Veolia Environnement Adr

Good morning to all of you, and thanks for joining us for this conference call to present the OVF nine-month results. And I'm accompanied by Claude Larrel, our Chief Financial Officer. I'm on slide three. Thanks to our strict operational and financial discipline, as well as commercial momentum, the performance achieved during the first nine months, 2023, is once again very strong. and very similar to that of the first half, whilst our free cash flow generation has improved significantly. At Constant Scope and Forex, our revenue increased by 10.7% to 33.2 billion euros, or plus 4.6% excluding energy price, which are pass-through for us, as you know. So very similar organic growth as the next one. EBITDA grew by 7.7%, and current EBIT by 14.2%. Our free cash flows to that 435 million euros in Q3, a strong improvement compared to 2022. And our net financial debt decreased to 18.9 billion euros. This once again very strong set of results in a complex environment shows that Veolia is critically piloted as evidenced by our synergy and efficiency delivery, well ahead of schedule. In only nine months, we've almost achieved our yearly target for synergies, and we will, of course, not stop there, and therefore exceed our yearly target. These very good sets of numbers are a result of Veolia's powerful business model of value creation. 85% immune to macro trends, and with 70% of our contracts indexed. as well as of our unique positioning. We are now 40% outside Europe, including $5 billion in the US, with unique technologies and know-how in decarbonization, in deep pollution, and resource generation. It's a powerful engine for sustained growth. This was illustrated once again in Q3 with many new contracts, notably a 2 billion euro contract in Hong Kong, and a record high level of bookings in water technologies at 3.1 billion euros. Given our nine months performance, we are very confident about our 2023 guidance, which is fully confirmed, including the upper range of our EBITDA growth range. And we can improve our targeted leverage ratio to below 2.9 times at the end of the year, from around three times. And that is not even two years after the merger with Swiss. Of course, our net result of around 1.3 billion euros is fully confirmed as well. To give you some additional color on our nine-month result, I'm on page four. The main feature of these nine months is essentially that all the strong operational levers in H1 continued in Q3. Our revenue grew by 10.7% as constant scope and exchange rate to €33.2 billion. Excluding energy price, our revenue grew by plus 4.6%, which is very comparable to H1. We registered strong growth in all our activities. Water increased by plus 7.2%, driven by tariffs and good commercial momentum, despite inflation. lower volumes due to adverse weather during the summer in Europe and in the U.S. Waste activities continue to grow by plus 3.1%, which is the same pace as our 3.3% in H1. Excluding recycling prices, our waste activities grew by 6.1%, thanks to resilient volume in both solid and hazardous waste, good commercial momentum, and pricing. Finally, energy activities grew very fast by plus 30.4%, driven mostly by energy price, which are both stationary pass-through for us, and very seasonal, as you know. EBITDA growth reached plus 7.7%. Above the high end of our EBITDA range, trends to synergies and efficiency gains ahead of the yearly targets. Current EBIT grew by 14.2% at the same pace as in H1. Net free cash flow reached 435 million euros in Q3, strongly up versus 2022, leading to a decrease in net financial debt to 18.9 billion euros. These outstanding results were delivered despite softening economic conditions and continued flat waste volumes. And this is thanks to our strong foundations and powerful growth engine, which are the following. First, we benefit from a balanced geographical mix. 40% outside Europe, of which $5 billion in the U.S., and we enjoy the strong commercial momentum in all activities thanks to perfect positioning in fast-growing markets. Second, our strong business models are resilient, with 85% macro-immune businesses and protected against inflation thanks to tariff indexation and pricing power. Moreover, our results are de-risked from community prices. Third, our balance sheet is very solid with a leverage ratio expected now below 2.9 times at the end of the year. And we have resumed our tracking and asset rotation policy after two years dedicated to the sales acquisition and antitrust diversifiers. And this is to enhance value creation. Fourth, the group is quickly piloted. We've maintained our discipline and sustained a strong delivery track record, both in synergies and efficiency gains. quarter after quarter. Both are ahead of schedule. Meanwhile, we continue to implement our strong ESG commitment, and in particular, in Q3, with the launch of our Veolia CARES program worldwide. All these elements allow us to forecast solid growth in our results and our dividends, and to fully confirm our 2023 guidance, as I've already mentioned. Slide six. I would like to illustrate our strong commercial momentum with a selection of commercial successes of Q3. I've chosen, for instance, our recent success in Hong Kong to illustrate our resource regeneration as well as decarbonisation capabilities. Thanks to our unique expertise, we've been awarded a management contract of €2 billion over 20 years. Veolia is building a steadily hard landfill site to maximize methane capture and thus avoid the emission of 10 million tons of CO2 over 20 years. The green electricity produced from the captured methane will cover 100% of the plant's energy needs. And the granite extracted from the site will be used by the Hong Kong construction industry, avoiding therefore imports. In Central and Eastern Europe, our decarbonization program continues at full speed. A new biomass and RGF facility is being commissioned in the Czech Republic in Ščerov. We have already invested €519 million out of our co-exit capex plan of, as you know, €1.5 billion by 2030 in Central and Eastern Europe. Slide 7, a few contacts in the energy spectrum, although we could qualify the Hong Kong one as energy as well. We have won two new major energy efficiency contracts in Italy for Costanza hospitals, as well as municipal buildings in Trieste, amounting to 280 million euros. Each of these contracts will provide significant energy savings and CO2 footprint reduction for our clients, thanks to efficiency measures and the installation of photovoltaic systems on roofs. On page eight, in water technology, where we ranked number one worldwide, we have registered record quality bookings in the nine months for a total of 3.1 billion euros, up 20% versus 2022. Thanks to our unique portfolio of technologies in reverse osmosis and ultracrutation membranes, evacuo-crystallization technologies and desalination, hence contributing to reducing the water footprint of our industrial customers, reducing pollution of their affluence, and even extracting precious minerals from them, such as lithium. In particular, as illustrated on this slide, we have one of the world's largest energy efficiency desalination plants in Abu Dhabi, a contract of 300 million euros, and signed several contracts with lithium producers as well as water treatment for semiconductor plants. On slide nine, you see the strengths of our business models and of our pricing power capacity, which allows us to pass on cost increases. For 70% of our revenue, our tariffs are automatically indexed, and you have a few examples on the slide. In municipal water in France, indexation increased by 6%, while in Central and Eastern Europe, tariffs increased by double digits. municipal waste in the UK. Indexation ranged between plus 9 and plus 15%. Moreover, our electricity accrued price already 70% edged for 2024 at the same level as 2023. Municipal heat price in Central and Eastern Europe increased sharply in 2023, in line with the cost of energy. For the non-indexed revenue, we really have a pricing power and how demonstrating it quarter after quarter, and we've continued this year to pass price increases in hazardous waste, in CNI waste, and chemical products, for instance. And we have not seen any sign of a reduction in our customer base as a result. On slide 10, I wanted to remind you of our strict balance sheet disciplines. Wilger delivers solid growth and maintains strict balance sheet disciplines. with below 2.9 times net debt expected at the end of the year, we are ahead of our plan, barely two years after the Suez acquisition. We have continued to improve our net free cash flow generation in Q3 with 435 million euros versus 337 in Q3 last year. We control our capital allocation with very strict investment criteria, Just to give you an idea, the RR of a project must be above WACC plus 4% and ROTC above WACC in years 4. The leverage ratio will remain below or around 3 times, and we will, of course, keep our solid investment rating. After two years dedicated to the Suez acquisition and antitrust infrastructure, we've just resumed our normal policy of cutting and asset rotation. to enhance our growth and create value. We maintained our focus on hazardous waste assets, for instance, with acquisition in Japan, and recently in the U.S. with the acquisition of U.S. Industrial Technology, a Michigan-based provider since 1996. At the same time, we've divested a few non-strategic assets such as our minority stakes in water concession in Italy for about 100 million euros, and few other non-core assets in various geographies are in the process of divestment as we speak. Slide 11 and 12 illustrate our strict density in terms of cost and operational efficiency. As already stated, the group is closely piloted and we innovate regularly to enhance our performance. As we've announced recently with the inclusion of generative AI in our upgrade live monitoring tool. In terms of synergies, we delivered $131 million in nine months, leading to a cumulative amount of $277 million since the start of the slave merger, which was our cumulative target at year-end. Therefore, I can confirm that we won't stop here for this year and that we will largely exceed our annual target. I can, of course, fully confirm our overall target of 500 million euros accumulated as the result of the merger, which is bearing fruit at pace. In terms of efficiency, and I'm on slide 12, we achieved 284 million euros of efficiency gains in the nine months, which is ahead of our annual target of 350 million euros, with 80% already delivered. Efficiency gains are part of Veolia's DNA and will remain so. Slide 13. As a global champion of ecological transformation and a benchmark ESG company, Veolia manages its business in accordance with its purpose with a multifaceted performance approach in which we measure success against financial as well as commercial, social, and environmental objectives. And I'm very proud to announce the Veolia CARES initiative, an unprecedented social protection program for our 213,000 employees worldwide. From September, Veolia guarantees a common base level of social protection for all our employees, even in countries where there are no such legal requirements. Unprecedented in terms of its scope and scale, the Veolia CARES program gives each group employee access to parental leave, health and death coverage, support for carers, and the opportunity to dedicate one day a year to a charity or an environmental protection project. Reolia Cares is therefore fully consistent with the group's social commitment to ensure the professional and personal well-being of its employees. On slide 14, and you will see that I am very confident about meeting the upper end of our EBITDA guidance range. Current net income will be around 1.3 billion euro, and we now expect our leverage ratio to be below 2.9 times at the end of the year, an improvement on our initial target of around three times. I will now hand over to Claude. We'll give you many details on the nine-month result, and then we will be able to answer your questions.

Thank you, Estelle. And good morning, ladies and gentlemen. I'm on slide 16. And as Estelle already highlighted, our nine-month 2022 results are remarkable and at the top end of the year's guidance. With €33.2 billion revenue for the nine months, we experienced a very strong organic revenue growth of 10.7%. driven in all our businesses by increased indexation on our long-term contracts and the full impact of price increases on non-indexed businesses. And second, good commercial momentum and resilient waste volumes. EBITDA is significantly up at 4,793,000,000, an outstanding plus 7.7% at constant scope and forex. Nine-month EBITDA 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 2,518,000,000 euros and is up 14.2%. This shows the strength of our business models, highly resilient, delivering results quarter after quarter. Net free cash flow improved significantly in the nine months to 357 euros thanks to working capital reduction due to strict cash collection discipline and lower non-current charges associated with a Suez deal. Free cash flow generation, as Estelle highlighted in Q3, was very strong at 435 million euros. Therefore, net financial debt decreased to 18.9 billion. We now expect a net debt around 18.5 at your end and a leverage ratio below 2.9 times. You can also see on the slide the detailed forex impact in nine months, which were slightly negative and more significant in Q3 than in H1. The negative impact in Q3 came from the UK, Latin America, Australia, China, but also from the US dollar. As a reminder, as we operate in local currency, forex impacts are only translation and not transaction impacts. and we expect a continuation of this Forex trend in Q4. Moving to slide 17, you can see the quarterly growth of our main businesses. We continue to register a solid growth in Q3, plus 4% at Constant Scope and Forex, which was obviously lower than in Q2 due to the end of the heating season. Excluding energy prices, organic growth was 3.3% in 2003, which is comparable to Q2 and only slightly lower due to adverse weather in water during the summer and project completion in water technology with little impact on EBITDA. This is just a timing effect, and the bookings of WaterTech increased sharply in 2023 by 20% to 3.1 billion euros. Focusing on Q3, we continue to register solid growth in our three activities. Water grew by 5%, driven by indexation, and well-oriented works. Water technology revenue growth was slower due to project phasing with little impact on EBITDA, as I said. Waste activities continued to grow by 2.8%, very similar to Q1 and Q2, and 5.8%, excluding recycled prices. thanks to resilient volumes, positive commerce impact, price increase, and indexation. Finally, energy activities grew by 4.2%, as there is no heating activity during the summer. Moving to slide 18, revenue increased strongly in nine months by 10.7% to 33.2 billion. The majority of growth came from outside France. Water technologies, to start with, were up 6.3%, which is very good, with a very solid pipeline of new projects. We registered strong bookings in Q3 in desalination and lithium projects. In the rest of the world, strong growth continued in Q3, leading to plus 10.9% in the nine months, coming from all geographies. In the rest of Europe, all our operations were well-oriented and experienced high revenue growth, plus 16.3% in the nine months, with strong energy prices in central Europe. The UK continued to perform well with resilient rolling, good commerce, and price increases, leading to 5.6% revenue growth. Iberia grew by 8.3%, and Italy revenue decreased due to lower gas prices immediately passed through into the tariff without any EBITDA impacts. Front-end hazardous waste Europe is up 2.2%, with lower water volumes due to adverse weather. Waste volumes remain weak, like in H1, while recycled still suffered a very high comparison basis, which should soften in Q4. On the next three slides, we detail our performance by activity, water, waste, and energy. And we start by water, our largest activity, and I'm on page 19. Our water business experienced a solid organic growth of 7.1% to 13.5 billion euros. Growth was driven by increased indexation in prices, 4.2%, and volume of commerce works accounting for 3.4%, whether in fact was minus 0.5% due to rainy summers. In France, higher indexation of 6% were partly offset by the end of the Lyon contract and lower volume due to adverse weather. Commercial momentum remains strong. If you remember, we have the enlarged Perpignan contract for 700 million backlog. The renewal of LEED contract, 700 million as well. And a new wastewater treatment plant in Strasbourg for 150 million backlog. In Central Europe, revenue was up 17.9%, driven by increased tariff indexation and strong works activity and stable volumes. In Spain, revenue increased by 9.7%, driven by tariff increase and strong works activities with flattish volumes. U.S. water progressed by 6%, mostly thanks to tariff indexation. Latam revenue increased by 10.6%, with both volumes and tariff growth. Our water technology business performed well, going by 6.3%. The earlier water technology increased only by 1.1% due to project completion, but bookings are sharply up, 300 million at 1.4 billion euros, with significant wins in our priority segments. WTS revenue grew by 9.1%, with solid growth in all its business lines and continued price increase in the chemical business. Engineering backlog increased by 9% to $1.7 billion. And the performance of the segment is very good, with EBITDA of WaterTech up by more than 10%. I'm now on slide 20. And you have the main trends of the waste activities. Our waste activities perform well despite flight volume and low recycled prices. We have delivered strong performance thanks to our pricing discipline and indexation in municipal business, contract selectivity, operational excellence, and an improved mix in hazardous waste in the U.S. Revenue grew by 3.2% like for like to 11 billion euros. Excluding recycled price impact, revenue grew by a solid 6.4%. The scope effect is minus 7.1% is significant. It is due, of course, to the antitrust disposal made in November 2022. It includes Threads UK, that was sold in November, and Assets in Australia, sold earlier in the year. The growth came mainly from pricing complemented by resilient volumes and partially offset by the negative impact of lower recycled prices. Volumes were stable, with the rest of the world better than in Europe, like in the first half. Commerce plus 0.7% was solid, notably in the UK. The main driver of revenue growth was pricing. This was 4.6%, in fact, partly compensated by lower recycled prices. Recycled prices have decreased since August 2022 from record high levels. And in the nine months, higher electricity prices contributed to 0.7% to revenue growth. the impact at the revenue level was mitigated by taxation and profit sharing at EBITDA level. As a result, rates remain well-oriented, notably in North America. Moving to slide 21, you have the detailed business of our energy, the details of our energy business. As a reminder, energy activity is much lower in Q3 due to the end of the heating season in May. Energy revenue in nine months was 8.6 billion euros. Growth achieved 30.4% like for life due to the sharp increase of energy prices for 27.4%. Our business models allow 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 Europe with an impact of minus 0.7%. In the nine months, we continue to implement heat price increases, notably in Poland, in line with our fuel cost increase. Electricity revenue is fully hedged for 2023, as well as our energy purchase, and we have hedged approximately three-quarters for 2024. Our visibility is therefore very strong. Building and industrial energy services have also performed well, with new contracts in the Middle East and in Spain. offset by lower energy prices in Italy. On slide 22, you have the usual revenue bridge, detailing the different effects. Forex has a negative impact, as I said, of 2.2%, minus $663 million, due to lower GDP, Australian dollars, Chinese yuan, U.S. dollar, and Argentinian peso. Scope impact was minus $183 million, and it's including, as I said, the divestment of Suez UK. The 10.7% organic growth is fueled by good commercial momentum, resilient volumes, energy price increases, and price and indexation increases. This solid commercial momentum, as Estelle highlighted, is contributing for 2.2% to revenue growth. I'll give you some examples that we talked about in the last presentation. Gold Coast, the city of Gold Coast waste contract in Australia started in Q1 this year, ADNOC hazardous waste project during the summer in Abu Dhabi, and many new contracts were signed in CNI waste in the UK and building energy service in the Middle East. The weather impact was slightly unfavorable, minus 0.4%. The contribution of price increases in water and waste was plus 3.8%. Energy prices contributed for 1.9 billion euros, or 6.2%. It was partly offset by lower recycled prices for minus €340 million or minus 1.1%. I'm moving to slide 23. And let's have a look at the EBITDA bridge detailing the remarkable 7.7% organic growth above our annual guidance range. Scope and forex impacts were more significant than in H1. As you can see on the slide, scope amounted to minus 23 million, and forex negative impact reached 65 million euros after minus 21 in H1. Volume and commerce impact was plus 82 million, or plus 1.8%. Weather impact was slightly negative for 48 million euros. And as usual, the main contributor to our EBITDA increase is the net efficiency and synergies. the growth efficiency gains reached 284 million euros ahead of our 350 million target for the year. Net of shared efficiencies with clients and contract renewal location, net efficiencies amounted to 99 million euros. The synergy delivery was also very good, reaching 131 million euros ahead of our annual target. In total, synergies and net efficiencies contributed to 230 million. Energy and recycling impact was 84 million, with energy more than compensated the decline in recycling. The favorable energy impact mainly comes from the benefit of the new biomass project 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 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 a very large portion of our cogeneration revenue, and thanks also to our hedging policy. The negative impact of recycled prices of minus 87 million offset the exceptional positive impact of 2022, which was plus 79 million. So we are back to our normal level of profit in recycling. I'm moving to slide 24. And let's see how the EBITDA increase is fueling the current EBIT, which is growing very strongly by 14.2% at 2,518,000,000. Renewal expense of 223 are comparable with 2020. Amortization and offer amounted to $2,271,000 slightly above last year. Industrial capital gains, net of provision and asset impairment, $129 million, includes notably $54 million of industrial capital gains. Pension scheme alignment between Veolia and Suez combined with the implementation of the new pension law in France, and lower asset impairment than in 2022. JVs amount to $90 million compared to $105 million last year, mostly due to divestments. I'm on page 25, and you have the detailed free cash flow of the nine months. Comparing nine months 2022 with nine months 2023, Free cash flow improved very significantly from 33 million to 357 million. First, nine-month capex reached 2.5 billion compared to 2.1, due in particular to increased discretionary capex from 267 to 399. Decarbonization capex in Central Europe, 123 million in the nine months, with a total, as Estelle said, of 519 million since January 2020, well above our initial commitment of 400 million at the end of 2023. Ongoing construction of three large hazardous waste projects in the U.S., in Germany, and in the Middle East that will fuel the growth of the group in the coming years. Second, we improved our working capital variation by 103 million euros compared to nine months last year, despite strong revenue increase thanks to our numerous cash initiatives across the group. Net financial debt reached 18.9 billion, including almost 200 million of negative forex. After this very good Q3 performance, we expect net debt to be around 18.5 billion euros at current and a leverage ratio below 2.9 times. I'm now on slide 26, and you have the details of the net financial debt variation, where you can see the different effects I have just highlighted. Moving to slide 27, you can see that we enjoyed a very good debt profile with a very smooth repayment schedule, more than 80% fixed rate, a very high net cash position of $6 billion, allowing us to manage our debt insurance program. I'm on slide now 28, and you have on this slide of 2023 guidance, which I fully confirm EBITDA organic growth is expected at the high end of the 5% to 7% range, driven by $250 million of efficiency gain, more than $280 million accumulated synergies at the end of 2023. Leverage ratio will be now below 2.9 times current net income, will be around 1.3 billion, which means a double-digit growth compared to last year. And as usual, our dividend will go in line with our current EPS. Given our remarkable nine-month delivery, we are, of course, very confident for the full year. Thank you for your attention.

Thank you, Claude. And now we are together here to answer your questions.