Veolia Environnement Adr

Good morning, ladies and gentlemen, and welcome to the Veolia H1 2024 results conference call with Estelle Brashinov, CEO, Claude Laruelle, CFO, and Emmanuel Manning, Deputy CFO. At this time, all lines are in a listen-only mode. Following the presentation, you 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 August 1st, 2024. I now would like to turn the conference over to Ms. Estelle Brashinoff. Please go ahead.

Thank you very much, and good morning, everyone. Thank you for joining us for this conference call to present the audience results for the first half of 2024. And before starting, I would like to sincerely thank Claude Laruelle, who has been our CFO for six years and within the group for 24 years. and has greatly contributed to the group's transformation. I also want to warmly welcome Emmanuelle Meining, who has been in the group for 10 years and deputy CFO for the past four years. She knows the group very well, and I'm sure she will continue close work with you with lots of passion and great professionalism. Both of them are with me this morning. Our first half-year results, and I'm on slide four, are once again excellent. and perfectly aligned with our annual targets. It is an excellent start for our green-up strategic plan, as those figures match our ambition and three value creation pillars. First, growth, with revenue increased by 4.4%, excluding energy price, enhancing our three booster activities, which are up plus 6.9%, as well as our three booster geographies, up plus 7.6%. Second, efficiency and synergies in line or ahead of our targets in H1. Third, capital allocation. I'm also proud that Veolia has become the first company to ever achieve double validation for its climate ambition and action plan from both SBCI 1.5 degrees and Moody's. I can fully confirm our 2024 as well as our long-term guidance. I'm now on slide five with a few more details on our first half financials, which are once again excellent and in line with our annual objectives. Sales in H1 are up plus 4.4% excluding energy price, which are essentially pass-through for us, and this is despite continued unfavorable weather conditions. This is thanks to the very strong performance of our water and waste businesses in particular, and I will come back to this shortly. EBITDA increased by a substantial plus 5.7% on a life-for-life basis, in line with our annual guidance of plus 5 to 6%, to 3,266,000,000. And current EBITDA by plus 6.6% to 1,730,000,000 in euros, of course. Current net income reached 731 million euros at plus 15.2% and well on track to achieve a 1.5 billion euro objective for the full year. Net financial debt is well under control and in line with our target of leverage ratio below three times at year end. These results allow me to fully confirm with confidence our 2024 guidance in all its components. Slide six, we registered very solid revenue growth of plus 4.4%, excluding energy price, fueled in particular by water and waste, which grew by 6.4% each. Regarding energy, as anticipated, lower energy prices have weighted on our top line, but in fact, our energy revenue has been flat even if we exclude the effect of energy price, and has even grown by plus 1.4% if we exclude negative weather effects. As you know, Our energy margin is well protected from the ups and downs of energy prices due to our unique positioning in local decarbonizing energy. We expect 2024 energy EBITDA to remain at the high level we reached last year, despite lower energy prices, as we've demonstrated in the first half. And as I said, we anticipated this. This is the reason why we've published our revenue growth to the energy price each quarter since 2022. as they do not impact our performance. On slide seven, this slide reminds you of the three pillars of value creation in our greener plan. Topline growth, efficiency, and capital allocation. Those are three engines supporting the group's strategy and performance. I will detail in the next few slides how each of these value creation pillars has contributed to our performance in H1. Starting with revenue growth, we combine, you know, stronghold activities, which are very resilient, social services and infrastructure-like, and they grow in line or slightly higher than inflation, as well as growth boosters whose yearly growth is expected in the range of six to 10%, so much higher than the group average. These growth boosters consist of three activities and offers. This is water technology, hazardous waste and local energy. as well as three geographical boosters, which are North America, the Middle East, and Australia. The second pillar of value creation is our operational excellence and cost efficiency. Each year, we deliver €350 million of efficiency gains, which have been topped up by cost synergies of the slave merger, an additional €500 million over four years. The third pillar is our capital location and transformation of our asset base. We target high value creating projects, either capex or token acquisition with synergies and in our stronghold activities, or to support our booster priorities. Our internal rule is IRR above WACC plus 4% and ROCE above WACC after year three for these investments. Meanwhile, we constantly review our portfolio of assets to check against strategic priorities and value creation ahead. This value creation model is the backbone of our green-up plan, which targets current net income growth of 10% per annum, dividend growth in line with EPS, and a ROCE post-actuables 9% in 2027. Let me detail now how each of the three pillars of value creation have translated into H1 results. I'm on slide 9, and I'm starting with top-line growth. In H1, we delivered solid revenue growth of plus 4.4% excluding energy price, thanks to very solid performance in our strongholds, which grew by plus 3.4% excluding energy price. Districating and cooling networks were impacted by lower energy prices as expected, but with protected margin, while water pressure and solid weight enjoyed solid revenue growth. Our booster activities have grown by plus 6.9%, driven by water technologies and hazardous waste activities. In terms of geographies, Australia, the Middle East, and the U.S. perform particularly well at plus 7.6% growth, and each above 6%, aligned with the high ambition laid out in our green uptime for those booster geographies. On page 10, you have a focus on the performance of our strongholds. which did very well in H1, with plus 3.4% revenue growth, excluding energy price. Municipal water operation and solid waste revenue progressed very well, with a good commercial momentum, as well as favorable indexation and continued pricing power for the 30% of our contracts, which are not indexed. Districating networks were flat, excluding energy price, due to mild weather in central and eastern Europe, but would have progressed otherwise. All our strongholds registered strong commercial wins, among which after the major renewal of the CEDIF contract in Q1, I would like to highlight two contracts in water. They both illustrate perfectly the synergies between our know-how and businesses. In this case, a combination of water and energy. I'm now on page 11. The new Saint-François wastewater treatment plant is located in the Lyon urban area in France. The municipality has chosen us to upgrade and run this very innovative wastewater treatment plant for six years, representing a backlog of 100 million euros. As you know, wastewater treatment plants are energy consuming. A different factor in this win was the ability to reduce by more than 15% energy consumption, as well as to provide locally sourced green energy for the plants at a secured price. as well as our PFS end-to-end treatment, which is quite unique, combining water technologies and hazardous waste treatment. Another illustration comes from New Orleans in the USA, where we have successfully extended our wastewater contract thanks to our energy efficiency tool, which is called Upgrade. On page 12, the performance of our greener booster activities in H1, which have grown by 6.9%, perfectly in line with the average mid-to-high single digit aimed at in our strategic plan. Water technologies, with €2.5 billion revenue in the first half, continue to perform exceptionally well in terms of sales, earnings and backlog. As the Swiss, at €2.2 billion, has enjoyed strong growth in Europe and in the US. We continue to invest in new facilities in the US, Saudi and Germany, which will be commissioned from 2025. In local decarbonizing energy, we notably registered strong growth in energy services in the Middle East in the first half and a very significant new energy efficiency contract in Hong Kong for a backlog of 185 million euros. On slide 13, you can see a detailed summary of our H1 achievements in water technology in terms of growth and bookings, which have reached 2.8 billion euros. As you remember, We have enjoyed a big success in dissemination in Dubai at ASEAN in Q1. We have also signed in the first half a series of 10 to 15 million euros projects in core markets for us, such as microelectronics and oil and gas, with the likes of Micron, Intel, Lionel Basil, Qatar Gas, et cetera. We keep a very strong pipeline with those core markets for us. I would deeply encourage you to join our deep dive on the 17th of October in Hungary to learn more about our water technologies and the solutions. Now, let's deep dive into our second level of value creation, which is performance and efficiency. I'm now on slide 15, which shows our first half performance in terms of operating efficiency and synergies. In terms of efficiency, we achieved 194 million euros in savings. in line with our annual target of 350 million euros. I am pleased to see the specific action plan launched in France last year bear its first fruit in H1. Our operation efficiency includes digital initiatives, and we are testing GenAI to get us to the next level. For example, in Spain, where we accelerated e-bill implementation, and we've optimized the call center system through AI. Slide 16, in terms of cost synergies derived from the Suez merger, we are ahead of schedule and have achieved 71 million euros in H1 for a cumulative total of 386 million euros since the start of the merger with Suez. After the first benefits that typically came from HQ mergers, followed by operational efficiencies, more than 50% now comes from the massification of our procurement in our key countries. In addition to 30%, that still comes from operational efficiencies, particularly within water tech. That's to say that we have progressed faster than expected in the delivery of the synergies. The last driver of value creation is capital allocation, where we were partly active in H1, and I'm on slide 18. As you can see, we are progressively transforming the group's portfolio to enhance value creation while staying in our three times leverage ratio. Our CAPEX program continues at a sustained pace with ongoing projects to build new hazardous waste treatment capacities to start from 2025, and we continue the conversion plant of our coal-fired facilities with double-digit RRs. Our growth capex also includes regulated water in the U.S., where return on equity is guaranteed at 10% on average. We have been quite active in terms of bolt-on acquisition as well, which deliver rapid synergies from flexibility assets in Hungary to recycling activities in Germany and a few other tokens in Brazil and Portugal. Finally, we signed more than 1 billion euros of non-strategic asset divestitures in H1, starting with STAAD, a construction company mainly operating in France, and Diluti for margins, and more recently with Lidec in Morocco, an antitrust divestiture linked to the Swiss acquisition, which had been delayed, as you know. We just announced the sale of our sulfuric acid recycling activities for refineries in the U.S. to AIP for $620 million, which will be closed today, an activity not core for us. which doesn't present any opportunity for duplication elsewhere. As you know, we make choices and prioritize investments in order to maintain a strict balance sheet discipline and average below three times. Finally, we continue to reduce our stake in our Chinese water concession and sold our minority stake in Haiku. These very good results in H1 confirm the strength of our business model, which is summarized on slide 20. Over the last few years, We've been able to grow our results quarter-after-quarter despite high inflation and interest rates, volatile commodity, energy price, and slower European industrial production. I remind you that 85% of our revenue is immune from macro trends, and we've proven that over the last two years, where we've had almost zero waste-borne growth, but still delivered mid-to-high single-digit EBITDA growth. On top of that, 70% of our revenue benefits from automatic indexation and is therefore fully protected from the cost of factory increase. For the other 30%, we are very good in price increase thanks to our pricing power, which is thanks to our top three position in key countries. I'm very happy about our balanced geographical footprint as well with 30% outside Europe. and our unique combination of wastewater and energy activities, which demonstrates its power for winning new contracts, just as I highlighted in the example a minute ago. Of course, Veolia is the leader of ecological transformation and benefits from many supportive megatrends, such as environment-related health concerns, decarbonization, of course, as well as reshoring of strategic industries and the shortening of supply chain, which supports a more circular economy. Worth noting that the latest ELAB barometer confirms that public opinion demands environmental action. 66% of the world's inhabitants believe that taking action will be less costly than inaction. Public opinion does support environmental efforts that depollute, decarbonize, and regenerate resources. There are banks thereby protecting their health and that of their loved ones at an optimized price. Water quality, water scarcity, pollutant, decontamination are here to stay, and we are the key to enable growth whilst protecting human health and quality of life. I'm on slide 21. And, you know, decarbonization is a powerful lever and source of value creation for Veolia and its customers over the long term. As you remember, we've announced with our green-up strategic plan an acceleration of our own decarbonization agenda, with the target enhanced to minus 50%, scope 1 and 2 by 2032, and net zero by 2050, a trajectory compatible with the 1.5 degree agenda. These targets have just been validated by the Science-Based Targets Initiative, SPTI, the international reference organization in the field. In particular, SBTI spreads Veolia for its ambitious net zero target, recognized as the most ambitious in the current SBTI process. Slide 22, you will see that this trade directory is based on a series of projects and investments, including existing coal in Europe, which carries a good IRR, or methane capture for non-fields in Latin America. To sum up on the slide 23, Veolia is a unique global leader in ecological transformation. Ideally positioned to address fast growing demand trends across the globe from water scarcity to decarbonization and decontamination to protecting human health. Slide 24, the very strong H1 results allow me to fully confirm our target for 2024. And we are very much in line with our green up objectives. The financial and non-financial objectives of our strategy plan are summarized in slide 24, and they include current net income growth of 10% per year on average, which is even going in line with EPS. And now I'll hand over to Claude, who will detail the H1 2024 results before we get to the questions.

Thank you, Estelle, and good morning, ladies and gentlemen. I'm very pleased to be with you this morning for my last Veolia earnings presentation. And you will see that the results are once again very strong. Emmanuelle, our Deputy CFO, will take on the full role on September 1st, is with me. And most of you already know her, as she was in our road shows for the past two years. You are in good hands. And moving back to the numbers, as Estelle already highlighted, our H1 2024 results are once again remarkable and allow us to be very confident for the rest of the year. With €22.1 billion revenue, we experienced a good organic revenue growth of 4.4%, excluding energy prices. It is a result, first, of our three strongholds, growing by 3.4% and driven by good commercial momentum, improved water and waste volumes, continued favorable indexation on our long-term contracts, and price increases on non-indexed businesses. And second are three boosters, which are growing much faster, as Estep said, at 6.9%, with high demand for water technologies, hazardous waste, and decarbonized energy. Taking into account the impact of lower energy prices that has almost no impact on EBITDA, H1 revenue was up by 0.4% despite unfavorable weather. Thanks to the operating leverage and the good delivery of synergies, we enjoyed a solid organic EBITDA growth of 5.7% at 3,266,000,000 and a current EBIT growth of 6.6% at 1,730,000,000. Our current net income increased even faster to 731,000,000, up 15.2%. Net income group share rose by a remarkable 24.5% thanks to strong decrease of non-recurring charges. We once again demonstrated that even in a rather complex economic context, Veolia is able to deliver fast-growing results. This is due to the strength of our businesses, largely immune to macro for about 85% of our revenue. Net financial debt remained well under control at 99 billion euros after the dividend payment in May. You can also see on the slide the detailed forex impact, which were negative in H1, minus 442 million at revenue level and minus 95 million at EBITDA level. Assuming the exchange rates remained at today's level, The full year impact at EBITDA level would be between 80 and 90 million, minus 80 and minus 90 million, as we expect a slightly positive forex impact in H2. The small negative forex impact at the current net income level should be offset by the capital gain on the SAT disposal, and we confirm our annual guidance of current net income above 1.5 billion, whatever the forex. As a reminder, as we operate in local currency, price impacts are only translation and not transaction impacts. I'm on slide 27, where you have our usual revenue bridge detailing the different effects and showing our top line increasing growth of 5.1%, 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. Scope impact is limited at minus 1.1%, with a sad disposal for more than $300 million and a few tokens. For organic growth, we continue to enjoy solid growth of 4.4%, excluding energy prices, which is fueled by good commercial momentum, volume growth, strong works activities, price and indexation increase in water and waste. The main item on the bridge is, of course, the lower energy prices for minus 970 million. Recycled prices are stabilized and the impact is insignificant in H1 at revenue and EBITDA levels. The weather impact was unfavorable, minus 0.6%, compared to 2023, which was already mild. As I said, in Q1, we experienced, in fact, the warmest winter in the past 30 years in Central Europe. And the heating season this year stopped two weeks earlier than last year. I'm moving to slide 28, where you can see the revenue evolution by geographical segment. And I start with water technology, which is one of our three boosters. It delivers another very strong Q2, both in terms of revenue and bookings. Revenue are up 15.5% with sustained growth in all our various lines of business. In terms of booking, we registered a record high level of $2.8 billion in H1 with big wins in desalination, microelectronics, and oil and gas. In the rest of the world, all regions performed very well. Notably, Australia had a very strong growth of 6.5% thanks to good waste performance, several contract wins, strict pricing discipline, and good landfill volumes. Latin America grew double digits. Underlying activity was well-oriented in Brazil, Chile, and Colombia with several new contracts. For example, Las Salinas in Chile for solar remediation or Braskem Biomass in Brazil. Africa Middle East revenue is up 4.6% thanks to strong business in Morocco and new energy efficiency contracts in the Middle East, in Dubai, and Abu Dhabi. North America continues to enjoy solid hazardous waste performance and good water activity. In hazardous waste, we managed to improve the mix and average prices are up 6%. In Asia, we have a solid growth in Hong Kong, plus 8% thanks to the very strong performance of our waste activity and our energy efficiency business. Japan was up 8.9% with strong performance of water. The rest of Europe's revenue was up 1.4%, excluding energy prices. In Central Europe, we had strong water activities with good volumes. In Northern Europe, we registered, I would say again, an outstanding UK performance, good indexations and strong PFI activity with a record availability of 94.6%. Southern Europe enjoyed strong activity and improved tariff indexation in water in Spain. Finally, in France, after a difficult 2023, we continued turning the tide after a good Q1. Revenue grew by 2.9%, an improvement after only 1.4% in 2023, thanks to good performance in water and waste. Water activity is well-oriented, with indexation at 4.6%. We enjoyed good commercial momentum and good pricing in waste in France. And now on slide 29, you can see the main train by activity that I will detail in the next slide. As we expected, water and waste businesses enjoyed a very good growth in H1, plus 6.4% each, which is remarkable in the context of lower inflation. They are fueling the revenue and the EBITDA growth of the group. As usual, we review our activities one by one, and I start with water, our largest activity representing 40% of our revenue. Water business grew by 6.4%, driven by volume, commerce for 2.2%, and pricing for 4.2%. Thanks to good volume in Central Europe, France was slightly down on volume, minus 0.5%, due to rainy weather during the spring, as well as Spain, minus 0.6%. We had continued favorable tariff indexation in France, in Central Europe, and in the U.S., with double-digit increase after the recent rate cases in New York and New Jersey. The semester was, of course, marked by the signing of the new CEDIF contract for 12 years, as well as the new Saint-François wastewater treatment plant contract near Lyon, which is still detailed. H1 was also marked by an outstanding water technology performance, In particular, our main brand business is a project business with a continuation of a contract in the U.S. and the start of the desalination project in the Middle East. We have also the chemical products well-oriented with good volumes and price increases. I'm moving to waste on slide 31. Waste activities grew at a faster pace than in previous quarter by 6.4%, compared to 3.4% last year and 5.5% in Q1, 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 volumes slightly increased after a difficult 2023. France was better than last year in terms of volumes and also in terms of profitability. As Arduce Waste, we remain well-oriented in almost all our geographies, and we continue to expand good pricing power in the U.S. We cited prices, as I said, at a neutral impact as price increases in Q2. We manage our electricity from waste cells well, thanks to our hedging policy, with almost no impact. Finally, energy activity decreased by 14.5% due to energy prices and milder weather. Intrinsic energy growth was 1.4%, excluding weather and energy price impact. Thanks to our business model, with indexed tariff and energy prices essentially passed through, and thanks to our hedging policy, we have been able to protect our results. Energy pricing pact had almost no impact on EBITDA, and energy EBITDA will remain at a very high level in 2024, as we anticipated and as we are demonstrating. Weather was again unfavorable due to the very mild winter in Central Europe, with an impact of minus 2.2%. We also ramped up our very large district heating contract in Tashkent. On the electricity side, we were protected by a hedging policy which enabled us to mitigate the market price evolution. As a reminder, and as part of our Colexit program, we started new high-efficiency cogeneration with higher EBITDA, such as Braunschweig in Germany and Freyhof in Czech Republic. And we have more to come with Poznan in Poland in 2025. Finally, we signed significant new energy efficiency contracts in Belgium, Italy, Middle East, and Hong Kong. I'm on slide 33, and you have the EBITDA evolution by segment. Water technology registered an outstanding EBITDA growth of 31% thanks to very high revenue growth, operational efficiency, and synergies. Rest of the world, EBITDA is up 11.5%, notably North America, Africa, Middle East, and Pacific. In the rest of Europe, EBITDA was up 1.2%. Good water and waste performance was partly offset by an adverse weather impact. We also initiated profitability enhancement action in France with a strong commercial focus and very specific efficiency targets with quick returns. As a result, France EBITDA is up 5.1% in H1. I'm on page 34, and you have our usual EBITDA bridge. We deliver the strong EBITDA growth of 5.7% life-for-life, fueled by the combination of the solid underlying revenue growth, strong efficiency, and synergies ahead of schedule. In detail, Forex negative impact reach minus 95 million, as I said, mainly in Latin America. Scope included the disposal of SAD from March 1st and the integration of Bolton's assets in Germany. Energy and recycling impact was slightly negative, minus 1.2%. And as we expected, EBITDA for energy business is almost not impacted by the energy prices. Weather had an impact of minus 1.3% or minus 42 million euros with a mild winter in Central Europe. EBITDA intrinsic growth was therefore fueled by the two following effects. A more robust commerce and volume impact for 3.3%, continuous strong net efficiency and synergies for 4.9%. The synergy delivery continues to be a head of target, reaching 71 million euros in H1 and 386 million accumulated since the closing of the acquisition of Suez, which is remarkable. I'm moving now to slide 35. And let's see how the EBITDA increase is fueling the current EBIT and the current net income. Current EBIT grew by 6.6% to 1,730,000,000 euros. Renewal expense of 154,000,000 are comparable with H1 last year. Amortization and OFA repayment at 1,528,000,000 is up 3%. more than last year due to the ramp-up of our contract in Uzbekistan. Industrial capital gains, net of provision at 98 million are stable. JVs amount to 49 million, almost stable compared to last year. Our current net income increased faster to 731 million, up 15.2%. Cost of net financial debt increased by 19 million euros to $331 million due to a favorable one-off last year. Excluding this one-off, net cost of financing is stable at 3.83% in H1. Other financial income and expense increased from $120 million to $177 million. The full year number last year was $340 million with a very low H1 and a much higher H2 due to a favorable one-off in H1 2023, which was reversed in H2. This year is more steady and we expect around $350 million for the full year. We registered net financial capital gains of $53 million, mostly due to the sad disposal. Current tax rates stood at 26% compared to 28% in H1 last year, and we expect a 27% tax rate for the full year. Minority interest slightly decreased in H1 due to slightly less contribution for BU's in Chile and in Central Europe where we have minorities. For the full year, we expect around 400 million of minority interest. After a strong H1, we are well on track to meet our objective of current net income above 1.5 billion. I'm on stage 36, and let's see how the current net income translates into net income group share. Net income increased by 24.6% to 651 million compared to 523 last year. Non-recurring items, which is a sum of the three lines, decreased from minus $139 million last year to minus $80 million this year due to much lower integration costs. And now on slide 37, you see that CAPEX remained quite stable in this year and included $102 million of decarbonization CAPEX with good progress on our Poznan project. and 86 million of hazardous waste new projects, particularly in the U.S., in the Middle East, and in Germany. Seasonal reversal of working capital was slightly higher than last year at minus 998 million euros compared to minus 821 euros last year due to unfavorable calendar effects, which will not impact the free cash flow delivery of the year. We had higher payments in H1 2024 for CO2 quotas in Central Europe for 100 million. And we received high advance payments in water technology last year for around 50 million. Free cash flow improved strongly in Q2 by 289 million to minus 284 million in the first half. Net financial debt reached $99.9 billion, including the final repayment of the hybrid debt for $200 million after the renewal of our $600 million hybrid debt in November last year. Our solid investment grade rating has been confirmed by S&P and Moody's with a stable outlook. Taking into account the usual working capital reversal and the free cash flow generation in H2O, and the next cash proceeds from disposal and a few acquisitions, we expect the leverage ratio at year-end to be in the same range of last year, that was 2.74. I'm now on slide 38, and you have the details of the net financial debt variation, where you can see the different effects I have just highlighted. To conclude, we of course confirm our ambitious guidance for 2024, Revenue continued solid organic growth, excluding energy prices. EBITDA organic growth between 5% to 6%. More than 350 million of efficiency gains. More than 400 million accumulated synergies at the end of 2024. Current net income above 1.5 billion euros, 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.