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Edited Transcript of MF.PA earnings conference call or presentation 21-Mar-19 10:30am GMT

Full Year 2018 Wendel SE Earnings Call

Paris Mar 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Wendel SE earnings conference call or presentation Thursday, March 21, 2019 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* André François-Poncet

Wendel - Chairman of the Executive Board & Group CEO

* Bernard Gautier

Wendel - Member of Executive Board

* David Darmon

Wendel - MD & CEO of North America

* Jérôme Michiels

Wendel - CFO & Director of Operational Resources

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Conference Call Participants

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* Alexandre Gérard

CM-CIC Market Solutions, Research Division - Research Analyst

* David Cerdan

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Patrick Jousseaume

Societe Generale Cross Asset Research - Head of Mid and Small caps Europe Research

* Pierre Bosset

HSBC, Research Division - Head of French Equity Research

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Presentation

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [1]

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Welcome. Welcome, everybody. We're going to start. If I could have your attention, please. Thank you. Okay. Can you hear me at the end of the -- at the back end of the room? Yes? Okay.

So welcome to today's presentation of Wendel's 2018 results. I am André François-Poncet, Group CEO. I'm here with Bernard Gautier, who is Deputy Group CEO; Jérôme Michiels, our Group CFO; but also with some other colleagues, Stephane Bacquaert, who runs our operations in Africa; David Darmon, who runs our operations in North America; and other colleagues who may answer questions if this is helpful to you.

We're also pleased to have our Honorary Chairman, Ernest-Antoine Seillière and also François de Wendel and the current Chairman of the Supervisory Board, Nicolas ver Hulst, and other directors of the firm. We will take you through our results, answer questions. The presentation is webcast live. I say hello to those who are watching us from abroad, particularly from the U.K., where I understand it's not so easy to come to Paris today. And also, I say hello to representatives of the Representative Committee of Retail Investors who are here today.

You can download this presentation. You can watch it realtime from your office.

Now turning to the actual presentation. You will have seen a string of announcements this year over the last 12 months as we have sold several companies, but perhaps some clarity on the big picture, what it is that we have been trying to do and are doing will help. EUR 1.5 billion of disposals year-to-date, EUR 1 billion in 2018 and roughly EUR 500 million so far this year have been realized affecting accounting gains, what we call accounting gains, which is not really an accounting concept because some flow through the income statement, some go directly into the balance sheet of about EUR 720 million. This includes this year the partial disposal of our stake in Allied Universal, our divestiture in place and the dribbling out of some shares that we have sold in Saint-Gobain. The EUR 1 billion last year includes EUR 400 million sale of Bureau Veritas' shares. We have also reinvested in the portfolio, EUR 141 million, mainly 2 reinvestments, one in Allied Universal, prior to this year's partial disposal, and in Stahl at the end of last year.

This action that we took over the last 18 months, almost 18 months, I guess now 15 months, has translated into a very strong financial structure with net debt at Wendel, as we speak, converging towards 0. More importantly, probably, we have a very simplified, a stronger and simplified portfolio. We now have basically 7 companies. We had 13 last year. This is important in terms of focus. We -- you will hear us speak about each one of these companies. You will see that a lot of work is going into our companies, a lot more work than we have ever done in any of -- in all these companies, and this is making our life day-to-day simpler. There is much less distraction from small investments, which really, at the end of the day, do not move the overall performance of the firm.

We feel we have a solid basis, and we have fueled for future development for acquisitions, increasing our ability to move quickly when we see something we like. As you know, we plan to buy companies, which are of high quality. We plan to be disciplined. Last year, we bid on certain companies, but we remained very disciplined at the 11th hour when it came to agreeing or, in this case, not agreeing with what the vendor was expecting. We plan to focus really our investments on Europe and North America, although we will continue supporting Tsebo in South Africa and its development.

You will have seen our NAV, this is just descriptive, 1.7 point -- EUR 147.4 per share, loan to value of 6.1% at the end of December and net debt at the time of EUR 400 million roughly. Obviously, this net asset value would be up since the beginning of the year after a rerating in the market and a very substantial rerating in the Bureau Veritas' shares, which I will expand on, which is currently trading at EUR 21.50. So if you had DB at EUR 21.50, everything being equal, then NAV today would be getting close to EUR 160, and that is not including what happened on the rest of the unlisted portfolio.

Consolidated sales, EUR 8.4 billion, up 3.9%. Most of our companies posted organic growth. Consolidated net income of EUR 280.4 million, 45.3 million group share.

You will also have seen that we have decided to seek an exemption from IMF in order to launch a EUR 200 million share buyback. We will hear back from IMF we expect shortly, and we'll execute thereafter. Why EUR 200 million? I'm sure that's a question which is on people's minds. Well, first, why are we doing this? First, because we see value. Second, because we want to strike an equilibrium and not do more to keep firepower in order to be able to take up or to seize opportunities. And thirdly, because we want to strike a balance in terms of the liquidity of our shares, which are -- which is there, but we don't want to buy too much and soak it up. Our belief is that Wendel-Participations, our core shareholder, will not participate in this repurchase, and therefore, it will be a purely market repurchase.

We also will -- the board has decided to propose to the shareholders' meeting an increase in the dividend by 5.7% to EUR 2.8 per share. So that's for my introduction.

I will get into BV, Bureau Veritas. I will not discuss Saint-Gobain. We are dribbling out the shares, and we do not -- no longer look at Saint-Gobain as a portfolio company, which is one of the elements of going from 13 to 7. And then Bernard will discuss the unlisted portfolio, and Jérôme will discuss -- go through our financials.

So a quick word about BV. You will remember that we have said that BV is a core holding in the company in which we believe a great deal. I personally spent about 20% of my time last year on BV at Wendel with a team of 5 colleagues working very closely to follow what is going on at the company and management. And in management's own words, I think our collective effort has unleashed a lot of energy at BV.

Revenue at BV of EUR 4.8 billion is up 4% organically, which is a significant improvement and more than most expected. In the second half, organic growth was 4.4 -- sorry, in the last quarter, organic growth was 4.4%. So there has been good momentum at Bureau Veritas in terms of the top line, 6 acquisitions and particular success in the company's growth initiatives.

Adjusted operating profit of EUR 758 million is up 1.7%, but what you don't see is at constant currency, it's actually up 8.4%. So there's been significant currency headwinds. I guess it's a reality. Currency is real money. But nevertheless, when you go through the numbers, 8.4% growth at constant currency is pretty good growth.

The adjusted operating margin is at 15.8%. But without these currency effect, it would have been 16.1%, which is a very nice level.

There has been strong improvement in BV's cash flow -- free cash flow, something that I guess, historically, had been an area of focus, but only recently. We're announcing the efforts of the company's -- the results of the company's efforts to generate free cash flow, and it has become -- we now have a real ownership by BV's team of their balance sheet, and that is a significant change.

The dividend proposed is EUR 0.56 per share. We want to conserve cash because we see good opportunities also for BV to grow. And as you might have seen but maybe have not analyzed, the leadership team of BV has been substantially renewed. Of the 10 people who participate in the Executive Committee, 7 were not in the same position a year ago. This includes a new CFO, a new Head of France; a new Head of marine; a new Head of transversal functions, it was previously the Head of Latin America who had been very successful in Latin America, but had always worked in that continent; and other changes. So it's a very dynamic, very motivated BV management team in charge of the company.

For the full year, the group has issued guidance. It's up to them to issue their guidance, but solid organic revenue growth, continued improvement of adjusted operating margin in constant currency and sustained cash flow generation.

So with that having been said, I will now ask Bernard to take the podium and to discuss the unlisted portfolio.

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Bernard Gautier, Wendel - Member of Executive Board [2]

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Thank you, André. Good morning, everybody. Thank you for being here in such a wonderful first day of spring in Paris to listen to our results, but it's worth it. So let me go now through some more precise information, company per company. But just prior to that, I would like to close back the loop with one of the very first message sent by André earlier.

We have, over the last 14 months, sold a number of assets. For various reasons, we've done that. But we are convinced that we've made the right moves. And just to remind you the numbers. The objective was to get a stronger and simplified portfolio, as André put it. In 2018, we have sold for close to EUR 1 billion of assets with 4 unlisted companies, Saham, NOP, CSP, Mecatherm. And since the beginning of this year, we have sold our stake in PlaYce. PlaYce was a joint venture we had with CFAO in Africa. We have started to sell the remaining shares we have in Saint-Gobain since the beginning of January, and we have announced recently this transaction around Allied Universal. And by the way, we have announced the disposal of 40% of Allied Universal, but this has been some kind of spontaneous process following the acquisition of USSA during the last quarter of last year. We have received, together with our co-shareholders, a number of solicitation. CDPQ has been able to put on the table the most compelling proposal and faster than others, but there are still others, and we still receive some ongoing calls for the rest of our stake. And we have not yet taken any position on this, but we will let you know in the following weeks.

So close to EUR 1.5 billion of proceeds over the last 14 months. One way to look at this is to get into a little bit more details, company per company. Those of you who attended our investor meeting early December, remember this chart. It was already -- well, information were presented slightly differently, but everything was already available. What is new compared to this chart for the private assets that we have sold, that we have sold PlaYce, as I said, with a 15% IRR. And we'll -- I promise that for our next communication, we'll update the graph. But it's a recent move, and we still have some final number to check. But it's a 15% net IRR on PlaYce. And as far as Allied, the same. We are waiting for closing and some adjusted more precise numbers. But the order of magnitude, those value created with the Allied Universal situation, is that we have -- we are about at the closing time to get back all of the money we have invested into Allied Universal while we sell only 40% of our stake. So it can give you some hint on the type of return that we are generating here. So a very good return.

Overall, as André said, EUR 1,500 million disposed, EUR 720 million of value accounting gains. If we take off this EUR 1,500 million of disposal, the recent disposal of Saint-Gobain shares, we are posting close to 2x cash-on-cash return on all the other assets sold. And if you zoom only on the private equity assets, private assets that we have sold or partially sold, we are above 1.7 net IRR -- a cash-on-cash return, which gives significant and high enough IRR, especially if you take into account the fact that we have been in Allied Universal only for 3.5 years somehow.

And last but not least, all these private assets have been sold on the average value, which has been far, far above 50% our last published NAV. Consequence is very simple. For me, its consequence is, last time we met for our Investor Day, I announced that I will buy myself some shares. I actually did 10,000 shares. So far, I've made some good money on it, and my rate of return is pretty good. And I tell you today that I'm going to buy more in the coming weeks.

Now the performance of the companies. First, for the listed -- nonlisted companies. First, I would like to insist on the profile of growth we have in our unlisted portfolio today. The last line shows that Cromology is having some trouble. I will get back to it. It's not growing. Profits are declining. We have a real difficult case here. And again, I will make some more comment on it.

For the other companies, you will see that organic growth is pretty high for African companies, which is, well, normal. We bet on growth. We are getting growth. And for the more mature businesses, we have lower growth, but a pretty stable resilient, if not increasing profits for some of them. The dynamics among this company has not been the same in 2018. Two of them, the 2 industrial ones, Stahl and Constantia, have enjoyed a pretty good, if not very good, first half with close to 4 or more percent organic growth and improving margins. But then the second half has not been good, going down to close to 0 growth in both cases and some operational margin for Constantia than for Stahl for reason I will comment in a few seconds. So we have these 2 industrial companies evolving worldwide, but based out of mature market. We have the 2 African companies still running fast. And then we have Cromology, which is having some troubles. In the middle of that, Allied Universal is posting very solid result and the value creation I just commented earlier.

IHS. Now to go into more detail, company per company. You remember last year, same place, maybe not exactly the same day. It was a very, very tough start of the year for IHS, not for their business. Business was doing well. Business has been doing well at IHS for years. But the environment was tough because they had to suffer from: first, the EFCC control; second, the creation in the course of '17 of the NAFEX rate, which created 2 conversion rates in Nigeria and had an impact on IHS. IHS was so far contractually edged and was basically dollar and euro operating company before the creation of NAFEX. The creation of NAFEX created a gap, and a part of their business became suddenly uncovered on the currency. So that's why, at the beginning of last year, we had this bad news to deal with. And the last one was a situation of one of their clients, formerly named Etisalat and name changed for 9mobile, which was in a kind of uncertain position.

What happened since? First, IHS has posted 20% organic growth, 20% organic growth. We went there to get growth. We are getting growth. Profits have increased in between. And even if we correct this organic growth by the ForEx impact, we still have a positive growth in dollar. And all this situation is coming again from the fact that the creation of NAFEX has impacted significantly the numbers reported by IHS in 2018. But nevertheless, they are posting a positive growth of the top line, of the bottom line, and I can tell you that the company, with our help and help of other shareholders, is working hard on the resolution of this NAFEX topic.

What about the 2 others? EFCC, done. So yes, IHS has been scrutinized by EFCC, by local tax authority, by 2 large worldwide auditor firms and went out without any problem. It's over. They got back their money, which was frozen. We had done lot doing this. But everything was clean and totally clean, mid of November if I remember well. So it took us -- it took the company 9 months to fight against this unfair attack, but we consider these were unfair attack and now behind us. It was a big problem.

What about 9mobile? The third problem we had at the beginning of the year. 9mobile still exist. 9mobile in the middle of the year got its formal official approval to operate. They are paying their invoices, just like anybody else, not exactly it's the same amount every month. But globally, IHS is recovering the payment from 9mobile. So I will not say that this situation is fixed forever because you cannot know. But so far, as of today, it's fixed.

So the -- mainly the only problem that IHS is still fighting against is this 2 ForEx rate still existing. Maybe a regulatory solution will happen. Maybe a contractual solution will happen. I'm very optimistic on the fact that it will happen.

So that's for IHS. I would add that amongst all this, again, the company posted positive growth development. I'd still the time to look and work on acquisition project because they announced projects of acquisition of Zain Towers in Kuwait and Saudi Arabia. This is still work in process, not yet closed. And on top of this, don't forget that they are a key player in Nigeria in Africa. And amongst many other CSR program, they have launched a new program this year, which is called school on wheels, where they are training young Africans about robotics. They have designed a 15-hours course. And they have, so far, during the second half of last year, gone through 135 schools in Nigeria to deploy this program, and they have the intention to increase it significantly. That's just one example to say that IHS is a complete company with all the right DNA to make great progress in the future.

Moving to Stahl. As I said earlier, Stahl had their contrasted year. First half, very good. Second half, more difficult, mainly because of volumes decline in some of their major markets. We have all read newspapers. Some of the markets, whether it's shoes, auto are slowing down. And a little bit like what happened some time ago where the end market slows down slightly, the value chain has some kind of compression effect and destocking effect, which has impaired the volumes of Stahl during the last semester and particularly the last quarter of last year. Beginning of the year is on the same trend. The good news is that Stahl has a fantastic CEO, anticipating almost everything. They have significantly cut costs. They have been able to pass good enough price increase and deserved price increase. And now at this time while we speak, we are seeing raw material stabilizing or even going down. Dollar is going into the right direction, at least for Stahl, because Stahl is basically a dollar-denominated company. Their EBITDA is generated in dollar, so strengthening of the dollar means more result in euro for Stahl. And the leverage in the meantime has gone down significantly because cash -- because Stahl is a cash machine and as a transformation rate of EBITDA in cash, which is very, very high, it has actually been higher than 100% in 2018.

About CSR, 8% of the CapEx budget of Stahl in 2018 has been allocated to solar power generation units to equip 3 of their large factories, 8% of the CapEx budget, so it's not nothing. And they have also been very happy to see that Provera, which is a new product line they launched 2 years ago based on probiotics. So it's biotechnology. Stahl, yes, is using biotechnologies. Provera is new products for the wet-end part of the tanneries, which are the customers of Stahl. Biodegradable, very clean product and the sales have almost tripled in the last 2 years, so it's another example amongst any other initiatives.

Constantia, as I said in my introduction, the same type of pattern, experience the same type of pattern than Stahl, as an industrial company. The first half of the year was reasonably good. It was nice increase in sales and in growth. Stable margin, but the second half have seen a close to 0 growth because of the overall environment, because of some segment where there were position of -- especially in the food, in the consumer market, which have been steeply declining in volumes. And all this had an impact on their gross margin, which, in turn, had an impact on their EBITDA. As a benchmark, the squeeze that Constantia has experienced during the last 6 months of last year on the gross margin is, nevertheless, slower than the one of Amcor and of a couple of other large flexible packaging companies, which doesn't make us happy, but nevertheless, help us to take its numbers in a relative way and to work on the right issue to make sure that 2019 will be a better year than 2018.

In terms of CSR, the most important thing and the most important effort at Constantia has been fighting against the rate of accident at work. When we took over Constantia, the situation was really bad compared to all the benchmark we know. So we worked a lot on this. There is no Supervisory Board, which is not starting by a detailed review of the HSSC numbers, and it's paying off. In 2018, the accident rate has slowed down -- has been reduced, not slow down, it's been reduced by 30% in 1 year. So this is, again, one example among others how we deal with CSR in our portfolio of companies.

Allied Universal, good year, of course, good valuation, fair valuation because the company has made significant progress in 2018. They are very well integrated Universal, which were the first big acquisition, merger just after our acquisition. They have implemented the synergies, which were planned. We consequently see the margins slightly going up between 2017 and 2018, not as fast as a pro forma analysis, which would show, but that's the difference between analytical looking forward accounting and pure accounting. But the company, again, has implemented its plan. As even beyond this one, made a few other acquisition and more importantly, the last one, the big one, USSA, in the last quarter of last year. Implementation is just starting, but, as I said, this triggered some incoming calls and basically the deal we announced recently. So very good performance for Allied Universal. In an environment, which is not friendly for Allied Universal because, yes, growth in North America and the United States is good, but it's so good that unemployment is very low and because the first cost, largest cost obviously in Allied Universal is personal cost. It has been increasing steeply. And nevertheless, Allied Universal has been able to maintain its margin or even slightly increase it, and that's also why we are used to say that Allied Universal is a countercyclical asset, and it certainly explained why a long-term investor like CDPQ, who has a lower cost of capital, proposed us what they have proposed to us, makes a lot of sense.

Tsebo, just a few words to say. It's still running fast. It's still growing fast in a very adverse environment. South Africa, there was some strong headwinds growing against the whole economy and against Tsebo. Nevertheless, good revenue growth, slightly lower growth of EBITDA, still very high quality of positioning and rating because of -- that maintained. They have been confirmed in the Level 1 BEE rating. Few -- a couple of small acquisition have been made. The equity story for us about Tsebo is still, of course, about growth, organic growth, but maybe a bit more external growth in the coming years. So far, so good. I'd be happy, or maybe Stephane, who is in the room, will be happy to answer to your questions.

Then the last is Cromology. As I said earlier, Cromology is going through very difficult time. We had basically 2 factors explaining the situation. One is just the environment. The market is not good for a variety of reasons, especially in France, and France is a big part of Cromology activity. So the market in volume has not been good. But we believe that Cromology has lost, especially in 2018, which was not the case before. Cromology has lost some market shares, mainly due to higher turnover, higher churn of salesperson than normally what happens in the industry. So this is something which can and need and must be fixed. The new management in place is on top of things working on this. And the other phenomenon, which is a little bit less controllable, is the steep increase that, not only Cromology but the whole industry has experienced of, one, if you think of raw material over the last 2 years, TiO2, titanium dioxide, it does a significant weight because more of Cromology. So swings like the ones you see on this graph are really impactful in a negative way when it goes up, in -- obviously, a positive way when the price goes down, and so far, the beginning of the year is more on the positive trend as far as the impact on the P&L of Cromology is concerned. Having said that, Cromology has rich covenants, so we are currently in discussion with lenders. And because of this situation, I cannot provide you with much more information at this stage.

So that's it for the company-per-company view. This, combined, creates a very still balanced portfolio, both in terms of geography and sectors. And you will notice because we are cash 0 -- at debt 0 overall on our balance sheet, you will notice that 22% of our gross asset value is made of cash. So we are -- was in a very defensive situation today, but at the same time, in a very good position to become more offensive as soon as we find good reason to do so. Thank you.

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Jérôme Michiels, Wendel - CFO & Director of Operational Resources [3]

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Good morning. So I will now cover the financial part of the presentation starting with the consolidated sales, which have increased by 3.9% this year to EUR 8.4 billion roughly. The growth is the result of organic growth of 3%, 4.8% relating to scope, which is mainly driven by the acquisitions made by Bureau Veritas as well as the integration of BASF at Stahl and negative foreign exchange of 3.7% affecting most of our companies this year.

Net income from operations, which aggregates the recurring results from our portfolio companies, net of Wendel's operating and financial expenses after tax, came in at EUR 512 million, a modest increase versus 2017 of plus 1.4%. But bear in mind that we have highly negative scope effects this year. The disposal of labors by Constantia in 2017 results in a negative EUR 25 million impact this year and the deconsolidation of our Saint-Gobain shares in 2017 brings an additional EUR 40 million negative impacts compared to last year. So despite these effects, our net income from operation is growing, which is the result of the good performance of our companies and of the very strong reduction in our financial expenses by almost EUR 45 million. You can see it clearly on this slide when you look at the financial and operating expenses line, you see EUR 168.4 million, which is EUR 30 million less than last year, mostly driven by the reduction in our financial expenses.

Below this net income from operations, we have negative nonrecurring items this year whereas it was positive last year. As you will remember, we had around EUR 400 million of capital gains last year relating to the sale of labors by Constantia and the deconsolidation of our Saint-Gobain shares. This year, we have recorded about EUR 175 million of capital gains generated by the disposals of Mecatherm and CSP. But this does not take into account the roughly EUR 300 million related to the sale of Bureau Veritas shares, which flows through equity, as set forth by the IFRS accounting rules.

Lastly, the impact of goodwill allocation is EUR 60 million higher this year than last year, where we had the benefit of the Trump tax reform on this line item last year. So this year is more at the recurring level at EUR 175 million, which, as a result, bring total net income to EUR 280.4 million and EUR 45.3 million group share.

Net asset value. As at December 31, our net asset value stand at EUR 147.4 per share. A couple of observations on this net asset value. First, as you know, from this year onwards, we will calculate net asset value at the end of each quarter. So we only published today the NAV as of the end of last year when the share prices and the multiples were quite at the low point, affecting the values of our listed stakes as well as our -- that of our unlisted assets. As André said in the introduction, if we were to have used just the current prices of Bureau Veritas and Saint-Gobain, we would have seen this net asset value at around EUR 160. So this will be reflected in the net asset value that we will calculate at the end of March and publish mid-May, together with the Q1 trading updates.

Second observation. In compliance with our methodology, we have taken into account the firm offer received for our stake in Allied Universal, which is to be used as a reference for valuation for the next 12 months. This has had a significant impact on the value of our unlisted assets that stand a little bit over EUR 3.9 billion all together at the end of December 2018.

Third observation. The level of net debt stands at a very low point at EUR 434 million, which is on account of the very high balance of cash that we currently have, over EUR 2 billion, at EUR 2.1 billion. But remember that this net asset value does not take into account the upcoming partial disposal of our stake in Allied Universal as well as the dribbling out of Saint-Gobain shares carried out over the first months of 2018, so this -- 2019, sorry. So this cash balance will further increase in the coming months.

At EUR 147.4 per share, the level of discount calculated was at 30%, and we estimate it is still around this level today when taking into account the increase in the share price of Bureau Veritas and Saint-Gobain.

Looking backwards, you can see that, this year, our net asset value has been strongly impacted by the decrease of stock markets, which has impaired the value of our listed stakes by roughly EUR 1 billion, and the decrease of comparable companies multiples has also resulted in a decrease of our unlisted assets value by roughly EUR 730 million. This decrease is also the result of the situation of Cromology, which has obviously impacted negatively the net asset value of this company.

The completed disposals and the offer received on Allied Universal have lifted the value of our unlisted assets by EUR 609 million in total when we compare to the value we had at the end of '17, which was already a high point in terms of multiples, but it still grew given the level of the disposals and of this offer. I remind you that the offer received from Allied Universal will be used as a reference for the next 12 months.

Dividends received and paid have had a minor impact on a net basis on the net asset value, whilst the financial operating expense and share buybacks have represented a negative EUR 121 million, leading to the current net asset value of EUR 6,823,000,000.

In 2018, we have strongly optimized the balance sheet at the holding company level. Our net debt has come down to EUR 442 million at the end of December and is about nil pro forma of the announced disposals. Our loan to value has also significantly come down to 6.1% at the end of last year and, again, close to 0 when taking into account the disposals.

We have had the pleasure of having our friends at S&P finally improving our rating to 1 -- by 1 notch to BBB, in line with Moody's Baa2 since last September.

So our net debt has come down significantly. We have plenty of cash, but we still have roughly EUR 2.5 billion of bonds outstanding, although this number will decrease by around EUR 700 million in the upcoming month, as we will repay our maturities for 2019. The financial interest, as I said, has significantly come down, and we expect it to continue to decrease in the future as we will repay bonds or hopefully refinance at lower coupons depending on market conditions. But as you can see, we are well financed, and we do have a lot of flexibility to make new investments.

Given the high level of cash available, the Executive Board has decided to boost return to shareholders through the ordinary dividend, which is growing by 5.7% to EUR 2.80 per share, and to implement a EUR 200 million share buyback, which is with regards to what we typically do in a year, EUR 68 million this year, quite an increase. So in aggregate, the return to shareholders will reach EUR 320 million through this dividend distribution and the share buyback. This should contribute to the total shareholder return of Wendel, which has been, as you can see, outperforming the Euro Stoxx 50 by roughly 800 basis points over the past 17 years.

Just a couple of additional comments on the share buyback to finish. Given the large amounts of proceeds generated through the disposals over the past 12 months and our strong financial structure, the wide discount to net asset value, we felt it was the right timing to implement such a program, which we have sized to EUR 200 million or around 4% of the capital at today's share price. This will be implemented through an agreement we intend to enter into and which will enable us to complete entirely the envelope by the end of this year. The buyback will start once the IMF will have definitely granted Wendel-Participations, our controlling shareholder, the exemption. As soon as we will have received this from the IMF, we will carry on with this buyback.

And I now turn it to André for closing remarks.

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [4]

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Thank you, Jérôme. Just to wrap things up. First of all, we continue to support our companies in their consolidation strategy. There are lots of projects across the portfolio. BV 6 acquisitions, one of the largest in the last few years, EMG, which turned BV into the leader in building and infrastructure around the world.

At Allied Universal, USSA was a very major move. You remember EUR 1 billion. It increased the size of the company by roughly 1/3. We turned around and supported the company in a very short period of time, investing $78 million in equity and providing a support line of another 40 if that became necessary. Constantia Flexibles acquired Creative Polypack in India, which is a very strategic move for them. And Tsebo acquired Servcor in Zimbabwe, and more recently, Compass in Egypt. And as we speak, there are a number of projects bubbling across the portfolio.

2018, just to restate some of what we said. A much-simplified portfolio, taking advantage of a seller's market, down to 7 companies. Much more focus on company's operating performance and strategic move. What we have done is we have basically strengthened our level of control over the portfolio. We have now a controller's function to monitor portfolio performance extremely quickly as it comes out. We have 2 operating partners who work across the major companies and spend a very substantial part of their time on site working with management on transformation projects. We have introduced more expertise on the board of our companies, including outsiders, including BV. If you look at BV, we have 2 less Wendel representatives, and we are -- have brought in one company -- large company CEO onto the board. We're about to bring another one. So introducing this expertise. We have very tight discussions now through the various audit committees of our companies, and we have internally made monitoring portfolio company performance into a major priority.

We have streamlined our office footprint. This is not a huge event, but it creates simplicity for us. We've closed the Tokyo office. We've closed the office we had in Amsterdam. We have concentrated Singapore on portfolio support. We have strengthened the investment process with a more diverse Investment Committee, more business analysts, more former consultants in the team, a greater emphasis on all aspects of due diligence, more -- we now have 2 women on the Investment Committee and we have a diverse group of nationalities.

Revised incentive schemes at Wendel, that was last AGM, so you know all about it, and appraisal processes. More alignment with -- I guess, the team has always been very aligned, but more perceived alignment because carried interest, the co-investment is mutualized to a very substantial degree. The bad deals offset the good deals and vice versa. A close mirror to Wendel's stock price and the CEO, namely myself, has much greater incentives based on performance shares and stock options than on co-investment. Revised incentive schemes, I mentioned. So we hired a targeted number of experienced and junior investor -- investment in operating professionals.

We hired a senior professional out of BCG who'd become a CEO before to focus on portfolio performance. And also, the other operating partner, Bruno Fritsch, who was the head of Singapore, has both operating performance and deal -- operating experience and deal experience. We have rolled out tightened compliance. We take (foreign language) very seriously.

Corporate and social responsibility. You will see our disclosures this year are very much in depth with third-party audit. We have implemented as obviously necessary the Data Protection Act and the internal audit programs across the portfolio. So it has been extraordinarily busy.

What is coming next? Well, first priority, focus on value-creation across the portfolio. There are some very strong points. There are some soft points in the portfolio. And we will be very much dealing with both.

Invest. As we have deleveraged, as we have a very strong balance sheet, a very strong financial situation also at our company level, we understand that people would like to know where we will redeploy, we will definitely redeploy. We've indicated an unchanged target of EUR 750 million, which is pretty much EUR 3 billion of -- before divided by 4 years, and so nothing magic about the number. We are looking at opportunities all the time. We feel no pressure. So those who think we must do something, why don't you do something, go do something, you're being a (foreign language), I would say, you're shy, blah, blah, blah, rest assured, we take -- we listen to no external pressure. We are here to make good investments. We are looking carefully. We bid what we like. We did that last year. But we do it with the benefit of what it means being a long-term shareholder, which is the benefit of time.

Remain cautious on leverage. Yes, it is near 0. Over time, we will probably be again, at some point, in positive leverage. But when we think about leverage, we think of it in a holistic manner, portfolio companies, holding company, how much liquidity we have in our stakes, how much flexibility we have to exert if we need to. And once we put all this in the equation, we determine as the cycle evolves, what is the desirable level of debt. In any event, we know it's cheap today. But we are careful, and we will decide as we go based on opportunities how much debt we want to carry.

Return value, the EUR 200 million share buyback. Also, some of the comments made by Bernard about his own juice show that we have a good level of confidence, and we think that this EUR 200 million level is a gesture, which, hopefully, you will appreciate. So that is really what we had to say, and we will answer questions now. Thank you.

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Bernard Gautier, Wendel - Member of Executive Board [5]

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And the last one.

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [6]

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And the last -- I know, I forgot. Sorry, last but not least, I forgot this slide. I tend to forget the last slide because I think Q&A is interesting.

CSR. CSR is a major trend. We were both -- Bernard and I are very much struck by the time we spent in Davos and other places about what -- the world is changing very fast. Our generation -- the next generation has high demands. And when the world is expecting more than just capital gains and dividends and the buybacks and all that, which, very high on our list, that's what we've been trained to think about. But as we look forward, corporate social responsibility is going to move much higher on our agenda. We have a very able person in charge. And we already -- as you see, look at our annual report, there's a lot of information there, a lot going on. But there will be more. We definitely need to think in those terms, and we are very determined to do that.

So thank you, Bernard, for reminding me to say so. And we'll take questions now. Thank you.

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Questions and Answers

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David Cerdan, Kepler Cheuvreux, Research Division - Equity Research Analyst [1]

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David Cerdan, Kepler Cheuvreux. I would like to come back on your strategy -- on your investment strategy in 2018. Can you explain why in 2018, you have not made any deal in term of new investment? And why could -- could it be different in 2019? So can you explain why you will change your investment strategy between '18 and '19? And secondly, regarding the leverage. Which kind of leverage are you okay to go for this leverage?

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [2]

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Okay. So why didn't we do any deals in 2018? That's inaccurate. We bought a $1 billion company in the U.S. through Allied Universal. We supported it by putting about $100-something million on the table. So that's just an example. We had somebody in the equity capital of Stahl who is looking to exit. We didn't need to buy. That's when you want to buy is when you don't need to buy. So we bought it at what we feel were very attractive terms for us. And we also invested to support Cromology so it could continue to attract a talented management team at the time. So that's what we did last year. Why didn't we do more? We didn't do more because we didn't like the deals we saw. We thought they were too expensive. We came very close to buying a company in France called Comexposium, a good company. We thought we could grow it for the long term. But at the end of the day, the combination of a slightly excessive price, not massively, a small price differential; an agreement with the partner which restricted our liquidity, our governance rights; and potentially, a management agreement which we felt was not aligned to ours, were such that we did not find the proposition sufficiently worthwhile that we would run the last mile, and we let it go away. So that's an example. It was at a high multiple traded well into a mid-single-digit EBITDA multiples. So we're not shy. If it's something like, we will do it. We have the means to do it. But again, I appreciate your question. But there is no pressure. And I refuse pressure. That's why -- and likewise, our people said, "Well, you want to sell assets last year. I got 4 calls from investors. Why don't you tell us what you want to sell?" Well, we're not going to tell you what we're going to sell because, precisely, if we do, it's going to hurt the value of what we have to sell. So we said nothing about what we wanted to sell, and we got extremely attractive prices for most of our assets or satisfactory prices. But in any event, never felt the pressure. In this job, one should not feel the pressure to buy or to sell. We are not a fund. So that's -- I worked in a fund for a long time. There's an incredible pressure to deploy. At this moment in the cycle, it is at a maximum level. It is extremely high. Wendel is long term. We are 100% invested right now. And so we will seize good deals, but not under pressure. 2019 was this -- deal season is open. We're now in March. So we're getting the -- it's a very cyclical deal season. You have a season -- there's the spring season, summer, and then you have the fall season. Why? Because that's when companies have their numbers ready. So right now, every week, we get 1, 2, 3 opportunities, minority investments in family companies, secondary, sales of some funds, take private opportunities. We're looking at them, all of them. There are 1 or 2 we actually rather like, nothing imminent. We're working very hard on them. And guess what? If we like them, we'll do them. But you know what? If we don't like them, we ain't going to do them. So that's pretty much how we think about investment. We said before what we were looking for. We're looking for quality businesses with growth that the shareholders at Wendel can look out for the medium to long term as something they are proud to own and can contribute to add value, too. I don't know if, Bernard, you want to add further to what I just said.

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Bernard Gautier, Wendel - Member of Executive Board [3]

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No, I can answer to the second question. Leverage for us is very important to remain investment grade. So we -- starting from 0 where we are today to keeping investment-grade status. There's some -- there's a significant room for maneuver. But as André said, we'll use it only if we have compelling argument to do it. But that's our philosophy on leverage. It means a 10 to 15 loan-to-value ratio. It could go up as a peak for a few weeks up to 20, but that's with the current rules. And we have experienced the fact that the rules have changed over time. So we'll adapt to the rules. And in any case, we'll be extremely cautious, taking also into account, as André said also, what level of leverage we have in our portfolio companies. And today, it's pretty low in most of them, except Allied. But it could go up again for different reasons. So we will adapt to the evolution of the portfolio company situation and the rules defined by rating agencies.

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [4]

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I think most of the people I meet have no clue about what is the balance sheet flipping at that, okay? We have a balance sheet for Wendel. We have a balance sheet for our various companies. And the mobility of various assets is very different. Some are highly liquid. Some are totally illiquid. Some, we have partners we have to deal with. Some, we don't. Some have governance. Some don't. Some have acquisition opportunities. Some have less acquisition opportunities. And when we think about leverage, we have to think about the holistic picture and how you -- where you want it. It's -- talking about leverage is talking about risk. So you have to decide where you put the (foreign language), where you put the gradient. And that depends. In the moment when there's a lot of capital, maybe it's a bit higher; and moments when there's less appetite, it's a bit lower. What's your currency exposure? There are many factors. And I see a lot of very simplistic questions often about leverage. And I'd just like to say that we are trying to have a -- I'd say, a very analytical and cold-blooded analysis of our level of leverage. And yes, we do have a lot of capacity. And we might use it, but very responsibly.

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Pierre Bosset, HSBC, Research Division - Head of French Equity Research [5]

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Pierre Bosset from HSBC. I have 3 questions, if I may. So first one is on the share buyback. Why have you chosen a share buyback rather than a one-off dividends, which could have been justified by the number of exits that you made? The second question is on Saint-Gobain. A year ago, if I remember, you were actually increasing your theoretical financial exposure to Saint-Gobain. Now it's -- a year after, it's no longer a portfolio company. So what made you change your mind? And the third question is on IHS. There have been, in February, some election in Nigeria. Do you see any consequences, maybe a -- on the [2 exchange] rates, in particular. Do you expect any change on these ones?

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [6]

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Okay. I'll take the first 2 points. And you, that -- the IHS question, it makes sense. Okay, dividend. I guess quite simplistically perhaps, we think that a higher dividend is a signal we don't know how to use the capital. We felt that a share repurchase, we're showing confidence into the fact that we like our own assets. So we made an investment decision as opposed to distribution decision in terms of the amount. So that -- so that's -- and one of the factors, just going into the fact, we think our portfolio is attractive is the -- is obviously the discount. Now we're not in the business of stabilizing the discount. I think the first time I looked at CGIP in the old days, in the '80s, we were already talking about the discount. I think we could write a book about the discount. But nevertheless, it's makes -- it makes for a more attractive investment at some points in time. And we felt that we wanted with this EUR 200 million to make an investment decision and not a -- I'd say, just a distribution decision. On Saint-Gobain, last year, we bought -- this is obviously a more delicate matter. Last year, we bought call options to hedge the exchangeable bonds that we had out of the money call options. I guess perhaps, we had more hope last year than this year about the trend in which the stock price might go and, therefore, that we shouldn't expose ourselves by being short if we sold without having first covered the options on the exchangeable. In retrospect, it was a very small amount of money. In retrospect, it was poorly spent money, a few million euros, poorly spent, no doubt. Now today, we look at the Saint-Gobain share price, it has fallen precipitously since the same period of time last year, which is unfortunate. You can make your own assessments as to why that happened. I guess we are coming to the end of a long story. It's -- we only have -- we only had, when we engage in the final stretch, 2.6% of Saint-Gobain. We're going down very slowly because we are taking no more inside information about Saint-Gobain. So we will dispose very slowly without moving the stock price. It's very smallish amounts. And that's really it. I think if we felt there was incredible upside, we wouldn't sell. But it's a purely trading decision. And we're not that clever, so we're just dribbling out. So that's the -- I hope that's clear.

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Bernard Gautier, Wendel - Member of Executive Board [7]

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So yes. Pierre, your third question was about Nigeria recent election. So the first good news is that President Buhari has been reelected with a fairly comfortable level of support. Not too much, so that he doesn't look like a -- some kind of extreme to other countries, but comfortable enough so that it's clear cut and reduces almost down to 0 any kind of noise in the street and instability. So we believe -- and we had the discussion with, of course, the management team of IHS, especially the Nigerian subsidiary management team, they are very happy of the score of this election. Frankly speaking, we would have preferred the other candidate to be elected because part of his program was the merger of the 2 rates. But sometimes, different candidates might end up having different program, but implement other things once they're elected. You know this in many countries. And we believe that the pressure from FMI and the pressure from a number of other constituency, external international investors like us and others will help to -- for the new cabinet of Mr. Buhari to build more appropriate fiscal policy. You've seen recently that they have decided to increase significantly the minimum wage by something like 70%. It has absolutely no impact on IHS because we were -- we are already paying people better than this. But it's probably a sign that they could relieve some other pressure on the currency and the -- almost the actual rate, which is a CBN rate. And whether CBN goes devaluated or NAFEX and CBN merge, in any case, these are 2 new -- good news for us. So the -- not so much result of the election, but what has happened since gives us some positive signs. Having said that, it's just guesses, maybe a little bit educated. We cannot build a strategy on this. That's why in parallel, the team, the management team is working hard with its 3 largest customers and one big large customer, also a shoulder of IHS, to resolve contractually this situation. But it's not yet done.

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [8]

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I'd just like to add. We obviously don't take any political stance on the elections in Nigeria. So Bernard's comment was specifically directed at the exchange rate performance for the team.

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Bernard Gautier, Wendel - Member of Executive Board [9]

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Yes. Regarding the leadership of the president, we think he's done a lot of very good things. And we're not -- we don't take positions either side.

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Patrick Jousseaume, Societe Generale Cross Asset Research - Head of Mid and Small caps Europe Research [10]

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Patrick Jousseaume, Societe Generale. A follow-up question on IHS. Could you elaborate a bit about what could be 2019 for IHS in term of organic growth, margin and so on? And at some stage, for IHS, you contemplated a -- the company contemplated an IPO, could you also comment on that?

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Bernard Gautier, Wendel - Member of Executive Board [11]

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Well, the IHS does not issue any guidance such as we don't for any of our companies. So I cannot precisely answer to your question. What I can tell you is that the telecommunication industry, the MNOs industry in Nigeria has grown by more than 10% last year in Nigeria. And there is a desperate need to deploy more 3G and 1 day, 4G. So they are still at the very beginning of the 3G deployment. Telecommunication sector is a critical sector for any country, any economy, in particular, fast-growing one and African ones. So that -- we believe that the underlying market is strong and will be strong. It went through a slower time 2 years ago when Nigeria was for -- 3 quarters in negative growth and recession. That's behind us. And as I just said, last year, the growth of the sector was above 10%. So we believe that this should push up the growth of IHS, but we do not issue any specific guidance. In a top line increase, given the type of top line increase IHS is doing in Nigeria, most of this top line increase are incremental revenue on existing towers, which mean -- you can immediately understand, it means improvement of profitability. Again, I must add that these comments are on the basis that the current situation of foreign exchange rates doesn't materially change. If the 2 rates are combined, it's a big, big uplift for IHS. If NAFEX doesn't move and CBN rates devaluate and get finally closer to NAFEX, it's a big, big uplift for IHS. If CBN stay where it is and NAFEX devaluates, it's a negative for IHS. Until the CBN indexation rate in the contracts is changing to NAFEX rate for that. I hope this is clear enough. But very positive organic outlook for next year based on market trends. [Ask] from the customers to put new equipment on the towers and acceleration of 3G deployment, especially in Nigeria, but that's also true in the other countries.

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [12]

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On the IPO question, there are no concrete plans for an IPO. It's clear that the lifting of the EFCC question mark that existed a year ago, that the improvement in the 9mobile situation, that the elections having been peaceful in Nigeria, the situation is much more favorable in terms of a prospective tasks. And there are various tasks for liquidity for shareholders or access to capital for the company, but that's all we can say for the moment. It's too early and nothing is planned for.

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Bernard Gautier, Wendel - Member of Executive Board [13]

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Yes. And again, the NAFEX topic will have to be resolved. It's -- it's worth a lot of long-term value, so it has to be fixed.

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Alexandre Gérard, CM-CIC Market Solutions, Research Division - Research Analyst [14]

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Alexandre Gérard, CM-CIC. I have 2 questions, please. The first one relates to Stahl and Constantia. Could you give us some more color on the outlook for these 2 companies in 2019? Can we expect to see the same climate at the one we saw in the second half of the year? Could you maybe quantify it in terms of organic performance or EBIT margin improvement what you expect? And my second question relates to the disposal of Allied Universal. In terms of multiple, you sold that company for tremendously high multiples. It's close to 16x EBITDA if I'm right. What were the multiple used by Wendel in the last valuation prior to the disposal of that stake?

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [15]

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Okay. So Stahl, I'll let Bernard be more -- perhaps address that. The beginning of the year is soft for both these companies. You know car volumes are soft generally, particularly in Asia. So Stahl volumes are soft. The overall company reaction has been very good. So that significantly dampens the effect of volume volatility. I don't think we'll say much more than that, really.

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Bernard Gautier, Wendel - Member of Executive Board [16]

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No, no. Yes. Volume, we don't see any significant change in the trend for the first weeks of the year. The first week of the year do not make a year like a swallow doesn't make a summer. So we don't know yet. It's too early. But volumes are still under pressure in both cases. The good news, if I look at the environment, is raw material is no longer increasing, whether we're talking about chemical raw materials for Stahl or aluminum for Constantia. Although the very recent yesterday attack, cyberattack on Norsk Hydro might create a peak on aluminum for a few weeks, we don't know. So it's very difficult to predict. But the -- it looks like the global trends are toward reduction of raw material costs, which could push us to be a bit more hopeful on margin and cash generation, but a bit more cautious on top line for the outlook of the year. But again, we do not publish any guidance nor precise numbers for this company. On Allied, on your question on Allied, we cannot really compare the multiples because when we acquired AlliedBarton -- David is in -- David Darmon is in the room? Yes. So he is the guy who made the acquisition. Raise your hand. And the sale of 40% of our stake. When the acquisition was made, we acquired a purely stand-alone company with its own stand-alone growth, stand-alone improvement year-after-year in terms of organic growth and profit improvement. So we looked at AlliedBarton in terms of a multiple of a not structurally changing EBITDA. Since then, we have multiplied by 2.5 the size of the group through these various acquisitions. And some are still hot, just closed, just finished and with a lot of synergies to come. So an acquirer today will not look at the same EBITDA than the one we looked at 3 years ago. An acquirer today will look at not only the EBITDA of the last 12 months but also the potential of additional EBITDA through synergies and will make pro forma analysis of this EBITDA. And we look forward, especially the acquirers are very long-term low cost of capital type of acquirers. So if you use -- if you are using the same metrics, somehow, we could say that today, we have benefited from an increase in multiple. But in fact, the multiple does not apply to the same type of EBITDA, so how to compare. David, you want to add something?

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David Darmon, Wendel - MD & CEO of North America [17]

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I think it's just fair to say that there is a very strong M&A pipeline. And the investor here is probably valuing the next year EBITDA rather than the 2018 EBITDA. And there is some growth -- strong growth coming in terms of EBITDA, in terms of M&A things. We are back on the road. And thanks to the financial means provided by CDPQ, Allied Universal is probably going to be able to be in a position to buy a handful of companies in the short term.

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [18]

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I sense lunch time is getting close. Pierre?

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Pierre Bosset, HSBC, Research Division - Head of French Equity Research [19]

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Sorry, 2 more question. First, a small question on the IHS deal in Kuwait. Why is it taking so long? Were -- is there any issues? And the second question is on the cash burn and the cost structure. Can you give us some light on the cost structure, for instance, in 2018? And how do you see it going forward with less company in those portfolio, less officers, but also some new hires? So what will be the cash burn and the cost structure going forward?

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [20]

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Yes, go Bernard. Yes.

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Unidentified Company Representative, [21]

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Okay. So...

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Bernard Gautier, Wendel - Member of Executive Board [22]

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A quick answer on Kuwait. When we acquired MTN Towers in Nigeria, the process -- negotiation process up to a final binding agreement and then the closing took something like 2.5 years. So it's just an industry where when you sign MOUs or almost binding SPA, and then SPA, and then you close, the whole process takes always a lot of time. Having said that, Kuwait, which is a smaller country than Nigeria and a smaller deal, has issued a number of new regulations. And this new regulation changed a little bit the attractiveness of the deal. And the company has decided to see how to find a solution to these changes, which are regulatory changes. And we are literally in a situation where we are in this phase between the signing and closing where regulatory authorization can make or not make the deal. So -- and it takes time in -- specifically in these countries.

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Jérôme Michiels, Wendel - CFO & Director of Operational Resources [23]

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Regarding the question on cash burn, Pierre. We have incurred this year a financial and operating expense of EUR 168 million. But proportion of that is noncash items, actually, D&A and other expenses. So the cash burn is more around, I would say, EUR 150 million this year. And this cash burn will decrease by EUR 15 million to EUR 20 million as of this year as we will repay one of our bonds, which is quite expensive. And the rest, when you take the dividends we received, the dividend we pay, there is a minor mismatch. So I would call it a EUR 140 million, EUR 150 million cash burn for this year and next.

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [24]

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But of course, the cost of -- is -- was probably your question. The cost of the team has increased by something like 3.5% to 4%, which is...

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Jérôme Michiels, Wendel - CFO & Director of Operational Resources [25]

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Well, it relates to a lot of regulation and the investments we had to do. Obviously, André mentioned it, so we had to strengthen our teams and our controls in order to comply with these new regulations.

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Bernard Gautier, Wendel - Member of Executive Board [26]

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So a bit more staffing, a slight increase on wages, some people leaving, others arriving, that's nothing -- nothing spectacular in terms of change in order of magnitude there.

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [27]

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Okay. Well, I think we'll call it a day. Thank you very much for your time and attention, and see you soon.

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Bernard Gautier, Wendel - Member of Executive Board [28]

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Thank you.

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Jérôme Michiels, Wendel - CFO & Director of Operational Resources [29]

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Thank you.