Veolia Environnement Adr

Thank you very much, and good morning to all of you. Thanks for joining for this conference call to present the LDS first semester's results, and I'm accompanied by Claude Larrella, Chief Senator Officer. I'm on slide three. Following the record results in 2022, the performance achieved during the first semester is once again very strong and a new all-time high. At Constant Stop and Forex, our revenue increased by 14.2% to 22.7 billion euros. EBITDA grew by 8.2%, current EBIT by 13.3%, and current net income by 18.7% to 662 million euros. Our free cash flow has significantly improved, and our net financial debt is well under control. These very good results in a complex environment are a testimony to Veolia's powerful business model of value creation. The group is built on a diversified geographical footprint, 40% outside Europe, as well as on a portfolio of complementary activities in wastewater and energy, and a balanced customer portfolio of industrial and municipal customers. Over the years, we've demonstrated a strong track record of delivering efficiency plans that enhance our results. We are again sustained in the first half of 2023, where we've achieved 187 million euros of savings ahead of our annual target of 350 million euros. The merger with Suez is already a success and is bearing fruit at a fast pace. with €230 million of synergies already achieved since day one, barely 18 months ago, ahead of our complete objective of over €280 million at the end of 2023, and €500 million in total. Above all, our unique positioning as the leader of ecological transformation offering solutions to cities and industries to decarbonize, to depollute and regenerate resources, is a powerful engine for growth. This was illustrated in H1 with many new contracts, notably in water scarcity solutions. This should continue over the long term, as our growth potential has been strengthened with the acquisition of SAFE. Given those strong foundations, I expect those good results to continue in H2 and beyond. This allows me to fully confirm our annual guidance and even target now the upper range of the 5% to 7% EBITDA guidance. To give you some additional color on our first half results, I'm on page four. The main feature of H1 is essentially that all the very strong operational levels in Q1 continued in Q2. a top line driven by strong pricing, margin protection against inflation, a strong commercial momentum, and a brilliant volume, as well as operational excellence and the positive effect of the merger we faced. Our revenue grew by 14.2 percent as a result of the open exchange rate to 22.7 billion euros, and we registered very strong growth in all our activities. Water grew by just 8.4% risen by tariffs, volume, and a good commercial momentum, notably in water technologies where our order book has increased the gains significantly. Waste activities continue to grow by plus 3.3%. or even plus 6.4% if I could recite it twice, thanks to price increase and indexation. Finally, energy activities were verified by plus 41%, driven mostly by energy prices, which is essentially pass-through. The operating leverage was fully effective thanks to savings and synergies, leading to an EBITDA growth of plus 8.2%, at the same pace as in Q1, and above the annual guidance range. EBIT grew by 13.3%. Net income increased by 18.7% at constant Forex to €662 million, well in line with the annual target of €1.3 billion. And as you've seen, we've improved as well the free cash flow generation with the debt well under control. These outstanding results were delivered despite softening economic conditions and continued flat-weight volumes. This is thanks to our strong foundations and powerful growth engine. First, a balanced geographical mix with 40% outside Europe. Our performance in H1 was very strong in the US, in LATAM, and in Europe, which has more than offset software delivery costs. Second, a strong position in key activities and countries. As you know, we are now number one in hazardous waste, number one in water technologies worldwide, as well as in the top three in water, waste, and energy services in all the main countries where we operate. A complementary portfolio of waste, water, and energy and of public and private customers provides unique know-how we can combine to offer solutions for the ecological transformation. And this well-balanced and resilient set of business means we are 85% macro-immune and protected against inflation. We enjoy a strong commercial momentum in all our activities as well, thanks to perfect positioning in fast-growing markets. And finally, we've sustained a strong delivery track record, notably of efficiency gain quarter after quarter, which are now complemented by the benefits of the merger with Fed, ahead of schedule and with a positive momentum. When I refer to our value geographical portfolio, I think it's useful to focus on the performance of our U.S. operations, and I'm on slide six. In the U.S., we've changed dimensions thanks to the merger with Chase, and our business there now has a turnover of $5 billion, in part with the water technology segment, in part within our North American services activity, which are very strong in municipal water, in particular regulated water, and in hazardous waste. Those two businesses were among the top three players in the U.S. Excluding water technologies, which, as you know, is reported separately, our revenue in the U.S. in H1 has grown by 10% at constant slope and forage, and more at the EBITDA level, fueled by the outstanding performance of our hazardous waste operations. In hazardous waste, revenue increased by 13% and EBITDA by 75%, thanks to a strong improvement of our waste mix. Regulated water continues to deliver strong revenue and EBITDA growth as well, driven by good volume and a crisis collection mechanism. This solid growth is here to stay. Thanks to our strong position in hazardous waste, which is key to creating new pollutants such as PFAS, as well as water scarcity solutions, including, for instance, water reuse projects. Moving on to our strengths and leaning position in key activities, and I'm now on slide seven, I will take the example of water technology, where we rank number one worldwide, thanks to a unique portfolio of patented technologies in reverse osmosis, infrared radiation membranes, evapocrystallization technologies, and desalination, just to mention a few. Water technologies is another very good example of our growth capacity with revenues of 9% and EBITDA of 13% in H1. We registered very strong bookings, 2.7 billion euros at the end of June, with in particular a strong pipeline in desalination and lithium projects. As I said in my introduction, and I'm now on page eight, this semester is another demonstration of the strength of our business model. All our businesses have been growing in H1, and as you can see on this slide, they are all well, very protected against inflation. We've been monitoring inflation and price increases as early as the spring 2021, and demonstrated quarter after quarter our ability to pass on cost increases. And this was, again, the case in Q2. We do protect our margins via pricing, either through indexation formulas for 70% of our business or through specific price increases for the remaining 30%. The results for H1 are shown on slide 8, and they should be read, of course, in addition to the 2022 price increases already granted. Let's now turn to the commercial success of the first image, and I'm on page 9. I've chosen to illustrate those with a few examples of the other solutions we offer to our customers to tackle water scarcity and water quality issues, where we've enjoyed many new contracts in H1. There is certainly a growing demand from our clients for resource preservation, water reuse, and water quality. We were awarded a €700 million countable water distribution contract in Perpignan for the next 12 years, in which we committed in particular to significantly reduce leakage from 20% down to 12% in this very scarce water part of France. In Abu Dhabi, we won another big dissemination contract worth €300 million, in which we will implement innovative technologies allowing us to significantly reduce energy consumption. In terms of water reuse, in France again, Velia is a pioneer. In less than a year, we've secured more than 50 of our compact water reuse units and we are targeting 200 by 2024. In the Ivory Coast, we are now operating the largest drinking water treatment plant in Abidjan. with a total backlog of €390 million over 15 years. Regarding water technologies, Veolia has recorded many successes since the beginning of the year, and I will give you a few examples. We will provide Samsung with wastewater treatment equipment for their semiconductor facility in Austin, Texas for $158 million. In the lithium recovery market, we've won three new contracts in Canada, South Korea, and the US for a total of 181 million euros. I'm now on slide 13 to talk about synergies. And finally, our delivery track record in terms of efficiency and synergies, I guess, has continued. In terms of synergies, which come in addition to efficiency gains, as you know, We've delivered 84 million in each one, leading already to a community amount of 230 million since the start of the slave merger, ahead of our annual target of more than 280 million in community synergies by the end of 2023. And I could fully confirm our target was 500 million euros. We achieved 187 million of efficiency gain in the first semester, and I'm on slide 14, which is ahead of our annual target of 350 million euros, with 53% already delivered in H5. Efficiency gains are now part of Veolia's DNA and I will ensure this remains so. Slide 15 now. ESG is completely at the heart of our business models and our offerings, as Veolia's business is about offering solutions to decarbonate, to gene produce, and to regenerate resources. Regarding sustainable management of water resources, we've set a net zero water commitment for activities in France by 2033. It's a little bit like a net zero carbon, but with the water in mind. And of course, the contract is a good illustration of that. Remember that in 2022, Veolia helped save 320 million cubic meters of water through our services, which is equivalent of Singapore's consumption. This is huge. In terms of carbon, we accelerated our coal phasing out program in H1, and we've already achieved a third of the decarbonization capex plan. We completed Germany. We are about to commission new facilities in the Czech Republic, in Tverov and Karvina. And next will be Poland. In addition, we've helped reduce our Christmas footprint by 14 million tons of carbon in 2022 alone, which is an amazing achievement. This is what I call scope four. As for our employees, I'm very proud of our 89% engagement rate, measured by an external firm within our 220,000 employees base. which corresponds to answering questions, and of course answering positively to questions such as, would you recommend working for Veolia, or do you feel your daily work contributes to the ecological transformation, or again, do you feel the working atmosphere is positive? I'm on page 16. Veolia's capacity to deliver strong high-earning growth, and I guess to sum up, I would like to remind the main characteristic of the OEF business model, a solid, agile group with sustained results. We are now the world leader in pollution, in decarbonization and circular economy services with a unique range of offering on a fast-growing, more than 2 trillion market. Our business portfolio is very resilient with 85% not exposed to the economic cycle due to the key position we have in very resilient infrastructure-like assets, where we are in the top players. The indexation of 70% of our contracts, as well as the disciplined pricing for our offers, allow us to be protected against inflation. We've been able to deliver significant headings each year, which are now supplemented by the synergies from the majority. Our balance sheet is very solid. All these elements allow us to forecast solid growth in our results and our dividend, with accelerated growth from 23 to 25 thanks to synergies. And now on page 17, you have our 2023 guidance. I fully confirm our annual guidance and I even improve the organic and big bag growth target now expected at the top end of the range. You understood that I'm very confident for the rest of the year. We continue to benefit from our strong foundations pricing power and indexation, operational efficiency, a very well-balanced and resilient set of business, 85% macro-immune and fully protected against inflation, and a very balanced geographical mix with 40% outside Europe. The operational trends we've seen in H1 have continued in July. Therefore, we have great visibility for the rest of the year. including in terms of energy, thanks to our hedging policy. Of course, we will maintain our balance sheet discipline. I will now hand over to Claude Lavelle, who will comment on our results in more detail, and then we will be able to answer to your questions.

Claude. Thank you, Axelle, and good morning, ladies and gentlemen. I'm on slide 19. And as Estelle already highlighted, following our 2022 record delivery, our H1 2023 results are remarkable. In H1, with $22.7 billion revenue, we experienced a very strong organic revenue growth of 14.2%, 5.2% excluding energy prices, driven in all our businesses by first increasing taxation on our long-term contracts, and continued price increases on non-indexed businesses, and second, good commercial momentum and resilient volumes. EBITDA is significantly up at €3,152,000,000, an outstanding plus 8.2% at ConsonScope and Forex, which is above the organic growth of revenue, excluding energy prices. H1 EBITDA growth is above the annual guidance range, which makes us very confident for the rest of the year. Thanks to the operating leverage, current EBIT is going faster at $1,674,000,000 and is up 13.3%. This shows a 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 $19.2 billion, thanks to a significant improvement in free cash flow generation from minus $300 million last year to minus $78 million this year, due notably to strict discipline on working capital and lower integration and restructuring charges. We expect a net debt below $19 billion at your end, including the positive free cash flow in H2 and Bolton acquisition that should be closed by your end. You can also see on the slide the detailed Forex impact in H1, which were slightly negative and more significant in Q2 than in Q1, the negative impact trends from the UK, Latam, Australia, and China. For the full year, we now expect a continuation of these price trends. I'm moving to slide 20, and you can see the quarterly growth of our main geographies. Obviously, revenue growth in Q2, 8.8%, was lower than in Q1 due to the end of the heating season. All the strong operational trends of Q1 continued in Q2. Our revenue grew by 8.8% at constant scope and exchange rate to $10.7 billion, and we registered very strong growth in all our activities. Water grew by 7.1%, driven by good pricing and well-oriented volumes and works. Waste activities continued to grow by 3.3%. and plus 7.1% excluding recycled prices, thanks to resilient volume and commerce impact, price increases, and indexation. Finally, energy activities grew very fast by 23.8%, driven mostly by energy prices. Adjusted for the energy price effect, organic growth was 5.2% in H1, which is a very good performance, and it's fueled by a continued good commercial momentum. This number is slightly lower than in Q1 due to two main effects. First, project completion in water technologies with little impact on EBITDA. It is just a timing effect, and as Estelle said, the backlog of water tech increased sharply in 2023. Second, lower water volumes in France coming from adverse weather with colder April and May and more rain in June. All in all, there is no change in trend in Q2 compared to Q1. EBITDA growth in Q2 stood at 8.4% in line with Q1, thanks notably to continued strong synergy delivery, 41 million in Q2, leading to accumulated 230 million ahead of our unrollable Q2. Q2 current EBIT increased by 13%. I'm on slide 21. Revenue increased strongly in H1 by 14.2% to $22.7 billion. Most of this growth came from outside funds. Water technologies were up 9%, which is very good, with a very solid pipeline of new projects. In the rest of the world, double GDP growth continued in Q2, coming from all geographies. For example, the U.S. grew by 10.6%, driven by hazardous waste, and Latin America by 28%. In the rest of the world, all our operations were very well-oriented and experienced high revenue growth, 23.2%, with strong energy prices in Central and Eastern Europe. The U.K. continued to perform well with resilient volumes, good commerce, and price increases, leading to 6.1% revenue growth. Iberia grew by 10.6%. France and hazardous waste Europe is at 1.5%, slightly lower than in Q1, with lower water volumes due to adverse weather, as I said. Waste volumes remain flat, like in Q1, while recycled suffered from a very high comparison basis. On the next three slides, we detail our performance by activity, water, waste, and energy. And we start by water, our largest activity. I'm on page 22. Our water business experienced a very solid organic growth of 8.4% to 8.8 billion euros. Growth was driven by increased indexation and prices for 4.4%, and volume, commerce, works, accounting for 4.3%. In France, higher indexation of plus 6% were partly offset by the end of the Lyon contract, and lower volumes, down by 2.8% due to adverse weather. Commercial momentum remains very strong. In particular, I'm very proud to announce after a lead in Q1, as Estelle said, the new Perpignan water and wastewater contract with a backlog of 700 million euros, on which we will implement our newly patented WTS Z-Dense technology. In Central Europe, Revenue was up 19.2%, driven by increased tariff indexation and strong works activity. In Spain, revenue increased by 11.3%, driven by good water volumes, tariff increase, and strong works activity. Regulated water progressed strongly thanks to good volumes in the U.S. plus 5.2%, in Chile plus 1.4%, and indexations. Our water technology business performed very well, going by 9%. Verga Water Technology, its revenue increased by 4.6% thanks to service and technology business. Bookings are sharply up, 500 million, plus 500 million, with significant wins in desalination and lithium extraction. WTS revenue grew by 11.4%, driven by good commercial momentum and continued price increases in chemicals. On projects, WTS has booked a very large contract for Samsung, in the U.S. that will fuel the activity in the next month. Engineering backlog increased by $200 million to $2.6 billion. I'm now on slide 23, and here are the main trends of the waste activities. Our waste activities performed well despite flat volume and low recycled prices. We have delivered strong performance thanks to our price discipline, indexation in municipal business, contract selectivity, operational excellence, and a very high availability rate of our incinerators in France and in the UK, and also an improved mix in hazardous waste in the U.S. Revenue grew by 3.3 percent in light for light to 7.3 billion euros, excluding recycled price impact revenue grew by a solid 6.4 percent. The scope effect of minus 7.2 percent is significant. It is due, if you remember, to the antitrust disposal that has been made in 2022. It includes, of course, Suez UK, sold in November last year, but also assets in Australia. The growth came mainly from pricing, complemented by resilient volumes and partially offset by the negative impact of lower recycled prices. Volume was stable, minus 0.3%. Commerce, plus 0.8%, was solid, notably in the UK. The main driver of revenue growth was pricing, with plus 4.7%, partly compensated by lower recycled prices. Recycled prices have decreased since August 2022 from return high levels. In H1, higher equity prices contributed to 1.1% to revenue growth. The impact at revenue level was mitigated by taxation and profit sharing at EBITDA level. Hazardous waste remains well-oriented, which plus 4% revenue growth, notably in North America, as described earlier. I'm now on slide 24, and you have the details of our energy business. As you know, energy for Veolia is local, decarbonizing energy, and it's a key business priority at the heart of our ecological transformation strategy. We delivered strong results in the energy business in H1, of course, thanks to the favorable pricing environment, but also to the value and efficiency of our offerings. It's frequently providing local, affordable, and renewable energies and energy efficiency services. Energy revenue in H1 was $6.6 billion. Revenue both achieved 41.3% like for like due to the sharp increase of energy prices for 37%. Our business models allow us to pass the cost of energy increase to our clients, which protects our results. Weather was unfavorable, with an impact of minus 0.7%. In H1, we continue to implement the heat price increases, notably in Poland, in line with our fuel cost increase. I'm also proud to highlight the very good performance of our newly-opened Braunschweig biomass facility in Germany. 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 energy purchase, and we have secured heat prices for the next heating season. Our visibility is therefore very strong. Building and industrial energy services have also performed very well with new contracts in the Middle East and in Spain. I'm now on slide 25, and you have our usual revenue bridge, detailing the different effects. Organic revenue growth in H1 of 14.2% was lower than in Q1 due to the end of the heating season in Q2. Forex has a small negative impact of 1.5% due to lower GDP, Australian dollar, and Chinese yuan. Scope impact was not significant. And the 14.2% organic growth is fueled by good commercial momentum, energy price increase, and price and indexation increases. Its solid commercial momentum, as Estelle highlighted at the beginning of this presentation, is contributing to 2.8% to revenue growth. The weather impact was slightly unfavorable. The contribution of price increases in water and waste was plus 3.9%. and it is partly offset by lower recycled prices for minus 1.2%. Moving to page 26, let's have a look at the EBITDA Bridge, detailing the remarkable 8.2% organic growth in line with Q1 and above the annual guidance range. Scope and slides, in fact, were more significant than in Q1, Scope amounted for minus 12 million, mainly to the divestment of Trade UK. Forex negative impact reached minus 21 million, after minus 7 million in Q1, due to the depreciation of the US dollars, the lower GBP, Argentine pesos, and Australian dollars. Volume and commerce impact was plus 56 million, or plus 1.9%. Weather impact was slightly negative. of minus 22 million euros. And as usual, the main contributor to our EBITDA increase is the net efficiency and synergies. The growth efficiency gained reached 187 million, ahead of our 350 million target for the year. Net of shared efficiencies with clients and contract renegotiation, net efficiencies amounted to 73 million. The synergy delivery was also very good, reaching 84 million euros in advance of our annual target. In total, synergies and net efficiencies contributed to 157 million in Q1, which is 5.3% EBITDA growth. Energy and recycled impact was 52 million, with energy more than compensating the decline in recycled prices. The favorable energy impact at EBITDA level mainly comes from the benefit of the new biomass in Germany generating higher EBITDA, higher electricity prices for incinerators in France and in the UK, the positive impact of the catch-up of prices in Central Europe, China, and Italy, and a few opportunity gains in electricity in Central Europe. Our energy business will remain a strong contributor to our results in 2024 thanks to our secure heat tariff for the next heating season, which represents 75% of our cogeneration revenue. The negative impact of recycled prices almost offset the exceptional positive impact that we had in 2022. So we are back to a normal level of profit in recycling. I'm moving to slide 27. Let's see how the EBITDA increase is shooting the current EBIT which is going very strongly by 13.3% at 1,674,000,000. Renewal expense at 153,000,000 is comparable with 2022. Amortization and offer amounted to 1 billion 479 million slightly above last year. Industrial capital gains, net of provision and asset impairment is 93 million. This amount is significantly down compared to H1 last year due in particular to lower industrial capital gains. In 2022, we recorded higher capital gains from Suez antitrust disposals. In H1 2023, this 93 million euros includes 29 million euros of industrial capital gains coming from the last Suez antitrust divestment and pension scheme alignment between Veolia and Suez combined with the implementation of the new pension law in France. JVs are slightly down to $53 million, mostly due to divestment. I'm now on page 28, and you have the current net income, which is sharply up by 18.7% to $662 million, thanks to current EBITDA. Cost of net financial debt is slightly down to $312 million, thanks notably to the early reimbursement of the Sterling Bond in September 2022. The net cost of financing is stable at 3.66% in H1. Other financial income and expense were significantly down to $120 million compared to $199 million. It is due to the lower fair value adjustment of the Aguas Andinas Inflation Link Bond and unfavorable stress-related one-off in H1 2022, which was reversed in H2 2022. I expect total current financial charges for the full year around 950 million euros. Current tax rates stood at 28%, slightly lower than last year, and we expect a 26% tax rate for the full year. Minority interest increase in H1, due to Chile and central Europe. For the full year, we expect around 400 million euros. I'm now on page 29, and you have the bridge from current net income to net income group share. Net income more than doubled to 523 million compared to 236 in H1 last year. Non-recurring items were very high in 2022 due to the trade acquisition and integration costs. They decreased sharply to $123 million in H1 this year thanks to lower restructuring and integration charges, and they are now back to normal levels. I'm on page 30, and you have the detailed free cash flow of H1. Free cash flow improved significantly from minus $304 million in June last year to minus $78 million. H1 capex reached 1.8 billion compared to 1.6 billion due to increased discretionary capex from 150 million last year to 285 this year. Mostly decarbonization in Central and Eastern Europe that reached 104 million in H1. So we're accelerating the decarbonization in Central Europe. And a total of almost 500 million since January 2020 well above our initial commitment in the impact 2023 plan that was $400 million by the end of 2023. Ongoing Hazardous Waste project in the U.S., in Germany, and in the Middle East, the fading of works on contractual capex, and IFRS 16 impact with the renewal of the HQ lead. Second, we improve our working capital variation by $50 million compared to H1 last year, despite strong revenue increase thanks to our numerous cash initiatives across the group. Group VSO, for example, decreased by four days. Net financial debt reached $19.2 billion, including almost $200 million of negative forex. And we expect net debt to be below $19 billion at your end thanks to our extra free cash flow and the likely closing of Bolton acquisitions. On slide 31, you have the details of the net financial debt variation, where you can see the different effects I have just mentioned. I'm now on slide 32, and you have your 2023 improved guidance. EBITDA organic growth is now expected at the high end of the plus 5 to plus 7 range, 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. As usual, our dividends will go in line with our current EPS. Given our remarkable H1 delivery, we are, of course, very confident for the full year. Thank you for your attention.

Thank you, Claude. And now, you know, I'll let you have the floor for questions you may have.

Thank you, madam. Ladies and gentlemen, we will now begin the question and answer session. If you'd like to ask a question, please press star followed by the number one on your telephone keypad. If your question has been answered and you would like to withdraw from the queue, please press star followed by the number two. And if you are using a speakerphone, please keep your hands up before pressing any keys. One moment, please, while we compile the roster. The first question comes from AJ Patel with Goldman Sachs. Please go ahead.

Good morning, and firstly, thank you for the presentation today. I've got two questions, please. Firstly, one is around the guidance. You clearly are in the presentation and the press release highlighting optimism for your performance and for the full year, and you reflect that in the tilt in guidance on the other staff. But could you maybe explain, one, what the assumptions that you're assuming for the second half of the year are? So we have a way to follow the journey. And secondly, that optimism doesn't seem to translate down to the net income level. Is that conservatism or is there any other adjustments between the lines that I need to think of? And then the second question, please, would be on synergies. Clearly a fantastic performance. You have the 500 million target. You're running ahead of that at the moment. And I just wonder, given that you're halfway through the journey or towards halfway through the journey, what have you learned? Is there other opportunities to take advantage of? Should we think about that 500 million target being just delivered earlier? Or are other opportunities emerging as you've had time to look at the portfolio? Thanks.

Thank you very much. I guess You're very right. You've heard from the results of the tune that I am very confident for the rest of the year and for the years to come for Veolia. This is why we've given you a very positive color about the guidance for the year because we now aim at the upper end of the range from 5% to 7% EBITDA. So, I guess, you know, what are the underlying assumptions? I guess, you know, as usual, when I give a guidance, you know, I won't give you assumptions about the economy in the world or proper recycling or whatever because, you know, I'm here to drive the company, not to make assumptions about things I cannot anticipate. But the reason why, whatever happens, we are very confident for the rest of the year is many-fold. Basically, very strong foundations for Veolia. I've said it, you know, like a very good geographical mix with, just to give you an example, 40% outside Europe and an outstanding performance in the U.S., just to mention one example. The second is a very good mix of wastewater and energy. which, of course, is another very strong foundation. And the third, of course, is, you know, our very good ability to derive cost cuttings and efficiency and to be very agile. And that's a very strong fundamental. The third element is probably as well that, you know, we don't see any change in trend in the beginning of the summer. July is very much alike the first semester. If anything, a slightly positive when you look at, say, the Germany volumes, for instance. A little bit of negative in terms of weather in France because it has been raining basically most part of July. But all in all, no change in the trend here. And as Claude highlighted, we've hedged basically the vast majority of energy for the rest of the year and even for 2024. I shall recall you on the energy one that you remember that the heating season is always a very positive driver for the growth of our results and is basically 50% more in terms of volume for the January to April compared to the November and December heating season for obvious reasons, which are just a number of days here. So all in all, very confident for the rest of the year. which is why we raised our assumption to the upper range of the guidance in terms of EBITDA, and I would say very comfortable with the consensus as well, the yearly consensus. In terms of synergies, I'm asked the question every quarter now because, as I said, we have a very good track record of delivery. I intended to go on this way. As you mentioned, we are ahead. I fully confirm the 500 million targets. We are delivering it quicker than anticipated. This is not by chance. It's by a lot of preparation and a lot of attention to details. If we can deliver more, of course we will, but so far my priority is to deliver according to our commitments to you and to the investors. I guess what have we learned? It's an interesting question. We've learned that we have a very good potential of revenue synergies because of course when I talk about 500 million, we're talking about cost synergies only. And we've seen a lot of examples in the last few months of how cross-fertilization of offers and teams could help fuel the growth of the company. Just to mention two examples, which comes from online, the Istanbul energy from waste large contract that we've won a few months ago, which is a very big green energy, if you want, or greening the energy mix of Turkey, wouldn't have been won with only the Olyan Suez, I guess. It's the combination of the two teams in this country which has helped us win this contract. Another example is what I said about the reuse. We have many, many opportunities in a country like France for use of wastewater, and actually in the U.S. as well, which is helped a lot by the many references, particularly in Spain, we've gathered by acquiring swaves. If anything, I guess we've learned that the attention to detail and delivery is always paramount. and we've delivered that, but that we may have more to come in terms of growth for the company.

Thank you very much for the answers. I just maybe one bit that I didn't get in the slide, if you may, is that that optimism of the editor, it seemed like you said, look, you're pretty much prepared for most macro outcomes in regards to the full year and your confidence in your grants at the editor level. How come that doesn't translate to your net income?

So I will start by the first part, the economical part, and let Claude answer to the net income specific question. Sorry, I didn't answer first to this one. Just, I'm very happy, just want to rephrase what I said about the 85% macroimmune . In the first semester, just to give you one example, you've seen that volumes of waste And with flat weight volumes, we've enjoyed, we've delivered 8.2% growth in our EBITDA. So that's another testimony of, you know, the de-correlation, if you want. of the two indicators. That was more an additional comment. And on next results, maybe?

So current net income, as Estelle said, we are comfortable with the consensus not only on EBITDA, but also on net income. And if you understand the consensus correctly, it's 1,345,000,000 euros. So we can confirm that we are comfortable with this number.

Fantastic. This is very clear. Thank you very much.

Thank you. Your next question comes from Arthur Sidman with Morgan Stanley. Please go ahead.

Thank you for taking my questions. I have two. The first one is on the EBITDA bridge that you presented, you showed 52 million euros net positive on recyclables and energy items. i was wondering um well i suspect the positive comes mainly from the energy activities i was wondering exactly which part of the the energy activities and you seem to say that you're quite confident that this will remain quite solid at least in 2024 i was wondering if at some point we should we should expect some uh some mean reversion here as energy prices come down. The second question is on the 93 million euro of capital gains in the first half of the year. I think you mentioned part of that was to the pension reform in France. I'm not sure I've understood that correctly. So if you could provide a bit more detail, that would be helpful. And mainly, I was wondering if you expect that budget to remain roughly stable by the end of the year, or if you should expect more capital gain or actually some negative items. Thank you very much.

Okay, thank you. I hope we heard well your question because the line was really blurred. Claude, maybe starting with the capital gain, the pension one was not exactly that easy to understand. Maybe if you could elaborate.

So we have two main topics. in this time of 93 million euros. It's on the page 29. The first one is industrial capital gains. It's the disposal of the water UK business that has been sold in February this year. That was the last remedy that we had to sell. And it was part of WTF's business. And so we got from this disposal, as I said, 29 million euros of capital gains. And the second topic is the combination in France of the Suez and the Veolia pension scheme. So the combination of the pension scheme, because we are now one company, And the people that joined us, they joined with what they had from Suez, and we wanted to have one single patient skin. We were able to record around, say, a provision reversal of around 20 million. And the second topic is pension reform, because now we have to work until 64 million euros in France.

64 years old. Years old, sorry, in France.

And so the pension reform was a very small effect, Arthur. It was only 4 million euros at the provision reversal because now we have the pension provision a little bit streamlined at the first copy.

That was on capital gain and on the bridge plus energy minus recycled clay equals 52.

Yes, so the main positive impact on this region is the new biomass facility. It's a significant impact. You know that we have invested $250 million. and we started this facility in November last year. And so it's already a significant impact, around 50 million euros just for this facility. The second topic, the rest of it, is energy that we work with, as I mentioned, the energy business, that is compensating the recycled prices pretty much for the same amount.

So if your question was should we anticipate all of it to be neutralized down in a way when the energy price goes down, the answer is a lot of it is more like recurring and based on the fundamentals such as the BVAG, the one Claude just mentioned.

And as we said also that the heat is secure for the next heating season with a very good which is, as I said again, 75% of the volume of energy that we sell. It's a main topic for us.

Thank you.

Thank you. Your next question comes from Ollie Jeffrey with Deutsche Bank. Please go ahead.

Thank you. Three questions for me, please. The first one is, Can you give your view on your outlook for waste volume growth, maybe what you've seen in July and what you expect for the remainder of this year, just in the context of a lot of companies in the chemical sector and construction sector, profit warning this year. What is your outlook on that and what do you incorporate for the second half? Second question is on, you mentioned the strong growth in hazardous waste pricing in the U.S. a very strong increase in pricing do you think that's sustainable into 2024 and then the last question I have is if you repeat the amount of synergies which have been fantastic you managed to do that many in the first half doing 60% of the full year target if you manage to repeat that number in the second half do you think you might be able to get up to 1.4 billion in current net income thanks very much

So you understand we are very confident in many, many ways, you know, top line, bottom line, and for the rest of the year and the years to come. So in terms of volumes of weight, to answer your questions, you know, we've seen flat volume in basically H1, exactly like we had seen flat volumes in H2 2022. So far, we don't see any change in trend. If anything, a little bit of a positive in Germany, as I mentioned. But again, you know, like, you know, we demonstrated in a way that 8% in the first semester, despite So I guess, you know, happy to answer your question, but in a way, it's less and less relevant to discuss the economy and the weight volumes versus the OES results as we've proven for the last quarters and again in this quarter. By the way, we barely do any construction waste because your question was more on construction. In terms of chemical volumes, it's not what we see in hazardous waste. Again, we haven't seen any change in trends in the hazardous waste volumes, neither in Europe nor in the US. Nothing specific to say here. In terms of the hazardous waste price in the U.S., how long will it stay? We've been able to deliver strong price increase since basically the spring of 2021, and we've given you the figures quarter after quarter. Our objective here is basically to follow at least inflation of costs, and so I guess I don't see any reason why they shouldn't go on. We don't have any sign of anything but our various treatment facilities are basically full and they still are. So I don't see any reason why this should change. In terms of synergies, I was smiling because you're right, we've been very confident setting this result this morning with raising our objective for the year to the upper end of the guidance in terms of EBITDA, which we are very confident again and hopefully a sign of a smile you can hear maybe from the phone this morning. And in terms of how does it translate to net results, you know, as Claude mentioned, you know, are comfortable with the consensus for the year. And there is a little bit of the specific H1, H2 on the financing cost as well, which you cannot just do a times two if you want. for specific one-off in H1. But maybe, Claude, you want to elaborate on this second point.

This is what I said. If you look at the total financial cost, that was very good in H1. And as I said, the total for the year is expected at 950 million euros. But again, on net income, we can confirm that we are very comfortable with the consensus.

And of course, if we can deliver more synergies, we will.

Thank you. Your next question comes from Michael Harlow with Societe Generale. Please go ahead.

Good morning. Thank you for the presentation and thank you for taking questions. Just one. Can you please share with us your views and the Red Cross for Veolia, if any, from the government's plan to tax toll road operators. And then, according to declarations of Bruno Le Maire, hydroelectric concession operators as well as airport operators. Thank you very much.

Wow. I said wow because, you know, not a lot of people have read those speeches. from the Minister. I guess the answer is there is no read-across for Veolia. We are not, neither legally nor operationally, in the same type of conditions as the ones which are potentially under scrutiny from the toll road or the dam in France. So no read-across. We don't have any risk here.

Thank you, very useful.

Thank you very much. Thank you. Your next question again is from Aaron Apollios with the CAC Market. Please go ahead.

Yes, good morning and thank you for taking my questions. The first one is regarding the amount of shared efficiencies. Can you give us some indication about this amount? You no longer make a split between the efficiencies and what is returned to the customer. So can we have some indications? Are we in business as usual, let's say, or is there any change at this level? That's the first question. And the second question is a more general one about waste water we use. There are a lot of talks now in France about pushing the industrial companies to recycle their water. So I just would like to know what's your view on these emerging markets, let's say, and are you currently in discussions with some big industries for moving to the reuse of their water?

Maybe close the first question and we'll have the second one.

To answer your question, it's very simple. It's really business as usual. And to give you figures, if you come back to the EBITDA bridge, We have delivered 187 million of efficiencies, cost efficiencies in H1, and we have retained 73 million, which is 40% of what we have delivered. And we have always said that the range is 30% to 50%, so the 40% is really business as usual.

And in terms of the second question you've had, you know, you're right. It's a big series of opportunities for Veolia. We are very number one in terms of both references and technologies to help interest our customers to do virtual reuse in France like in many other countries. So many more opportunities to come in Veolia. And actually some of the customers are already our customers in France as you can imagine. where we have a good footprint already. Just to give you an example, which is outside France, we signed a contract with a big lithium mine in Australia called the Talisman Mine. It's a lithium mine. They had to double the capacity, or they wanted to double the capacity of the mine. The limiting factor was the water, as you can imagine in Australia. And we've been able to deliver thanks to a combination of active flow and membranes, which are two patents technology of Veolia, to have them double the capacity without taking one single drop of water more from nature. And this is an example of wastewater reuse, but industrial wastewater reuse, thanks to the technology of Veolia. And we have many examples in France now and many more to come. So good opportunity for us. That's why I was very pleased to announce not only a very strong result, very good confidence for the rest of the year, but as well a lot of new contracts which are fueling the growth, will fuel the growth of the years to come.

Okay, thank you. Thank you. Your next question comes from Jenny Ping with Citi. Please go ahead.

Hi, thanks very much. Two questions from me. Just firstly on inflation, can you just remind us what is the lag in the inflation contracts in both of the water and waste businesses, please, as inflation starts to come down? when are we expecting to see some of that to flow through? And then secondly, just an earlier comment around the waste volume to Ollie's question, saying that some of the construction waste exposure is very minimal. Can you just run us through in terms of which are the most, which sectors are the most exposed to in terms of your waste and obviously a big chunk of that will be municipal as well. But just of the industrial, what are the most exposed sectors? Thanks.

Okay, maybe for the first one.

Yes, in terms of inflation, so you know that the lag is 6 to 12 months on inflation. This is what you can see on the waterfront. For example, we had close to 4% last year. We are at 6% this year. So you have this lag effect. And we see the inflation going slightly down in the second part of the year, to answer your question, Jenny. So the lag effect, 6 to 12 months, that will translate to the next coming month if inflation goes down.

And on the second question, so again, we haven't seen any growth in the volume of waste in the this semester and last semester in S2 2022. Despite that, we've been delivering a very strong growth of our results. If you want to understand why, in a way, we're immune to 85%, as we said, immune to economic growth and waste volume. This is because a lot of it, as you mentioned, is municipal. The other half, it spreads through various types of sectors, barely in construction. A lot of it will be retail, typically, if I had to mention one, which is a lot. of where the volume of waste comes from. And again, you know, like our adaptation, our reaction, our cross-cutting delivery track record helps us to, in a way, disconnect from this type of indicators from the results of the earlier. I think that's the two questions.

Yes.

Thank you.

Thank you. Ali Jeffrey has a follow-up question. Ali, your line is now open.

Thank you very much. Just another question. So on the bookings within WCS, I think you said that increased $200 million. Could you just clarify how much that's increased since the bookings have increased since the four-year result? Second question is on, normally at the half-year, working capital quite negatively normally unwind by the end of the year. And you spoke about that being below 19 million. I might have expected a bit lower than that. So could you just explain, are you still expecting the normal largely full working capital unwind over the second half of the year? And then my last follow-up is the LIDAC contract. Can you please just confirm, is that now included within the guidance or not? And my understanding is it would be. It might be. It would be a scope effect. It wouldn't be in the EBITDA line, but obviously it could be in the net income line. So clarifications on those points would be great. Thank you.

I guess on the first one, the booking, We've mentioned a few figures, so maybe we were not clear enough. The $200 million was just a single segment within the water tech, so it's not the overall booking. The overall booking secured on the H1 only is $2.7 billion in six months. So that's the figure of which 200 million was in part of the business and 500 million was another part of the business. But the overall is 2.7 extra in just the first half of the year. And I've given you a few illustrations of what's within those 2.7 and a big contract for one and a lot of good results related to the lithium factories. And you might wonder why lithium is difficult. and the first is of course lithium mines or factories need a lot of water so there is a lot of water reuse and what you call ZLDs but the other part is we have as well a wonderful piece of technology which helps us recoup the little little bit of lithium you still have in the effluent of wastewater to concentrate it that's what we call evapocrystallization and that's a unique one and as you can imagine given the price of lithium and the It is a technology where we have a lot of incoming calls to apply to recruit any single gram of lithium you can think of. So the real figure is 2.7 billion, of which we've given a little bit of details, but the headline is 2.7.

On the working capital, Olivier White, if you take into account just the working capital, because of the working capital reversal that we do every year, we contribute significantly to the free cash flow of H2, and you know that we continue to have a very strict discipline on free cash flow, on cash generation, on invoicing and collection, in order to continue to deliver strong free cash flow generation at Veolia. But as I said, we may close some Bolton acquisition by your end. And so you have to take into account a couple of acquisitions that could come by your end. And so if you combine the two, we know that we will be below $19 billion at your end.

And as far as the LIDEC question is concerned, so Casablanca, Wooten, and Power, it's counting in scope. But in terms of effect, to give you an idea, it's around the 30-something type of million euros of EBITDA in the first half of the year. So it's limited compared to the size of the book. Very, very limited.

And in terms of net income, it's not significant at all. Got it. Thanks very much.

It's super limited.

Thank you. Your next question comes from Philip Orbatian with Odoo DHF. Please go ahead.

Yes, good morning to all of you. Many thanks for taking my question. I have only two which are more, some precision. Could you just give us your hedging prices because you mentioned that you are fully hedged in terms of 23 and 50% 24. Just to add an idea about the trend in terms of prices, you can deliver the exact figure, that's the first thing. And the second thing, you mentioned that the weather impact was not so significant, was not so good, I would say, in the first half. Looking at the weather in France in July, the impact could be even worse. What do you have in terms of, let's say, statistics and mainly main figure in your management control for the month of July? just to have an idea about the volume's impact in the French business. Many thanks.

So in terms of the hedging policy for energy, Claude?

So hedging policy for 2023 is done, and that's the reason why we are explaining, as you know, Philippe, we are hedging a fraction of... the year to come in the year that we are and a little bit of next year. But the policy of the group is to hedge the full year pretty much at the beginning of the year. So it's done for 2023. And so we are confident, very confident with 2023, good, solid delivery. And we have a progressive, as I said, for next year. If you look at the progressives that we have, we are pretty good today on the electricity prices for the incinerator. We have a good hedging today. So we know that we should deliver better 2024 energy prices for the waste to incinerator in 2024. But that could be slightly mitigated. But we are well progressing on this one. That's for the hedging policies.

In terms of the weather impact, if you ask do we have a magic wand in Viola and a specific API to anticipate the weather, we don't. So what we can say is just having a look through the window and of course, you know, measuring. July was not great in France, you're right, but in other geographies it was very good. Just to give you an idea, as we've mentioned, the weather impact in France for the first semester, but overall the volumes of water worldwide for Veolia was close to 4% in the first half. So we are present, as you know, in Spain, in Chile, in the Czech Republic, and in the U.S. a lot. inclined to de-zoom a little bit compared to the weather I see through my own window. I said repeatedly that I'm very confident for the rest of the year, I would say despite the rain in July in France, to say it in other words. and which has enabled us to raise our guidance to upper range of the 5% to 7% EBITDA for questions.

Many thanks.

Thank you. Your next question comes from Juan Rodriguez with Kepler. Please go ahead.

Thank you and good morning. Thank you for taking our questions. I have a follow-up on the net that If I may, and especially on the M&A that you signaled that is included already on your below $19 billion target, can you please tell us what size of the envelope will be targeted in this bold M&A acquisition? Something around half a billion would be good to have in mind. And then are you including any contribution of this on your embedded net income target? That will be the first one. And the second one, if you can update us on where the concession renewal process of this important SETI concession in the water business in Ildefons is currently today. Thank you.

Maybe on the first question, although I would discourage my CFO to give you the names of the targets because we have in mind, because of course we're in discussion and this is very confidential, but you can give a little spoiler on the side of the button.

So we're talking about a couple of hundred million euros, so nothing very significant, but that will fuel the growth for next year and the earnings for 2024 and we expect to close in 2024. And that's the reason why it will have a limited impact on our accounts in terms of EBITDA revenue and net income. But that will help also to have a strong 2024. And as we said, we are very confident as well for 2024 at Veolia.

And in terms of the CEDIS contract, we are in the middle of the calendar with already two offers together in succession, which is the typical one. Just to give you an idea, the end of the contract is meant to be at the end of 2024. basically a year and a half. We've put a very, very good offer together with all the technologies and the know-how of the group in terms of technologies to give you an idea. There is a state of the art of everything you can treat which could end up being in the worker as well as a state of the art in terms of leakage rates, which is already very low, but could be even lowered, thanks to all our technologies and AI and digital. So, you know, I'm very proud of the offers we've put together. And again, there will still be a bit of a few months to wait for, because the end of the contract is at the end of 2024.

Thank you very much.

Thank you. There are no further questions at this time. I will turn the conference back to Madame Brachena for some closing remarks.

Thank you very much. You've understood that we are very happy about the results of this first half of the year, which are, again, an all-time high for Veolia, very confident for the rest of the year as well, which has helped us to raise our guidance to target now the upper range of the 5% to 7% EBITDA. That's well under control with a very big improvement in the working cap and good ambition for the rest of the year as well. So Veolia is in a very positive trajectory.