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Edited Transcript of AEVS.S earnings conference call or presentation 13-Sep-19 8:00am GMT

Half Year 2019 Aevis Victoria SA Earnings Call

Lausanne Sep 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Aevis Victoria SA earnings conference call or presentation Friday, September 13, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Antoine Hubert

Aevis Victoria SA - Delegate of the Board

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Conference Call Participants

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* Baptiste de Leudeville

Kepler Cheuvreux, Research Division - Equity Analyst

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Presentation

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Antoine Hubert, Aevis Victoria SA - Delegate of the Board [1]

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Thank you. Hello, everybody, and welcome to this press and analyst conference for the half year result of AEVIS VICTORIA.

As you know, this year -- this half year has been marked with the deconsolidation of our real estate company specialized in health care, Infracore. So we have a net profit of CHF 202.1 million. It's an important step toward a pure investment company strategy. We have been able to sell further participation in Infracore at a very good valuation, CHF 510 million net asset value, which value the Infracore at more than CHF 1 billion.

We have been able also, on the operating level, to improve EBITDAR margin on the hospital. EBITDAR margin on the hotel business in the first half year is not really representative because our activity is historically low in the first half year. 3.5%, anyway, of revenue growth in the 3 running hotels. As you know, Eden au Lac is still closed.

On the P&L, we have a turnover of CHF 545 million; among this, CHF 200.4 million other revenue, which is the disposal of the 61% stake in Infracore. The operational revenue had a really good growth at 10.3% to CHF 345.1 million mainly due to hospital. We also had a strong operational margin increase to 15.6%, thanks to the cost-cutting program and also the growth. The second half will show much lower interest expense, thanks to the deleveraging of the company.

If we go into the segments, we can see that the hospital segment has achieved an EBITDAR margin of 19%, which is a strong improvement from 17.2% last half year. EBITDAR margin in the hotel segment is stable. And on the real estate, you only have 5 months of consolidation from Infracore because it has been deconsolidated at 1st June 2019.

The balance sheet has been strongly improved with a decrease of the financial liability from CHF 1.08 billion to CHF 397 million, so the net debt has decreased from CHF 1.04 billion to CHF 363 million. Shareholder equity strongly increased also to almost CHF 600 million. And as the balance sheet has been reduced, so the equity ratio is 48.3% versus 24% in 2018. Leverage ratio has also decreased.

The organic growth decomposition, so total revenue have had an organic growth of 5.8%, the net revenue of 5.2% and EBITDAR has been improved 25%, so EBITDA has been improved 33.6% only with the organic growth.

We will have a change in the financing expense with the reduction of the debt. Interest of the repaid bond was almost CHF 4 million per year. And interest expense on the mortgage of Infracore, CHF 6.3 million, so it's a total of CHF 10 million less interest expense. So we're going from CHF 24.7 million to CHF 14.3 million interest expense. And this will be further reduced with the repayment of the bond in the next year.

Our strategy is always to invest in service to people, creating value in our participation, establish partnerships with other shareholder in the company. So we want in the future to focus on strong minority shareholding with influence on the strategy, but maybe less influence on the operating level, especially when the companies mature.

Our 3 focus sectors: so health care; hospitality and lifestyle; and infrastructure. In July 2019, we have sold our stake in iKentoo, the digital POS provider that we sold to Lightspeed.

We want to transform the company into a pure-play investment company. AEVIS VICTORIA is on this path with, as you know, the sale of 20% of Infracore in 2018, then 61% in half year '19. From 2019, we will pursue the growth on our operating company, but we are also looking to have other participants in each segment, other strategic investor that will consolidate with us their operation. The target is for AEVIS to have only minority shareholding to generate the combination in capital gain and annual return on dividends.

Health care. Swiss Medical Network, it's a 100% participation of AEVIS. We have 9 -- 18 hospitals. We now have 19 with the Belair Klinik in Schaffhausen. 22 health centers means developing the B2C strategy with a direct access from patients to our facility and to external medical centers. We currently have more than 2,000 physicians. They're all self-employed physicians on -- in Swiss Medical Network. The strategy is always to have independent doctors. Net revenue, CHF 269 million for the first half year. And intervention, 27,253 interventions in the first half year.

The strategy is a buy-and-build strategy and recruitment of new talent. I think we have been successful in acquiring new doctors in both German and French part of Switzerland. This is mainly due to our philosophy with the independent doctors. Doctors in Switzerland, physicians in Switzerland are feeling more and more pressure within the government hospital or by some of our competitor, and we always try to offer them the best equipment and the best platform to perform.

Acquisition of Klinik Belair will be a step in a new canton in Switzerland, canton Schaffhausen. Klinik Belair will be following a strategy close to the Clinique de Montchoisi strategy in Lausanne, focusing on a few specialty with a tailor-made service for the patients.

We have completed -- or almost completed the heavy renovation activity. Day hospital in Générale-Beaulieu has been opened in the first trimester. Clinique de Valère is currently opening this medical center. The radiology is already open and building up its activity. And the new hospital building for Villa im Park will be opening in December.

On the operating level, we have an organic growth despite TARMED tariffs. We are executing the cost-cutting strategy, which is bearing fruit. We will continue to improve our operating margin despite the decrease in some tariffs. And we have fully compensated the shift from inpatient to outpatient by paying through [the delivery] volumes.

In hospitality and lifestyle segment, so 400 rooms in operation, will be 40 additional rooms with Eden au Lac, 54,000 overnight stays for the half year, net revenue of CHF 29.2 million. We achieved an increase in the average room rate. We're still upgrading our offer, and so we're still able to increase this average room rate. Especially also this summer, we have been able to increase the average room rate, which is a very good sign because summer is becoming more and more important in Switzerland. 662 employees.

Highlights for last year. We invest in the hospitality segment, especially in Eden au Lac with a radical makeover. The technique has been completely rebuilt in this hotel. It's going to be really a state-of-the-art facility, and we are very confident that it will be a successful hotel, an iconic hotel in Zurich. We also decided to brand it La Réserve because the service offering will be in line with the La Réserve Hotel in Paris, Geneva and Ramatuelle.

We expect CHF 20 million revenue in La Réserve, as Eden au Lac Zurich. Medium term means after 3 years of activity. We also have a very attractive acquisition pipeline, and we will be able to grow this hospitality segment. We aim to be the first hospital operator in Switzerland next year.

The result of the modernization program in Victoria-Jungfrau is visible in the average room rate increase that we have. Bellevue Bern, we have a new lease agreement with the Swiss Confederation, which will improve our operational result. And also, the lease has been renewed, and that means that we are in the Bellevue for the next 20 years. A strong increase also in average room rate at the Bellevue.

Infrastructure. So as you know, Infracore is now a 19% participation of AEVIS. Infracore has begin to go into public markets. We have several discussion with some cantons about helping them to improve their hospital infrastructure. And we are really confident that Infracore will achieve this diversification into public market within the next year. As we explained, we saw 20% in Q4 '18 and 61% in Q2 '19, and we plan to stay between this 19% and 30% in the future. The capital gain on the disposal of Infracore was CHF 193.8 million for AEVIS in '19.

In the infrastructure segment, we have 2 other companies. So Swiss Hospitality Properties, this company is meant to grow with further acquisition in hotels building. And as you know, Immobilière, this is the real estate company for the Clinique Générale-Beaulieu in Geneva. And there's a lot of remodeling and change in this clinic. We also plan to merge our radiotherapy activity in Geneva with the Générale-Beaulieu. Actually, the radiotherapy is [Le Manoir] in Geneva, and we are going to move this radiotherapy into the Générale-Beaulieu to be able to offer a state-of-the-art oncology center -- cancer center in Geneva. Highlights for this half year. So heavy CapEx activity in Zurich and also in Générale-Beaulieu Immobilière.

The outlook for '19 and '20. So we will still actively invest in health care, hospitality and lifestyle. We will probably also invest in some new companies. We will, in the future, focus on investing a substantial minority stake in strategic company with a strong growth potential.

Infracore is well positioned for -- to be a health care infrastructure platform in Switzerland.

Swiss Medical Network, with 19 hospitals now, has a very strong position in Switzerland. We also try to lead the change in the health care system in Switzerland with our political and economical influence.

And in the hotel segment, we plan to have a few acquisition and to be also a consolidator of the hotel industry in Switzerland, focusing on very attractive destination like Interlaken and Zurich, and we will increase this segment in the future. We have an attractive pipeline on both opco and prop opco -- propco level.

So thank you. This is the end of the presentation, and I'm awaiting your question.

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Questions and Answers

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Operator [1]

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The first question is from [Andreas Trilling].

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Unidentified Analyst, [2]

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My first question, what would be a normalized EBITDA this year without the Infracore, without the Infracore contribution?

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Antoine Hubert, Aevis Victoria SA - Delegate of the Board [3]

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What would have been the normalized EBITDA?

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Unidentified Analyst, [4]

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Yes. Yes, for this year.

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Antoine Hubert, Aevis Victoria SA - Delegate of the Board [5]

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So you have all the detail in the segment reporting, so I think it's really easy to see the EBITDA on the segment reporting.

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Unidentified Analyst, [6]

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Okay. So in other words, what was the contribution from Infracore for the first 5 months? It was still consolidated, correct?

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Antoine Hubert, Aevis Victoria SA - Delegate of the Board [7]

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Yes.

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Unidentified Analyst, [8]

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So what was the EBITDA without the Infracore contribution for the first half?

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Antoine Hubert, Aevis Victoria SA - Delegate of the Board [9]

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As I say, you have everything in the -- you have all the detail in the segment reporting.

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Unidentified Analyst, [10]

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Okay. Sorry, I can't see it. But maybe the second question, the total proceeds from the Infracore sale was almost CHF 400 million, correct?

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Antoine Hubert, Aevis Victoria SA - Delegate of the Board [11]

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The total proceed was -- so the total proceed was CHF 200 million in half year.

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Unidentified Analyst, [12]

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The cash inflow, the cash inflow from the Infracore sale last year and this year?

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Antoine Hubert, Aevis Victoria SA - Delegate of the Board [13]

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So last year was 72 -- last year was CHF 72 million, and this year, it was CHF 200 million.

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Unidentified Analyst, [14]

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CHF 200 million. So that makes the total cash inflow from CHF 272 million?

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Antoine Hubert, Aevis Victoria SA - Delegate of the Board [15]

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Yes.

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Unidentified Analyst, [16]

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Okay. But that means without the sale of Infracore, given the cash available, there would have been a liquidity shortage, correct?

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Antoine Hubert, Aevis Victoria SA - Delegate of the Board [17]

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No.

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Unidentified Analyst, [18]

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Why no?

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Antoine Hubert, Aevis Victoria SA - Delegate of the Board [19]

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As you can see also on the slide, at the end of '18, we had more than CHF 200 million cash available.

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Unidentified Analyst, [20]

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Yes. Yes. You have now more or less CHF 270 million, a bit less than CHF 270 million cash available?

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Antoine Hubert, Aevis Victoria SA - Delegate of the Board [21]

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Yes.

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Unidentified Analyst, [22]

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And you got more than CHF 270 million cash from the Infracore sale, so that means that would have been a liquidity shortage with that sale.

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Antoine Hubert, Aevis Victoria SA - Delegate of the Board [23]

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No, that was not mean that -- we had a line of credit and the liquidity and have to repay the bond in 2020. So there was no liquidity shortage.

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Unidentified Analyst, [24]

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Yes. But there would have been a liquidity shortage without the Infracore...

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Antoine Hubert, Aevis Victoria SA - Delegate of the Board [25]

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No, no, no, because we added those line of credits to be able to repay this. As you see on the slide, we had enough credit line to repay the bond without selling Infracore.

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Unidentified Analyst, [26]

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Yes. Cash reserves and credit available -- credit lines available are less than CHF 270 million now?

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Antoine Hubert, Aevis Victoria SA - Delegate of the Board [27]

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The repayment was CHF 145 million, and we had more than CHF 200 million credit line and cash reserve. So the sale of Infracore means that after repayment of the bond, we still have cash and credit line. Without the sale, we would have less cash and credit line reserve after the repayment, CHF 145 million left. So that means instead of CHF 260 million cash, we would have CHF 110 million cash this available without the sale of Infracore.

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Unidentified Analyst, [28]

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No, I don't see that in that way.

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Antoine Hubert, Aevis Victoria SA - Delegate of the Board [29]

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Okay. So maybe for the next question?

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Operator [30]

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At the moment, there are no further questions. (Operator Instructions) We have another question. It is from Baptiste de Leudeville, Kepler Cheuvreux.

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Baptiste de Leudeville, Kepler Cheuvreux, Research Division - Equity Analyst [31]

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It's Baptiste de Leudeville from Kepler Cheuvreux. A question -- just a quick question on the potential financial distribution of the Klinik Belair on an annual basis or from the date of consolidation. What can we expect in terms of revenue margin and bottom line, if you want to communicate on this?

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Antoine Hubert, Aevis Victoria SA - Delegate of the Board [32]

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So as you know, the Klinik Belair was planned to be closed by Hirslanden because of the departure of a group of surgeons. So the activity of Belair will decrease something like 40% in the beginning. And we plan to compensate this loss of activity with new surgeons and also surgeons that who are active in our Lindberg clinic and Winterthur. As you know, Lindberg is not on the list, hospital list, so those surgeons are currently doing their surgery procedure for bid interest in other hospitals. So they're working in canton hospital Winterthur or other hospital around Winterthur. And with the Klinik Belair, we will be able to offer them a plateau for the base insured within 25 minutes of clinic Lindberg and within our group.

So we think that we will be able to compensate the loss within 18 months. That means that Klinik Belair, we plan to produce at Klinik Belair between CHF 25 million and CHF 30 million revenue on a normalized activity in the future.

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Baptiste de Leudeville, Kepler Cheuvreux, Research Division - Equity Analyst [33]

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Okay. I understand. CHF 25 million, CHF 30 million, increasing speed, and you have something like 18 months, 2 years ramp-up to put it in an increasing speed activity?

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Antoine Hubert, Aevis Victoria SA - Delegate of the Board [34]

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Exactly. And there is no CapEx needed because this hospital has been heavily refurbished 3 years ago by Hirslanden.

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Baptiste de Leudeville, Kepler Cheuvreux, Research Division - Equity Analyst [35]

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Okay. Just maybe another question. How do you explain the differences of resilience and performance you have with AEVIS VICTORIA as have been with Hirslanden? Is that the business model? Is that the patient mix? What are the main -- 2, 3 main reasons that explain this difference in performance?

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Antoine Hubert, Aevis Victoria SA - Delegate of the Board [36]

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So first, we have lowered our overheads, and we have a very lean organization. They have around 600 people working at the group level. A decision can be taken by the hospital directors. So we have a hierarchy which facilitates the relation with the doctors because our managers are able to respond very quickly to physician demand. That makes us very attractive. And we have stake to the [Belair's] model, so the self-employed model. We have no hybrid situation like in Hirslanden where there is a mix of employees, doctors and external self-employed doctors, which is a competition. There is a competition between these 2 groups. So I think a better positioning or clearer positioning in the relationship with the physician and the doctor which makes them coming to our facility, and this is driving the growth.

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Baptiste de Leudeville, Kepler Cheuvreux, Research Division - Equity Analyst [37]

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And could you -- do you think their situation is quite tricky and difficult at the moment? You could take advantage of it for further acquisition in the Hirslanden network.

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Antoine Hubert, Aevis Victoria SA - Delegate of the Board [38]

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At the moment, there's no discussion for further acquisitions. But we would be, of course, interested in any further development. And important for us is that the private sector in health care remain strong and present in the whole Swiss territory.

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Baptiste de Leudeville, Kepler Cheuvreux, Research Division - Equity Analyst [39]

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And the last question on cost-saving plan. You said last year, you were aiming for something like around CHF 30 million cost savings. I would like to know what is -- where are you? What is the investment regarding this plan? Or should we see it like more a continuous effort than a radical plan, specific plan?

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Antoine Hubert, Aevis Victoria SA - Delegate of the Board [40]

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I think we have a specific plan, but the conditions are changing really quickly also on the regulation, so we have to adapt this plan, especially on the material, medical material. So the way to build the material in TARMED has changed. We have no more margin on these materials, so we have to compensate that in other ways. So it's a mix between an established plan and a continuous improvement, but we have to adapt. I mean every quarter, we have to adapt our plan to the moving regulatory environment.

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Operator [41]

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The next question is from [Leslie Carounta].

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Unidentified Participant, [42]

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I'm from the news agency, AWP. I have a question about the outlook. Could you please develop on this point? What do you expect for 2019 in terms of revenues and margin?

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Antoine Hubert, Aevis Victoria SA - Delegate of the Board [43]

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No, we don't publish any forecast, but the second half year is usually stronger than the first half year in both hospitality and hospital segments. There will not be any acquisitions, so the growth will be only organic growth between the first half year and second half year, except the Belair, which will be consolidated in the last quarter. In terms of revenue, I think the growth through acquisition will be only in 2020.

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Operator [44]

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There are no further questions. I would like to hand back to you, Mr. Hubert.

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Antoine Hubert, Aevis Victoria SA - Delegate of the Board [45]

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Okay. Thank you very much, and I'm always available if you want to have a one-to-one discussion. Especially for Mr. Gilles, if you want a meet and go through every detail in the P&L and the balance sheet, there is an open invitation.

Thank you very much for attending this teleconference, and I'm pleased to see you or hear you next time for the next half year. Thank you.