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Edited Transcript of BVI.PA earnings conference call or presentation 24-Feb-17 2:00pm GMT

Thomson Reuters StreetEvents

Full Year 2016 Bureau Veritas SA Earnings Call

Paris Feb 24, 2017 (Thomson StreetEvents) -- Edited Transcript of Bureau Veritas SA earnings conference call or presentation Friday, February 24, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Didier Michaud-Daniel

Bureau Veritas SA - Group CEO

* Nicolas Tissot

Bureau Veritas SA - Group CFO

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Conference Call Participants

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* Will Kirkness

Jefferies - Analyst

* Denis Moreau

UBS - Analyst

* Robert Plant

JPMorgan - Analyst

* Toby Reeks

Morgan Stanley - Analyst

* Paul Sullivan

Barclays Capital - Analyst

* Emira Sagaama

Oddo Securities - Analyst

* Josh Puddle

Berenberg Bank - Analyst

* Aymeric Poulain

BofA Merrill Lynch - Analyst

* Joel Spungin

BofA Merrill Lynch - Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's Bureau Veritas full-year 2016 results conference call. A live broadcast of the call is also available on the finance website of Bureau Veritas.

(Operator Instructions) I must advise you that this conference is being recorded today, Friday, February 24, 2017. Your host will be Didier Michaud-Daniel, Group CEO of Bureau Veritas, and Nicolas Tissot, Group CFO.

Before I hand it over to your hosts, let's start with a short video on Bureau Veritas. (video playing)

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [2]

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Good morning, good afternoon, and good evening. Thank you for joining Bureau Veritas full-year 2016 results. 2016 proved to be a resilient and proactive year despite the challenging commodities and shipping markets.

The global transformation of the Group based on our 2020 strategic plan is well underway, having taken the necessary steps to streamline the organization, increase our commercial development, and align our focus to execute more efficiently. Already six out of our eight activities delivered positive growth in Q4.

The year closed with growth and profitability in line with our latest guidance, with an improving trend in organic growth in Q4. A 7.8% increase for full-year 2016 dividend to be proposed at the AGM in May 2017 reflects our confidence in the future.

Going further on our highlights for the year, revenue for the year was up 1.4% at constant currency. Organically, we ended 2016 with a slight negative growth of 0.6%; however, on improving trends in Q4 at minus 0.3%. In the last quarter, six out of eight businesses showed positive organic growth.

Our adjusted operating margin stands at 16.2% within the latest guidance of 16% to 16.5%. Margin is down 55 basis points year over year, 25 basis points organically.

The impact from cyclical markets was partially mitigated by operational excellence. We continue adapting our cost base with EUR42.6 million of proactive restructuring booked in 2016. Our cash conversion remains high despite that our free cash flow is lower, due to working capital movement and specific one-offs.

Looking at the Q4 2016 performance, three businesses are up 5% to 6%. 73% of the Group's revenue is growing organically. The chart shows that the businesses which have been impacted are the ones exposed to assets oil and gas and metals and minerals.

BV is strengthening its transformation journey. First, since January 2017 BV has opted for a more streamlined executive committee, which gives us more agility and clearance to implement the transformation. This is accompanied by a change of external reporting to further align with our markets and (inaudible) organization.

Second, the Group has made a full assessment of its growth initiatives and is now focused on the most performing and the ones with the most potential for growth. Third, our midterm ambition is intact; however, we foresee it will be delayed by one year overall due to cyclical headwinds in oil and gas and marine activities.

Nicolas will now take us through the financial review.

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Nicolas Tissot, Bureau Veritas SA - Group CFO [3]

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Thank you, Didier. Starting with the revenue bridge, the Group's full-year 2016 revenue came in at EUR4.55 billion, down 1.8% versus 2015. Organic growth was slightly negative at 0.6%. Acquisitions contributed 2% to Group growth.

ForEx had a 3.2% negative impact. This is mainly due to the depreciation of emerging countries currencies against the euro and the British pound.

At constant currencies, revenue is up 1.4%. In fact, we have completed nine acquisitions in 2016, which represent EUR124 million of annualized revenue. This is an acceleration from last year when we acquired EUR80 million of annualized revenue.

All the acquisitions carried out in 2016 are supporting our growth initiatives in targeted markets and geographies. As an illustration, two of these acquisitions, DTS and KMA, have accelerated our development in agri-food. In 2017, we have started the year adding EUR60 million of annualized revenue with two acquisitions, SIEMIC at the end of January and Shanghai Project Management, which closed this week.

Moving on to slide 10, we see that two-thirds of the Group grew organically in 2016, ranging from low to mid single-digits. This explains the resilience of our overall performance as one-third of the Group revenue base declined.

Businesses exposed to the oil and gas and shipping market cycles are down in 2016 with the industry segment the most affected. In Q4 we saw improving trends with 73% of the Group posting positive organic growth.

Slide 11 shows that growth initiatives delivered EUR80 million contribution, offsetting the negative impact from activities in a down cycle mainly coming from the oil and gas CapEx activities. Growth initiatives contributed to the performance of the commodity's certification, construction, IVS, and consumer products businesses, which Didier will specifically comment on during the business review.

Reviewing the other key financial metrics on slide 12, the most important items are the adjusted operating profit, which is at EUR734.9 million. Our margin remains at the high level at 16.2%, down 25 bps organically. Without GSIT, our smallest business, with 5% of total revenue, margin is flat.

Net profit is up EUR319 million, up 25% year on year in the absence of goodwill impairment, compared to 2015. The adjusted EPS is EUR0.94, down EUR0.02. At constant currency, we reached the EUR1 per share mark. I will comment on cash flow on that later in the presentation.

Adjusted operating margin year on year, four businesses out of eight are either posting improved or flat margins in 2016 versus 2015, but this is more than offset by lower margins in businesses exposed to a down cycle, leading to a 25 bps organic decrease. This limited decline also reflects that our proactive cost management and the excellence at BV programs are paying off.

Two other elements negatively impacting the group margins: acquisitions, 10 bps, and currencies, 20 bps.

Here on slide 14, the nonrecurring items, which are the lines between the operating profit and the adjusted operating profit. In 2016, the amortization of intangibles includes EUR9.6 million of accelerated amortization of customer relationships for two subsidiaries in the Americas.

Regarding restructuring, we have booked EUR42.6 million of charge, mostly across our oil and gas and metals and minerals related businesses, including GSIT and more recently in marine. There are essentially workforce adjustments with a rapid payback. Conversely to 2015, we have no goodwill impairment in our accounts. As a result, operating profit reaches EUR609.7 million.

Moving to slide 15, net financial expenses are slightly down by EUR2.8 million. On one hand, we have some ForEx gains linked to the accounting impact of currency movements on the balance sheet of some of our subsidiaries in emerging countries. On the other hand, we have a lower financial income due to low interest rates and an increase of financial charges in 2016.

The explanation for this is mainly the increase of our average net debt and, to a lesser extent, the impact of the anticipated refinancing of the May 2017 bond with very attractive conditions. The impact of this operation will be fully felt from May 2017, but our cost of debt is already down from 3.7% to 3.4%.

On the tax rate, the adjusted effective tax rate of the Group, which is the adjusted -- which is adjusted for the nonrecurring items of the operational profit, ended at 34.6%, which is down 2.4 points compared to 2015. This is primarily a reflection from less tax one-offs in 2016.

We expect our 2017 adjusted ETR to be similar to 2016, in the 34% to 35% range. This does not take into account changes that might come from the 2017 French presidential election and the US potential tax reform.

Turning to slide 17 on the cash flow, our operating cash flow is at a solid EUR594 million. The main moving part compared to last year is the change in working cap, which shows an outflow of EUR37.2 million compared to an inflow of EUR48.5 million in 2015. This is mainly driven by more difficult cash collection for activities in downturn, such as oil and gas and metals and minerals, and to a lesser extent, to the date of the Chinese New Year in 2017.

In addition, as flagged in our H1 results communication, most of the rest of the working cap movement results from the change of payment timing of some indirect taxes and social contributions in France.

Net CapEx stands at EUR145.9 million. This represents 3.2% of revenue, within our usual low capital intensity range of 3% to 3.5%. Free cash flow was at EUR362.5 million, below last year's record level, impacted by working cap change, restructuring cash out, and one-off cash items. Adjusted from restructuring cash out and one-off tax items, free cash flow was at EUR405 million, which represents a 99% cash flow conversion ratio.

Lastly, a word on our financial structure. The adjusted net debt ended at EUR2 billion, a EUR133 million increase from year-end 2015. The acquisitions completed in 2016 and earnouts from prior years' acquisitions represent EUR205 million.

A EUR255 million dividend was distributed last May. We spent EUR42 million on share buyback to cover the LTIPs of BV managers. On the right side of the slide, the net debt to EBITDA ratio stands at 2.2 times, down from 2.4 times at the end of H1 and well below our 3.25 times bank covenant.

The financing of the Group is secured with the reimbursement of the May 2017 bond already completed, the next important maturity not being before 2019.

Thank you for your attention. Didier will now continue with the business review.

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [4]

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Thank you, Nicolas. 2016, we start with marine offshore, was a mixed year. After a robust H1 2016, revenue performance turned negative in H2.

In new construction, which represents 41% of marine and offshore 2016 revenue, the overall weak market environment for newbuilds, especially in Asia, impacted our performance. The new order intake for the year represented 1.9 million tons compared to 6.9 million tons one year earlier.

Revenue for the in-service ship segment, 59% of marine and offshore 2016 revenue, was down. On the positive side, the Group saw an increase in the fleet class in 2016. At the same time, it was impacted by a rise in the number of ships which were put in layup and a double-digit fall in services for offshore clients.

Despite this setback, we maintained our margin slightly above 25%. For 2017, the market environment will remain challenging for categories such as bulk carriers and container ships, partly offset by more positive activity in passenger ships. The in-service ship segment is expected to prove resilient, with the exception of the offshore market, which is more sensitive to fluctuations in oil prices. New regulations will be supportive of the in-service marine revenue growth.

This slide puts into context BV's marine performance in the current shipping market downturn, which, on the positive side, demonstrates our strong resilience through the cycles.

Turning to IVS, the business delivered a good organic revenue growth of 3.5% in 2016. Growth proved resilient overall, despite slowing in Q4 on the back of a tough comparison basis, particularly in France and in the UK. The business continued to gain ground in the rest of Europe. High single-digit growth was achieved in Latin America and in the US.

On BV 2020 strategic initiatives, we delivered robust growth for both OpEx and building and infrastructure initiatives and strong commercial wins with key clients such as Nike or Starbucks. Our underlying margin was slightly up.

The business should continue to grow in 2017 thanks to commercial developments in selective regions and an increase in voluntary inspection activities, particularly in Asia.

On construction, the business delivered 1% organic growth in 2016, reflecting flat growth in the Group's main regions: Europe, 42% of construction revenue, and Asia, 32% of construction revenue, largely offset by an upturn in the Americas.

Two countries that should be mentioned: France, 37% of revenue, was penalized by high comparison base due to regulatory drivers that boosted OpEx activities in H2 2015, energy efficiency, and access for disabled people regulations. On a more positive note, in France CapEx-related activities are trending up, but it is not strong enough yet to drive growth overall. This will be the case in 2017.

China remained under pressure during 2016 owing to its exposure to oil and gas projects that returned to growth in the last quarter. On BV 2020 strategic incentives, we have made great headway in new digital solutions developed in the field of 3D modeling. Looking ahead, market trends on the Group's order book points towards growth in France for 2017. Construction business is also expected to prove upbeat in the US and Asia, particularly in China, where we completed several acquisitions.

Moving to industry, industry business was down 9.7% on an organic basis in 2016. Oil and gas CapEx, which is a fourth our industry business, declined by 20%. We were able to offset part of this growing in OpEx-related activities.

Excluding oil and gas, the situation is a mixed picture due to the negative impact of nuclear CapEx contract ending in Argentina. Margins are holding at 13.1%. Cost reductions contributed to offset the price pressure from oil and gas.

On BV 2020, there are a number of OpEx wins that demonstrate the effectiveness of our strategic initiatives. In 2016, OpEx oil and gas and power and utilities were up mid to high single-digits.

Looking at the next slide, this slide is basically the rationale of our 2017 outlook. Oil and gas CapEx market is not going to rebound in 2017 due to the current oil price. We will bottom out in this activity in H2 2017.

In this context, we decided to grow our OpEx activities. As demonstrated on the right-hand side of the slide, our strategy is working as OpEx is now bigger than CapEx.

Certification is our top-performing activity in 2016, with organic growth of 6%. All major service categories are improving from 2016, particularly thanks to new schemes in training activities and certification for the agri-food and transport segments. In 2017, the business will remain well-oriented with new services under strong support from brand protection theme.

Regarding BV 2020, we are rolling out our e-commerce platform, which enables our mass-market clients to order their certification directly from the web. This is a very efficient way to touch a large customer base; quite unique in the industry.

Turning to consumer products, revenue moved up 3.8% organically. In 2016 we saw second semester [showing] mid single-digit growth. We had strong growth in soft lines and E&E growth accelerated in 2016.

Automotive has a tremendous potential. Our unique expertise in SmartWorld is a strong advantage as connectivity will now play a crucial role in cars. We will accelerate in this sector.

Margin for the year declined 110 basis points, reflecting on negative currency and scope impact. In 2017, the business should grow at least in line with 2016 with a good momentum in soft lines and a boost from SmartWorld and automotive incentives.

Moving on to GSIT, 2016 was a tough year, contingent on commodity price trends as well as the geopolitical situation of the countries in which we operate. The adjusted operating margin was sharply down, owing to the decrease in business volumes on contracts with a significant fixed cost base.

In 2017, GSIT will come back to positive growth depending on the evolution of commodities pricing. Commodities had a positive growth at 2%, lifted by our agri-food business, which grew double-digits in 2016.

We outperformed market growth in oil and petrochemicals with new services and new locations. We saw some recovery in metals and minerals with a rebound in upstream activities in the second semester.

Margins gained 70 basis points thanks to the upswing in upstream activities and we are quite confident they are on track to recover. As part of our 2020 initiatives, we have made two strategic acquisitions in the agri-food space: DTS in Australia, which is a gateway to an expansion in Asia; KMA in Brazil, which is one of the biggest agricultural markets in the world.

We see that commodities have returned to more dynamic market conditions. In 2017 we expect oil and petrochemicals and agri to continue to grow with overall positive growth in the business.

Our outlook for 2017: thanks to a diversified portfolio and the ramp up of our growth initiatives, the Group expects organic revenue growth to be slightly positive, accelerating in H2, with some adjusted operating margin to be maintained at circa 16%. The Group also expects its cash flow generation to improve compared to 2016.

To further accelerate our plan, we have streamlined the executive committee from 16 to nine members, plus I have nominated a Senior Executive Vice President, Philippe Donche-Gay, to drive the implementation of BV's transformation plan. We have this idea to focus on five growth initiatives presented on slide 34.

After a year into the 2020 plan, the Group conducted a full reassessment of its growth initiatives based on a more in-depth review with the market leaders now in place within the organization. Factoring in recent market dynamics -- oil and gas and marine down cycle essentially -- the contribution and the potential of each of the eight growth initiatives unveiled as part of its 2020 ambition, Bureau Veritas has decided to focus its development efforts on five initiatives going forward: building an infrastructure; OpEx in specific sectors, oil and gas, power and utilities, and chemicals; agri-food; automotive;, and SmartWorld.

Representing around 30% of Group revenue, these five initiatives should generate incremental revenue from 2015 to 2020. They will bring the growth and the diversification the Group is seeking.

Let me be clear. This is an important point. Three initiatives are going back to the base business. Marine and offshore is going through a challenging market environment. This business will still deliver very high operating margin. Certification is doing very well, plus 6% organic growth in 2016, and will continue to deliver in the coming years. This is a business that requires local negotiations.

Adjacent retail and mining has to be stimulated locally. This is about cross-selling within existing client relationships on a local basis.

A word on the evolution of our new segment profit reporting. As of January 1, 2017, the Group will report its results under six businesses: marine and offshore; agri-food and commodities; industry; building and infrastructure; certification; and consumer products. This is a reflection of the market-centric approach adopted internally in 2016, so basically a better alignment of our external reporting with our new organization and with our 2020 strategic plan.

This change will also simplify the reading of the Group's portfolio. You will have a dedicated slide in the pack with further data to update your models.

On the BV 2020 strategic plan, our initial ambition is intact: enhancing the Group's growth profile, resilience, and profitability in the medium term to the long term. This relies on: first, five growth initiatives; second, maintain focus on two countries, namely the US and China; third, four main levers: human resources, account management, excellence at BV, and digitalization.

Due to market headwinds in some activities, namely oil and gas and marine, we expect the timing of our plan to be delayed by one year overall. By 2020 we aim to return to a 5% to 7% organic revenue growth, add around EUR1.5 billion to group revenue, achieve an adjusted operating margin above 17% in 2020, and continuously generate a high free cash flow.

As a wrap up, we expect to return to positive organic revenue growth in 2017 attributed to a combination of stabilization in the commodities divisions and, more importantly, the ramp up of our growth initiatives. We are strengthening the Group transformation to execute BV 2020 plan.

Our midterm ambition is maintain with a delay of one year. However, we do expect to return to 5% to 7% organic revenue growth by 2020.

This concludes our presentation for today. We are now ready to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Will Kirkness.

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Will Kirkness, Jefferies - Analyst [2]

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Good afternoon. A few questions, please. First, I just wondered if you could talk about the impact on growth from the initiatives. It looks like it was over 2% in the first half, but less than 1% in the fourth quarter, maybe 0.5%. I'm not sure if I've got the math right there.

And secondly, if you could just talk about the guidance in fiscal 2017. It sounds like the growth is going to be second-half weighted, but would you still expect the first quarter to be positive on an organic basis? Thank you.

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [3]

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Thank you for your question first. So about your first question, the impact on growth from these initiatives is EUR80 million in 2016. Of course, as you know, the market was very challenging with the -- in particular the offshore market, which was one of our initiatives, so we could add up EUR8 million because there was a deterioration on this initiative. So we could call on EUR88 million.

What is probably interesting for you to know is the fact that the five initiatives that we have decided to select are up 5% in 2016.

Regarding now the guidance in 2017, we imagine -- we don't of course give quarterly guidance or even semester guidance, but the first part of the year should be broadly stable, accelerating in H2.

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Will Kirkness, Jefferies - Analyst [4]

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Thanks very much.

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Operator [5]

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Denis Moreau.

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Denis Moreau, UBS - Analyst [6]

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Denis Monroe, UBS. Good afternoon, everybody. I have a couple of questions on my side.

The first one relates to the change in the executive committee, which I find very interesting as it can allow you to become more agile going forward. I would like to know if it will be followed by any change in the LTIP or the key criteria to incentivize management going forward. And if you expect some change, several changes in the management team from those who have been demoted out of the executive committee to leave.

My second question relates actually to the impact of the currencies on the profit margin in 2016. Could you perhaps give a bit more details on that, on the divisions that have been most affected? For example, how much of the 110 bps decline in consumer is due to ForEx, for example? Thank you.

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [7]

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I'm going to go through your first question and, Nicolas, maybe you will take the second one.

On your first question, it's true that I have decided to go from 16 people around me in the executive committee to nine. And you're totally right; it's just because by this way we can be more agile on top of it. Of course, by being nine people leading this company we are going to be fully aligned on the implementation of the strategy.

We have decided also to appoint someone with a Senior Executive VP, Philippe Donche-Gay. He is today in charge of the marine and offshore division and before he was in charge of the industry and facilities business. So he knows the companies very well and is going to help me to strengthen the implementation and the execution of the plan.

We have also decided to redistribute geographical of course organization and I'm sure that by doing it we are going to accelerate the execution. Maybe, Nicolas, you would answer the second question regarding the profit margin?

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Nicolas Tissot, Bureau Veritas SA - Group CFO [8]

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Sure. The short answer to your question on which divisions are the most affected in terms of ForEx negative impact, it's mainly impacting consumer products, on the one hand, and also M&O. Of course as you know, we basically measure performance at constant currency because this is really the way we want to measure and motivate our managers.

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [9]

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Maybe I should come back on your question. Your first question was also about the incentive for the management team. We have decided -- you may remember and we discussed that before. The incentive was for 50% of it on the operating profit and 10% on cash flow. Now we have 40%, which is going to be linked to organic growth.

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Denis Moreau, UBS - Analyst [10]

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All right, thank you very much.

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Operator [11]

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Robert Plant.

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Robert Plant, JPMorgan - Analyst [12]

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Good afternoon. With oil and gas CapEx, it was down 21% in the first three quarters, down 20% for the year. So was Q4 a bit better than Q3? And can you give us the geographic split of oil and gas CapEx, please?

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [13]

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So your point was totally right. Q4 was a little bit better, but we are still working on one -- in fact, on two big projects which are going to end in H1 this year. Geographically, of course, we are impacted mostly in Brazil, Colombia, and in the US. They are the three geographies which have been impacted negatively because of the oil and gas CapEx in 2016.

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Robert Plant, JPMorgan - Analyst [14]

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Could you give us the proportions around the world roughly of how big you are in different regions, please?

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [15]

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We could probably give you proportions. Of course, we were quite big in Brazil. As you may know, Petrobras was one of our top clients in the past, also quite exposed in Brazil. But, of course now, as most of the CapEx were cut off just two years ago already, we do not have any more.

And of course, the second country in Latin America is Colombia, where we had quite also nice business in CapEx and the national oil company in Colombia has decided also to stop its investment.

And the last one is in the US. It's difficult to give you the pure proportion, but it's probably -- if you accumulated the US (inaudible) the US and Latin America you are at 80% percent side of the total.

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Robert Plant, JPMorgan - Analyst [16]

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Okay, thanks.

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Operator [17]

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Toby Reeks.

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Toby Reeks, Morgan Stanley - Analyst [18]

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I've got three questions, if I can. First of all, a couple on the strategic targets. Has the strategic margin target changed from 17.5% to above 17%? And if so, where have you assumed margins are going to be lower?

Then a second one on strategic targets as well. I think the original incremental revenue being targeted was EUR2 billion and now it's EUR1.5 billion since 2015. When I look at the strategic initiatives, there's obviously been some tweaking around with those -- the expected revenue that can come from those. Can you talk a little bit about that? Am I right in thinking that has changed and can you talk about why?

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [19]

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In fact, to be very simple, it has been delayed by one year. In fact, we are now looking at -- and you're right; at EUR1.5 billion more in 2020 and above 17% in margin. Of course, this is coming from the fact that when we worked on this plan, we did not anticipate what is happening now with the marine market, which has been clearly affected last year. And we do not know when this market is going to recover.

The second point you need to take into consideration is, of course, the commodities headwinds that we have notably this year, oil and gas and, of course, metals and minerals. So when you think about it, we thought that in 2016 our organic growth could have been higher if for not these two major headwinds. It's the reason why we delayed this plan by one year. But, again, we should be above 17% of margin in 2020 and actually EUR1.5 billion more.

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Toby Reeks, Morgan Stanley - Analyst [20]

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If I look at the growth initiatives, like building and infrastructure, where I think you are guiding to now EUR350 million to EUR400 million, for example, that was EUR540 million by memory. And so it's not just the sort of more commodity-driven bits which seem to have changed. Can you talk about that or am I barking up the wrong tree?

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [21]

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If you think about the building and infrastructure, of course, as you know we made some acquisitions in China which are going to impact positively our results in the near future. And we have also decided to be clearly more, let's say, proactive on the infrastructure part, so it should help us to achieve this organic growth initiative in 2020.

As you can see on the slide, we give you a range and we hope on this initiative, which is already going very well, that we will achieve this number in 2020.

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Toby Reeks, Morgan Stanley - Analyst [22]

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The final one is net debt basically been increasing and the leverage has been increasing since 2009 as part of the lower revenue target. Does that relate to M&A at all?

And can you give some thoughts on capital structure now? What level of net debt and EBITDA you want to maintain going forward? And should we be expecting it to go above the 2.2 times and what does that mean in terms of the flow of M&A going forward? Thank you.

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [23]

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Nicolas, if I may, on the --?

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Nicolas Tissot, Bureau Veritas SA - Group CFO [24]

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Sure, Didier. On the M&A component of this EUR1.5 billion of growth, we plan to deliver by 2020 incremental revenue for the Company compared to 2015. We have clearly still a component of M&A that we target now at around EUR800 million, so this is the M&A component you should include in your vision of the evolution of the financial structure.

And we feel that with the high level of cash flow generation, we expect this is absolutely something we can absorb without changing significantly the credit profile of the Company over the period of the plan.

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Toby Reeks, Morgan Stanley - Analyst [25]

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Okay. But you would be -- so what level of net debt to EBITDA are you expecting to reach? Are you expecting to maintain the current level? Just so we can get an idea of what sort of expenditure you are planning.

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Nicolas Tissot, Bureau Veritas SA - Group CFO [26]

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Yes, yes, absolutely. We would remain within the same kind of range, well below our covenant of 3.25 times that we have shown. And that is always the reference for us.

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Toby Reeks, Morgan Stanley - Analyst [27]

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Thanks very much, guys.

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [28]

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Maybe we could take -- I don't know if there is a question. Sorry, guys, you will have the opportunity to ask more questions. I just would like to see if there is a question from the platform, the web platform.

There is one question which is what were the organic growth in 2016 for your five refocused growth incentives? I think Nicolas gave this answer already: it's around 5%. It's 5% growth in 2016.

And here's a question from what I could say the floor.

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Operator [29]

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Paul Sullivan.

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Paul Sullivan, Barclays Capital - Analyst [30]

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Good afternoon, everybody. Just firstly on industry, can you quantify the drag from the contract losses of contracts rolling off for this year and any implications on margin? That's the first question.

Secondly, on marine. Is it still your expectation of sort of a high single-digit decline in marine this year and the risks around that? Also, you've done a good job on margin in marine today. What is the downside risk to margin in marine in light of that revenue decline?

Then, finally, just on the interest guidance post the refinancing. I don't know if you can provide any color as to what we should be targeting in terms of interest costs this year.

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [31]

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Thank you. I will come back on the refinancing with you, Nicolas, and we will take your first question, which was for marine the drag.

First, we have not lost any contract. Some contracts are just ending because we started these contracts for some of them more than three years ago and we are just at the end of the completion of these contracts. And it will happen probably before the end of H1. It should not have a significant impact purely on the margin.

On the marine point, you're right; we post high single-digit negative organic growth for next year. We have already started to implement some restructuring and reorganization of the marine and offshore division to protect the margin in 2017.

And maybe the last question, Nicolas, if I may?

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Nicolas Tissot, Bureau Veritas SA - Group CFO [32]

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Sure. Regarding the financial charges we expect for 2017, taking obviously into account the impact of the pre-refinancing of our May 2017 bond, as we said, we are going to start to feel the full impact of that refinancing starting with the reinvestment in May 2017 of the bond we have pre-refinanced. And this will trigger lower financial charges for 2017, going down to a region around EUR85 million, EUR86 million in 2017.

This is what you can expect. Obviously, we will get the full benefit on a full-year basis in 2018.

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [33]

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Thank you, Nicolas.

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Paul Sullivan, Barclays Capital - Analyst [34]

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Just following up; on those cost savings and the restructuring charges, can you quantify the total level of savings that you'd expect to generate this year?

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [35]

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You're talking to really about marine or some other --?

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Paul Sullivan, Barclays Capital - Analyst [36]

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I presume not all the restructuring charges clearly are focused on marine, only a portion of, but I was thinking of the Group level. But also following up on my previous question on marine, just trying to get a sense of the margin sensitivity or the downside risk to marine margin this year. I know you've always tried to hold it at 25%, but it looks like it will go underneath that this year.

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [37]

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Nicolas, you would answer this question regarding (multiple speakers)?

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Nicolas Tissot, Bureau Veritas SA - Group CFO [38]

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I can take it, Didier, just to say that, as we said, the EUR42.6 million of restructuring charges we have taken in 2016 are with a rapid payback, probably in the region of a year. So we expect to save on a gross basis around the level of charges we take.

But keep in mind, please, that this is very much geared towards margin protection and that you won't see all of this as margin enhancement in 2017. We are taking those restructurings in businesses which were under pressure in the last quarters.

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [39]

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By the way, Nicolas, there's a slide in the pack, if I'm right, if I remember, slide 47, which is on restructuring. So you will find more details on the restructuring plan of course.

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Operator [40]

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Emira Sagaama.

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Emira Sagaama, Oddo Securities - Analyst [41]

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Yes, I have two questions remaining, please. One quick on the guidance for 2017.

It seems a bit cautious when we look at the improvement in Q4 and also the outlook for the divisions such as construction, consumer, or even GSIT. Does this mainly come from industry or marine, or do you think that some of the performance in construction or consumer cannot be extrapolated through the year?

And the second question is on industry. Do you think that it treats the trough inorganic growth in the second half of 2016? Thank you.

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [42]

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You are right about the fact that I don't say it's cautious or not cautious because we just guide for slightly organic growth in 2017. But you are right; this is linked to industry and in particular still, oil and gas.

We still have of course, as you can imagine, some pressure on the OpEx side. Even if we are today very well placed to get more global contracts on OpEx, which should at a certain point impact our organic growth, and on Marine, as we discussed.

On the industry, yes, we should bottom out at the end of H1. So the answer is, yes. Thank you for your question.

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Emira Sagaama, Oddo Securities - Analyst [43]

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Thank you.

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Operator [44]

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Kate Somerville.

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Josh Puddle, Berenberg Bank - Analyst [45]

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It's actually Josh Puddle from Berenberg. I've just got a question on the consumer division. Can I check that you said for the organic growth guidance you are expecting that to be at least in line with 2016?

And then, if that is the case, I'm just wondering, given that you had some specific issues that lowered the organic growth rate in 2016, I'm wondering why you aren't guiding for a bit more of an acceleration in that division. Thank you.

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [46]

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This is a really good question, of course. Yes, we will be at least in line with 2016 for the consumer product division. So this is a division where clearly we should come back to the type of performance we made in the past.

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Josh Puddle, Berenberg Bank - Analyst [47]

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So should we assume perhaps the rate of growth for 2017 moving more in the region of what you did in, let's say, the second half?

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [48]

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Should be probably -- it will be, again, at least in line with 2016 and probably mid single-digit.

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Josh Puddle, Berenberg Bank - Analyst [49]

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Okay. And can you comment all on what you are expecting for the margin that division? Organically in 2016 I think you were down around 10 basis points, so should we expect further decline in 2016 or do you think that will stabilize or perhaps grow?

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [50]

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In fact, we should have less negative impact, first, from the FX. And, second, as you know -- and I'm sure you know the business very well, consumer product business. When you have more volume usually you improve your margin at the same time, even if the mix is a little bit different because we put a lot of fun faces on SmartWorld. Meaning connected object and electronical objects; and the margin is a little bit different. But we should be clearly or at least stabilizing this margin in 2017.

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Josh Puddle, Berenberg Bank - Analyst [51]

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Okay, thanks very much.

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Operator [52]

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Aymeric Poulain.

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Aymeric Poulain, BofA Merrill Lynch - Analyst [53]

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Good afternoon. I just wanted to come back on the question on the margin guidance and in particular when you add the reversal of the currency of 25 basis points and the restructuring benefits, it's very difficult to see how the adjusted marine and the industry could drive this pressure. So are there other divisions that you expect to see margin pressure?

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [54]

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When we look -- of course we worked a lot, as you can imagine, on this assumption. And clearly today the two divisions that you mentioned are the ones which are going to impact the margin in 2017, meaning your marine and steel industry, because of the pricing pressure we have in particular in OpEx in oil and gas.

Do you want to add something, Nicolas?

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Nicolas Tissot, Bureau Veritas SA - Group CFO [55]

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Absolutely. It's just -- we maintained or limited the organic decrease of operating margin to 25 basis points through restructuring, as we just discussed. But also throughout the portfolio through the Excellence at BV program, which can be applied in businesses which are -- with a nice business environment. But where we work on the cost and on the efficiency to also protect the margin and announce the margin.

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [56]

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I can see that there is one question coming from the web platform and there will be one from the call. May I get the one from the web platform, please?

The question is, please, could you let us know what is behind the accelerating fall in consumer margin? I think I already answered this question. This is very clearly coming from the mix and the FX.

So maybe we could go for, if I understand well, the last question on the call.

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Operator [57]

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Joel Spungin.

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Joel Spungin, BofA Merrill Lynch - Analyst [58]

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Good afternoon. I've just got a couple of questions I wanted to ask about the EUR42 million of restructuring. Can I just ask, roughly, can you tell us how it splits between the main divisions?

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Nicolas Tissot, Bureau Veritas SA - Group CFO [59]

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Actually, I can maybe take that and confirm that you have exactly this information on slide 46, which is one of the appendix. But obviously most of the restructuring charges of EUR42.6 million is geared towards the sectors which were in an environment with some specific pressure. Meaning marine and offshore industry, as we said. But also some specific effort to manage the cost basis of the other divisions.

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [60]

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So it's mostly industry. I'm sorry, because I think I mentioned slide 47, when in fact it's 45 in your pack.

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Nicolas Tissot, Bureau Veritas SA - Group CFO [61]

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Yes, 45. And I said 46, so sorry for the wrong number.

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [62]

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You have the --

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Nicolas Tissot, Bureau Veritas SA - Group CFO [63]

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It has the split per business line.

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [64]

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And you had a second question, if I'm right?

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Joel Spungin, BofA Merrill Lynch - Analyst [65]

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Yes, yes, just to understand -- so it's right to understand these as being provisions for labor restructuring? And if that's correct, I was wondering if you could say in 2017 what you would expect to be the cash outflow to be for restructuring charges and whether or not you expect any further restructuring charges in 2017.

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [66]

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We will have more restructuring, clearly. The impact on the cash -- I don't know if you have the answer yet, Nicolas. Coming from 2016, of course.

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Nicolas Tissot, Bureau Veritas SA - Group CFO [67]

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Yes, overall we had a cash out, restructuring cash out of roughly around EUR30 million in 2016. This is coming from restructuring charges we took last year, but also in 2015. And we expect obviously that some of the EUR42.6 million we have taken in 2016 are going to be cashed out in 2017.

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Didier Michaud-Daniel, Bureau Veritas SA - Group CEO [68]

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And to answer the second part of your question, the answer is yes, we will have to restructure; probably not at the level as we restructured last year, because as I had the opportunity to tell you, some contracts are going to be ending up. And of course, we will have to restructure and reorganize according to the end of these contracts.

Is there any other question? I don't think so; I do not see any more questions so this is the end of our presentation for today. Thank you for your attention and we wish you good morning, good afternoon, and good evening.

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Operator [69]

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Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.