal. As Nexity, we are convinced that co-working per se or building managed by a coworker for a top company will be part of the solution the companies will choose in the wave of sanitary prices. Now I will leave the floor to Nadia for the financial review.

Thank you, Véronique. So let's start this review with the P&L on Slide 17, for which we provided comparative numbers not only for 2020, which was impacted by COVID-19 crisis, but also for 2019 as a more normative point of reference, I would say. So reported revenue was EUR 2.3 billion for the semester. EUR 2.1 billion if we exclude the EUR 211 million contribution from Ægide-Domitys and Century 21 sold in the first half. This represents an increase of 34% against the low point of 2020 and of 26% versus the pre-COVID level of H1 2019. I'll go through the details by business in the next slide in a minute. Operating profit, as you can see, was EUR 362 million, breaking down into EUR 136 million for the current operating profit for the new scope, plus EUR 226 million, primarily related to the very, very, very nice capital gain we made on the disposals of the semester. As a reminder, Ægide-Domitys was a loss-making business with an operating loss of minus EUR 3 million in 2020. The net financial expenses were up to EUR 44 million, mainly reflecting the rise in interest expense on lease liabilities. But the reduction in debt following the disposals will help to cut net financial expense from H2 onwards. Tax expense. It was EUR 32 million, representing an effective tax rate of 28% compared with 30% last year. Our net profit came to a record level of EUR 283 million. If we exclude the one-off effects related to the change in scope, net profit amounts to EUR 77 million, so the last number of the bottom line. It's 3x the level of last year and an increase of more than 50% against 2019 levels. So overall, a very strong set of results and an excellent financial performance, as Véronique highlighted. So let's see the details of the revenues with the bridge on Slide 18. So you can see that the largest contributor to revenue growth was the Residential Real Estate Development in blue, up by almost EUR 0.5 billion versus last year, out of which we estimate on one side, a sort of catch-up impact of around EUR 300 million from COVID days last year. And on the other side, around EUR 200 million from business growth, implying more than 20% of organic growth, I would say. For H2, we are at the stage of the year cautious, and we currently expect slightly lower revenues compared to the strong H2 of last year, given the forecasted progress on construction and less notarial deeds as a consequence of longer approval times for building permits. Nevertheless, Residential Real Estate Development should post a nice double-digit growth for the whole year. For Commercial Real Estate Development, so the box in green, revenues were slightly down given the high base of last year from the sale of the Paris Regional Council building. Please keep in mind that H2 will also be a semester of revenue decline for this business given the exceptional EUR 400 million revenue impact from the sale of the Ecocampus in La Garenne-Colombes end of last year. And finally, Services, so the box in purple, also contributed to revenue development of the semester. So with revenues up 16% versus 2020 and plus 8% versus 2019, with all activities in the platform growing, as Véronique highlighted in the highlights in the first section. Services should post a high single-digit growth for the full year. Now moving on Slide 19 to the current operating profit. Current operating profit reached, as I said, EUR 136 million. It's the double of last year level in terms of absolute amount in euro term, and it represents a margin of 6.6%, a strong rebound, which put us back to our pre-COVID level, as you can see in the red U curve on the left, showing our quick recovery and boding well for the rest of the year. Looking at the details by business on the bridge on the right. The largest contributors to profit growth were the Residential Real Estate Development, with margin rebounding from 0 last year to almost 6% at the end of the semester, and we expect full year margins to be back above 8.5%, taking into account the managed impact of rising construction costs and change in client mix. Regarding the Commercial Real Estate Development, so in green, margin was down given the base effect of last year and the progress of the various projects underway. But still pretty high, very high level at 15.8% margin above the level we anticipate for the year as a whole, which should be closer to our historical levels. To a lesser extent, the Services also contributed to profit growth. Their margin increased from 4% to 6.6% benefiting from top line recovery and from the exclusion of the loss-making business of Ægide-Domitys. Now moving to cash flow, with a focus on the working capital on Slide 20. Working capital increased by almost EUR 400 million in the semester as the mechanical result of 2 distinct effects. On one side, and you can see that on the second column of the table, an increase of almost EUR 240 million related to the anticipated reverse effect of the significant down payment we received at the end of last year for programs in Reiwa at Saint-Ouen and La Garenne-Colombes, which led the Commercial Real Estate to end, you might remember that, the year with an exceptionally highly negative working capital at minus EUR 267 million. This working capital also returned to a more normal level end of June, but it remained negative, as you can see, minus EUR 85 million, and it is expected to continue to increase for the rest of the year in respect of the continued consumption of the down payments. Adjusted for this, the increase in working capital was EUR 161 million, comparable with what is usually recorded in H1. In residential, the working capital requirement to backlog remained under control at 20.5%, in line with our historical levels. So overall, the message here is that the working capital continues to be managed very carefully and with almost no unsold units remaining in portfolio. Looking ahead, given the pipeline of activity, working capital should continue to increase by year-end. Let's now see the impacts of those various building blocks on our level of debt with the bridge in Slide 21. Here, we're talking about net debt before any lease liabilities. So from left to right, we opened the year with EUR 655 million net debt on the balance sheet, representing a leverage ratio of 1.9x EBITDA. Then you see the green boxes. The strategic review contributed overall to decrease the net financial debt by almost EUR 400 million. You have EUR 100 million that were already booked in full year 2020 statements with debt reclassification under IFRS 5. And then you have an additional, an extra EUR 300 million reduction in the semester with, on one side, EUR 200 million cash proceeds from the disposals and around EUR 100 million of cancellation of the commitments to buy out minority interest. Then the boxes in purple, the business generated a negative free cash flow of around EUR 320 million, which is a very common feature in the first half in this period of the year, which has been accentuated by the change in working capital I just mentioned. Then taking into account the dividend paid to shareholders in May, so the blue box, this brings the net debt as of end of June to EUR 690 million, which means 1.7x EBITDA, which is down from a level of 2.3x only 2 years ago. So 1.7x is a very comfortable level. That gives us room to look at the future with confidence, with serenity, with ambition. Keep in mind that given the slight increase in working capital I mentioned earlier, this leverage ratio should increase reasonably by year-end. In Slide 22, we are all the more confident when we look at our financial structure. Since we issued last April a new bond at a very low and a very attractive rate, allowing us to extend to 2028 our EUR 240 million debt leading to actually very limited debt reimbursement over the next 3 years, as you can see on the graph in the right. So to conclude this financial review and before I hand it over to Véronique for the outlook and for the conclusion, a look at our balance sheet, a balance sheet that is strong, that is healthy, that is sound with the level of equity growing to EUR 1.9 billion, and net debt only 30% of that amount.

Thank you, Nadia. Let me finish with our strong confidence for the future. As can be seen on Slide 25, we're enjoying a high visibility on future revenue. Our backlog is worth 2 years of activity and a global pipeline 6 years. It is stable, but I want to draw your attention on the fact that the stability hides significant moves in and out the pipeline. Our revenue is rising, which means that there is a high outflow from the backlog. But at the same time, the flow of projects coming into the business potential is high, too, allowing the pipeline to remain stable. Of course, we are operating in an uncertain environment as highlighted in the next Slide 26. I am sure that in the Q&A session, you will mention the uncertainty of the economic recovery, the bottleneck of building permits, the rise in construction cost, the environmental constraint, the risk of increasing interest rates and the phasing out of the Pinel scheme. Everything is here. But Nexity is organized in a way that allows us to face with confidence all these risks because our core business has been, from the very beginning, about dealing with uncertainty. That's what about -- real estate development is about. We have strong assets to address this and makes a difference in a competitive manner. First, our wide and ever expanding range of products; a comprehensive territorial coverage, in a nutshell, we are everywhere; a step ahead on low-carbon construction; and finally, our size and scale purchasing power. Having said that, and in the light of the strong results we are posting for H1, we are pleased to confirm the guidance we set at the beginning of the year. And to precise, it reflects the expectations of our new scope of activity for the rest of the year. Beyond business indicators in terms of revenues, we expect to reach EUR 4.4 billion for the full year for the new scope, excluding any contribution from disposed activities. Keep in mind that compared to 2019, this guidance implies a revenue growth of around 10%. In terms of current operating profit, we expect to reach EUR 360 million for the new scope, representing a 25% increase versus last year and an operating margin above 8% back to 2019 levels on the same scope. We are cautious, you know us, as usual, given the uncertainties of our environment. But fundamentally confident, given our performance year-to-date and our strengthened financial structure and organized to fight and win in a transforming market. So to conclude this presentation, let me remind you that our commitment is to create and share value for all our stakeholders. This is our value proposition. We offer our clients an integrated real estate platform, our employees a strong and meaningful culture and our shareholders a performing and responsible investment proposition. And that is for today. And keep in mind that we are working with my team on an updated midterm road map on which we will expect to get back to you at some point by the end of H1 next year. And with that, I think we can now open the floor to Q&A.

[Operator Instructions] The first question comes from Nicolas Tabor at Stifel.

Yes. Can you hear me well?

Yes. Very well. Good evening. It's Nicolas.

Congratulations on your nomination, obviously. I had a first few questions on the working capital, just to clarify how it should evolve. On the residential side, obviously, if the building permits are pinning up and so on, we should see an increase. But can you give us some kind of idea in terms of percentage of the backlog, what your target for the year and for H2? And then also looking at the Commercial Real Estate Development, we've seen sort of a normalization in H1 as expected. And how much more normalization can we expect in H2? Or is there not much change because there will be not much revenue recognition related to the Engie Ecocampus? I mean how should we think about that? And same for the line called others, obviously, which is a bit more difficult to track. And then on the second question, the dividend policy, can you remind us of what you guide for 2021 dividend to be paid in 2022? Is there already some kind of range guidance percentage we can look at?

Well, that's one for you, I suggest Eric take the first one related to, I would say, the outlook for working capital, and I might take the second one on dividend policy and overall capital allocation priorities, if I may, okay?

About our working capital requirement, I will just say that for residential estate, we think that it will kind have a slight increase. It is not about achieved housing at the rate of commercialization is still very good, but it is with a delay of mounting new operations that we can have to have more expenses before launching commercialization, so that we can have some of these in our working capital requirement. I think it's not so a point to be worried as it's quite a good way to see that our backlog is increasing. It's quite normal that our working capital requirement is still increasing. And we said that it will look like the historical level, we can be always around 20%. So that's quite the normal way to say the thing, but it's not a point to be worried if you can go maybe up to 22%, 23% as it's more important to see the quality of our working capital requirement and what it is made of and what I point out is that it's not about unsold housing. As for commercial, we have a very particular situation with a big down payment end in 2020. And of course, we are consummating this down payment until this year. We think that the working capital requirement will stay below 0. But of course, we have still expenses to do the phasing of the operation for the Garenne-Colombes project with Engie. So process is going well as we make the agreement with construction so that we can have a good construction and we have no worries about the budget. And of course, this year, there's much due for the first [ work ], but not really representative in revenue so that the revenue will start more important in 2022 until completion in 2024.

So this is for the question related to working capital outlook. And when it comes to dividend, I think what we can already say is that regarding return to shareholders, Nexity priority has always been to establish a solid distribution policy. We have a good track record. We have always been careful to the level of dividend. At last AGM, which was end of May, I think we already took the commitment that our next year dividend would be above EUR 2 per share. But returns to shareholders will be -- I mean, it's a Board decision, and it's discussed and reviewed by the Board every year, and then it will be discussed in due time after the full year results. Maybe more broadly, when it comes to capital allocation priorities, which I think is maybe your underlying question behind the question on dividend level, what we can say to put things in perspective is that maybe first, when it comes to the strategic review, it's now complete. So there are really no other major disposals to be expected in the midterm. Then when you look at our balance sheet, we have a debt ratio today that is at 1.7x at the end of the first semester. As I said, we think it's a low point. It's a very comfortable level that gives us room to look at the future with ambition, as I said. And given the further increase in working capital that Eric just elaborate, this ratio should increase reasonably by year-end. I said reasonably, we said overall consistently with what we said in the past. We're comfortable with the level of debt net up to a range of 2.5x, 3x EBITDA. That obviously won't reach this level by end of this year. And then when it comes to M&A, I would say very big transforming M&A is not on top of the list of our immediate capital allocation priorities. We see investment in land bank as something more critical in the short term, given current scarcity of land as well as investments in our transformation and notably in the digitalization of tools and services to respond even more effectively to our customers' demand. So that being said, we don't exclude external growth opportunities, but it will be more around targeted bolt-on opportunities complementary to our Service platform, so targeted bolt-on but not transforming. And so the consequence of that is that it should leave still enough room to maintain a very attractive policy of returns to shareholders. Sorry, it's been a long answer, but I think that was the underlying meaning of your question behind dividend levels.

[Operator Instructions] The next question comes from Marie Fort at SG.

Just a very simple question and perhaps, if you could just try to reconciliate your new guidance in terms of operating income. You were targeting before EUR 350 million. That target was including the impact of Ægide-Domitys or not? It's just to compare egg by egg.

Yes, you're right, Marie-Line. The previous target was with a comparable perimeter, so that we anticipate a part of the losses, Ægide-Domitys in contributions, Century 21 at the beginning of the year. We think that now this is sold, it's more simple to speak about the new scope. The new scope is without this sold disposal activities. So that's why we explained that our guidance, that is with the same forecast, there is no evolution. But as a clarification on a new scope, we now target EUR 360 million EBIT at a minimal level for 2021.

Okay. So in fact, if we reintegrate the EBIT from Ægide-Domitys during the H1, your new guidance should have been EUR 400 million. Is it correct?

Not at all because you have a specific treatment with IFRS 5 and with IFRS 16. With IFRS 5, we can have no more amortization of the right of use for your asset. So the operating income of first half of 2021 is forced because we have no amortization from this asset. So it's about EUR 55 million you don't have in the recognition. That's why we prefer to speak on the whole of the impact of the disposal. That's about EUR 226 million on our EBIT. That is more simple to see and not to focus about what the component that we have sold and are no more in mind for us.

Long story short, also, just if I may rephrase it, Eric, the EUR 40 million that you see as a result of sold -- disposed activities for Ægide, don't take it as an economic value. It's really the technicalities of the accounting norm of IFRS 5. But economically speaking, Ægide-Domitys was still a loss-making business as of end of H1. But if you take into account the technicalities of IFRS 5 and the end of the amortization of the lease, it brings this positive number. I don't know if those technicalities of IFRS 5 rules are clearer. But long story short, no, you should not have taken the contribution of Ægide-Domitys economical contribution to EUR 40 million in the first half.

[Operator Instructions] The next question comes from Laurent Gelebart at Exane.

Laurent speaking. So I do have one question regarding the number of permits being filled in this H1. So you mentioned it is 2x the number of H1 2020. But if I'm not wrong, in H1 2020, it was very difficult to fill permits because of the lockdown. So can you give us the data? So how many permits have you been filling in this H1? And how does it compare to H1 '19, for instance?

I think you have much more to understand that as a dynamic. Of course, 2020 may be a low level because of the election, but we still have permit. And what we just want to mention that the dynamic is here, and we have a good forecast, and we have to put that you in mind because we just want to ensure that our forecast for a 20,000 reservation new home this year is quite reachable because we have the potential to do that.

So what would be the number of permits you have been filling in this H1?

That's not an information we disclose. It's obviously, I would say, a sensitive information vis-a-vis competition, notably. But I think the point here, as Eric said, is that it's really an accelerated dynamic from a 2020 level that was not such a low point actually and actually also a very good dynamic versus 2019 levels. We could say that it's the double of maybe the average of the last 3 years.

Yes, of course, but it's also to see with the larger size of Nexity, we are increasing our sales. And of course, we have a natural increase in our permit.

Okay. And regarding the -- you have been mentioning the risk at the end of your presentation, the evolution of construction costs and stuff like that for the Ecocampus from Engie. So I know you are -- you have been able to set up the contracts with the companies, with your subcontractors. So you have 100% visibility on this?

Yes. We can confirm that. Yes.

And for the implementation of the new norms regarding low-carbon activities for next year and so on, so are you still seeing a potential increase of construction cost of 5% to 10% at some point? Or are you able now to be more comfortable on this risk?

Well, I don't know exactly what you are talking about, if it's the specific details of the new 2020 energy regulation. Since you know they have not decided yet, but -- so it's difficult to measure the impact it could have. But however, we believe like all regulation projects -- as you know, because we are really committed to low carbon for a long time, our projects already go beyond what will be required by this regulation as far as we know. And the additional cost will be remain marginal. As I told you last time, you are -- we are really working hard on our construction -- in mode constructive, which would be...

Constructive mode.

Constructive mode.

Constructive mode, sorry, to be able to produce low-carbon buildings at an affordable price. That's really at the heart of what we are doing today at Nexity.

The next question comes from Pierre Clouard at Kepler Cheuvreux.

Just to come back on the guidance, just to make sure that I understand everything. The EUR 4.6 billion that you gave in Q1 was excluding Ægide-Domitys, so the EUR 4.6 billion. And now you are guiding on EUR 4.4 billion. Can you give us the bridge between this EUR 4.6 billion and the EUR 4.4 billion, given the fact that you were saying that you were already excluding Ægide-Domitys?

No. Nadia speaking, and thank you for the question, and that's a fair question. The guidance of last time, so in Q1, EUR 4.6 billion for the full year, was including actually 1 semester of contribution from the sold activities, right? So it was including the contribution until the assets were disposed. Now what the guidance is reflecting is just the new scope without any contribution of those disposed activities. So excluding -- so long story short, it was -- the overall revenues of the disposed activities on a full year basis, it's about EUR 400 million. The previous guidance, the EUR 4.6 billion, was including half of that, EUR 200 million. The new guidance excludes anything from the disposed activities and so EUR 4.4 billion. Are the math clearer for you?

Yes, yes. And in terms of IFRS rule, will you communicate it on the half year basis? You're taking into account the half year of Ægide-Domitys or not?

Yes. For IFRS rules, we have the half year Domitys and our published figures are -- will be about EUR 4.6 billion. But we prefer to speak about our new scope because we speak about the operating income, about EUR 360 million under the new scope. So we just want to focus that revenue of the new scope will be about EUR 4.4 million (sic) [ EUR 4.4 billion ]. But of course, our real revenue will be about EUR 4.6 million (sic) [ EUR 4.6 billion ], including EUR 211 million from the half semester of Ægide and Century 21.

That's much clearer. And then coming back on your expectations on margin. You are saying in a paragraph in your report that you're expecting a nice recovery of margin for the residential business. Can we expect in H2 a coming back to 2018, 2019 level in terms of margin?

What I indicated -- that's a fair question. What I indicated is that we're confident to have the Residential Real Estate Development margin for the full year margin close to above 8.5%. So -- which implies indeed a double-digit margin level for the second half of the year, mechanically, given that we closed this one at 6%.

Okay. And what about the recovery of building permits?

Yes, this is -- will have more and more an effect on the level of revenue.

Yes, and on the margin itself.

The next question comes from Nicolas Tabor at Stifel.

Hello, again. Can you hear me well?

Hello, again.

Yes. Sorry, I had one more question. Just on the -- you mentioned your company and maybe other competitors will enter discussion with the government in how to have a rebound in the number of building permits. My question is, what can be done and is already known that could be done potentially other than just the [ preferred ] granting building permits for social housing, I mean? And how much can the President, I mean, be involved in the major territory when it could, let's say, trigger pullback from, let's say, some political parties and so on and it could be, let's say, difficult to manage? I mean what are the discussions? Where are you? And what can you already tell us?

I don't know what you can share exactly in terms of what is currently being discussed in the commission, Véronique, but if you want...

We are still in the first steps of the discussion, of course, but there is some pressure on us from the government to be able to reach some proposition at the end of September. There's, of course, always fiscal proposition. That's one part. There's something -- there are other propositions about the local municipalities revenues because with the suppression of la taxe d'habitation, new inhabitants doesn't -- don't give more revenue to local authorities, which is a very big problem for local authorities, and there are also reflection about simplification of the law concerning building permits. But I mean, all -- everything is on the table, and we still have to work on that and make priorities. I think that the effect of the [ Rep 7 ] commission, the first effect is that now the question of the building permit is becoming a political problem. And I can see -- I see mayors almost every week, as you can imagine. And they now feel the pressure from the inhabitants to get new housing. So I think that something is moving in the local authorities. So I hope that the rebound we saw in May will be stressing at the -- on H2. I think really, there's something happening there. I couldn't put real figures on that. But honestly, we saw permits -- we are seeing these days permits for significant operations coming back. So something's happening. I cannot tell you exactly the range and the strength of this movement, but something is happening. And maybe I could add something. I think the more I think about it, it's really about field work. It's -- I mean it's a culture at Nexity. We go, we see the mayors, their teams, we discuss with them. We have really incredible range of products. And we are very open to suggestion and I think it doesn't really -- it does really help us to get these famous permits at the end of the day. But it's really work. It's hard work. It's field work, it's groundwork, but that's what we are doing these days. And I'm taking my part in that work, honestly. The door is not -- and honestly, the doors of the mayor are not closed. You can go, you can see them and you can discuss with them. So...

Okay.

Maybe I could come back, sorry, sorry, Nadia, it's the end of a very, very long day. So on La Garenne-Colombes, I told you that the contract -- we have made the contract for the construction. I could add that we are below what we expected in our operations financial balance because I think it gives you an idea of how we build these operations, financial balances, generally speaking, at Nexity. I think we were prepared for what's happening here now. So it gives you an idea of what's happening on our main projects right now.

You mean notably in terms of construction costs for...

Construction costs. Yes. Yes.

Okay.

Do not underestimate our purchasing power, too. But I think it's a good example to give because it's a big contract.

Really great. Very sort of [ integral ].

So -- and well, we are below what we expected.

Yes. Probably the best example of our ability to anticipate this type of evolution.

We are a cautious company.

So I'm afraid looking at the IR team that we'll have to stop here. Maybe I will reiterate that we are very pleased with Véronique with this strong set of results already ahead of expectation. Congrats to all the teams that contributed to make those numbers happen, the teams on the field, the M&A team for the strategic review. If someone did not ask a question during this call, the IR team is here at your service as usual tonight and tomorrow. Have a good evening. Good luck for the marathon of the reporting season. And have a nice summer, everyone. Bye-bye.

And maybe, Nadia, if I can add something, don't remain stuck with figures you don't understand. The new scope is something difficult to understand. I can tell you, we spent a lot of time with Eric telling us everything about the figures. So if it's complicated for you, be reassured it was complicated for us. So don't remain stuck and just call us, and we will explain these figures again if you need us to do that. So good evening. Thank you very much for listening to us and being with us tonight. Bye-bye.

This concludes today's call. Thank you for your participation. You may now disconnect.