Veolia Environnement Adr

Ladies and gentlemen, welcome to the Veolia conference call on the first quarter 2023 results with Estelle Brachianoff, CEO, and Claude Laruelle, CFO. And I'll hand over to Estelle Brachianoff. Madame, please go ahead.

Thank you very much, and good morning to all of you. And thank you for joining us for this conference call to present Veolia's first quarter key figures. I'm accompanied by Claude Laruelle, our Chief Financial Officer. Following the record result in 2022, the performance achieved during the first quarter is once again very strong, with our revenue up by almost 20% and our EBITDA up by 8%, giving us confidence for the rest of the year. I can fully confirm our annual guidance. The integration of Suez is continuing under the best possible conditions, with in particular the implementation of synergies at a sustained pace. 189 million euros have already been achieved since day one. Efficiency gains were sustained as well, at 87 million euros in Q1, in line with the annual target. This very good performance once again demonstrates the strength of our bonus model, able to protect margin when inflation is high, and very largely immune to economic cycles. Velia is delivering earning growth quarter after quarter, and this should continue over the long term, as our growth potential has been strengthened by the acquisition of Suez, and we are now idly positioned as a worldwide leader in key countries and growing markets of decarbonization, decontamination, and circular economy. I'm now on page four to give you some additional color on this quarter's results. Our revenue grew by 19.9% at constant scope and exchange rate to 12 billion euros. Excluding the effect of the rise in energy prices, growth was still plus 6.3%, driven both by good tariff indexation and the pursuit of strict pricing discipline for our service offerings, plus 3.7%, as well as by a volume and commerce effect of plus 3.8%. The operating leverage was fully effective thanks to savings and synergies, leading to an EBITDA growth of plus 8%, faster than the turnover growth. EBIT grew by plus 14%. Net financial debt was well under control at 18.7 billion euros. We've been able to improve our working capital seasonality compared to the first quarter of 2022, despite the strong increase in stealth in Q1. which has compensated for planned investment increases in decarbonization and hazardous waste. On page five, you will find the detailed revenues for the first quarter, which Claude will comment on in a moment. I would like to emphasize the good performance of all our business lines, which each recorded solid growth. Water grew by plus 9.9%, thanks to good indexation as well as double digit growth in water technologies, where our order book has increased again. Waste grew by 3.2%, and even plus 5.7%, excluding the price of recycled materials. Energy grew by 54%, driven by the very sharp rise in energy prices. Adjusted for this price effect, growth was still up plus 6%, despite slightly unfavorable weather conditions. On slide six, as I said in my introduction, this quarter is another demonstration of the strength of our business model. As I just mentioned, all our businesses have been growing in Q1, as you can see on this slide. And on this slide, you can see that they all were very protected against inflation. We have been monitoring inflation and price increases as early as the spring 2021. and demonstrated quarter after quarter ability to pass on cost increases through our pricing, either through indexation formulas for 70% of our businesses or through specific price increase for the remaining 30%. The results for Q1 are shown on slide six and they should be read, of course, in addition to the 2022 price increases already granted. Let's now turn to the commercial successes of the third quarter. Pages 7 and 8 illustrate our commercial dynamism in brilliant markets, with a number of innovative contracts won this quarter in decarbonation, decontamination, and resource regeneration. In decarbonation, we've just won the management of the first waste-to-energy plant in Turkey, the largest in Europe, located in Istanbul. with a treatment capacity of 1.1 million metric tons of non-recyclable household waste per year. The plant will save nearly 1.5 million metric tons of CO2 emissions per year and produce 560 gigawatt hour of electricity, equivalent of the consumption of 1.4 million people in the city. So it's renewable energy we produce there now in Turkey. We've also accelerated our investment in methane capture from landfills in Latin America and are ramping up our new biomass plant in Brunswick, which is replacing a coal fire plant and allows enhanced green certificates for the power generated. In terms of decontamination, we won the contract for global waste management for the city of Gold Coast in Australia, a metropolitan area of more than 700,000 inhabitants, representing a backlog of 500 million euros. In terms of resource protection, and in particular water protection, I'm very proud that we've been able to renew the water distribution contract for Lille, which not only represents a 700 million backlog, but is very innovative in its approach. This is, in effect, the first of its kind contract, where we help the city to save 65 million cubic meters of water on terms of contract, the equivalent of one year's consumption. And we do that through the deployment of 5,000 smart sensors, smart metering, and awareness-raising campaigns on water savings among the local population. On slide nine, we achieved 87 million euros efficiency gains in the first quarter, which is in line with our annual target of 350 million euros. Efficiency gains are now part of Veolia's DNA, and I will ensure it remains so. Slide 10. In terms of synergies, which come in addition to efficiency gains, as you know, we delivered 43 millions in Q1, leading to a cumulative amount of 189 million since the start of the phrase integration. We are therefore in line with our target of more than 280 million in cumulative synergies by the end of 2023. and, of course, in line with our total target of 500 million euros. To sum up, and I'm on page 11, I'd like to remind you of the main characteristics of the OES business model, a solid, agile group with sustained growth of our results. We are now world leader in depollution, decarbonation, and circular economy services, with a unique range of offerings, on a 2,500 billion euro fast-growing market. Our business portfolio is very resilient, with 85% not exposed to the economic cycle, which gives us a lot of visibility. And this is, in particular, down to the key positions. Actually, we are on the top three in a few countries where we operate. In the countries, sorry, where we operate. Just to give you a color about that, those key positions are really like infrastructure resilient assets. For municipal water, this is France, USA, Chile, Spain, and the Czech Republic. And we have worldwide undisputed leadership on five continents in hazardous waste or in water technology. So very strong strongholds across the globe. The indexation of 70% of our contracts, as well as the disciplined pricing of our offers, allow us to be protected against inflation. We have been able to deliver significant savings each year, which are now supplemented by the synergies from the merger, we say. Our balance sheet is very solid, with a strong commitment to maintaining our leverage ratio at around three times. As our operating model allows us to structurally lower the leverage ratio, excluding money, this leaves us with capacity to seize good opportunities when they arise. All these elements allow us to forecast solid growth in our results and our dividend, with accelerated growth from 2023 to 2025, thanks to synergies. On page two, you have our 2023 guidance, which I can fully confirm. In terms of revenue, we expect solid organic growth. We are targeting organic EBITDA growth of plus 5% to 7%, and current net income of around 1.3 billion euros. i.e. double-digit growth compared to 2022, with dividends that will grow at the same pace of our earnings per share. We will maintain our balance sheet discipline with a leverage ratio that remains around three times. I will now hand over to Claude Laruelle, who will comment on our results in more detail, and then we'll be available, both of us, to answer your questions.

Thank you, Estelle, and good morning, ladies and gentlemen. I'm on slide 14, and as Estelle already told you, Following our 2022 record delivery, our Q1 2023 results are remarkable. In Q1, with 12 billion revenue, we experienced a very strong organic revenue growth, 6.3% excluding energy prices, driven in all our businesses by, first, increased indexation on our long-term contracts and continued price increases on non-indexed businesses, second, resilient volumes, and good commercial momentum. EBITDA is significantly up, 1,574,000,000, an outstanding 8% at constant scope and forex, which is above the organic growth of the revenue excluding energy prices. That makes us very confident for the rest of the year. Thanks to the operating leverage, current EBIT is going faster at 788 million euros and is up by 14%. This shows the strength of our business models, highly resilient on delivering results quarter after quarter and fully protected against inflation. Net financial debt is well under control at 18.7 billion, including, as usual, the seasonal reversal of working capital and which was reduced compared to Q1 2022, thanks to our numerous cash initiatives and a good cash collection. I'm moving to slide 15, and you can see the quarterly growth on our main geographies. In Q1, all our regions experienced a higher growth than in 2022. The acceleration of our revenue growth at 19.9% is due to the impact of high energy prices, but also the increased indexations and voluntary price increases in our waste activities. The main trends are France and hazardous waste, Europe, up 3%. Water revenue in Q1 is up 1.5%, and hazardous waste was up 5.8%. In the rest of Europe, all our operations were very well-oriented and experienced high revenue growth at 32.6%, boosted by very strong energy prices in Central Europe. In the rest of the world, revenue growth accelerated in Q1 thanks to the very strong U.S. business and recovery in Asia. China, for example, is up 6.7% after the end of the lockdown in December. Japan is also up strongly, and we have just opened a new plastic recycling facility there. Water technologies were up 14.7%, which is very good, with a double-digit growth for both VWT, and WTS, and a very solid pipeline of new projects. On the next three slides, we detail our performance by activity, water, waste, and energy. And we start by water, our largest activity, on page 16. Our water business experience a very solid organic growth of 9.9% to 4.3 billion euros. Growth was driven mostly by increased indexation with resilient volumes. In France, revenue was up 1.5% despite the end of the Lyon contract, with volumes almost stable and much higher indexation, with a plus 6% on price. Commercial momentum remains very strong, and as Estelle just told you, we are very proud to announce a renewal for 10 years of the Lille Water Distribution Contract. with a backlog of 700 million euros. In Central Europe, revenue was up by 20%, driven by increased tariff indexation, strong works activity, and good volumes. In Spain, water volumes were up by 0.5%, and tariff increased by 2% in Barcelona. In the US, revenue was up 5%, and in Chile, volume increased by 1%. On water technology business, it performed very well, going by 14.7%. Veolia Water Technology revenue increased by 11.6%, thanks to good service and technology business. WTS revenue grew by 16.4%, driven by good commercial momentum and continued price increase in chemicals. On project, WTS has booked a very large contract for Samsung in the U.S. in February that will fuel the activity in the next month. In total, water revenue growth was driven equally by volume, commerce, and works, 5.1%, and by pricing, 4.5%. On slide 17, you have the main trends of the waste activities. Revenue grew by 3.2% like for like at 3.6 billion euros, excluding recycled price impact. Revenue grew by a solid 5.7%. The growth came mainly from pricing complemented by resilient volumes and partially offset by the impact of lower recycled prices. Volume was stable, 0.1%, with a strong rest of the world and hazardous waste business. Commerce was solid, notably in the UK and in the US. The main driver of revenue growth was pricing, with a plus 4.1% impact, partly compensated by lower recycled prices. Recycled prices have decreased since August 2022 from record level and start picking up in April. In Q1, higher electricity prices contributed to 1.1% revenue growth. The impact at revenue level was mitigated by taxation and profit sharing at the EBITDA level. As I do, Swiss remains well-oriented with an 8.6% revenue growth, 6.4% in Europe and 15.9% in North America. The scope effect, minus 6.7%, seems significant. It is due to the antitrust disposal made in 2022. It includes, of course, Suez UK, sold in November last year, and assets in Australia. On slide 18, you have the details of our energy business. Energy revenue in Q1 was $4 billion. Growth achieved an outstanding 54%, like for like, due to the sharp increase of energy prices for 48%. Our business model allows us to pass the cost of energy increase to our clients, which protects our results. Weather was unfavorable due to the mild winter in Central and Eastern Europe, with an impact of minus 1.3%. In Q1, we continued to implement heat price increases, notably in Poland, in line with our fuel cost increase. And our heat prices are secure for the rest of the year. I'm also proud to highlight the very good performance of our newly opened Braunschweig facility, which is a very good example of how we are transforming our energy business in Central Europe. Electricity revenue is largely hedged for 2023, as well as our fuel and CO2 purchase. Our visibility is therefore very strong. Building and energy services has performed very well with new contracts in the Middle East and in Spain. On slide 19, you have the usual revenue bridge, detailing the different effects. Forex has a small negative impact of 1.1% due to lower GBP, Polish Loti, and Argentina and Peso, partially offset by a stronger US dollar. Scope impact was positive by 204 million euros, plus 2.1%, The divestment of Suez waste assets in the UK was more than offset by the extra 17 days of consolidation of Suez assets. The 1999 organic growth is fueled at 70% by energy price increases, but on top of that, we benefited from good commercial momentum complemented by price and indexation increases. This solid commercial momentum, as Estelle highlighted, is contributing 3.8% to revenue growth. The weather impact was slightly unfavorable, only minus 0.3%, and the contribution of price increases in water and waste was plus 3.7%. It was partly offset by lower recycled prices for minus 0.9%. Moving to slide 20. Let's have a look at the EBITDA bridge. detailing the remarkable 8% organic growth. Scope and forex impact were non-significant in Q1. As usual, the main contributor to our EBITDA increase is the efficiency and synergies for 130 million, with the efficiency plan delivering 87 million euros, in line with our 350 million target for the year. The synergy delivery was also very good, reaching 43 million euros, fully in line with our target. It is partially offset by 43 million price cost squeeze impact that also includes contract renegotiations. As we anticipated, energy and recycled prices impact is not very significant at 16 million euros, with energy more than compensating the decline in recycled prices. And recycled prices have stabilized in Q1 and started to rebound in April. Volumes and commerce impact was 23 million, or plus 1.6%. Weather impact was small, minus 10 million, with mild January and February and a colder March. I'm moving to slide 21. Let's see how the EBITDA increase is fueling the current EBIT. which is growing very strongly by 14% at 788 million. Renewal expense at 68 million is slightly lower than in 2022. Amortization is up 2.9% at 736 million, which is much lower than the EBITDA increase. Compared to Q1 2022, in which we booked industrial capital gains due to antitrust asset disposal, We are back to a normal level in Q1 2023 at minus 3 million. JVs are slightly up to 28 million, mostly due to a 9 million one-off in Q1. And now I'm on page 22, where you have the detailed free cash flow for Q1. First, Q1 CapEx is fully in line with the full year objective of 3.5 billion euros of net CapEx. They reached 942 million, and it is due to higher decarbonization in Central Europe for 86 million in Poland and Czech Republic. Ongoing hazardous waste project in the U.S., in Germany, and in the Middle East. The phasing of works on contractual capex and IFRS 16 impact due to the renewal of the HQ lease here. We improved our working capital variation by 95 million euros compared to Q1 2022, despite strong revenue increase, thanks to our numerous cash initiatives across the group. Net financial debt is therefore well under control at 18.7 billion, only up by 400 million euros, excluding Forex, compared to December 2022. And standards and reports have just confirmed our BBB rating in April. As you understand, our self-financed business model allows us to increase our balance sheet headroom as we are progressing in the integration with Suez and delivering the synergies. That will allow us to be able to make additional tuckings if they arise, keeping the strict discipline that we have on investment criteria with an internal rate of return above 1 plus 4%. I'm now on slide 23, where you have the details of the net financial debt variation, where you can see the different effects I have just highlighted. Moving to slide 24, let me remind you of 2023 guidance, which I fully confirm. We're expecting another year of solid organic growth, with an EBITDA increase that will be between 5% and 7%. driven by $350 million of efficiency gains, more than $280 million accumulated synergies at the end of 2023, current net income around $1.3 billion, which means a double-digit growth compared to 2022. Our leverage ratio will remain around three times, and as usual, our dividend will grow in line with our current EPS. given our remarkable Q1 delivery, we are, of course, very confident for the full year. Thank you for your attention.

Thank you, Claude. We are now available to answer your questions.

Ladies and gentlemen, if you wish to ask a question, please press star 11 on your telephone keypad.

We have a first question from Ece Patel from Goldman Sachs.

Good morning and thank you very much for the presentation. There's two areas that I'd like to focus on this morning. Firstly, on the price net of cost inflation and impact of contract negotiations, the 43 million that was delivered over the quarter. Could you just maybe unpack this a little bit for us? How much for the full year is expected to be the impact of contract renegotiations at the EBITDA line? And secondly, how would you expect that line to evolve over the course of the year? You know, inflation's moved around a lot. You know, timing of how inflation feeds through your business model, it clearly will be an importance. And we just want to understand if that 43 million negative should be coming sizably less negative as we go through the year, or should it be fairly static? And then the second question is more to look bigger, more thematic. Very much you mentioned in the presentation that there's large opportunity in infrastructure-style investments as part of your business model. And I wanted to focus more on the capital-intensive part of your model rather than the CapEx light. And I was thinking, could you, in a qualitative sense, highlight what the real buckets of growth here are? Is it, you know, we've made clear that hazardous waste is one of them, plastic reprocessing to some extent energy from waste, but what other buckets are evolving or you see coming up that could be sizable amounts of infrastructure style investment? Thank you.

Thank you for your questions. Maybe Claude, you can take the first one.

Yeah, and you, okay, so on the first one, Thank you for your question. If you look at what we showed you last year, I mean, when we presented our results in March, the price cost squeeze for the full year 2022 was 220 million euros. So as an average, 55 million euros per quarter. So what you have seen here is a reduction at 43 million euros. for the Q1. So we are in line with our objective, and it will remain something that we'll continue to have because a portion of it, of course, is contract renegotiation. And as you know, the business model of Veolia, as we renew the contract, the long-term contract, we give back productivity to our clients. So we will expect to continue to have something in the same kind of range as we have in Q1 for the rest of the year.

So to complement on what Claude said, there is nothing new here. So it's not linked to inflation being higher than it used to be. It's the usual, what we used to call the price-cost quiz, which is when we do efficiency, we give back some of it to our customers when we redo the contracts. That's more the way to see it than the word inflation, which is not the right one to talk about this trend, which we've been seeing for years because it's part of the business model, as Claude highlighted. In terms of the second question, you've partly answered it. As in, you know, like where do we invest the capex of Veolia is where we can create the most value. And in particular, where we create an infrastructure like of a series of assets. That's what we presented in our strategic plan, which is the last year, this year, impact 2023. So has this waste is one. Plastic is another one. And I would say what's new or newer with the merger with Suez is probably the regulated water, notably in the U.S., where we've developed our activities very strongly with the merger, and we are very happy about the results this business is giving us back. So to give you an idea, has this waste, the reason why I say it's an infrastructure type of asset, we have now a network which is quite unique across the globe, present on five continents. We've presented you over the quarters some new contracts, for instance, in the Gulf. And, of course, our strong historical bases are in Europe on one side and in the U.S. on the other. But we have activities as well in South America or in Asia and Japan. And the reason why I mention it looks like an infrastructure is really it's really super difficult to replicate for competitors. Once you are, you know, stabilized with an efficient treatment for CTT somewhere, you capture the market there. And, of course, you know, like this gives us, you know, a lot of visibility over the years of this activity delivering good results. And we've seen that during COVID where it maintained a very good performance, you know, despite everything which happened in 2020. So have the Swiss plastic and the new one would be the regulated water in the U.S.

Fantastic. Thank you very much for your answers.

Thank you. We have another question from Arthur from Morgan Stanley.

Hello. Thank you for taking my questions. The first one is on the The recent, well, S&P has recently reaffirmed your credit rating. But as part of their report, they lowered the FFO to debt requirements by two percentage points for the BBB rating. So I was wondering what the new requirement at 18% on FFO to debt implies on your definition of net debt to EBITDA. And I was wondering how this lower requirement could impact the way you think about capital allocation and if it could push you to accelerate investment. So that's the first question. And the second one, we are one month into the second quarter. I was wondering if the trends that you're seeing so far are material is different from Q1, any indication, any comment on that would be helpful. Thank you very much.

I will start with the global literature question and Claude will give you a bit more color on that. So on the credit rating thing, Claude will give you some detail and highlights, but the long story of it is the fact that, you know, all that is anticipated and well under what we had in mind, where we guided around three times, so there is nothing new here. So if there are opportunities which arise, we have the ability in the balance sheet to see them, and as Claude highlighted, we are very rigorous in what we call an opportunity, which is a are above 1 plus 4%. If they don't arise, the model of Veolia is, I would say, naturally deleveraging. So nothing new here, but Claude will comment probably in a minute. In terms of the trends, again, you know, the summary is we don't see any difference in the trend going into April and how early May. So same trend as what we've seen in the first quarter. Claude?

Yes, to get back to your question on SNP, first of all, it's very good news. It's very good news because SNP is looking at Veolia now, after the integration of Suez, and is looking at Veolia as more resilient than in the past. That's the reason why they have lowered their requirement on FFO to net debt. So for me, first, it's a very good thing. That will not change our discipline on capital allocation. That will not change our guidance. that will not change the way that Veolia will conduct its business. Because, as you know, we want to keep the debt well under control, and we will continue to keep the debt well under control as we go. So nothing will change. It's just, for me, a very strong sign that Veolia has a better business model now after the integration with Suez.

Thank you. The next question comes from Michael Arlo from Societe Generale.

Hi, good morning. Thank you very much for the presentation, and thank you for taking my questions. So a fairly obvious one on the guidance. Obviously, the results that you reported this morning are excellent, and we have some people asking if you would be able to beat your own guidance for the year, notably on the EBDA. I don't expect you to give us an answer on that point, but if you could highlight the different moving parts that we should have in mind for the rest of the year. So whether it is the macro, if it is commodities, so recycled prices or energy prices and so on, that would be very useful. And then on M&A, we saw some news in the press a couple of weeks ago about you selling your pipes business in France, by 300 million euros. So if you could give us some color on that and anything else that we should keep in mind for the rest of the year. in terms of disposals or take-ins. Thank you very much.

Thank you for your question. You haven't seen obviously my face where you were talking, but I was smiling when you asked the question on the guidance, because it looks like each time we have good results, I get the question about do we raise our guidance. So the answer is no. I can confirm today that we are fully confident about achieving our guidance for the year and I would add in answering your question irrespective of the energy, recycled price or macroeconomical context and I think we've been able to deliver quarter after quarter good results irrespective of what's happening around us in a way and this is not by magical ones This is because the company is well-driven to seize the opportunities when they arrive and to adapt to new elements. One example is, you know, the resource plan which have launched as early as the spring 2022 to seize all the opportunities we can have in having higher energy price in Europe and protecting us against the potential negative, and you can see that in our results. So, in a way, Veolia is well-steered in the right direction and have intentions that we go on delivering good growth results for a long time. In terms of M&A, yes, you've seen we are considering selling what's called SAD, which is our private business in France, which is really an exact... translation of our strategic vision, which is basically to put our efforts in where we can differentiate the most and to move away from where we can differentiate the least. And to exit progressively the construction part of our business, which is something we've been telling for a few years, this is the exact translation of that. So that's what I can say about that with a smile because thank you for your comment that it's excellent result today. I'm very happy about them as well.

Thank you for your answers. That's very helpful. Thank you. The next question comes from Ollie Jeffrey from Deutsche Bank. Good morning. Thank you for taking my questions.

I'll have three, please. And they're all relative to when you had your event earlier this year and when you set your guidance. They're all relative to how things have changed since then. So the three different questions are, first, the price-cost squeeze in the 40 million this year. run rate indicating 170 for the full year versus 220 last year. That does happen. That's 50 million better. Is that better than when you envisaged at the start of the year, or is that in line? And so can you please clarify that part of that improvement presumably is because of the power of indexation coming from last year because of inflation? Can you please clarify that, please? That's the first one. The second one's on recyclets. So to recycle prices in April are up 20 euro-watt on cardboard. I think you have around 4 million tonnes, 20% margin. So is that potentially a 15 to 20 million improvement from recyclets for the full year versus what you expected at the beginning of the year, if prices stay where they are? And then lastly, just on synergies, the run rate for what you've done in Q1 would imply if you kept that up, you could do 320 million for the full year. Are you expecting a slowdown in the level of synergy that you achieve over the next three quarters, or would you hope to maintain that? Those are my questions. Thanks very much.

Thank you. So generally, everything we've announced is really in line with our expectation. You, of course, have pluses and minuses, you know, in the various businesses. But in a way, there is no news for us. in anything we published this morning. This is well under control. In terms of price risk quiz, as I said, it's a classical one with pluses and minuses. Every quarter, depending on the anniversary date of that contract being renewed and things like that. On the commodities, we're happy that it goes up and there is a little bit which ends up with us. But of course, the quarter two and three have a little bit less energy because it's the summer as opposed to the winter. And on synergies, the global picture is we're moving from originally, which was synergies mainly at HQs type of level, and I put an S to it, so it's not necessarily in Aubervilliers, but across the globe. And, you know, savings on, I don't know, leases by putting people in the same building and things like that. progressively to more operational type of synergies, such as rebooting trucks and merging depots in Australia, to give you an idea. And this trend is probably moving from one to the other, which again was fully expected.

Claude, maybe you want to... Yes, one good example is water in France. I think to answer your question, André, you take the example of France last year, the escalation formula, was below 4%, so we had a little bit of price co-squeeze last year, and this year we are at 6%. So, yes, you're right, because of the delay in passing in escalation formula like in Waterfront, we are reducing the price co-squeeze in 2023. And when you look at the delivery, the set of results that we have, everything is aligned on the right way. if you look at the commercial momentum, if you look at energy prices and so on, I mean volumes, commerce and works, everything is aligned. So that makes us, again, very confident for the delivery of 2023. Thank you.

And I guess all those elements are confirmation, again, of the strength of our business model at Veolia, which is... not only very resilient, but growing, and growing the result quarter after quarter.

And if I may, on the synergies, do you think you can maintain that run rate you achieved in Q1, or do you expect that to slow down as you shift from focusing on synergies at HQ to focusing on operational synergies?

I'm confident we should achieve the target we have for the year, which will be qualitatively very different from last quarter to the next, as I said, by moving to more operational elements.

And after the end of the year, we will have achieved almost 60% of the total synergies of the Suez.

In less than two years.

In less than two years, which is outstanding.

Thanks. The next question comes from Andrew Fisher for Berenberg.

Hi, good morning, everyone. Thanks very much for taking my question. I just have one question actually on the US water business, please, and the emergence of the PFAS regulations in the US. Just hoping if you could maybe update us on your current thoughts on where that policy is going and what it might mean for both the regulated water business and And also, indeed, the water tech business in terms of Veolia's ability to potentially help some of those smaller municipal utilities achieve whatever goals are finalized by the regulatory authorities, please. Thanks.

Thanks for your question. And actually, it's a question which could apply to Europe as well. You may have read that some measurements of PFAS have been have been released in the last few weeks in a few European countries as well. I guess, you know, the answer goes both ways, as in, you know, the good news is the fact that Veolia has a series of solutions to treat PFAS, and I would like to highlight that to start with. You know, from, and you mentioned water technologies and membrane and all type of technologies and patented one where we are uniquely placed, as well as hazardous waste because, you know, there is some element of the PFAS which high temperature incinerator is very well placed to actually destroy. You know, I could go from treating to actually destroy. So we have a unique set of assets which are able to help to treat this type of pollutants. And when I said it relates to what I said in the last Capital Market Day, which is, you know, the business of EOLIA is about decarbonizing and about decontaminating. And this is exactly what we're talking about, not only decontaminating of, you know, the pollutants of the past, but in a way, let's call them the pollutants of the future, as in the newly discovered ones. thanks to our unique portfolio of technologies and assets. In terms of our water municipal activities in the U.S., yes, of course, we will have to discuss plans with the regulators over the years to invest to treat the PFAS, and that's exactly how it should be, and a program in the investment plans over the next few years But again, I expect that this ability to treat PFAS will be very, very demanded over the next few years, and not only in the U.S., but elsewhere.

Great. Thank you very much. The next question comes from Arnaud Pallier from CEC Market Solutions.

Yes, good morning and thank you for taking my question. I have just one about the energy business. I'm a bit surprised to see that excluding price increases, the organic growth increase was 6% because we could have expected some lower energy consumption following the price increases. Can you give us more details about what are the sources of growth in this business? Is it a development of waste to energy or more energy efficiency services to your industrial clients?

That's a good question. Yes, you're right. Plus 6% of volume in energy and energy consumption is a very good achievement. And it's really, despite, you're right, the slight reduction in the consumption of all our customers who are trying to save energy, which is quite logical. That's why we always said that energy was a pass-through in Veolia's business. So how do we have this 6%? So it's typically three examples. Connection or extra connection to district heating, energy efficiency services, and the same for industrial customers. So connection to district heating, we are seeing new connection and development of connection to the existing district heating schemes in Eastern Europe. The reason is simple. It's way more efficient energy-wise to be heating your home thanks to a district heating rather than an individual heating. In a way, you need less calories in the system overall to end up with the same degrees in your flat or in your house. Hence, the higher the energy price is, the more people are naturally, I would say, incentivized to connect to the scheme. So that's a testimony of the fact that district heating is really an efficient way of distributing energy in a city. The second example is energy efficiency. So typically in Spain or the Middle East, which Claude mentioned in his introduction, our customers are malls or large hospitals. And the higher their energy prices, the more they are incentivized to ask for our service, which are exactly to help them save energy. So typically, thanks to digital and our know-how, we help them save 15%, 20% of energy without changing the whole building. So, of course, we are paid to have people saving energy, if you want. And the higher their energy, the faster the service grows. And the third example is exactly the same with industrial customers, which are looking for not only cheap energy, but green decarbonized energy, which is typically the case of – and when I say energy, I'm talking here typically about electricity and power – And they are looking for, I don't know, to replace coal by energy produced out of waste. That's what we do with Solvay in Lorraine, where coal is replaced by non-recyclable waste. And you have this type of appetite for this type of solution, the higher the energy prices, because our solutions are decarbonizing. But local as well are not dependent on commodity price, which is super incentivizing. So lots of examples of why we are able to grow our business. Again, pass through short term for us, which is good. We are protecting our margin. But over the mid-long term, the trend is to push for our energy services.

Thank you very much for this very detailed answer.

Thank you. We have no further questions at this time. Ladies and gentlemen, I remind you that if you wish to ask a question, please press star 11 on your telephone keypad.

We have another question from Ollie Jeffrey from Deutsche Bank.

Just a question on the outlook to the U.S., potentially more recessionary environment going forward. Have you guys had a long enough look at WTS yet to take a view on how well you think that business would hold up within a more recessionary environment? Any thoughts you have on that would be interesting to hear. Thank you.

So, first of all, if you talk about the U.S., in the U.S., not only talking about WTS, but we can start by hazardous waste as an amazing delivery in Q1 with a very strong EPRIL. So, we are super, super strong in the U.S. The regulated water also is performing very well. So, if you look first at the U.S.-based business... is performing super well. If you talk about WTS, it's also growing fast, and will continue to grow fast for a couple of reasons. First, we are booking, and we have booked, as I said, a very large contract with Samsung, and we have a pipeline of very significant contracts, so we will continue to book new projects. And in the new projects, the technology content is very high. So it allows us, first of all, to increase the install base of our technologies and renew membranes and so on, and also to increase the revenue on the project side. So looking at WTS, very resilient, a lot of projects ongoing, and the chemical business, as I said, we have been able to increase the prices. it's really, again, a super strong business and really continue to grow fast. So all of that in WTS, including the US, everywhere, is delivering very strong results in Q1, will continue to perform very well in 2023.

Overall, I understand from those questions that, in a way, we only have... Green flags everywhere, everywhere geographically, everywhere in terms of every single of our business is growing. This is a super strong quarter. We are starting the year at full speed. We don't expect the rest of the year to be anything but confirming our ability to grow our results. I'm very, very confident about our objectives. and all the questions you asked this morning hopefully have confirmed you that we don't see any reasons, but from a very, very satisfactory start to the year, and it should go on this way for the rest of the year and for the years to come. Thank you very much.

We have no more questions. Très bien.

On peut peut-être stopper la conférence, madame. Okay. Thank you, ladies and gentlemen. Thank you all for your participation. You may now disconnect.