Veolia Environnement Adr

very much and good morning everyone and thanks for joining this conference call to present the results for the first nine months of 2024 and I'm accompanied by Emmanuelle Meining our CFO our nine month results are once again very good and perfectly aligned with our annual targets which we fully confirm with confidence in a complex environment These results are the fruit of our operational agility and ability as well to seize new opportunities for growth. Building on resilient foundations, what we call our strongholds. They are an excellent start for our green-up strategic plan as these figures match our ambition and strategic choices with enhanced growth for booster activities and geographies. Going through the numbers, as you know, EPS growth for Veolia comes from three pillars. Top line growth, efficiency and synergies, as well as portfolio transformation. First, growth. In the first nine months, we have enjoyed very solid growth, and our revenue has increased by plus 5.1%, excluding energy price, with enhanced growth in our three booster activities, which are up plus 6.9%. as well as in our three booster geographies, up plus 6.4%. Please note that our Q3 revenue growth was even stronger than in H1, up plus 6.7%. Second, operational performance with efficiency and synergies, both ahead of targets. Efficiency gains reached 296 million euros compared to a normal target of 350 million euros. Regarding synergies, we reach our annual target at the end of Q3 with 411 million euros cumulative synergies already delivered since day one of the merger. We are therefore raising the 2024 target of synergies with cumulative synergies from day one now expected above 430 million euros. Third, capital allocation with the continued pruning of our portfolio and accretive investments. EBITDA increased by a substantial plus 5.6% on a like-for-like basis, in line with our annual guidance of plus 5 to 6%, to €4,936,000,000. Margin was up 72 base points compared to last year. Net financial debt is well under control and in line with our target of a leverage ratio below three times at year-end, close in fact to last year's level. These results allow me to fully confirm with confidence our 2024 guidance in all its components. And now I'm on slide five. In the nine months, we delivered solid revenue growth of plus 5.1% excluding energy price, thanks to very solid performance across all our businesses. On one hand, our struggle activities have grown by 4.4%, excluding energy price. Revenue from district heating and cooling networks was impacted by lower energy price as expected, but with protected margin, as you know, while water operation and solid waste enjoy solid revenue growth. On the other hand, our booster activities have grown by plus 6.9% excluding energy price, driven by water technologies and hazardous waste activities. In terms of geographies, Australia, the Middle East, and the U.S. performed particularly well at plus 6.4% growth, and each above plus 6%, aligned with the high ambition laid out in our greener plan for those booster geographies. As you know, around 80% of our turnover now comes from outside France. On page six, you have a focus on the performance of our Stronghold activities, which did very well in H1, and actually at the end of Q3, with plus 4.4% revenue growth, excluding energy price, after plus 3.4% at the end of each one, so it's even better. Water operations revenue progressed very well, plus 4.3%, with high contract renewal, in particular the CELIF contract worth 4 billion euros of backlog over 12 years. Volumes were contrasted. slightly down in France and Spain due to weather conditions, but better in Central and Eastern Europe and in the U.S. Regarding prices, we obtained a plus 15% tariff increase in Barcelona starting in April, which, while at the same time we successfully completed most of our rate case negotiation in the regulated water activities in the U.S., most of them leading to double-digit water price increases. Districating networks were up plus 0.8% exude energy price due to mild weather in Central and Eastern Europe, but would have shown growth if we had excluded weather effects. Solid waste revenue progressed very well, by plus 6.5% at constant scope and forex, driven by pricing and volume slightly up, notably in France, Germany, UK, Australia and Latin. CNI volumes were good despite soft macro, thanks to a proactive commercial action, both market share gains and pricing efforts. Recycled material price picked up a bit, which is encouraging. We continue to be very selective in municipal collection contracts, as you know. On page seven, a focus on the performance of our green up booster activities in nine months, 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, to start with, grew strongly by plus 13.5% to 3.6 billion euros revenue in the first nine months, a very satisfactory performance in terms of sales, earnings, and backlog. Bioenergy and energy efficiency activities reached 3.1 billion euros, up 0.8%, and I'm happy Hello, we are back. It looks like we had a problem of connection, so I was on slide 8 and I'm going to come back to where I was to focus on water technologies, which has been presented in more detail in our latest deep dive a few weeks ago. And I'm very pleased by our high level of bookings at 3.3. It looks like nobody can hear me, so if... Yes, that's it. I hope everybody can listen to me. So, I'm very pleased by our high level of bookings in water technologies, I'm on slide eight, at 3.3 billion euros for the first nine months, which include key successes in our five priority offers, micropollutants, wastewater reuse, minerals recovery, ultrapure water, and desalination. As you remember, we've enjoyed a big success in desalination in Dubai at ASEAN, as well as last week in Morocco. And in both cases, we're talking about super large plants, actually in the top three worldwide. We have also signed several projects for ultra pure water worth 350 million euros. And our pipeline remains very strong. Water technologies are expected to strongly contribute to the green up plant. And if I talk about the objective of the green up plant for the water technologies, We expect to grow revenue by 6% to 10% per year, three times faster than the market. To grow the EBITDA around 10% per year, with margin expansion and gross increase as well. Our performance in the first three quarters fully confirmed this value creation. Our investments have been prioritized in GreenerPlan to support growth of our boosters, as you know. By 2030, WaterTech revenues are expected to grow by plus 50% at least. I'm now on slide nine. Among the five party offers within WaterTech, we've identified pollutant removals, such as endocrine disruptors, or PFAS, as a key growth area. As you know, Veolia is championing deep pollution via our water technologies and hazardous waste activities, both key to ensure protection of human health. Our surveys show that there is a key priority for population across the globe. We recently surveyed Americans, for instance, about PFAS chemicals in water, and 70% of Americans said they were worried about its presence in their water. Veolia has a unique offer as the only end-to-end solution from detection to disposal, which is Beyond PFAS, a new offer that we launched a few weeks ago. PFAS is a fast-moving market with new legislation in Europe, in the US and in Australia, which requires a high level of expertise. We are confident that combining water technologies as well as hazardous waste know-how and assets is a unique winning formula. Hence, we target €1 billion revenue from PFAS and new pollution treatment by 2030 as new legislation is implemented. This compares to around 200 million expected for 2024 and zero in 2022. So this is fast moving. I'm now on slide 10. And now let's deep dive into our second level of value creation, which is operational performance. At the end of September, we achieved 296 million in savings, in line with our annual target of 350 million euros, with a high retention rate of 49%. They include specific action plan launched earlier this year in France, China, and Spain, following this pointing result in 23, and those action plans are bearing their first fruits. We've developed new tools as well, using AI, for instance, in e-billing and call centers. Efficiency and agility are part of our DNA, and I cannot see any end to us finding new sources of efficiency. Slide 11. In terms of tapping into the reservoir of cost synergies derived from the Suez merger, we are ahead of schedule and have achieved 96 million euros in the nine months. In total, we reached 411 million euros of cumulative synergies at the end of Q3 since day one, meeting our initial 2024 target of 400 million euros ahead of schedule. We are therefore raising the 2024 target to over €430 million, accumulated at the end of the year. It is worth noting that the global plan of €500 million, which you remember is very ambitious, as it was designed for larger parameters, including notably Suez waste activities in the UK, which we finally had to divest for antitrust reasons, has remained unchanged. After the first benefits that typically came from HQ mergers, followed by operational efficiencies, 44% of savings now come from standardization procurement in our key countries, in addition to 36% that still comes from operational efficiencies, particularly within water tech. I'm now on slide 12. These strong nine-month results allow me to fully confirm our targets for 2024, and we very much in line with our green-up objectives. The financial and non-financial objectives of our strategic plan are summarized in slide 12. They include current net income growth of 10% per year on average, with dividend growing in line with EPS. I now hand over to Emmanuelle, who will detail the nine-month 2024 results before we take your questions.

Thank you, Estelle, and good morning, everyone. As Estelle already highlighted, Veodia continues to navigate successfully in a complex environment. With 32.5 billion euro revenue for the nine months, we experienced solid organic revenue growth of plus 5.1% excluding energy prices, with an excellent performance in Q3 up 6.7%. It is driven in all our businesses. First, by our differentiating offers, allowing good commercial momentum and good volume in waste and water. And secondly, thanks to the productivity of our team to deliver strong pricing with increased indexation on our long-term contracts and the continued impact of price increases on non-indexed businesses. EBITDA is significantly up at 4.9 billion euros, a strong plus 5.6% at Constant Scope and Forex. Nine-month EBITDA growth is fully aligned with the annual guidance range, which makes us very confident for the rest of the year. Thanks to the operating leverage, current EBIT is growing faster at 2.6 billion euros and is up by 6.4%. Net financial debt amounts to 18.9 billion euros. We expect a net debt at year-end in line with the leverage ratio of last year, fully in line with our guidance at below three times. We continue to demonstrate the strength of our business model, combining stronghold and boosters, sizing growth opportunities and adapting when necessary to deliver quarter after quarter. Let's take a closer look at revenue. You can see the outstanding performance of our revenue growth in Q3 with strong water, strong waste, and resilient energy. If you include the energy price impact, the combination of our three businesses deliver a strong revenue growth year-to-date of plus 6.7% at Constant Scope and Forex, which reflects good volumes and pricing effects. Let's take a deeper look at each business. Water is up plus 6.5% year-to-date and plus 6.9% in Chouchourny, with good tariff indexation in all geographies constructed volumes, and strong activities in water technology. Waste is up plus 6.4% with very encouraging commercial and industrial volumes in France, UK, and Germany, despite soft macro conditions. And energy is up plus 0.8% here today, excluding energy prices. Q3 revenue is stronger, up plus 5.8% after minus 0.8% in H1, thanks to increased volume in Central Europe without any adverse weather impact and good energy services activity in Northern Europe and in the Middle East. On slide 16, you have the revenue brief detailing the different effects and showing our top line intrinsic growth of plus 5.4%. And you will see that it is even stronger at EBITDA level. Forex has an impact of minus 586 million euros due largely to lower Latin currencies. Scope impact is minus 582 million euros and includes 3D investments, the non-strategic construction business in France, La Sade in March, the non-replicable sulfuric acid regeneration business RGS, which closed early August, and the last 12 antitrust remedies, LIDEC, in early September. These investments are partially offset by a few tokens, notably Ofman, a waste management company in Germany, which is already generating synergies. There was a weather impact in H1, essentially in Central Europe, for minus 132 million euros. The main item of the bridge is the impact of lower energy prices for almost 1.2 billion euros. Meanwhile, pre-cycled prices started to pick up this year with a positive impact on revenue of 56 million euros at the end of September. So that the plus 5.4% intrinsic growth is fueled by first, good commercial momentum, resilient volume, and secondly, price and indexation increases. Regarding volume, as Estelle pointed out, activity levels are quite satisfactory in the nine months, contributing to plus 1.8% to revenue growth. CNI waste volume are encouraging, including in Europe. We benefit from several contract wins in waste, notably in CNI business in the UK, but also in building energy services in the Middle East. Finally, the largest contributor for the nine months is water technology in the US and in Europe. Regarding prices, we continue to benefit from favorable indexation and we maintain our capacity to increase prices faster than our cost base, which contributes to plus 3.6% to revenue growth for 1.1 billion euros. On slide 17, you can see the revenue evolution by geographical segments. With water technology revenues growing by 13.5%, with solid growth in all its business lines, whose combination allows high integration capability and cross-selling. Revenue benefits notably from the continuation of desalination projects in the Middle East, as well as strong activity in services and technology, especially in the U.S. Regarding the rest of the world, all regions are performing well, notably Australia and the Middle East. Rest of Europe revenue is up 4.6% excluding energy prices and climate, with a strong UK performance and strong water activity in Central Europe. Finally, in France, after a challenging 2023, we continue turning the tide thanks to a specific action plan launched at the end of last year. The combination of our two businesses continue to deliver value creation, and let's start with water, our largest activity, representing 40% of our revenue. Water business grew by plus 6.5%, driven by volumes and commerce, plus 2.4%, and pricing, plus 4.1%. It is thanks to good volume in Central Europe and in the US, around 2%. France and Spain were slightly down, minus 0.5% due to weather. Regarding contract renewals and wind, on top of the SEDIC contract mentioned by Estelle, we also extended our SOFIA contract by eight years until February 2034. In water technology, our bookings at the end of September are much higher than last year, amounting to 3.3 billion euros. Coming to pricing, we have continued favorable tariff indexation in France, plus 4.5% in Central Europe. with double-digit price increase since the beginning of the year, and in Barcelona, where we were granted an FT 15% price increase in April. Finally, in the U.S., we successfully completed our rest-case negotiation with double-digit increase in New York, New Jersey, and Pennsylvania. Slide 19, moving to energy, you have the detail of our energy business revenue growth. Regarding energy, as anticipated, lower energy prices, electricity prices to be more accurate, have impacted our top line. Excluding energy price, revenue grew by plus 0.8% and by plus 2.3% if we also exclude negative weather effects. As you know, our energy margin is well protected. From the up and down of energy prices, as we are providing heating services, which are regulated activities, fully pass through on energy costs, as proven by the significant double digit heat price increase we have obtained over the past two years. There is only a lag effect as we obtain the price increases over a couple of years. In nine months, we continue to implement in price increases, notably in Czech Republic. We are also ramping up our large district heating contract in Tashkent. Electricity comes on top as a byproduct from our cogeneration assets and also reflects the evolution of the cost of fuel and CO2. We also benefit from our aging policy and the improved performance of our assets. As a reminder and as part of our coal program, we started new high efficiency cogeneration with higher EBITDA. such as Braunschweig in Germany and Trierhof in Czech Republic. And we have more to come with Poznań in Poland in 2025. Electricity revenue is already fully hedged for 2024, as well as our energy purchases, and we have hedged approximately three-quarters of next year. Our visibility is therefore very strong. That is why we expect 2024 energy EBITDA to remain at the high level we reached last year, despite lower energy prices, as shown in the first half. Building and industrial energy services have also performed well, with new contracts in the Middle East and in Spain, offset by lower energy prices in Italy. In the nine months, we signed significant new energy efficiency contracts in Belgium, the Middle East, and Hong Kong. We have, however, seen a temporary slowdown in industrial customer demand in China, notably. Let's have a look at the waste performance. Waste activity are growing at a faster pace since the second quarter of 2024 by plus 6.4% compared to plus 3.4% in 2023 and 5.5% in Q1 2024. This is due to continued pricing power, improved volumes in Europe, and good commercial momentum in Australia and Latin America. Let's take a few examples. Europe is resisting well Despite soft macroeconomic conditions, we are winning market share with good pricing. We continue to carefully select our contracts and give priority to value over volumes. France is doing better than last year in terms of volumes, for instance, landfill, and also in terms of profitability. In Germany, we have a strong commercial activity and volumes slightly increased after a difficult 23 and a softening industrial environment. The UK has a strong start to the year with high-performing waste to energy activity, good commercial and industrial performance, and 100 of contract renewal in 24. As industry remains well-oriented with a strong use in Europe, which we are very proud of as the macroeconomic condition has certainly, and a momentum which is still positive in the US despite the 2023 high comparison basis. The action plan implemented in China confirms our agility. Recycled prices had a positive impact as the increase in carbon price compared to 2023 largely compensates the negative impact of plastic prices. Coming now to EBITDA on slide 21. The EBITDA bridge you see detail the very solid 5.6% organic growth fully in line with the annual guidance range It is fueled by the combination of two factors, the solid underlying revenue growth and strong efficiency and synergy ahead of schedule. We have limited scope impact amounting to minus 4% with the disposal of SAD, RGS and LIDEC compensated by the integration of Bolton assets in Germany. Forex impact is consistent with the trend in H1 and reach minus 121 million euros. Assuming the exchange rates remain at today's level, the full year impact at EBITDA level would be around minus 80 million euros. And we expect a slightly positive impact in Q4. The energy recycling impact was minus 51 million euros, including energy price minus 67 million, which I explained earlier, and was plus 60 million euros due to recycling prices. The weather impact was slightly negative at minus 38 million euros. Very satisfactory is the fact that our interesting growth, which is our organic growth excluding external factors, such as energy or inflated prices or weather, amounted to plus 7.5% and is fueled by volume and commerce impact for plus 2.5%. Synergies coming from the measure which says that we are successfully delivering on target and faster than forecasted. We have reached the yearly target after only nine months, which is remarkable. In terms of efficiency, we achieved 296 million euros in savings with an excellent retention rate on EBITDA of 49% and in line with our annual guidance of 350 million euros. I am pleased to see the specific action plan launched in France last year deliver results. Let's see how the EBITDA increase is fueling current EBIT, which is growing very steadily by 6.4% to 2.6 billion euros. Renewable expenses of 225 million euros are comparable to 2023 due to ramp-up of contracts in Europe, in the US, and water technologies. Amortization and O5 building PPA amounts to 2.3 billion euros, slightly above last year. Industrial capital gains, net of provision and asset impairment of 133 are similar to last year amount, 129. As I mentioned in Q2, Normally, this line should be less significant in Q4, as we are reviewing our impairment and provision, as usual, at the end of the year. GVs amount to €91 million versus €90 million in 2023, mostly due to divestment. It is fully stable. Page 23 CAPEX remains stable and includes €399 million of gross CAPEX, of which €45 million is even sent in WaterTech mobile unit and plan expansion. 98 million euros of decarbonisation capex with good progress on our Poznan project and 131 million euros of new hazardous waste projects, particularly in the US, the Middle East and in Germany. Seasonal variation of work capital was higher than last year at 1 billion 179 versus minus 745 million euros due to base effects and seasonal differences, which will not impact the free cash flow delivery of the year. We had higher payment in 2024 of CO2 quotas for €100 million and received higher adverse payment in water technology and energy national scale in Europe last year for around €300 million. Despite this timing effect on working capital, net free cash flow was positive in Q3, plus €136 million. We expect to largely reverse our working cap in Q4 and deliver, as expected, a strong net free cash flow for the full year. Net financial debt reached €18.9 billion and benefit from the cash proceeds from SAAD, LIDEC and RGR disposal, partially offset by the impact of the hybrid debt repayment for 2009. After the renewal of our €600 million hybrid debt in November last year, taking into account the seasonal working capital reversal in Q4 and the net cash proceeds from our disposal and a few acquisitions, we expect the leverage ratio at year-end to be in the same range as last year, which was 2.74%. On slide 24, you have the detail of the net financial debt variation, where you can see the different effects I have just highlighted. And you have on slide 25, our 2024 guidance, which we fully confirm. EBITDA organic growth is expected fully in line of the 5% to 6% range driven by 250 million of HTC gains. Our net target new target of cumulative synergy of more than 430 million at the end of 2024. Current net income will be above 1.5 billion euros, which means a double-digit growth compared to last year. As usual, our dividend will grow in line with our EPS. The leverage ratio will be at a comparable level to last year, below three times, and given our first-class nine-month delivery, we are, of course, very confident for the full year. Thank you for your attention. Thank you, Emmanuelle, and we're now ready to take your questions.

Thank you. If you do wish to ask an audio question, please press the star 1 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing star 2 to cancel. Once again, please press the star 1 to register for a question. One moment, please, for your first question. And your first question comes from the line of Arthur Sittman with Morgan Stanley. Please go ahead.