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.