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.

Thank you, Claude. And now we're ready to take 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 touchtone 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. Our first question comes from the line of Arthur Sitton from Morgan Stanley. Go ahead, please.

Thank you for taking my question. So the first one would be on the synergies and cost savings. I see that the synergies in Q1 are quite strong compared to what you expect for the full year. So I was wondering if we should expect a normalization there in the next three quarters or if it's just that potentially you're going to deliver strong synergies on the year. And on pretty much the same topic on cost savings. The retention rate as well seems higher than usual, close to 45%. Was there anything unusual happening in Q1 or is it what we can expect for the whole year? So that's the first question. The second one is that you talk, well, it's been several months now that you talk a lot about your booster activities and your stronghold activities. I was wondering if there is any action that you may consider to accelerate the shift of your business profile towards more booster activities and a bit less strongholds to potentially accelerate the overall group growth profile of Veolia. Thank you very much.

Two very different questions, but in a way they very much fit summarize two of the three levers of our value creation, be it growth and efficiency and delivery on that. So, starting with synergies and cost savings. So, yes, we've already delivered in the first quarter. As usual, we will go on as fast as we can in delivering the synergies. Our commitment remains to deliver 500 million in four years, so at least 400 million by the end of this year. And we'll do it as quick as we can. And I guess, you know, in terms of behind figures, what is there, there are quite different things throughout the various years. The first year was very much the HQ type of savings. Typically, I don't know, real estate has emerged in two HQs in the same city in one same building. Then we move to some more operational things. Typically, I don't know, in Australia, rebooting of trucks. As you know, in Australia, we had like two kind of similar in size activities in waste, both in Suez and Veolia, which we've combined. So it's very operational. And I guess, you know, now we can see the benefits of the merger within the water tech zone. which was slightly delayed compared to, say, the Australia example, and which anticipate to go on for the next quarter. So no slowing down to anticipate in terms of the overall 500 million over four years, which will deliver as quick as we can. And I guess, as you know, Kind of repeating myself on that one, I like to deliver on our promise, and this is my priority as time goes. In those days of uncertainties in the world, I think to be able to stick to the plan is something which has some merit. In terms of cost savings, apart from synergies who are traditional, shall I say, because it's become traditional now, cost savings per 100 million, which we've already enhanced from 200 or 250, which was the initial type of figures, to now 350 million per year. I'm very happy that, you know, on top of the traditional cost-saving plans we have throughout all the business units throughout the world, we are adding specific ones depending on the specific situation and typically, I've highlighted briefly in my introduction work the France specific action plan. France has been alright but not great last year and that's why we've launched a specific action plan which is starting to bear fruits. Same applies with what I mentioned on exiting some underperforming contracts like the one in Canada. I guess we're trying to be as agile as we can and we have been. And I guess the next few years will be probably more of the same, plus, say, GNI, typically, to fuel new ideas. And I tend to say kind of forever in Veolia. We always find new sources of efficiencies. In terms of your second question on growth, we've announced our strategic plan a few weeks ago. And I guess your question is very much aligned with the strategic direction I've highlighted a few weeks ago, which is boosters and strongholds, both are important. In terms of strongholds, they account for roughly 70% of our revenue, the booster 30%. But in terms of investments, it will be the opposite way around, and we expect the growth to come 70% from the boosters and only 30% from the strongholds. So I guess we put our money where our mouth is, and we already make a priority of those boosters, which doesn't mean that we forget the strongholds. And they are very important as well. Why is that so? They are kind of the foundations on which we anchor, we build the boosters. If I give one example, without our, I would say, classical historic activities of dry waste and municipal water, we wouldn't be able to deliver the bioenergy production from waste or from wastewater, just to give one example, which is a booster. So the two are really intertwined very much. And I guess when from the stronghold activities, the idea is to maintain our customer happy and to follow some growth, but say it would be typically inflation plus 1% what we expect from those type of activities. For the boosters, we're talking 5% to 10% or mid to high single-digit growth, as we said. And I'm very happy that's exactly what we've seen in the first quarter, where our boosters have grown exactly in this range and well above the average of the groups in the first quarter. That's for the activities. And for the geographies, the same applies. We said we're very happy with our historic geographies, so France and Europe, typically. but we will have a higher rate of growth in the U.S., in the Middle East, and in Australia. That's exactly what we've seen in the first quarter. Claude mentioned the Australian growth, the American one as well, and each of those three geographic boosters have grown by above 6%, and as we've seen in WaterTech, it's even 15%. So I guess... The priorities are translating into figures now and will be in the next few years. Thank you very much. Thank you. I was about to summarize in one more, because my answer was very long. I guess it's resilience and growth, which we are aiming at delivering. Resilience comes from the strongholds. growth comes from the boosters mainly although you know you have a little bit of both in in both activities uh which means that uh when you say that a company like zeolia which is a long-term contracted activities uh infrastructure like in many ways is able to deliver in the first quarter 3.9 percent of revenue growth i'm very happy about these results and it's very much very much a testimony to your question about how to enhance growth. I think the figures demonstrate that.

Thank you. Our next question comes from the line of AJ Patel from Goldman Sachs. Go ahead, please.

Good morning, and thank you very much for the presentation. I think my first question sort of set of questions is on this teaser slide on slide 19, you know, 200 billion estimated market value. I don't think I, when I look at that, I have the full appreciation of how the alias place. I know that you have the range of technologies, but if you were to try to cater to that market, you know, what will it take in regards to CapEx investment? What do you have already on the ground that can help to that solution? And what, potentially could you invest to take advantage of this opportunity? You know, just helping me sort of translate the big, you know, sort of number that you presented to actually nuts and bolts, you know, a little more sort of lower down. And then I guess the second one is more granular, but just, you know, with what I've all found out of wet weather, I just wondered, potentially, what could that mean in terms of the impact on water usage? Any sort of commentary around that would be quite helpful.

Thanks. Sorry, I haven't understood your second question well enough.

Water usage.

Oh, okay, sorry. Due to PFAS, you mean? Or is it a totally separate question?

Separate question. The second one's separate, but just the first one. Give us more on this PFAS. Does it sound like a massive opportunity? It's just it doesn't feel... I can't really frame it in my mind in regards to Viola yet.

Okay, good. So two different questions on PFAS, which is the page 19 you were referring to. I guess a few things on that one. This is about anticipation... positioning, patents, and technologies. And let me explain why. PFAS, as you know, is quite an emerging market. That's why the numbers I've mentioned are publicized by third parties. You know, they are our first estimate. But as I said, the legislation in the U.S. dates back from three weeks ago or something like that. and it's still evolving and in Europe it's the same. So it's difficult to assess and to answer very, very precisely to your question. But there is a unique potential market which we know will be very, very sizable. What we know as well is it's going to take a bit of time because legislation translates into projects and then into delivery and then into margin for Veolia. So a little bit of it we'll see in this greener plan, and probably much more in the one after, given some of the time to deliver on those. But the opportunity is huge, and we are uniquely positioned, that's for certain. How is that so? I detailed that in our deep dive in the US a few weeks ago, so if you want to know more, I encourage you to watch the replay. But in a nutshell, PFAS, say, you can find it in many places, in water, as well as in soil and sites that you have to decontaminate. So typically, if you see a map of the world, a map of the U.S. we've shown, a map of Europe, you see PFAS pretty much everywhere where you have large industrial chemical parks, as well as every single airport and airbase, basically. And you can see a map where you have PFAS. How do you treat those? You have usually to concentrate and this is with more brains or resins. It happens that we are number one in those technologies with water to take business. Then you have to say treat as in I was about to say destroy and cut into pieces, and this is with our high-temperature incinerator, which you typically can do that. High-temperature incinerator, meaning 1,150 degrees Celsius, just to give you an idea what I mean by high temperature, which has this waste business. So in a way, this is an example where we have the municipal water activity, the water technologies, like in ravines and the membranes, as well as the hazardous waste business, and we are in the leaders in every single of those three businesses, actually number one in each of the three, actually, in the world and in the various geographies I've just mentioned. So in a way, we have competitors, of course, in each of those segments. I really believe in each of those segments we are the best, But what's very unique is our ability to offer the full range, the end-to-end solution. And I cannot see anyone offering the end-to-end solution. And why is it so important? It means that for customers, For a customer, you would need resin. For another one, you would need membrane. For a third one, you have to go directly to a high-temperature incinerator or whatever because every single situation is different if you talk about an airport, pollution, if you talk about a refinery, or if you talk about water. So this is really an example of what I call the ecology of solutions, which is, Mr. Customer, you have a problem. We managed to design a solution to fit your needs. And we have the food portfolio from end to end again. So difficult to assess how quick, I guess, this market will translate into our figures because again, the legislation is very, very recent. But given what I said, we know we have a unique opportunity here. to offer what we do very well and what we're the leader of. We already have some contracts we've signed because some customers have anticipated the legislation in a way, so it's typically the Department of Defense in Australia or some specific customers in the U.S., and it even started in Europe, so we already have a few contracts. They are not significant in numbers, as in we're talking... millions of euros or dozens of millions, no more, so far, but it's moving super, super quick. On the second question, which is the water usage, if your question is about the link between weather and water usage, I would like to try and understand better your question to be able to answer more precisely if you can.

I was just thinking the weather seems to have been quite wet, and to what extent could that impact your waste volumes in the second half of the year or over the remaining quarters so that it could be a benefit to you?

I guess the waste volume, you probably mean the water volume. Yeah, just Okay, so you always have a little bit of weather impact in Veolia. That's why we have shown you on the virus bridge that Claude has what we call the interesting growth, which is the self-help, if you want, from growing activities and efficiency. and we've had a negative weather effect in the winter. So we may have a positive or negative weather in the summer. I can tell you that whatever is the summer like, you know, I commit on delivering on the guidance I've repeated. So that's the usual one. Second, that's the short answer. So we can confirm the guidance, whatever. The second answer is on the, I guess, midterm trends. It's sad to say that the summary of 22 in France, the summary of 23 in the UK, and I could go on like that, and in Spain and so on and so forth, means that it was such a shocker for municipalities and populations and industries alike that even when it rains, The push for solutions, be they reduction of leakage or reuse of wastewater and all the rest of it, is still very much top of the list of our customers. So it's good news that it has ranged so the underground water are now a bit more full than they were a few weeks ago. But I can tell you our customers are still very, very, very adamant to find solutions because everybody has perfectly understood that this type of event is here to stay and even to reinforce because it's the first consequence of global warming basically. A testimony to that is the survey we've conducted with the lab. in 24 countries with 26,000 people in the world, which we've just seen the result a few weeks ago, where the population, everyone in the world, basically has understood that, you know, we need solutions and acting now. And I can tell you, whatever the weather is like, this is here to stay. So we are on a mega trend, which I'm very confident is here to stay because it's pushed on the demand from the population itself. Okay.

Thank you very much for your answers.

Thank you. Our next question comes from the line of Oli Jeffrey from Deutsche Bank. Go ahead, please.

Thank you and good morning, everybody. So, a couple of questions. First one, I'd just like to think about how you're seeing the rest of the year in terms of the outlook for waste growth in China and Europe, given the economic picture is looking slightly better for those regions. So are you seeing any evidence of that yet? Because I know that in China, obviously, it's been slightly depressed for your business there. And the other question I had was around just the specifics within the DNA. So industrial capital gains and net provisions are up 31 million versus 10 million last year. Can you explain what's driving that, please? And my last question is, For the full year, is 100 million FX headwind at the EBITDA level still the right order of magnitude, or have things improved a little bit with the movement in the Chilean peso recently? Thank you.

Sorry, I haven't heard well the third question. Okay, EBITDA to EBIT. Okay, sorry.

EBITDA to EBIT.

I guess Claude on the three questions.

On the first one, the rest of the year. So we see no change in the waste activities. So the waste activity that you can see has been well performing in the start of the year, plus 5.5% in terms of revenue. And in April, we have the same, and the start of the May, we have the same trend as in Q1. So we are starting the year very well on the waste activity. And so far, so good. The current trending is the same as we speak, as what we have seen in Q1. And for China, this is what your question, we had China's solid waste was better than the start of the year, especially on plastic recycling, so we had a slightly better momentum in China. In terms of quality of earnings, if it's your question, and the... EBITDA to EBIT Translation. As I said in Q1, we had slightly more amortization than last year with the ramp-up of the Tashkent contract, so a little bit more depreciation and amortization. On the provision side, the main topic was the provision that we had to take last year to cover the risk for a contract ending for around $20 million. And we had no such risk to cover in Q1 2024, which is good news. And on the other side, for the JVs, we had a positive one-off in 2023 and no such thing in 2024. So if you look at EBITDA, EBITDA has increased by 50 million, and it translates directly into EBIT level at 55 million, so the same amount if you compare to the EBITDA evolution and the EBIT evolution.

And just to complement Claude's answer on the first question, as we said, we are 85%, I think, something like that, immune to macros. which means that, in a way, I would differentiate a little bit Veolia's results from the GDP results and how the economy is going in the two countries you mentioned. In a way, I can comment on China GDP, but I'd rather comment on Veolia growth in Europe or in China, which were your two questions. And again, we are... We have some very limited impact of the GDP, say the 15%. But more interestingly, there is a part of it which is more commerce. And it's fair to say in some geographies it's difficult for us to distinguish. Say the waste volume is a little bit up in the first quarter, as you've seen by 1.2%. And part of it is probably the economy doing a little bit better. And part of it is us being better than the competition. How do I speak both? You know what? It's very difficult to say. And we've seen in some geographies our competitors complaining and us being relatively happy because our job is to try and, again, you know, like win a valuable business and not only just to follow what the economy tells us. China being a good example, we've put a specific action plan in place. So we are not waiting for the rebound of the industry in China. We've put some action plan in place. So EBITDA is on the up, although revenue is not, I mean, it's kind of flat, flat minus, something like that. But we have the EBITDA on the up because, again, I would distinguish the macro picture and where they only have the levers from it.

Thank you. That's clear. And just following up on the last question on the FX impact, I think before we've spoken about 100 million for the full year at the EBITDA level, is that still the right level to think about? And what should we think about the net income line? Because obviously a lot of that comes out through minorities. So it might be helpful just to clarify on that bit too. Thank you.

So for Forex Impact, we said between 70 and 80 million if the currency stays at the same level only. and the impact at net income will be super small. So whatever the forex, we can fully confirm that the net income will be above $1.5 billion at your end. That's great.

Thank you. Thank you. Our next question comes from the line of Jenny Ping from Citi. Go ahead, please.

Hi, thanks very much. I've got two questions, please. Firstly, just going back to the PFAS point, can I ask what is the EPA regulation in terms of the removal rate? Because my understanding is that it's quite difficult for total removal of any PFAS substances in the water. And then secondly linked to that, If I can also ask whether you guys have your own proprietary technology, i.e., a competitive edge for the removal process, that would be great. And then just alongside of that, if I can ask for a bit more color around the recycler prices and commodities movements that you've seen recently. Normally you have the chart in the back of your pack which shows the movements in commodity prices and recyclers. But I don't think it's there. So if you can give some commentary around that would be great. Thank you. Thank you.

So on PFAS. I would again encourage you to have a look at our replay on the US deep dive which will explain the whole detail of the EPA legislation which had been released a few days before we've done this deep dive. I won't go into very much detail. We had two different sets of legislation so far. If I call EPA legislation, it's more a standard than legislation as such. The first one was on potable water, and the second one was more on polluted soil and site, if you want, called CERCLA. And in both cases, you're right, it's very difficult to talk about total removal. So there is a list of specific PFAS, because as you know, PFAS is a family of products, some of them being very likely dangerous, some of them being very likely not dangerous. and it's not for me to decide, it's the sanitary and health authorities which decide that. It has translated into a specific list of a few PFAS where the combined pollution level, if you want, has to be detected below a certain threshold. And I guess, just to give you a metaphor, The threshold is very small, but it's not nil because, as you said, the total removal is difficult. But it's so small, it's the equivalent of the size of a sugar cube in the middle of an Olympic swimming pool. Just to give you the idea of the type of threshold the legislation has set will be. have to be implemented in the next five years. Do we have our own technology? Yes, we do, and they are patented. Again, resin patented, membrane patented, and a very unique as well set of technologies in the high temperature insulator, which are above 1,100 degrees, as I mentioned. So yes, it's patented technologies and quite unique. And as you know, in Bo3, we are the number one player in the world number one player in what to take in the US as well and number two in the has this way so just to mention the US and same applies with Europe we are number one in what to take a number warning has this way in Europe the same so yes we have our own technologies to treat those but as I mentioned earlier on it's not only our technology it's a set of technologies under broadness of the end-to-end solution, combining the watertight, the hazardous waste, which makes us very unique. In terms of recycled products and commodities, Claude, do you want to comment?

So recycled, the main topic for us is the paper and cardboard. What we have seen in the UNO, it has dropped a lot. As I said, in the second part of 2022, after we have seen a low price since during the course of 2023, We have seen a slightly up movement in Q1, especially in the month of March, which is really encouraging for the rest of the year. So we see a movement up in recyclers as we speak.

but it's a limited one so I guess our job is to deliver the result irrespective of the commodities price in a way be it recyclates or be it energy as I mentioned in my introduction speech and the plastic price is I guess average low so I guess do we have a potential for improvement in the next few years? Yes we do the price are really still relatively low as we speak. When is it going to happen? I won't make any bet on that because it's always difficult to predict any commodities, but our commitment is on delivering on our guidance.

Super helpful. Thank you very much.

Thank you. We have our next question coming from the line of Alexander Roncier from Bank of America. Go ahead, please.

Good morning. Thanks for taking my question. I've got two, please. The first one is just a follow-up on the EBITDA to EBIT bridge. I think in your press release, you mentioned capital gains. So that was just to confirm the size of them and if anything material was coming out of SAD for the quarter. And then the second one is I was looking at your free cash flow and obviously there's some phasing quarter over quarter and within the year. But I think you mentioned in your press release again some disbursement from carbon. And I was just wondering really the movements there, given that carbon prices are quite much lower year over year and I would have expected perhaps lower buy given the mild winter in your district heating business. So maybe if you can talk about the different driving forces there, or if you were maybe a bit more tactical as other industrial players have been, I think, within the market for carbon buying. Thank you.

Okay. So on the capital gain, that was very minimal. because, as you know, on the EBIT level, we call only the industrial capital gain, so that was only a few million. So nothing relevant in terms of capital gain for the EBITDA to EBIT translation. In terms of free cash flow, in terms of the SAAB, capital gain will be below EBIT and will be released during the H1 results. But it's a positive one. I can confirm. In terms of free cash flow and the CO2, so it's a matter of calendar. So as I said, it's just a calendar effect. In CO2, as you know, we have a hedging policy. The same hedging policy in terms of CO2 as what we have on energy. because we don't want to take market risk, so we hedge when we sell the energy on the market, we hedge the CO2 in the meantime. So we have a CO2 price which is slightly above the market today, but we are buying CO2 on the market for the years to come, and that will be also good news for energy business in 2025 and in 2026. And in terms of payments, it's just, as I said, the calendar effect, Q1 versus the end of the year. So no impact on the delivery of free cash flow regarding this calendar effect. That's right.

Thank you.

Thank you. Our next question comes from the line of Juan Rodriguez from Kepler. Go ahead, please.

Thank you. Good morning. Thank you for taking your questions. I have two on my side, if I may. The first one is, again, coming back on working capital and the seasonal body increase in effect. I just want to confirm that you're expecting to end the end of the year towards normalization and relatively flat. And the second on this working cap is on the higher CO2 quotas. I want to confirm that it does not include UK. There has been a recent article signaling a possible cost increase on incinerators in the country. So this is the first kind of 1.2 question. And the second one is on acquisitions. If you can give us more color of the acquisition price and valuation of Hoffman in Germany and any color as well on the price evaluation of the unit period CGT assets in Hungary, it will be helpful. Thanks.

So I start with the working capital. So no topic about the UK. So it's not a topic at all on the working capital. And in terms of, yes, we will reverse the working capital at your end as usual, Juan. And we know that we start always with Q1 with a stronger negative working capital, and it's always reversed progressively into Q3 and Q4. So no change regarding working capital for Veolia.

On the others, so as you know, the UK CO2 for incineration, which was your second question, you know, we're talking 2028, so going into the ETS scheme, so nothing to do with neither this year nor the years of the Green Up plan. But in anticipation, in a way, we knew it was likely to come. Hence, we've started a few projects to capture CO2 from our incineration, which is a very specific CO2, as I explained in London, actually, following a question I had on that one, because it's biogenic CO2, which is, in a way, that kind of, let's call it the good CO2, as opposed to the bad CO2, which is a non-biogenic one. So no impact at all to expect, and by the way, you know that the various costs will be buried eventually by the municipalities in the end, not by Veolia. But we want to help, and therefore we've launched a few projects, and you can see a press release in the UK about CO2 capture and storage and so on and so forth. In terms of the unipair and off-mine prices, there is a reason why we don't publish the price. Usually, it's because the sellers don't want us to. I guess you can see that it's usually good news when the seller doesn't want to publish the price of an acquisition made by Veolia for us. I mean, good news for us. I guess I will stay there. But highly value-creative, so I think it's a very good example of what I call the third pillar of our value creation, which is, I guess, the optimization of the balance sheet and the portfolio of activities. We're constantly reviewing the plus and the minuses. Among those two, which are on the acquisition side, Quick value creation, because it's synergetic in both cases with our existing activities. In one case in Germany, recycling, and the other one, flexibility in Hungary, which we do already have activities in Hungary in the same type of things. So value creation, relatively quick. I would say it will be plug and play, if you allow me the metaphor. So quite good illustration of that. So it's going to be value creation relatively quickly.

Excellent. Great. Beautiful. Thank you very much.

Thank you. Our next question comes from the line of Arnaud Palisse from CIC Market Solutions. Go ahead.

Thank you. Good morning. I have just one remaining follow-up question on the changes in scope. Can you give us the impact on full-year revenue and margin for the acquisitions of Uniper and Hoffman or Uniper, the deal with Uniper? And a reminder also about Morocco, LIDEC, what can be the impact on annual sales and margin? And the same question on the disposal side regarding the Italian water concessions.

So you made quite a long list on the plus side in Iper and Hoffman, on the minus side in Italia, and maybe the LIDEC one. So if I summarize all that, is included in our guidance for the year, obviously. And whatever the dates, I'm going to briefly detail. I guess it won't change our 1.5 billion net result target, I would say in absolute value, irrespective of the scope for the end of the year. I think that's the important bit. So you have the plus and the minuses compensated and all together, of course, we expect all that to create value and be a plus. Uniper is not closed yet. We're talking about later in the year, probably the autumn, something like that. Ofman, it will be in the account. There is a little bit in Q1 and there will be the rest in Q2 onwards. LIDEC, I guess, no impact on net results because it's very, very, I guess, limited in terms of net results contribution. And in terms of SAD, in a way, it has a large impact on revenue, but not on margin because, as I said, we're talking about an EBITDA of around 5%, so it's a good business. And the reason why we sold it is not the 5%, it's a good performance for a construction type of business, but we're not keen to keep construction businesses, as we've highlighted a few times. And Italia, it was not consolidated because it was a series of minority shares where we didn't have an operational impact on, and that's exactly why we sold. So it's a very different situation and very small.

Very small EBIT impact, non-significant, absolutely non-significant at group level. So very happy.

That's why all that will, again, contribute to the 1.5 billion target current.

Okay. Thank you.

Thank you.

and uh our last question comes from the line of philip orbitian from auto bhf go ahead please yes good morning to all of you i have two follow-up questions the first one is concerning uh forex you confirmed the 70 80 million impact but just could we have as it's very difficult and mainly linked to argentina where the situation is a little bit trouble view from europe could you just have a kind of sensitivity about what's going to happen if, let's say, your forecast in terms of Argentinian pesos is not exactly aligned with the figure at the end of the year as you are accounting through inflationary trend accounting principle. It means that you are taking, let's say, the last day of the quarter of the full year. And just to have a kind of sensitivity concerning the main Latin forex impact at the EBITDA level, please. That's the first one. And the second one is, in the slide 30, you mentioned some good retention rate. When I'm taking the 33 million net efficiencies, let's say, and the 88 on the gross value, it seems that we are always around the 50%. Is this means that we are starting to have a better retention rate in terms of efficiency versus the past? or is it something specific to Q1? Many thanks.

Okay, so maybe on the first one, the best guess that we can make, Philippe, is to take the actual assumption, the actual exchange rate, and have a projection on the full year. Argentinian business is very small, and EBITDA is very small, so... It will not have additional significant impact when you have the full year with the hyperinflation in December resetting the entire year of forex impact. So because it's small, we don't expect this to be, at the end of the year, material in terms of forex impact in Argentina. That's what we see today.

So on the retention rate, which is your second question, and it made me realize that I didn't answer on that question which was already asked a few minutes ago. Yes, you're right, 38 divided by 88 is more 43% than 50, but nevertheless it's on the upper part of our range, which we said is always between 30 and 50% depending on the quotas. So does it mean that we'll stay at this type of range as in 43%? No. 30% to 50% is traditional for us, so I guess the middle part of the range is a good assumption for me going forward. And the specificity of Q1 was more what I mentioned on the water tech, which was really, I guess, volume-based and growth-based rather than I guess a GNA which at times necessitates a bit of cost to be able to extract efficiencies. So I guess the return rate depends more on the type of efficiency than anything else. When you're talking a GNA at times you have a bit to pay to get them extracted, therefore the net is a bit on the lower range. When you talk about purchasing, uh it's more on the upper end of the range and the mix makes it different from a quarter to the other and the upper part of the range is due again mainly on the water tech efficiency plan in the first quarter many thanks yes in fact my question was also linked to the green up strategy it means that are you forecasting to have a better maybe retention rate due to this uh

Let's say new strategy more mainly focus on having additional value making more complex Let's say Technical contract and so on that's also part of my question.

Thanks So I guess the way to see the green up the green up objectives is 300 million per year, plus the second part of the synergies, of course, plus the top line growth, all that filling EBITDA. So in a way, what is important for me is really the 6% average basically growth of EBITDA, which we've published, which is 8% – sorry, 8 billion. EBITDA target for 2027. I guess this is more the figure because you have pluses and minuses. Of course, if we can retain more in efficiency plan, we will. But we can have weather impact as well, as we've seen in this quarter, or not great commodities. So I guess you have pluses and minuses. That's why the way to see it is really the target of EBITDA and the target even more so in net results, which is 10% on average over the duration of a plan. I guess that's what the attention is focused on. And usually at Veolia, when we have a specific thing happening, we react with an extra-specific plan, as we've done particularly in France, which is starting to bear fruit. So I guess instead of talking about average of retention, I'd rather go on, again, net results, over the duration of the plan, which is what we are focusing our attention upon with EPSC-9 in terms of growth.

Many thanks.

Thank you. There seems to be no further questions at this time. I'd now like to turn the call back over to Ms. Brasher now for final closing comments.

Thank you very much for attending this conference call. And, again, very good result, which helps me to see 2024 with great confidence and confirm our objective for the year and a very good start of our green-up plan. Thank you.

Thank you, ma'am. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.