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Edited Transcript of KVW.AS earnings conference call or presentation 29-Aug-19 8:30am GMT

Half Year 2019 Koninklijke VolkerWessels NV Earnings Call

Oct 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Koninklijke VolkerWessels NV earnings conference call or presentation Thursday, August 29, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Alfred Vos

Royal VolkerWessels nv - COO & Member of Management Board

* Jan A. de Ruiter

Royal VolkerWessels nv - Chairman of the Management Board

* Jan G. van Rooijen

Royal VolkerWessels nv - CFO & Member of Management Board

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Conference Call Participants

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* Andre F. M. Mulder

Kepler Cheuvreux, Research Division - Analyst

* Christophe Beghin

Kempen & Co. N.V., Research Division - Analyst

* Luuk Van Beek

Banque Degroof Petercam S.A., Research Division - Analyst

* Marcin Karol Wojtal

BofA Merrill Lynch, Research Division - Analyst

* Martijn P. den Drijver

ABN AMRO Bank N.V., Research Division - Analyst

* Tijs Hollestelle

ING Groep N.V., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the analyst call of VolkerWessels for the review of the half year results of 2019. Jan de Ruiter, Chairman; Jan Van Rooijen, CFO; and Alfred Vos, COO, are present at the other side of the line. I would like to hand over the conference to Mr. Jan de Ruiter. Go ahead, please.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [2]

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Thank you, operator. And operator, can you let me know how many people are on the line? And who?

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Operator [3]

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We have 15 participants on the line.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [4]

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Don't worry, don't worry. I just wanted to know whether we do actually have an audience; we do.

Thank you, and welcome to the people here in the room. I will make a short statement or comment on the results that we published this morning. Then, I would like to give the floor over to questions and then we'll alternate between people on the line and people in the room.

What we have said this morning is that our underlying EBITDA is EUR 93 million and underlying is defined, stepping away from IFRS 16 and also not taking into account the provisioning for OpenIJ and thereby EUR 93 million is the same number that we reported last year. Last year, we had EUR 32 million of provision for OpenIJ. This year, it is EUR 85 million. So the reported number is EUR 85 million. The IFRS impact is EUR 33 million. So [reported] will come out at EUR 118 million.

Revenue was EUR 3.1 billion and order book at a record high of EUR 9.4 billion. And overall, we see better results in our infra division in the U.K. than in Energy & Telecom, slightly lower results in Construction & Real Estate Development, which is the consequence of the absence of large real estate transactions in the first half of this year, and North America is behind as well due to a combination of weather, lower results participation and fewer land sales in the U.S.

During the last quarter, and we're going to talk about that, we have stated that we do see risks and uncertainties increasing. And in the Netherlands, the nitrogen emission State Council ruling is having a negative impact on the commencement of certain construction and infrastructure projects. Brexit obviously remains unpredictable and the unpredictability, in our view, is that we seem to be more and more moving towards a hard Brexit. And in Germany, especially in Berlin, the Mietendeckel discussion is causing investors to become a bit more cautious.

On safety, we are creating a safeguarding culture in which working safely is embedded and is an ongoing process. It's one of our core values, and we are very happy to report that our IF rate decreased to 3.6% in the Netherlands from 4.6% in 2018.

We're also very pleased with the cash conversion. And again, stepping away from IFRS 16, our net cash position increased by EUR 186 million to EUR 199 million and that is a reflection of ongoing profitability, focus on operational working capital and the successful reduction of our strategic working capital.

And we also stated that we expect to pay an interim dividend, which is equal to last year. That will be formally announced with the Q3 numbers in November and will then also be payable in November.

As per the outlook, we reiterate, we confirm, if you like, that we expect EBITDA for 2019 to be higher than last year and that is also not taking into account the impact of IFRS 16.

Having said that, I think we'll move to Q&A.

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Questions and Answers

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [1]

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And the first question from the room.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [2]

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Martin den Drijver, ABN AMBRO. So on the increasing risk nitrogen, we see more negative than your 2 competitors on the possible impact. Have you completely reviewed your portfolio? And how had you come to that assessment? That would be my first question.

Similar question, I guess, kind of, for the U.K. At the full year results presentation, you indicated that (inaudible) would probably be offset by higher public [staff] spending, that is the case. And since you did mention an assessment of your supply chain and that the risks were manageable. So what has changed in the meantime?

And then on Germany, you mentioned increased risk there as well, but more specifically to Berlin. Can you enlighten us and tell us a little bit how important Berlin is for you relative to the overall results of Germany? That's question 1a, b and c.

Then my second question, on your EBITDA margin, in C&RED, Construction & Real Estate Development, what was the delta in the lumpy -- I realize there were lumpy real estate sales -- between H1 '19 and 1H '18 to get a [forward] sense of the underlying performance of that division?

And then thirdly, and then I'll give the floor to another analyst, the cash outflow from IJmuiden sea lock, at year-end, you mentioned that your remaining cash funding was EUR 9 million. You have announced additional provisions of EUR 7.5 million. In this press release, you mentioned that you funded an addition of EUR 10 million. So that suggests that there's another EUR 6.5 million that you expected in the second half.

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [3]

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On cash out?

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [4]

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Cash out.

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [5]

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Yes. I think we funded EUR 108 million.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [6]

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Yes, so it's 6...

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [7]

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So it's EUR 114 million, has yet to come. So the difference is still cash out.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [8]

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EUR 6 million.

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [9]

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EUR 6 million, yes.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [10]

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There were a lot of questions. So on nitrogen, yes, whether we are more negative? I think people -- I'd like to think that we are realistic. And in the sense that the problem with the State Council ruling is that there is a sort of requiem as we speak. And what we see is that government entities who need to give permits, are becoming very cautious. And the most extreme form of being cautious is not doing anything. Because if you don't start walking, then you can also not fall.

So what we see is that also for projects, which, in our opinion, are not affected by this ruling, are still in limbo if you like because everybody is now waiting for this [relentless] committee to come out mid-September with their initial view.

The other thing that we notice is that there is a European ruling on nitrogen, which is basically translated in the Netherlands in a regulatory framework very different than in the countries around us. So we seem to be the only problem in Europe that is having this problem. A known problem, by the way, since 2014 because the robust arrangement was basically a fix for the problem that already existed by then. And what we now notice is that because of this uncertainty, you see a lot of stakeholders, basically putting their arms in the air and say, "Okay, what's next? And how do we move forward?"

Now this is not something that we don't see happening, basically on the 30th of May, as it is, the ruling was on the 29. So it's not that the whole thing comes to a grinding halt immediately. But what you do see is more and more signs that we get delays and you get also indirect delays.

To give you an example, if you are selling a piece of real estate where you'll only need to make a small road connection and a small road connection is causing trouble because of the nitrogen ruling, then the whole project all of a sudden will say, okay, if I can't get there, then why would I buy it?

And you see, there is a lot of indirect and direct consequences. I think it is becoming clearer as time passes by and we happen to be the last one of the 3 (inaudible) that we bought in the Netherlands, so it could well be that visibility is now different with our competitors as well. But it is what we try to emphasize. It is a real problem and we do honestly hope that or believe that a proper solution needs to be found very quickly.

This is not a VolkerWessels' problem. This is also not a construction industry problem. This is a problem for the Netherlands at large. Agriculture is obviously most affected, that's 40%. And 35% of the emissions are basically flying into the country from other countries and 25% is on -- 25% is caused by all the rest, including construction. Now clearly, the uncertainty in the land of permits never helps, never ever helps.

Now Brexit, did we know that Brexit was happening? Yes, we knew that Brexit was happening.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [11]

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May I ask a follow-up on that?

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [12]

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Yes.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [13]

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But have you done a review of your projects? Is there some working group that is diving into this subject to determine what is the real impact for VolkerWessels? I think we all know that these uncertainties exist and it never helps, but it would be helpful if we get a sense of what you're actually doing to get to the problems or net the problems, if you will.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [14]

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Alfred, can you say something about this?

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [15]

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You know, we have different teams that are overviewing, analyzing possible impact because mid-September, the committee (inaudible) is going to publish and we're all waiting what they're going to publish in terms of content. And in the meantime, we are assessing the impact for projects that we have in the pipeline right now; not in our order book, but in the pipeline because before they hedged the order book. We have a pipeline. And that basically covers construction, real estates, infrastructure and to a lesser extent, some energy projects as well.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [16]

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But it is very difficult to assess if you don't have the framework against which you need to assess.

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [17]

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Exactly.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [18]

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The framework needs to be...

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [19]

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We are very close on the ball. So we can see right now that if there is no solution in months x, that means that we are going to have x amount of euros not in the pipeline of projects that we cannot start calculating in terms of tendering or even execution, and then we can basically put consequence to it. I mean that's basically the plan that -- and by the way, nothing's new. I mean whether it's weather circumstances or permit circumstances, we always are close to the ball and know pretty much where to look. But this is covering the whole industry in the Netherlands, of which we are a small part, and we need to assess nearly when it happened and we are. So we do have a plan in place and how to assess and how to react once we know the consequences.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [20]

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Lots of questions right now. But Brexit, yes, we know. But I think what we hear and we say is that we are moving at least it seems closer to a hard Brexit. And already before the closure that could have risks and opportunities. And it could well be that if we get a hard Brexit, that infrastructure will be stimulated in retail and that happens to be the area that we are very active.

But the overall uncertainty, as we said, is weighing more and more on the U.K. economy. So it would have been -- it will be -- it would have been better if the whole saga would have been decided upon.

And the State -- or the city council in Berlin, which started the discussion of whether they should freeze rent increases on behalf of private investors is ongoing. It could well be that newly build apartments will be exempt relative to existing apartments. But then, at the same time, when does a new-build apartment become an existing apartment, so when does the period end? And that uncertainty impacts how investors that buy our products behave and that is not something that, in our opinion, is a huge issue because the market, at a given moment in time, reset and that reset will, in our opinion, probably mean that rent prices have to come down.

But during the uncertainty, you see that the existing [products] are moving in a different way than otherwise would have been the case. So uncertainty, in general, never helps. And the only thing that we notice is that we have seen a rapid increase of significant uncertainty in the past quarter. And again, the nitrogen in the Netherlands is impacting almost everything. And I'm not sure that that realization has simply well enough in Dutch society, but it is the case. Your economic department came out with a big number for construction and I haven't been able to read it, but there was a big number. Was it EUR 40 billion or EUR 50 billion that is affected? But it goes much wider than that because it's not only real estate development or infrastructure or agriculture, it is the fact that nobody is having the guts to do anything. And we -- there's the view, I don't know what (foreign language) is in English, but...

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [21]

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Paralyzing.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [22]

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You're paralyzing the entire system because they never make a mistake. Now that is a good risk and the Berlin activity sort of (inaudible) area is a little over 2/3 of our German activities.

On the second question on Construction & Real Estate Development, EBITDA is only behind EUR 3 million compared to the same period last year. And the missed -- in the absence of large real estate transactions it's more than EUR 10 million but less than EUR 20 million, the effect of this. And underlying, the Construction & Real Estate Development activities are stable compared to last year given the absence of those constructions.

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Tijs Hollestelle, ING Groep N.V., Research Division - Research Analyst [23]

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Tijs Hollestelle from ING. Yes, I have a follow-up on Germany. Is there a big split between private and public clients? Or is it primarily private clients, investors you're dealing with because the German division made all-time high performance in the first half of '19.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [24]

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Well, it is public in the sense of investors and private is retail.

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Tijs Hollestelle, ING Groep N.V., Research Division - Research Analyst [25]

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Well, I can imagine in the [mortgage reduced] rate in conversation that the public sector might continue to do business. So how much your exposure? What is the split?

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [26]

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And what is your definition of the public sectors and government related or is that...

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [27]

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Social housing corporation.

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [28]

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Yes. Social housing corporation.

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Tijs Hollestelle, ING Groep N.V., Research Division - Research Analyst [29]

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And then on the other side of the spectrum, aggressive speculative real estate.

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [30]

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We are active in the niche residential market, as you know, where we basically act as a developer and as a construction company, constructing for our own development company and constructing for a few specific long-lasting clients that we work with, who are also developers.

The client base in the social housing corporation is limited. And the residential product that we produce is primarily sold to end investors that are active on the public markets, not being publicly noted, but I mean financial institutions. And a certain percentage of the product that we sell is sold to individual house owners, so the buyers, and that's actually what we call retail product. Right now, also because of the heat in the market, we have -- we're looking monitoring a healthy mix in our opinion between selling to institutional buyers, investors. And the percentage of, let's say, [80 meters] so the single houses that we sell to retail is in the minority compared with the other category because we want to push the risk in the development out of the project as quickly as we can.

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Tijs Hollestelle, ING Groep N.V., Research Division - Research Analyst [31]

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That is the answer I am looking forward. Yes, and then also a follow-up on the Construction & Real Estate division in the Netherlands because here, we have seen the separate numbers from one of your listed peers, and the property residential building houses, building buildings in the Netherlands, the buildings part is made cyclical so that market is doing relatively well, and it was a bit behind in the recovery. We all know that the residential market went through a significant increase so that it is -- basically a bit flattening is normal? So you achieve basically more or less the same. And so is your housing transactions are also comparable year-on-year to what the others are reporting? So it's really the remarks you made concerns commercial real estate transactions or also transactions in the residential property?

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [32]

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Well, it's both.

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Tijs Hollestelle, ING Groep N.V., Research Division - Research Analyst [33]

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And both equally?

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [34]

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Yes, more or less.

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Tijs Hollestelle, ING Groep N.V., Research Division - Research Analyst [35]

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And do you share a view of the competitors, that it is just a kind of year-on-year -- it's more timing in that the market is rapidly deteriorating in residential elements?

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [36]

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Just it does not rapidly deteriorate. It's just that we have -- we have, from time to time, large transactions in real estate development, be it commercial or be it residential, and if they fall on this side of the [figures] of June, then they have a bigger impact on a relatively low number because seasonality take the fall on the other side. So for us, this is all within the margin of error if you like.

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Tijs Hollestelle, ING Groep N.V., Research Division - Research Analyst [37]

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Yes. So your pipeline for the second half is also (inaudible)

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Unidentified Company Representative, [38]

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Next year (inaudible).

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Tijs Hollestelle, ING Groep N.V., Research Division - Research Analyst [39]

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Okay. In residential, we also have the commercial for hotel.

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [40]

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Yes, but the order book for (inaudible) is very strong.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [41]

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Yes. So we have increased our order book significantly, but our output was also significant. So I think we've, in total, added over EUR 1.5 billion to our Construction & Real Estate Development's order book in the first half of 2019.

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Tijs Hollestelle, ING Groep N.V., Research Division - Research Analyst [42]

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Okay. That's good.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [43]

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And a lot of projects are between EUR 10 million and EUR 25 million in project size. So it's really a lot of project.

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Tijs Hollestelle, ING Groep N.V., Research Division - Research Analyst [44]

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Okay. And then on the Dutch Infrastructure division. I mean you withdraw basically from the high complex standards and you also made some adjustments to the organization due to that [phase]?

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [45]

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It is not correct. The second is. We did no withdrawal from high complex. We withdrew from projects where the risk we watch is not in balance. So we can definitely do high complex projects, and we still do, but not if there is a risk in those projects that we feel is inappropriate, that we cannot control.

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Tijs Hollestelle, ING Groep N.V., Research Division - Research Analyst [46]

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To my understanding, you're still strong with your team that is looking to this specific end market a bit.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [47]

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No, what we did is, we actually -- as you may recall, in 2 previous analyst meetings we had, I indicated that there is actually a healthy mix of product -- projects coming to the market, where the majority of the projects that is coming on the market is actually showing a different characteristic being projects between '22, let's say EUR 100 million. That's actually a pretty healthy supply of projects coming to the market. And we've exchanged that with all of you a few times.

If we look at the category of, let's say, the exotics, the big projects like Zuidasdok A15, A9, that category of projects between now and actually, 2023, there are only 10 to 15 coming on the market. So it's a very limited amount of projects.

Therefore, we changed the substance of our teams because I don't need 100 people working in only 10 projects that are coming in between now and 5 years. So what we did is we basically changed the mix in the tender teams to be able to capture a desired percentage of tenders that is coming in the market in the first category of projects. That category of projects is also a better fit for us in the risk/reward assessments that we do. And within those projects, we make selection and so the teams are not -- have not shrunk in size. So I think it was also asked in previous meetings, are you going to lay off people? Or you're going to have major issues? We said we need everybody we can actually keep on board because we believe we have the best people in our company. We just need to change the mix because the type of projects that, for example, require only EUR 30 million or EUR 40 million in volume, which is still a midsized project requires a different tender approach than the project is EUR 400 million; so that's what we've changed. That's what we've changed.

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Tijs Hollestelle, ING Groep N.V., Research Division - Research Analyst [48]

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And that's now finished?

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [49]

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We're well on the way. We're really well on the way. I'm pleased with the progress that we are making in the infrastructure division. We see good dynamics. We've also built a team, a separate team that is looking after the 10 to 15 projects that are coming online between now and 2023. And there's an EPC team. So a specialized team that we brought together, some new people, some people that we have internal and that we also equipped with specific contract management and process control skills coming from all kinds of different industries to what we are familiar with to help, let's say, the existing people that we already have, to work in a very complex environment. And that's related to the mega projects that are also still coming on the market and that we still look at very carefully. But we don't turn away from those projects as long as the risk lies where it belongs. If we can control it, we'll take it. If we cannot control it, we're not going to take it.

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Tijs Hollestelle, ING Groep N.V., Research Division - Research Analyst [50]

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Okay. That's clear. And then one final question/remark. You're probably aware that the investment case of Volker is a bit kept hostage by the sea lock. So you're executing the last and final big operational issue, which I think you should be capable of doing that the stock market is already fearing or maybe some additional loss provision. So if you look to a project this size and then let alone the loss provisions, the joint venture announced, you could say that there are still a lot of disputes at the end of the project. So you probably have to pay into the CEO and do some small things which are not operationally challenging. Would that be fair that you come up with, let's say, all the loose ends together and then there is one final discussion on all these different disputes which are quite normal for any big [projects] and that you communicate all that as soon as possible because the final deadline is still far away. And I think that the investors are really spooked by this project. So can you talk a little bit about that?

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [51]

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Let me try to answer that. I think that -- I'm not so sure whether -- but then I'll take your word for it, that we are still held hostage by the law. Because what we have said this morning, and what we have already said before is now 72% complete, 28% to go. And that 28% of a very large complex project in itself is still a large project. It's incredibly difficult to move it financially to a point valuation 2 years from now. Always very difficult. But we have reiterated this. And normally in any large project, you see if there are improvements, if there are improvements, they're normally materialized at the end. It's your insurance discussions. And we will have discussions with (inaudible) that we believe that they still need to pay us for work that that scope changes or whatever and that normally manifests itself at the end.

We take the view right now that OpenIJ, once we have successfully immersed the inner lock head, which is ongoing as we speak, we will behave as any other large project that we may have.

Now how it works is very simple. OpenIJ is a separate company. So there's still accounts. And on a quarterly basis, OpenIJ assesses revenue versus cost, if there is a positive difference, we report it as positive. If it's a negative difference, we report it as negative. And that's an assessment that OpenIJ is going to need this every quarter. And we have taken as with any other project we approach. We take 50% of whatever that outcome is.

It is very tempting to say, okay, let's make a sweeping statement and this is it. But it is pretty difficult because of the nature of the project, which is the first time ever that we are building a lot this size on this place. And therefore, although everybody wants certainty and so do we, however, I'm not so sure whether we can actually do that because we still have roughly, what is it, 2 years? 2021 to go?

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [52]

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Yes.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [53]

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And although we do not expect any major, big things, similar to the ones that we had in the first half of last year, I would also find it unwise to say this is it right now. And I would find it unwise for any other project. We do 25,000 projects, you have pluses and you have minuses individual report. We decided this time last year to be very specific on OpenIJ. And the reason that we decided to do so is that we also want to allow investors to see what the rest of VolkerWessels without the sea lock is capable of doing, and how it is performing.

At the same time, we do have the lock. And as long as we continue to build, we continue to de-risk, it is, in my opinion, become more safer and safer. But can we now call it a day? No. We'd find it difficult and unwise.

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Tijs Hollestelle, ING Groep N.V., Research Division - Research Analyst [54]

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Yes. And also after the placing of the second caisson was to complete the...

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [55]

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Yes, that's what he said this year, the 3 KPIs and the immersion of the outer lock head, the arrival of the doors from South Korea, check, check. And the third one is the immersion of the inner lock head, ongoing as we speak, going well. But at the same time, that does not mean that we are completely de-risked and we shall still have (inaudible). And I've said that many times, , but we still have roughly, what is it, EUR 200 million, EUR 250 million to build over 2 years and it's definitely going to happen.

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [56]

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And I cannot say that these are simple things like painting and putting it across somewhere else.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [57]

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It remains there are a whole range of still many complex things, nothing that we will or cannot resolve. But this is not an average single-family home somewhere in the middle of nowhere. This is a very one-off, very, very complex thing. So I just want to be realistic. And some people call it pessimistic, but I call it realistic. It's a huge complex thing.

Is the project under control? Yes. Absolutely. From a civil engineering perspective, definitely. Financially, who knows, but it could well deteriorate before it improves [it's got the effect]. We take with you. To the best of our knowledge, this is it, but I cannot give you guarantees and neither can I give you guarantees on any other project because that's why it's a project business and...

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Tijs Hollestelle, ING Groep N.V., Research Division - Research Analyst [58]

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But is it fair to say that if the caisson is being placed, that there will be a press release on the construction, at least at that stage that is?

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [59]

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No. I haven't thought about that, but...

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Jan G. van Rooijen, Royal VolkerWessels nv - CFO & Member of Management Board [60]

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Well, first of all, we need to -- look, whatever we...

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [61]

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So it's...

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Jan G. van Rooijen, Royal VolkerWessels nv - CFO & Member of Management Board [62]

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That has to go down every day and...

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [63]

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I think that we can also put a camera out on it, but I think that it could well be that OpenIJ don't say something about it or maybe (inaudible).

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [64]

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Yes. I'm not so planning it, so to say.

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [65]

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But if you call us, I think it will tell you.

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Luuk Van Beek, Banque Degroof Petercam S.A., Research Division - Analyst [66]

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Luuk from Degroof Petercam. One follow-up on the OpenIJ, specifically the normal project once this application has been loaded. Does that mean that from that point on, we could expect more pluses or minuses? Or are the pluses something that really should be expected towards the end of projects when you handle the claims and some things in that is normal?

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Jan G. van Rooijen, Royal VolkerWessels nv - CFO & Member of Management Board [67]

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Yes. That's normal. And basically, any project, the pluses are more back-ended than the minuses. And because that's also part of our accounting where you only account for revenues when they are basically virtually certain and account for costs when they are visible. And so there's a sort of conservatism in this as well.

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [68]

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And it needs 2 to tango because you could argue, if we claim with the PI insurer, then we are convinced that we are entitled to get -- it's not [un-coincident] today the different opinion, put it like that. If we write a letter to (inaudible) and say, we believe that you are the cause of this, and therefore, you should compensate us, it's not necessarily that they agree with us. So basically, these times -- these issues take time. And that is also wise that if you go to your insurance as you do towards the end of the project so that they at least should know what you believe you can claim rather than that you do it on day 1 of the project. So the normal -- as Jan indicated, the normal process is also because of the accounting that the pluses are at the end, the minuses that leave I think -- the whole -- the real question for us, which I cannot answer at this stage is, where do we end up, is that better or worse than the EUR 114 million; that is the only question that is valid, of course, the rest is timing. Now trying to really to do an indication on that, but that is how we look at it.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [69]

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Andre?

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [70]

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And on real estate, you say that the first half, there were very few transactions, the backload is picking up. But if I look at your balance sheet positions, then they're down year-on-year, disposition historical real estate. So things under construction and what did you sell. Is that an indication that the pipeline for things to be completed in the second half is relatively small and it would be better also that they're basically executed in hopefully 2021 or is it 2020? Or do you expect to say that year-on-year to remain in the same ballpark as last year?

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [71]

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No, if you refer to basically the strategic working capital that's allocated in the Construction & Real Estate Development part, a large part of that strategic working capital moves into work in progress when we start with the project. And so that's also an important explanation for why the strategic work capital. So it's not only sales, it's also sort of the movements into the traditional working capital. So you cannot link that one-and-one.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [72]

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But for the full year, do you expect it to be in the same ballpark as last year? Or do you think that the lower number of transactions in H1 will build?

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [73]

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It's just -- that's just a matter of timing.

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Jan G. van Rooijen, Royal VolkerWessels nv - CFO & Member of Management Board [74]

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And what we have said is basically, we confirm that we expect our EBITDA to increase versus the number of last year. I know that you guys take a view on the provision that we took for OpenIJ, but we have said the EUR 251 million is the basis of which we depart on the 1st of January of this year. And the reason that we have done that is -- and we have also said that in the past that our success in forecasting was not particularly great. So this is where we start from. We will grow.

What we now say is -- and I read the comment on the screen that we are exceptionally somber and that's not what we've tried to get across. We are not depressed. We are not somber. We believe that we are realistic. We do see an impact from nitrogen now. This is also a great opportunity to talk to the people who basically can fix this, and they are not in this room. They sit in The Hague and our message to them is they need to fix it really quickly because this is going to impact not only construction, but a much wider part of the real estate.

Please [Mr. Rampus] give us some framing in -- if this all had not happened, would we have grown a bit faster? Probably, yes, because this is putting a bit off, yes? But we are not, in any means, pessimistic or somber, we do see it -- and that's why we also write in the very same press release that the developments in the markets overall are good. We see very positive order intake in every single segment in which we operate, but there is increased uncertainty. And increased uncertainty never ever helps you. And we are backed up by ABN AMRO. They make a smart report. Yes, we can argue that it is not the case, but that would basically be telling you something which is not true. It is -- there will be an impact. If this does not get resolved, there will be an impact. We'll stop.

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [75]

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And the timing determines the impact size.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [76]

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Yes.

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [77]

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So the quicker they can fix it, eventually we will see back in the industry developments and the longer it will take, the bigger the impact will be.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [78]

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Can we first go to people on the phone? Operator, can you see whether there is a question from anybody who is on the phone?

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Operator [79]

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Yes, sir. There's a question from the telephone part and that's from Mr. Marcin Wojtal, Bank of America.

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Marcin Karol Wojtal, BofA Merrill Lynch, Research Division - Analyst [80]

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So the first one is, sorry to come back, just on nitrogen. So when do you expect to actually see the impact from that in your P&L? Is it for projects that you already have in the backlog or is it more for future order intake? And maybe to ask the question differently, would you expect to see already some impact in Q3 from that new regulation?

And one more question. In the statement, you reiterated your medium-term objectives. And I think the low end of your guidance in terms of EBITDA margin is 4.5%, and you're around 4.5% right now. So if you see a negative impact from nitrogen, what makes you reiterate the medium-term objective in terms of EBITDA margin? Is it -- can you help us reconcile that a little bit?

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [81]

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I think that what we say on the margins is that we strongly believe that our group of companies should be able to deliver between 4.5% and 5.5% EBITDA, stepping away from IFRS 16. Will that impact -- will that mean that we will always deliver in that range? That remains to be seen. There will be a forecast that we're not willing to make, but for the immediate objectives, stand tall and we will go for that.

In terms of the nitrogen, very difficult to tell when and how the impact will be seen. Because the Minister of Agriculture has now installed a committee that needs to fix this, and this committee will come out with their first analysis or statement on the 15th or before the 15th of September. So that's 2 weeks from now. And it very much depends on what they do.

If they can come up with a quick fix that will basically soften the impact, then obviously, that will be far better compared to a statement where they are going to take the view that they are going to study for 1 year before they come out with a new framework.

The consequences for us are twofold. As we said, there is a European directive, which is put into law in the Netherlands in a much more strict way than in the countries around us. That's problematic. We seem to be the only country in the EU, which has this problem based on the same directive. So that's odd. And the other one is that because of this uncertainty, there is this paralysis in the system because nobody dares to do anything because if they basically give a permit today and they say, well listen, but if the new framework comes in 3 months from now, then basically it needs to be refocused on what is going to go on because I have done something that I am not allowed to. That uncertainty needs to disappear.

The longer it takes, the bigger the impact will be. So will we see something already in Q3? Probably not because that still has, what is it, 1 month to go. Is it? Yes, that's the month of September. But the longer it takes, the more it will materialize. And the only reason that we basically roll it down in this particular way is that we do not want to take the view that this is something that should be taken lightly. It is there.

Anybody else? Marcin, anything else from you or anybody else on the phone? Operator?

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Operator [82]

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(Operator Instructions)

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [83]

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Now let's take a question in the room. (inaudible)

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Christophe Beghin, Kempen & Co. N.V., Research Division - Analyst [84]

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Christophe Beghin from Kempen. I have a question regarding to what we -- can you a bit elaborate more on the strategy regarding North America in the midterm? Are you looking to add more long-term maintenance contract? And specifically, can you please elaborate more the results of first half year?

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [85]

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Yes, (inaudible)

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Jan G. van Rooijen, Royal VolkerWessels nv - CFO & Member of Management Board [86]

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Alfred is consuming a banana, so he has to answer that.

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [87]

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No, no. I'm ready. I just need to watch my health, so. Strategy is that we continue to look for opportunities that come by in terms of acquisitions for the biz strategy that we started 8 -- 9 years ago. It's still high on the agenda, but it needs to be a lot of tuning in the right region and with the right cultural fit. So right now, we are looking, but there's no concrete possibility that we are investigating.

Secondly, if we look at the portfolio that we have, we are happy with the portfolio mix. And we continue to invest in our organization to do better what we are doing within the portfolio mix every day.

In terms of the first half year, despite some incidental pickup that we had previous years in real estate sales related to our land development, the majority of the results that are, to a lesser extent, coming in, and compared with last year's weather, we had a very unfortunate weather pattern in Alberta specifically. And that is something we have had no control over. Made simple as it is, we had lot of rain, and that rain is falling in the wrong time of the day, and is now also falling in 2 days and then 10 nights -- 10 days dry, but it's almost falling on a daily basis for a longer period of time, and that does not help the efficiency in a capacity company that we have in Canada.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [88]

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Especially June was really a lot of rain.

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [89]

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Yes, yes. So that's -- it's -- so the order book is good, and is developing in a good manner. We are now looking at other opportunities in the highway maintenance that we might materialize in the next quarter that we will come back to when the time is right. So as I mentioned this morning also to the press, it's a big disadvantage of disruptive companies in the market is that you suffer from it and this is in this particular method occurring, pushing a lot of price level down to the level where they don't belong, but if it goes wrong, also clients see that quality comes with a price and that actually buying quality is cheaper. Maybe not in the face of the deal, but overall, and we see that with the government of Alberta.

So the government of Alberta has picked a number of players in the market, including ourselves because we are one of the market leaders in that market, and they have selected us on those new contracts that we announced previously, pure on quality. That means that the rewards and the margin has a good balance. So we're happy with that development to [assort for the] people that or actually would [claim] that didn't cause this issue, but it did help us securing more contracts going forwards because the government is coming to such, yes.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [90]

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Martijn Drijver for ABN AMRO. I just wanted to come back to the question of the Bank of America analyst. If you look at your orders in H1 '19, can you -- and we assume that there's no incident in those projects. Let's assume that you execute, and as you would do normally well, would you be then able to get to the 4.5% to 5.5% range? Or do you need additional elements to get to the 4.5%, 5.5% range, meaning like resolving the OpenIJ, (inaudible) large contracts, significantly lower failure costs, further digitalization? Can you elaborate a little bit on that?

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [91]

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In the short term or in the medium term?

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [92]

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I'm talking about order intake in 1H 2019.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [93]

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Yes, but I think -- yes, we'll take that in. It's less to do with the order book. It has much more to do with, are we now being faced, yes or no, with unexpected delays in timing of projects. But let's ignore those, let's say we doesn't have it, so safe as (inaudible).

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [94]

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Then the order book should enable us to reach at least 4.5% EBITDA margin and as sales during the time of the IPO, the higher you get to the range between 4.5% and 5.5%, the less or the more failure cost improvement we need to reach the 5.5%?

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [95]

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Okay. It is not that we lower our -- how do you say, our pre-calculatory margin in order to fill our order books. So the selection criteria that we apply for gaining new business remain unchanged and forward in our medium-term objectives. The only thing that we say is, if we get unexpected delays on the back of which your efficiency goes down and basically, you have the same amount of people -- the same number of people, I should say, working on the same project for a much longer time than anticipated where the revenue remains the same, that is causing an inefficiency. And that is exactly what can happen -- can happen if and when the nitrogen discussion is not being resolved in a relatively short time frame.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [96]

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And I have 2 more questions. Due to the Canadian highway maintenance contracts here, your CapEx has gone up considerably. Initially, your assessment with the full year result was $10 million to $20 million in additional CapEx, now it's a little bit higher. So can you provide us with an updated guidance for the full year for growth CapEx? So that's one.

And you mentioned in the press release, a divestment to NG. I've no clue whether this is this material, so could you tell us what the sales and EBITDA contribution was, if any?

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Jan G. van Rooijen, Royal VolkerWessels nv - CFO & Member of Management Board [97]

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It was a relatively small part of our focus, so a small part of the business. So not really significant.

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [98]

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And it was also not 100% owned by us, so we had a stake in this company.

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Jan G. van Rooijen, Royal VolkerWessels nv - CFO & Member of Management Board [99]

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On the gross CapEx level, it's around EUR 30 million that we will spend more than last year.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [100]

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Basically, it's on the back of significant wins in Canada where you need to obviously pre-buy the equipment in order to be able to do the maintenance for the next 7 to 10 years.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [101]

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Some of these have been contracts that you already executed in the past, then you wouldn't need that equipment...

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [102]

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Yes. Because the part of the equipment is then written down and you need to replace it, which otherwise, if you have lost the contract, you would not do that. But what we've also seen is that on the back of the bankruptcy of Carillion, certain service areas that we already own have been expounded by the government of Alberta on the back of which the contract and the area became larger and hence, you need more equipment. But basically, the return on capital calculations that underlie the decision to do the CapEx relative to the contracts has remained the same. So these are CapEx -- these are heavy CapEx, all heavy CapEx.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [103]

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Yes, I have one more, but I'll ask them, get rid of me for the moment. You also mentioned that construction of the industrial logistics buildings showed strong growth. Again, I'm new -- relatively new. How important is this segment in the overall C&RED, real estate development picture?

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [104]

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Yes. That's something we saw this 5 years ago because we saw that there was a growing desire in the market for this product, and we have the right people and the right experience in the group and land positions to actually supply this demand. And it's growing steadily which is new. It's becoming more and more -- it's not a dominant element in our (inaudible) division, in our real estate and construction division, but it's a segment that is really starting to contribute and people notice.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [105]

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And can you give us a ballpark percentage of what it is?

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [106]

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You mean in terms of revenue?

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [107]

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Yes. Well, and EBITDA, if I may -- if you can?

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [108]

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Well, it's a combination of 2 elements: one is the development of industrial; and two is the construction capacity that's related to this -- to it. I do know the numbers, but actually, out of my head because I follow it almost every month. But I would like to stick with the comment I just made because competitors are listening as well. So I think this is in all our interest not to share the details of that.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [109]

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Good business.

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [110]

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It's a good business. Yes.

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Unidentified Analyst, [111]

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With -- on one hand, you guide for a higher EBITDA this year. At the same time, you keep your interim dividend stable. So the cash position is very strong so that it will allow you to be more kind with the dividend. Should we see that as an indication to be more [expectant] on EPS to max year-on-year or is there other way to keep it stable?

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [112]

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No. But what we've always said is that we want to de-risk OpenIJ before we look at the cash and the de-risking of OpenIJ is ongoing and so -- although we still have, I don't know, maybe a couple of weeks to go before (inaudible), we thought it would be prudent to stick to our guns and say this is first of 3 KPIs, and then we will answer this question.

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [113]

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But also you basically have to go back to the profitability in 2017, and also the first half year of 2017 because then we decided to pay an interim dividend of EUR 0.28 and that was 60% of our net profitability over the first half of 2017. In the first half of 2018, our profitability was significantly lower than the first half of 2017, and then we decided to keep our interim dividend stable and that's basically what we are doing again over the first half of 2019. Our payout over the first half last year was higher than 100% and EUR 0.28 -- or EUR 0.40 is 70% I believe. Is it, yes?

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Jan G. van Rooijen, Royal VolkerWessels nv - CFO & Member of Management Board [114]

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Yes.

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [115]

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So that's the top end of the range. So we are growing into that and we don't want people to believe that it did apply 60% of EUR 0.40, then you are lowering your dividend. So that's why we said, okay, it's a little bit early, but we will pay the interim dividend at EUR 0.28.

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Unidentified Analyst, [116]

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That's clear. And in the U.K., you mentioned that other companies are getting into difficulties. Could that be something that would affect your supply chain? Or is that essentially (inaudible)?

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [117]

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I don't think that we see any concerns in our supply chain. We have a very rigorous process on screening new partners and we worked for many, many years with existing partners that are all selected based on certain criteria. And besides quality and reliability, it's also their financial stability, so I don't see any issues there.

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Unidentified Analyst, [118]

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Okay. And my final question is on the infrastructure market in the Netherlands, which you also mentioned in the press release that many competitors are more reluctant to bid for the very big projects, so I would expect them to also add more capacity due to the [generic] construction, where you specialize in. Do you see any increase in competition there?

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [119]

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Yes, we do. We do see that there's an increasing competition. And we believe that, as you know, through our structure with having offices and operations spread all over the Netherlands, we are well positioned to deal with that competition, but it's something that we do see.

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Unidentified Analyst, [120]

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But there would be with the price pressure because there's something that you feel (inaudible).

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [121]

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Not any other price pressure that we've seen in the past.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [122]

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And obviously, the big international companies who are moving on the large complex projects are less interested to see entire chain there. So that's the answer.

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Unidentified Analyst, [123]

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So it's a bit of a funny question maybe, but (inaudible) before the IPO, you decided to dispose the cable -- offshore cable activities. What was exactly the reason behind that?

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [124]

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Yes, the -- well, it was actually a very simple reason, is that if you map out -- and I'm going back now to 2012, '13, if you would have mapped out the locations of the new offshore wind parks that were coming online, the characteristics of those wind parks were completely different. We used to be active and very successful in the offshore wind parks that were close to the shorelines in what we call shallow waters. The new parks were moving towards -- further away from the coast line, that's because the wind turbines were placed on piles that are significantly taller than the ones that we were working on in those days. And to install that offshore wind capacity, you need different vessels, you need different equipment. We had a small shipping line with some very specialistic equipment that was able to work in shallow waters and on an incidental basis do some work around deeper water lines. But the wave heights are completely different in further away from the coast line than they are closer to the coast line.

So long story short, we decided to team up with Boskalis at a certain point because they do have the equipment and the vessels to actually work in a more steady way further away from the shoreline so that we would have less nonworkable days in our proposals, which would also make us not competitive and we wouldn't win any more projects. That cooperation has been very successful. But you also saw that because of the equipment intensity on those new projects, there was also pressure on the cooperation with Boskalis because they would put in all the vessels, and we were only bringing project management and the lesser specific niche skills, but it was actually very logical to actually agree with Boskalis to put the business that we had together successfully under one management team and that was Boskalis, so it was actually better place for them.

So we decided to step out unless we would have had to make the decision at the time to co-invest with Boskalis, which was also an option. And we decided that we wanted to invest our money elsewhere then suddenly become an investor in vessels that were requiring EUR 200 million, EUR 300 million of CapEx. So that was something that we felt it was better for VBMS and it was better for us and also Boskalis were very happy with the transaction.

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Unidentified Analyst, [125]

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And was that at that time difficult to do because I can imagine if you go back those many years that the outlook on the market looks fantastic. So is it then, within VolkerWessels, was it a difficult decision to get everybody on okay?

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [126]

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No, it was also not a decision -- it was also another decision change, it was something that grew naturally because the relationship with Boskalis has always been good. It's still very good. We respect those guys. They have a fantastic business. They have a top management team and we -- that also naturally created a fit and so that decision grew over time. You should see certain elements in the market, we're on top of our businesses, as you know and that became a very natural moment in time where we said, isn't it better for VBMS in this case. Because don't forget that we do not only think and talk about money, we also think and care about our people. It was really a better fit for VBMS to be part of Boskalis because...

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Unidentified Analyst, [127]

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It's always the better (inaudible)

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [128]

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Yes (inaudible)

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [129]

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And be better. Basically, we purchased all the vessels in Germany and part of the proceeds of offshore have been reinvested in our German operations. So that is a much more natural fit to what we do and didn't have the characteristics as Alfred was just describing.

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Unidentified Analyst, [130]

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And are there more of these kind of businesses within Volker that you will contemplate now? I know you cannot be specific, although...

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [131]

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We recently have looked at basically the simple question, are we the better owner of the companies (inaudible) what we all have? And the answer to that is that we believe that we still are, but it is something that we, on a regular basis, do ask ourselves.

Yes, if there is a better owner then there is basically 2 answers, can you basically take action in order for that to go away that you are ultimately the better owner again, and if not, then you have to seriously ask yourself whether these are better to sell (inaudible) for the company, et cetera, and to move with somebody else, but nothing at the moment.

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [132]

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Who else? Andre.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [133]

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A lot of questions. I fear you have to skip lunch. The infra margins improved in its first half, any specific things there?

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Jan G. van Rooijen, Royal VolkerWessels nv - CFO & Member of Management Board [134]

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In the absence -- yes, it is predominantly the absence of the loss for OpenIJ and currently what...

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [135]

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Look, down the line, if you look at...

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Jan G. van Rooijen, Royal VolkerWessels nv - CFO & Member of Management Board [136]

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Yes, but infra, I think, the margin moved to -- from minus 21 to plus 18 in the 15 weeks to take a hit of 8 (inaudible) EUR 7 million. So predominantly...

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [137]

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Underlying at the group, therefore.

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Jan G. van Rooijen, Royal VolkerWessels nv - CFO & Member of Management Board [138]

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Yes. Not specific. Basically, what you see is that if you take the blanket of OpenIJ away, you basically see about, well, infra should be capable and we're not there yet, but it's going forward.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [139]

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Can you give us a feel of how OpenIJ will develop from here on? We always understood that the immersion of second caisson was by far the largest risk.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [140]

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Yes, yes.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [141]

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And then it would go down to a much lower risk, more normal ordinary work. Can you give us a feel of what's happening out in there?

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [142]

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And if you -- I was there about 2 or 3 weeks ago and basically it is now starting to look like a lot. Basically, you see basically that this is going to be a lock and I think the next steps is the -- so the -- once the lock head is immersed, it still needs to have some construction, which we will do after the immersion.

On the other side of the lock head, we need to build the structure that will basically catch dividing door, that's in itself will be out of the lock head less difficult because there, if you have landmass against which you can build for the inner lock head, it is complex because it is built in open water. So basically, the door rolls out and we have to cater in this particular structure. So the door here, again, it's caught against this. This which will be a [row] then this one will be, but this one is -- this is also a complex thing.

Now there are -- that's probably the biggest of the ones that we have. There is a whole range of complex things still to be done, but nothing in -- on the scale of the immersion process because that is done for the first time on this day.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [143]

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On Germany, your thoughts -- your warning on the Berlin rents is a thing that's moving forward or has it already had an impact on the (inaudible) order book in the first half?

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [144]

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I think those 2 are not connected. No those 2 are not connected. Yes. Because all what we noticed that if you are in an ongoing negotiation with an institutional investor, you guys know institutional investors better than I do, they are being -- if they see that somebody in the city council is thinking about this, then they will make discounts and we happen to be on the receiving end.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [145]

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Anybody already ask the $1,000 question on cash, on your excess cash. What are you going to do with that? You...

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Jan G. van Rooijen, Royal VolkerWessels nv - CFO & Member of Management Board [146]

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We already had 4 questions, please. So we're not going to be a bank but with [EUR 199 million] it's beginning to look like.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [147]

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Yes. Under IFRS, it's by the way debt and...

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Jan G. van Rooijen, Royal VolkerWessels nv - CFO & Member of Management Board [148]

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Yes, disappointed.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [149]

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There's a bit of a disappointment, but that's a question that obviously, there are no doubt that that question will be asked, but as I said before, I do not want to jump ahead on the OpenIJ immersion of the lock head -- of the inner lock head. The goals I set for 3 KPIs need to be fulfilled successfully before we will start addressing that question.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [150]

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Energy & Telecoms, already something visible in the run-up to 5G?

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [151]

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Yes, a few developments, but 5G is not going to be the game changer going forward. That will be developed over time and it will -- it is anticipated in our numbers in terms of development of first telecom (inaudible) but no, I think if you look overall at the data market and the digitalization market, I see that certain developments are growing faster than we expected. Certain developments are having less impact than we expected, like 5G is not too complex, and is not as CapEx intense as, for example, the step from 3 to 4. And nevertheless, not to tone this down, we see that the telecom market is developing in a positive manner. We have some growing activities in the German for the fiber optic market that is starting to hit the tarmac that we're very pleased with, with the developments. So telecom and data in general is going well.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [152]

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On the U.S., do you fear a structural decline in margins from that business?

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [153]

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As I just explained, the weather is really the major impact in North America. Order book is solid. The projects that we acquire and the order intake also in the U.S. is still pretty significant. In terms of order book development compared with other companies and also margins that we see pre-calculated are pretty solid. We just see pressure in the first half year because of the weather. If we're going to have 3, 4 excellent months and, for example, especially Canada is very CapEx intense, so if we are able to have a good October and November month, we won't have this discussion other than that the lag that we have right now is going to be very difficult to catch up because you really need to have a good start in the season to be in line with budgets and this season has been horrible. Just a lot of rain (inaudible) night, okay, but if it's 3, 4 days in a row, you lose, because don't forget we work 7 -- 6, 7 days a week. So that means that everything is compressed within April and October. So if you have a bad April and May or July or June, you lose 20% of your capacity. And that has a significant impact on your revenue. So overall -- and on the profit numbers because you're losing your efficiency. So that's really not something that's worrying us. It's just something we have -- it's in the hands of God as we say. It's something that we cannot control, it's weather.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [154]

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On the full year guidance, you still expect growth, but growth can of course be 2% to 20%. How has your mood changed compared to, let's say, 3 months ago? Are you now thinking of somewhat lower growth than before?

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [155]

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Yes. I think that the growth will be lower than what I thought it might be at the beginning of the year. But at the same time, it's still very sensitive to what will happen on -- if you see major project delays and you get a very disappointing statement from bankers, which basically says, listen, I have no clue and I'm going steady for the next 2 years and I have to solve this. That is a difficult outcome compared to, okay, but this infrastructure project will need to go ahead despite the ruling, this will be an ADC necessity, et cetera.

So basically, it is difficult to predict. And again, the only thing that we wanted to say is the fact that these uncertainties have been caused is creating already now people to step away from the normal business rhythm that they had. If you talk to like other staff, then they are also looking and they'll say, can we still do this? A, the planning was that the [A37] would have been put into the market by now. Then they say, okay, I'm not going to say that we will never do it, but right now, I can't.

Now that means that your whole paper machine is becoming disrupted, and again, the longer it takes, the more impact it will have. But without this, I tell you that all other things being included, then that growth would have been better than what now may be the case. But again, we still look for growth.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [156]

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Two more, if I may. I seem to recall that [it was in] -- energy, that energy was kind of lagging in its performance. That there was also some catch-up there to do. Can you tell us -- can you provide a bit of an update on how energy within that division is doing better and better because part of the improvement comes from the Energy division? So then -- can you -- is there some split that you can give between the 2?

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [157]

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No. Because we report as the sort of divisional level for a purpose. (inaudible) that the growth in E&P is being a bit more linked to the energy particles that the Joulz acquisition that accounts obviously in Energy. But both divisions are growing, and both divisions are showing good results.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [158]

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Okay. And then maybe a nitpicking effort, but at the year-end, you said, those large projects in the '20 to 2023 periods that were 20% to 25%. Now you mention 10% to 15%, is that just -- is there something to it that there is a different number there?

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [159]

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No, still the same list.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [160]

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Okay. So in fact, the list hasn't changed.

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [161]

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No, but the timing has changed of these projects.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [162]

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So we see a little example that is the -- this is the project less than EUR 150 million or EUR 125 million...

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Alfred Vos, Royal VolkerWessels nv - COO & Member of Management Board [163]

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No, there's a list of, let's say, EUR 150 -- EUR 100 million to EUR 150 million. And let's say, the list of EUR 150-plus million or you can call it EUR 200 million and then you have to take 2 out from the one list and add 2 to another. For me, there are 3 categories in our infra business. It's the regional stuff. And that's not linked to money, that's just executed and tendered regionally by provinces or municipalities. And then we have the Rijkswaterstaat projects, which is under the Ministry of Infrastructure.

Within Rijkswaterstaat, we look at 2 different categories, actually 3, but I'll leave the renovation and overhaul projects aside. In those 2 categories, you have the smaller group, which projects tend to, let's say, EUR 80 million to EUR 100 million. That is a significant list. It's a long list. And then you have the list of what we call the exotic or the big ones, the big complex works. And that is 10 to 15 projects, and maybe it could be 20 in January. I just saw the list this week because we monitor that list constantly with our internal teams, actually there is a meeting today with the whole group. And right now, the visibility we have is about 10 to 15. And that has to do with the timing of those projects. There are a number of projects pushed back by Rijkswaterstaat because of funding discussions at a level that we are not involved in. We still see that those projects are prepared and that the government and also Rijkswaterstaat and the local stakeholders are preparing for initiating those projects, but the timing is shifting out in time.

And then because the government infrastructure budgets are fixed, they are taking where the project is delayed for whatever reason, not related to nitrogen, but for other reasons, they take other projects and basically pull them forward in time. So it's, kind of, I wouldn't say a flexible list, otherwise, you might have the interpretation that it could be 10 today and 20 tomorrow. It is very -- it is really within the margin. So it's a nit -- nitpicking.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [164]

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Operator, can you...

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Operator [165]

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No. There is no one on the phone.

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Jan A. de Ruiter, Royal VolkerWessels nv - Chairman of the Management Board [166]

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No one on the phones? Then I would like to thank everybody for joining us who did so by phone. And obviously, anybody who joined us physically in Amsterdam, and those people, I would like to invite for lunch. Thank you, operator. You can conclude the call now.

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Operator [167]

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Thank you, sir. Ladies and gentlemen, this concludes the event call. Thank you for attending. You may now disconnect your line. Have a nice day.