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.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchstone phone. Again, that's star followed by the number one on your touchstone phone. You will hear a three-tone prompt acknowledging your request. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please lift your handset before pressing any key. We have our first question coming from the line of A.J. Patel from Goldman Sachs. Please go ahead.

Good morning, and thank you very much for the presentation. I have three questions, please, if I may. The first one is, look, these are very strong results. EBITDA is up 8% on an organic basis, and your guidance for the full year is 5% to 7%. With cost cutting running very nicely and the delivery that you've put through in the first nine months, how come that doesn't translate in a changing either guidance for the EBITDA line or even guidance on the net income line of the $1.3 billion? Could you help us, one, with the EBITDA guidance in terms of is it conservatism built in for Q4 or are there any dynamics in Q4 that we need to understand that may imply a lower growth rate in Q4? And then could you help us with the dynamics on... from the EBITDA line down to the net income line, just to ensure that we've got those in the right place. And then I'll come back with the other two questions.

Okay. So we'll start with this one, which is a full one. A few answers. So first, I am very confident about reaching the upper range of the EBITDA guidance, which means, as you know, five to seven percent, and I'm saying I'm very confident we should reach the upper end of this range. That's the first answer. Do I expect anything bad in Q4? The answer is no. We have good visibility, and we don't see any changing trends in our businesses. I guess the only thing I would say I don't put any personal energy into trying to have an impact on the weather, as you may imagine. We have the heating season just starting. October was not particularly cold, so we have a little bit of certainty on this one. On the rest, I can tell you we are, again, very confident, no change in trend, and we target the upper range of the EBITDA guidance in terms of with full confidence. That's the answer. Do you want to compliment on that one, Claude?

And, AJ, you will have the translation from EBITDA to EBIT, and you have the same translation from EBIT to net results. So we have strong net results at your end. But as Estelle said, we are very confident for the rest of the year. So you have a very strong net result from the translation, but maybe that will be two net results.

So maybe your other two questions.

The other two are relatively short. It's more on cost-cutting translation. So you delivered... If I take the net efficiency benefits, the $99 million that you flagged, and then take the cost-cutting that you delivered, which is $284 million, it feels around 35% of the cost-cutting is translating into underlying EBITDA gains. And I just wondered, is that the right way to think about how cost-cutting will translate going forward? Or is there something specific about the nine months that that number's a little lower? And then the last question is on working capital. You achieved $745 million of benefits. Just wanted to understand what might unwind over Q4 so that I can model the full year a little bit better.

Claude, maybe, for those questions?

So if I start by working capital, as you know, Jay, we have a strong working capital reversal in Q4. And so we don't expect any changes as what we've seen in the previous year in terms of working capital reversal in 2023. For the cost-cutting translation, we have always said that we keep 30% to 50%. We are at 35% in nine months, so nothing specific. We are in the range that has been always the range of Veolia in terms of net efficiency gains. 35% who are in the range of Veolia.

And in terms of synergies, you know, in a way, the translation is really fully to EBITDA, as you know.

Okay. Thank you very much, Veha.

Our next question comes from the line of Arthur Sitvon from Morgan Stanley. Please go ahead.

Hello. Thank you for taking my question. The first one is I told you that you're going to host several events in 2024, three of which will be thematic events on, I think, energy, U.S. activities, and water technology and innovation. I was wondering if we should look into the selection of these activities as an indication of how you think about them. What I mean by that is Does that imply that these three activities are all core to you? Does it imply that you believe that they are not well understood by the market? Basically, I just like some thoughts around why did you pick these three activities to do a thematic event on? That would be very helpful. That's the first question. The second question is on the third quarter, in the There was slightly slower organic EBITDA growth, but if anything, it seems to be due mainly to the weather, so volumes seem broadly in line with previous quarters. I was wondering maybe if you can give some details on the areas that have been doing well, that have been very resilient, those that have been doing maybe less well, and how is it going so far in the fourth quarter from this standpoint? Thank you very much.

Thank you very much for your question. So I hope I understood your question right because the line was not exactly great from this end. In terms of the why have we selected those themes for the deep dive, I guess it's really are they core? Yes, they are. Are they fully understood? I don't know. We've had a lot of questions over the years, and we understood that at times you need to take a bit more time than just the usual quarterly or even CMDs to deep dive and to explain what it is. The energy at Veolia, which as you know is local energy, which is a very specific sweet spot for us and quite unique. just to give one example, or even the U.S., where there is probably an underappreciation, in my view, of our unique positioning in the U.S. following the merger with Suez, and the fact that we are now really very well positioned in key markets in this country, just to give two examples. So it's probably, I don't know, like a series of... a lot of questions about could we spend more time on this and that, plus under-appreciation maybe of some of the key nuggets we have in Veolia would be probably my answer. In terms of EBITDA growth from one quarter to the next, you're exactly right. We're exactly on the same range as Q2 and Q1, with the slight difference being really the weather, which hasn't been wonderful in terms of the water in Europe and the West this summer. But each quarter was really at the upper range of our guidance range and even above our budget. So I guess it's all, every single of the quarters have been good in a way so far. I would say that if you look at EBITS, The third quarter was even higher slightly than the quarters before, so it's another way of looking at that. Where are we performing well? I guess we have a portfolio of activities I would mention Hazardous Waste, which is still performing super well in the U.S. notably, where we really have record revenue growth of plus 30%, and EBITDA translates into very, very big EBITDA growth for us. as well as the energy activities, as I said, it's local energy activities, which are performing very well, not specifically in the third quarter, because as you know, we have a seasonal effect on energy, but in the overall year, it will be a good year for energy activities, local energy, as I mentioned.

Claude, do you want to? Yes, and if you look at Q3, it's mostly the water volumes You know, we have bigger volumes sold during the summer. So the impact of water volume, even though it's in the same range as the start of the quarter, is slightly higher, but nothing very specific. So EBITDA delivery in Q3 is very specific. And the biggest impact is the water volume of the summer, which was rainy. if you have been in France, and even in Spain, that was slightly negative. And for Q4, maybe Estelle, the Q4, the start of October?

Oh, start of October is good, as in we don't see any change in trends. And in terms of the rest of the year, you know, again, as I said, we don't see any any specific negative anywhere. The only uncertainty being the weather so far, in my opinion, for the heating season to come. I shall, if I may, insist on the fact that we are delivering these very, very good results quarter for quarter with flat waste volume. And they've been flat for now pretty much one year, since September in 2022, if you have a look at our quarterly presentations. So I think it's a proof, and I'll come back to my introduction, it's a proof that it's based on the solid foundations and piloting, as we've highlighted a few times already.

Thank you. Our next question comes from the line of Vincent from JP Morgan. Please go ahead.

Yes. Good morning. Thank you for the presentation. Three questions on my side. One, bouncing on just your last comment, Yes, indeed. This is very good. Despite flat waste volumes to keep delivering organic growth in the waste segment, there is the US and then ramp up of activities. But the question I have is, when you look at your, on your presentation, you say continued favorable impact of price increases in indexation in waste. Could you explain us a bit like the dynamic If the volume remain in some areas in a negative trend, you don't seem to see any price war. I would be very interested in having some color on what's the situation as of now. The other question would be regarding synergies. You've been doing very well. Could you give us a couple of examples of action and key synergies you've managed to unlock and where you see the main areas of progress going forward? I'm thinking not Q4, but 24 and beyond. And finally, on inflation, inflation has been quite positive, but in your indexation for contracts, But there is also the cost inflation. You have last year increased a lot of things on the employee wages and everything. What do you see going forward and the situation, the net between cost inflation and contracts and taxation? Is it that we should remain very steadily in a net positive position as we're now, or should we assume some level of temporary compression? What is the mechanics between top and the top line in OPEX on that one? Thank you.

Thank you for the questions. So in terms of your question about the volumes, price, and price war, I would say, if you look at, for instance, the slide 20 of our presentation, which is on weight, which I assume was the underlying part of your question, we haven't seen decline in volume. We've been seeing flat volumes, so a bit of minuscule minus or minuscule plus for the last four quarters, basically. quarter-on-quarter, so it's flat volume, but you can see quarter-on-quarter prices increasing. On this one, I guess on nine months, it's plus 46%, and I don't have top of my mind last year, but it was again three point something. So we are good at using our pricing power. I think, you know, the keyword here for the 30% which are non-indexed, because again, 70% are indexed, so it's not even pricing power, it's automatic. But for the 30% which is not, pricing power is key. Do we see a price war? No. Because we have, again, a pricing power. We are very good at what we do. We have the quality of service. It is well understood by customers. We are in a social service for them. When I say it's well understood by a customer, we measure our net promoter score, which is very good and increasing year on year. So we are happy customer, good position on our market. We are, as I highlighted a few times already, in the top three usually of our markets. So we are not a small player. When we play, we want to play big and strong in the country. And this is what allows us to have this pricing power which I've just highlighted. In terms of synergies, yes, we're very happy about the track we're in because the quality of the delivery of the merger with Suez is as important as the merger itself, in my opinion, and this is what demonstrates the synergies. If you want example, I guess it started more with HQs, and it's now more down to operational stuff. I say HQs because, of course, I'm not talking only about the central corporate HQ, but countries' HQs we have in each country, which have merged. That was for the first synergies. Now we're more down to more operational stuff, such as, re-routing of trucks by merging depots in waste collection or purchasing power which is taking off as we speak and will go on until 2024. So the two examples I mentioned are really already starting but will deliver fully in 2024 and 2025. So that's for your second question. In terms of inflation, We always said that, you know, inflation was neutral or slightly positive to Veolia. And when I say that, it means neutral or slightly positive for our margin and results, of course. You know, revenue is something else. But, you know, what we tend to target is to protect our margin. Again, we've demonstrated with high inflation or higher than against the norm in the last 18 months that we have been able to protect our margin and even slightly benefit from it from time to time, including in the energy price as well. Do we expect any squeeze in the other direction next year? The answer is no, because I monitor that very closely from employee's wage through to everything we buy. as in chemical products or energy. It goes back to your previous question about purchasing, for instance. No negative to anticipate. Again, inflation is neutral or slightly positive for Veolia and will remain so, even if it goes down like it is now.

Thank you.

Thank you. We have our next question coming from the line of Jenny Ping from Citi. Please go ahead.

Hi, thanks very much. Firstly, two questions first out, please. Just on the price inflation, can you help us to understand when we will start to see some of the lower inflation, i.e. the reset, coming through, starting to impact your numbers? And I know you said net inflation. is neutral to positive. I just wanted to see when some of that starts to flow through. Secondly, can you just comment and update us on what's the latest around the SDIF contract? Obviously, there's been some press coverage around the process and the issues with various processes. Is there going to be a retender of the contract, which will effectively drag out the process a bit longer? So can you give us an idea on that? And then two numbers questions, please. If I can refer back to slide 23, just on the base EBITDA number for the full year 22, for the nine months you sort of talked about roughly around 88 million for FX and scope as a base year, base adjustment for nine months. So are we looking for the full year to the tune of 120, 130 for those two elements together, just to give us a sense of the starting point. And then on the 1.3 billion net income, which you've reconfirmed today, can you just tell us what the FX drag you're expecting on that would be? Thanks.

Okay. So it's four questions, or three and a half, because three and four are about Forex. I guess I would start with the first, but I think, you know, you will have element to complement Claude. On inflation, inflation is already lowering. Of course, it depends on each country and each type of contract. As we said, you know, we have a lagging effect of our mechanism of indexation for the 70%, which is indexed. And of course, we monitor it so that the costs is not squeezed by increasing whilst the inflation starts decreasing and therefore the indexation. So we plan all that in a nutshell. So nothing negative to expect here. And by the way, we don't have any price decrease. So it's more, I would say, what we start to see is the increase slowing down. So I'm talking about, you know, like a, The plus 10% is more plus 8% here or nothing like decrease in price. And I'm very confident we should not see any decrease in price and indexation formula work like that. So it's quite protective for us. Maybe an example.

An example on waterfront. Waterfront escalation formula, there were 6% this year. With the lag effect, as you know, Jenny, that will be between four and five next year. But it remains a very strong escalation formula impact on the waterfront, to give you an example.

And our cost base has increased less than those numbers, including the lower of the two. So no anticipation of squeezing in our margin there. In terms of the CEDIF tender, which we know is a large contract we have in providing water for the outskirts of Paris, shall I remind that we've renewed this contract in 2010 already. This tender was launched two years ago. We've already answered to thousands of questions and provided cubic meters of documents. And I can tell you we have a very, very good high quality offer I'm very proud of. You know there was an incident in April where there was a data provided to us by the CEDIF tools which were not meant to be sent to us. And the CEDIF has therefore taken the stance that they had already all the information they needed to judge the merit of both offers on the day before this incident. So that's the decision they pronounced as taken. So as we speak, they are analyzing the merits of both offers based on the data of the days before. In terms of facts, the CEDIS again said they would decide by the summer next year who is the best contender, having in mind that the end of the contract is at the end of 2024. In terms of forex, Claude?

So in terms of forex, let's start at – you know, Jenny, it's always difficult to predict the forex. But what we see, we have a higher Forex impact, of course, in Q3. And if we don't have many big changes in Forex, we expect quite the same trend, as I said, in Q4. In terms of scope, it's different because we have made a few tokens. They will have the full year impact, including the last one in Hazardous Waste in the U.S. And if you remember, the divestment of Suez, U.K., was done in November last year, at the end of November. So you will have to correct a little bit the scope impact with this. And at net income level, forex impact, as you know, is much, much more limited. So we expect a very small number in terms of forex impact at net income. We are very confident with the delivery of the net income for the full year 2023.

Sorry, just a follow-up. So can I read that as $100 million in totality, assuming FX stays where they are currently?

Jenny, we don't know the Forex of November and December, but if we have the same trend as in Q3, you're correct.

Thank you. Thank you. We have our next question coming from the line of Ali Jeffrey from Deutsche Bank. Please go ahead.

Thanks very much. A couple of questions, please. So the first one I'd like to ask about is just coming back to the waste volume trend that you've seen in the last quarter, which has been a repeat of what we've seen over the preceding courses. French PMI volumes I think my reading was not very good for September. Can you comment on the mix of how you're seeing race volumes? I suspect with France and Germany it's probably not doing as well as others, but can you at least talk to whether you're seeing any stabilization within those markets or if you're seeing volumes getting worse? So some detail on that would be great. Could you also please give an update on what's happening with the LIDEX contract in Morocco? There's been a few things in the press regarding that. And then the last question I have is just slightly more broader. With synergies, it's been clear that it's going very well. And your target initially is four years to do the $500 million. I presume that you're not going to stop at $500 million when we start to think of going beyond 2025. There might be a possibility of looking to push beyond that. Any commentary you can give on those questions would be great. Thank you.

Thank you very much. First on weight volume, I will, you know, slightly start with not talking about waste revenue, but waste revenue, which is basically volume times price, and highlight what we've put on slide, is it 18 or 17? Close. 17. Slide 17. where you see that it's plus 3.1, 3.2, whatever, depending on the quarter, so it's super stable revenue, hence my comment on the price, because the underlying volume is more like zero plus, zero minus, depending on the quarter. In terms of the detail behind those volume being split, because you're right, you know, the various geographies has quite a different stance, clothes,

But if you talk about France, we have the same trend in Q3 than in Q2, pretty much. And in Germany, we have seen in October a stabilization in mixed industrial waste, meaning that mixed industrial waste in October 2023 was at the same level and even slightly better than in 2022, to give you two examples.

And if you want to have an idea of the various weights of various type of business within the waste, it's page 20, where you see the parts of page in solid waste and hazardous waste. And with those percentage, you have basically the 80-20 rule of where we're big. So you're thinking your question was about France and Germany, but we are big in the UK. We are very big in Australia as well. which is in a very positive, I guess, you know, trend as we speak. And in terms of has this weight, we are very strong in the U.S., for instance. So I guess I would de-zoom a little bit your question because, as I said, we are very much more outside Europe than we were a few years ago. So U.S., Australia typically have taken a bigger share than it used to be the case. In terms of your question on LIDEC, there is no specific news. We are going on with discussing with the anti-trust authority on one side and the interim minister on the other to try to find a solution which will be compliant with all the parties' constraints and wills. And we are really under discussion as we speak today. So there is nothing specifically new to say today. In terms of synergies, yes, you're right. We are really on a very good trend. That's why I can confirm that this year we will exceed our targets, which have accumulated from day one 280. Of course, we'll do much more. You can do the math. So it will be much more this year. And I don't intend to slow down the pace. The 500 million committed over four years, I guess you know I'm very confident we should achieve it. And I'm more a delivery than promise type of lady. So I want to secure this. And I'm very happy we are really securing this delivery. And of course, if we can do more, we will. But so far, I'm focusing on delivering for 500 million to start with.

Thank you.

Thank you. We have our next question coming from the line F1, Rodriguez from Kepler. Please go ahead.

Hi. Thank you. Good morning. I think we're taking our questions. I have a follow-up, if I may. It's mainly on the leverage side. I think I heard correctly that you signaled something around $18.5 billion target for the end of the year. And looking at the new adjustment on the leverage target, if we look at the top part of the range, would be something closer to $2.8 at the $2.9 net debt. Is that correct? And the second one is on the pricing of new contracts. You signaled something around the 4% to 5% on the water in France. What other trends are you expecting or have you seen in H2 already because you signaled there was already a pricing for the energy sector expected early in 2024? This could be quite helpful. Thank you.

Maybe I will start with the first one. On the leverage side, if you do the math, you're right. 18.5 divided by the EBITDA at the end of the year, you are 2.85. So, yes, so that's the reason why we said below 2.9. Well, and we know that we will be below 2.1 at the end. That's the reason why we have improved our guidance for the full year.

And I guess the only uncertainty would be the forex club, right?

Yes. And your second question, Juan, was about pricing of new contracts for... Sorry.

Yes, price of new contracts on H2 and what do you expect for early 2024?

On new contracts in general? No. So there is no big change in terms of pricing. We continue to increase our pricing, sorry. And as we said, the escalation formula.

Maybe I haven't understood fully your question. If you could rephrase it so maybe we could give you a more precise answer.

Yes. On the pricing, you signal already around 4% to 5% increase expected for water in 2024. I saw in the presentation that you signaled that you already negotiated the energy contracts for the winter season, and what are your expectations going forward as well? It's just to get a better idea of what the review dynamics is in terms of inflation against price indexation and contract review.

Water, the way it works is, you know, we have anniversary dates of the contract, which could be in January, in April, in July. So it's a bit of a mix, hence my comment on the lagging effect. So the 6% for this year, which Claude mentioned, is a series of four here, seven there, depending on the date, if you want, the anniversary date, which is a mix which altogether will be around 6% this year, and again, as I said, our cost base is increasing by lower than this amount. In terms of the 4% next year, we don't know what we don't know about inflation, but, you know, we have some anniversary debt in January, so we have a little bit of visibility here, and then April, and so on and so forth, so our expectation is that, yes, it slowed down to something around 4%, and therefore, we won't have, you know, like our cost base increasing by more than this amount. We will try to be, of course, increasing by less than this amount in order to protect our margins. So just to try to detail a little bit, you know, the logic and our thinking here. In terms of energy contracts, we have two types of energy contracts, roughly. The district heating on one side and the building energy services on the other. But on both case, we buy the energy in a way on behalf of our customer. And that's why I said it's pass-through for us. And therefore, as you know, we are hedged for the energy price for next year, around three-quarters of it, as Claude mentioned. So it means that whether the energy price is up or down, you know, we protect, again, next year's results. But maybe on the second point, you want to complement, Claude?

Nothing much to say, Estelle. We can give you one more comment on energy contracts, the energy that we sell from the waste to energy businesses. So we have also hedged in the UK and in France, which are the two main contributors. In France, we have better prices than last year. And in the UK, it's in the same range as, sorry, for 2024, we will have better prices than 2023. And in the UK, that will be in the same order of magnitude.

So all in all, in the energy, that's why we always said it's, again, neutral or slightly positive. And the slightly positive comes from the various opportunities we have of selling extra services when the energy price is high. Say, on-series services is an example. So it's an undirect impact, which makes it slightly positive.

Excellent. Thank you very much.

Thank you. We have our next question coming from the line of Philippe Urpacha from AutoBHF. Please go ahead.

Yes, good morning to all of you. Just two questions. The first one is could you just close mainly regarding what Ajay requests in terms of net efficiency. Could you just remind us what could be the reason to be positioned between the 30% of keeping the net efficiency to the 50%? What are the main, I would say, moving parts which are positioning your net efficiency on one side of the range versus the other side of the range? Just to remind us the how this 34% is linked to. That's the first question. And the second one, you mentioned in your presentation that you have $6 billion of net cash and no issue, I would say, of new debt. Could you just provide us also the level of liquidity you have, mainly the guaranteed unbroad credit line in your balance sheet, please? Many thanks.

So maybe I will start by the first question. So on top of this, we have in terms of RCF, we have a new RCF that has been renewed for 4.5 billion euros. So in total, it's the cash that we have plus 4.5 billion euros to answer the first question. The second question.

So in terms of the first question, so what are the typical moving parts? One is how much does it cost us to deliver those efficiency plan because at time you have to invest a bit, invest as in not capex but invest as in there is a bit of a cash cost to deliver this. This could be for instance, I don't know you, when we merge, we change location to go for a lease which is less expensive in a city. At time you have a little bit of a breakup cost to exit your existing lease to go for less expensive one, just to give you an idea. So that's net soft gain. So that's one moving part. The other one is that you give back to the customer because when we renew contract, we tend to give back some of our efficiency to the customer. So it's not the typical moving part. So it's those which goes up and down and over the years are between 30, I guess a third and half which we retain net of those costs.

Thank you. There are no further questions at this time. I would now like to turn the call back over to Ms. Braschenov for final closing comments.

Thank you very much for all your questions. You've understood that we are very, very confident Not only are we very happy about the very solid results, but the foundations of the company are there, as well as the pilot team. So we are confident not only for this quarter, but for the quarters to come. Thank you very much.