Veolia Environnement Adr

Good morning, ladies and gentlemen, and welcome to the Veolia Q1 2024 Key Figures Conference Call with Estelle Brashinoff, CEO, and Claude Laruelle, CFO. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded May 14th, 2024. I would now like to turn the conference over to Ms. Estelle Brashinoff. Please go ahead.

Thank you, and good morning, everyone. Thank you for joining this conference call to present the results for the first quarter of 24, and with me is Claude Laruelle, our Chief Financial Officer. Our first quarter results are once again excellent. They are perfectly in line with our annual objective and enable us to start 2024 with great confidence and fully confirm our guidance for the year. And I'm on slide four. Well, you would see sales came to €11.5 billion, up 3.9%, excluding energy price, which are essentially pass-through for us, as you know. EBITDA has increased by a substantial 5.7% on a like-for-like basis to €1.6 24 billion euro and currently bid by 11.1% to 843 million euros. Net financial debt is well under control and in line with our target of leverage ratio below three times at year end. These results are the fruit of our unique positioning as the world leader of environmental services which combined with a sustained default of professional efficiency enables us to deliver both resilience and growth of our results. The last few months have confirmed the choices of our next strategic program, Green Up, which, for instance, the critical importance for both cities and industries of deploying solutions to tackle water scarcity and ensure water quality. Those challenges where Veolia has a leadership position, as you know. I'm on slide five, and you can see we registered very solid revenue growth of 3.9%, excluding energy prices. fueled in particular by water and waste, which grew by 6.5% and 5.5% respectively. Regarding energy, as anticipated, lower energy price has weighed on our top line, but our energy revenue has been flat, excluding the effect of energy price, and has even grown by 1% if we exclude negative weather effect in the first quarter. As you know, our energy margin, as in EBITDA, is well protected from the ups and downs of energy price, which showed again in the first quarter. Actually, we expect 2024 energy EBITDA to remain at the high level we reached last year, despite lower energy price. How is that so? The area is quite unique in the energy market, since we operate in local energy only, as we explained last January during our deep dive dedicated to energy. As I said, we anticipated this, which is the reason why we have published our revenue growth excluding energy price each quarter since 2022, as they do not impact our performance. Energy is a profitable and growing activity for Veolia. Slide six. In order to detail how we've delivered another quarter of very good results, I would like to start by briefly explaining Veolia's recipe for value creation, which lies in three key engines. top-line growth, efficiency, and capital allocation. Starting with revenue growth, we combine strong-goal activities, which are very resilient essential services, infrastructure-like, with three growth boosters, namely water technologies and new solutions, hazardous waste treatment, and bioenergy, flexibility, and energy efficiency. Our strong-goal activities enjoy security and high contract renewal rates. Anchored in those, our booster activities grew at mid to high single-digit rates, as they are driven by strong market trends and Veolia's unique positioning, water quality and scarcity, regulation to protect health, and reshoring, just to mention a few. The second pillar of value creation is our strict management of operations and attention to delivery. Each year, we deliver €350 million of efficiency gains, which have been topped up by cost synergies of the trade merger, an additional 500 million over four years. The third pillar is our capital allocation. We target high-value creating projects or token acquisitions in line with our strategic priorities, so typically our three growth boosters or the geographies in which we want to expand. Our internal rule is RR above WACC plus 4%, and we'll see above WACC after year three for these investments. Meanwhile, we constantly review our portfolio of assets to check if there is still some value creation ahead. If not, or when the asset is not in line with our strategy, typically construction or FM activities or subscale presence, we may decide to sell. This value creation model is the backbone of our green up plan. with current net income growth of 10% per annum, on average, and the dividend growing in line with EPS, and a growth rate post-tax above 9% in 2027. And on slide eight, let me detail now each of those three pillars of value creation, and the way they've translated into Q1 results, starting with top-line growth. In Q1, we delivered solid revenue growth of 3.9%, excluding energy prices, thanks to continuous strong foundation with regards to indexation, pricing, contract renewal, and new wins. In addition to a particularly strong performance in the WaterTech booster, both in delivery and new order book, up 50% in Q1 to 1.8 billion euros. In terms of geographies, Australia, the Middle East, and the U.S., which you know are our growth boosters, perform particularly well, each of them above 6% growth, which is aligned with our ambition laid in our Green Hub Plan. On page 9, you have a focus on the performance of activities defined as stronghold in our Green Hub Plan, which performed very well in Q1. Water municipal operations and solid waste revenue progressed very well, thanks to commercial momentum, better volumes, favorable indexation, and continued pricing power for the 30% of our contracts which are not indexed. The districting networks were flat, excluding energy price, due to mild weather in Central and Eastern Europe, but would have progressed otherwise. All registered strong commercial wins, notably the renewal of the CEDIF contract, which I'm very pleased with, as you would expect. As you know, and I'm now on page 10, this contract provides water services for 4 million inhabitants in 132 municipalities around Paris for a total revenue of 4 billion euros over 12 years. We managed to renew this contract in particular to a series of very innovative solutions which will make this contract a worldwide reference of water services of the 21st century with 10 world firsts. These include the combination of nanofiltration and reverse osmosis to treat all new pollutants from PFAS to pesticide residues or endocrine disruptors, as well to AI to help improve network efficiency to 93%, just to mention a few. As you can see, innovation is really at the heart of what we do at Veolia. On page 11, now a focus on the performance of our Green Up booster activities in Q1. Water technologies continue to perform excessively well in terms of sales, earnings, and bookings. Revenue grew by 15% in all our lines of business within water tech, while booking increased by 50% to 1.8 billion euros, including another big success in desalination in Dubai at ASEAN. In local decarbonizing energy, we continue to grow in flexibility with the 430 megawatt assets acquired from Uniper in Hungary, which will complement our own set of assets in this country. As you know, promising and strategic market, which is critical to the grid, given the development of renewables. And with this operation, Veolia now has 2.4 gigawatts of managed flexible electrical energy in Europe. Still in local decarbonizing energy, in France, we are installing a series of solar panels on our lawn fields, which will produce 300 megawatts of green electricity by 2027. On slide 12, you can see a list of some of the bookings in water tech we have recorded in Q1 with several contracts in semiconductors or oil and gas. On the ASEAN desalination project, I'm very proud that we'll have with this one the most energy-efficient worldwide design nation in the world, and not a small one, because it will serve 2 million inhabitants. And actually, when I said energy-efficient, we have crossed the floor of 3 kilowatt-hour per cubic meter of water produced, which seemed unreachable only 10 years ago, and which is a 35% reduction compared to 10 years ago, and even five times lower than the project we designed 30 years ago. You can see with this example that at Veolia, innovation helps serve energy, money, and CO2. On slide 14, now let's just dive into our second level of value creation, which is performance and efficiency. You can see on this slide our first quarter performance in terms of operating efficiency and synergies. In terms of efficiency, we achieved 8%. 88 million in gains, in line with our annual target of 350 million. I'm pleased to see the specific action plan launched in front last year buried first fruits in Q1. In addition, we have fixed or exited a few underperforming contracts, notably one in Canada. In terms of cost synergies derived from the stress merger, we are ahead of schedule and have achieved 42 million euros in Q1. or cumulative of 357 million since the start of the merger with Suez. That's to say that the efficiency program are now part of the DNA and will remain so, leveraging on our more than 3,000 plants and units worldwide. But we are constantly looking for new tools and new opportunities, such as GNAI now, which we have a dozen tests underway as we speak. The last driver of our value creation is capital allocation, where we're particularly active in Q1, and I'm on slide 16. Our CAPEX program continued at a sustained pace with ongoing projects to build new hazardous waste treatment capacities in the U.S., in Germany, and Saudi. All those projects will be commissioned in 2025 and will fuel growth and increase return in this activity, which is among the three boosters of our greener plan. As you know, as this waste already accounts for 10% of group sales and we are the world leader present on all continents. In parallel, we continue the conversion plan of our coal-fired facilities with 95 million euros invested during the first quarter in Poland and the Czech Republic. We expect a double-digit return from our decarbonization capex. and are already benefiting from the higher profitability of our new Brown's Lake facility, which was converted last year. We have been quite active in terms of bolt-on acquisition as well, from Uniper flexibility assets in Hungary to recycling activities in Germany. Those two tokens are a perfect illustration of our business model, as they complement our existing asset footprint perfectly. and generate significant synergies from day one. And on February 29th, we completed the disposal of SAD as this construction activity, many in France, was non-core and with an EBITDA margin of around 5% dilutive for the rest of the group. These very good results in Q1 confirmed the strength of our business model, which was summarized on slide 18. The ODI is very resilient as we provide essential services both to municipal and useful clients with full asset ownership and more than 90% of renewal contracts. 85% of sales are not exposed to the economic cycle. We are protected against inflation thanks to contracts indexation formulas and our pricing power as we've proven and sustained in the last three years. We enjoy leadership position in all our key countries, which has proven key to pricing power in particular. We benefit from a balanced geographical footprint with 40% outside Europe, of which more than $5 billion in the U.S., and no country outside the U.S. with more than 10% of the group's capital employees. Of course, in addition to these strengths, Viola enjoys growth thanks to supportive megatrends. and a unique positioning as the world leader of environmental services. Water quality, water scarcity, structural economy challenges, hazardous waste treatment, decarbonization are here to stay, and we are the key to enabling our customers to grow sustainably. To illustrate our unique positioning, I'm now on slide 19, let me give this example of PFAS. which is the caving point. Thanks to our innovation and the set of patented technologies we've developed, which include membranes and resins, as well as high-temperature incineration, we are now ready to treat this emerging pollutant. The combination of our various businesses in water technologies, water operations, as well as hazardous waste, enable us to offer an end-to-end solution Our presence in the U.S. when those pollutants were first detected has helped us to anticipate and be ready to treat these pollutants in Europe now. And actually, things are moving fast in PFAS. In the first quarter alone, we've seen in the U.S. two new regulations from the EPA, which represents an estimated market for remediation and solutions estimated to $250 billion in the U.S. alone. Veolia has already started to treat PFAS industry with water and in consummated water in France, in the US, and in Australia. Some of them, slide 20. Veolia is a unique global leader in environmental services, ideally positioned to address fast-growing demand trends across the globe, from water scarcity to decarbonization and decontamination to protect human health. as the case of PFAS perfectly illustrates. Our international presence in 44 countries and in the top three in each of our key countries is a key success factor, as much as our strongly engaged workforce. On slide 21, the very strong Q1 result allowed me to fully confirm our target for 2024 and are very much in line with our green-up objectives. The financial and non-financial objectives of our strategic plan are summarized in this slide. They include current net income growth of an average of 10% per year, with dividends growing in line with EPS. And now, I'll hand over to Claude who will detail the Q124 results before we both take your questions.

Claude. Thank you, Estelle. And good morning, ladies and gentlemen. I'm on slide 23. And as Estelle already highlighted, our Q1 2024 results are once again remarkable and allow us to be very confident for the rest of the year. With $11.5 billion revenue, we experienced a good organic revenue growth of 3.9%, excluding energy prices, driven by good commercial momentum and improved water and waste volumes, continued favorable indexation on our long-term contracts and price increases on non-indexed businesses. Taking into account the impact of lower energy prices, revenue was down by 1.7% as expected without impact on EBITDA. Thanks to the operating leverage and the good delivery of synergies, we enjoyed a solid organic EBITDA growth of 5.7% at $1,624,000,000 and a current EBITDA growth of 11.1% at $843,000,000. Net financial debt remains well under control at 19 billion. You can also see on the slide the detailed Forex impact, which were negative in Q1, minus 228 million at revenue level and minus 58 million at EBITDA level. Assuming the exchange rate remains at today's level, the full impact at EBITDA level would be between 70 and 80 million. As a reminder, as we operate in local currency, Forex impact only translation and not transaction impacts. On slide 24, you have our usual revenue bridge detailing the different effects and showing our top line intrinsic growth of 4.5%, composed of commercial wins and pricing, the two green boxes on the right-hand side of the bridge. Looking at the full bridge in more detail, what do we see? First, forex had a negative impact of minus 1.9%, mostly in Latin America. Second, scope impact is limited, minus 0.1% after SAD disposal in February and a few tokens. As a reminder, SAD is a construction business with low margin. For organic growth, we continue to enjoy solid growth of 3.9%, excluding energy prices, which is fueled by good commercial momentum, volume growth, strong work activities, price and indexation increase in water and waste. The main item on the bridge is, of course, the lower energy prices for 679 million with almost no impact on EBITDA. Recycled prices have stabilized and the impact is insignificant in Q1 at revenue and EBITDA levels. The weather impact was unfavorable, minus 0.4% compared to 2023, which was already mild. We experience, in fact, the warmest winter over the last 30 years in Central Europe. Moving to slide 25, you can see the revenue evolution by geographical segment. And I start with the water technologies, which deliver another very strong quarter, both in terms of revenue and bookings. Revenue are up 15%, with sustained growth in all our business lines, and in terms of bookings, As Estelle said, we registered a record level of bookings of 1.8 billion euros, including more than 600 million in the U.S. In the rest of the world, all regions performed very well, notably Australia had a very strong growth of 8.5%, thanks to good waste performance, several contract wins, strict pricing discipline, and good landfill volumes. Latin America grew double digits thanks to good waste volumes and pricing. Underlying activity was well-oriented in Brazil, Chile, and Colombia, with several new contracts to take a few La Salinas in Chile for solar remediation of breast cancer biomass in Brazil. Africa-Middle East revenue was up 4% thanks to strong business in Morocco and new energy efficiency contracts in the Middle East, in Dubai, and in Abu Dhabi. North America continued to enjoy solid hazardous waste performance and good water activity. In hazardous waste, for example, we benefited from a favorable mixed effect, and average prices are up 7%. In Asia, solid growth in Hong Kong, plus 10%, with very strong performance of our waste activity and our energy efficiency business. And in Japan, it was up 4.7% with strong performance of water operations. West of Europe, revenue was up 1% excluding energy prices. In Central Europe, the impact of lower energy prices in district heating activity was partially offset by the very good water activity. In Northern Europe, we registered an outstanding UK performance, good indexation and strong PFI activity with a record availability of 98%. Southern Europe enjoyed strong commercial and works activity and improved tariff indexation. Finally, France and other Swiss Europe, after a difficult 2023, were turning the tide. Revenue grew by 2.7%, an improvement after only 1.4% in 2023, thanks to good performance in water and waste. We also initiated profitability enhancement actions in France with a strong commercial focus and very specific efficiency targets with quick returns. As a result, France EBITDA is up 5% in Q1. I'm on slide 26, and you can see the main trend by activity that I will detail in the next slide. Water and Waste enjoyed a very good growth in Q1, as we expected, and are fueling the revenue and the EBITDA growth of the group. And we review our activities one by one. And I start with water on slide 27, our largest activity, representing 40% of our revenue. Water business grew by 6.5%, driven actually by volume commerce, plus 3%, and pricing, plus 3.6%. Thanks to first good volumes, especially in Central Europe, plus 4.2%, Morocco, plus 2.4%, and France, plus 0.5%. Continued favorable tariff indexation in France, for example, plus 4.5%, and in Central Europe, five single digits in average. The quarter was, of course, marked by the signing of a new CEDIS contract for 12 years, which Estelle already detailed. In regulated water in particular, in the U.S., volumes were up 3%, and we concluded several favorable red case negotiations in New Jersey and Pennsylvania. And in Chile, for Aguas Andinas, volume were stable and we had continued favorable price indexation. Q1 was also marked by an outstanding water technology performance, in particular the membrane business with increased sales of our products, the project business with the beginning of the Samsung contract and the St. Louis sludge project, both in the U.S., and the chemical products with strong volumes and price increases. The commercial activity remains very strong, and we have a very large pipeline of projects ahead of us. As Estelle highlighted, we have just booked a very large desalination project in Dubai for $320 million that will continue to fuel the growth of WaterTech. I'm moving to slide 28 on waste. Waste activities grew at a faster pace than in previous quarters by 5.5% compared to 3.4% in 2023, thanks to continued pricing power, improved volumes in Europe, and good commercial momentum in Australia and Latin America. To take a few examples, in Europe, the UK had a very good start to the year with very strong PFI and also CNI performance. In Germany, we had a strong commercial activity and we stabilized the volumes. France was better than last year in terms of volumes and also in terms of profitability. We managed our electricity from waste cells well thanks to a hedging policy with selling prices higher than last year. In Australia, the activity remains well-oriented with the start of new municipal contracts and good volumes. Recycled prices had only a minus 0.7% impact as the main drop of recycled prices happened in the second part of 2022. And now prices are more or less stabilized. As adults, we remain well-oriented in almost all our geographies, and we continue to experience good pricing power in the U.S. Finally, on slide 29, energy activity decreased by 16.5% due to energy prices and the milder weather. Increasing energy growth was 1.1%. Thanks to our business model with indexed tariffs and energy prices essentially pass through, and thanks to our hedging policy, we have been able to protect our results. Energy EBITDA was pretty stable in Q1 and should remain stable in the full year at a very high level. Weather was again unfavorable due to a very mild winter in Central Europe with an impact of minus 1%. On our district heating business, as expected, we continue to benefit from heat price increases by the regulators in Central Europe as there is a lag effect. We also benefited from the ramp-up of our very large district heating contract in Tashkent. On the electricity side, we benefited from our hedging policy, which enabled us to mitigate the market price evolution. We also started new high-efficiency cogeneration with higher EBITDA, such as Braunschweig in Germany and Kleroff in Czech Republic. And we have more to come with Poznań in Poland in 2025. Finally, we signed significant new energy efficiency contracts in Belgium, Italy, the Middle East, and Hong Kong. I'm now on page 30, where you have our usual EBITDA bridge. We delivered a strong EBITDA growth of 5.7% like for like, fueled by the combination of the solid underlying revenue growth, strong efficiencies and synergies ahead of schedule. In detail, Scope included the disposal of Saad from March 1st and the integration of Bolton Assets in Germany. Forex negative impact, which minus 58 million, mainly in Latin America. Energy and recycling impact was slightly negative, minus 1.8%, as we expected. EBITDA for energy business was quasi-stable in Q1. Weather had an impact of minus 1.2% with a mild winter in Central Europe. EBITDA intrinsic growth was therefore fueled by the following effects. A more robust commerce and volume impact for plus 3.6%, continuous strong net efficiency and synergies for 5.1%. The synergy delivery continues to be ahead of target, reaching 42 million in Q1 and 357 accumulated since the closing of the acquisition of Suez, which is remarkable. Moving to slide 31, let's see how the EBITDA increase is fueling the current EBIT, which is growing very strongly by 11.1% at $843 million. Renewable expense of $72 million are comparable with Q1 last year. Amortization, offer and provision. at $731 million is slightly down compared to 2023, with amortization slightly up due to the ramp-up of our contract in Uzbekistan and less interment and provision than in 2023. JV amounts to $22 million compared to $28 million last year, essentially due to a one-off in 2023. Our net financial debt remains well under control at $19 billion. CAPEX remains pretty stable and includes a 95 million euro decarbonization CAPEX with good progress on our Poznan project and 43 million of hazardous waste new projects, particularly in the US, in the Middle East, and in Germany. The quarterly increase in net financial debt was due first to the seasonal reversal of working capital that was slightly higher than last year due to unfavorable calendar effects. It will not impact the free cash flow delivery of the year. We had higher payments in Q1 to water authorities in Waterfront and CO2 quotas in Central Europe. And second, to the 200 million hybrid debt final repayment after the renewal of our 600 million hybrid debt in November last year. Our solid investment graduating has just been confirmed by S&P and Moody's with a stable outlook. Moving to slide 33, to conclude, we of course confirm ambitious guidance for 2024, revenue continued solid organic growth for EBITDA organic growth between 5% to 6%, more than $350 million of efficiency gains, more than $400 million cumulated synergies at the end of 2024, Current net income above 1.5 billion, which means a double-digit growth compared to 2023. Leverage ratio below three times. And as usual, our dividend will go in line with our current EPS. Thank you for your attention.