Veolia Environnement Adr

Good morning, ladies and gentlemen, and welcome to the Veolia First Quarter 2025 Key Figures Conference Call with Estelle Brashilnov, CEO, and Emmanuel Manning, 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 on May 7th, 2025. I would now like to turn a conference call over to Ms. Estelle Breschelamp. Please go ahead.

Thank you, and good morning, everyone. Thanks for joining this conference call to present Veolia Q1 Key Figures, and I'm accompanied by Emmanuel Mening, our CFO. First and foremost, Q1 2025 results are very strong, and I'm on slide four. And this is in spite of a rather challenging environment. They are perfectly in line with our new objective and enable us to start 2025 with great confidence and fully confirm our guidance for the year. This result illustrates, once again, the strength of Veolia's winning formula, resilience and growth. As you know, the Veolia value creation model is the combination of three levers, growth, performance and efficiency, and capital allocation. In 2024, which was the first year of our Green Hub plan, we were already very active in terms of capital allocation with 1 million depository of non-core assets and 0.6 billion Euro reinvested leading to a balance sheet headroom. In Q1 2025, we decided to accelerate value creation using part of this headroom with the acquisition of a 30% minority stake of CDPQ in our water technology business. thus achieving full ownership. This strategic move is fully aligned with GreenUp's strategic program and priorities. WaterTech, as you know, being identified as a growth booster and priority for investments, as well as North America. We will be able to deliver €90 million of additional synergy and unlock full potential for innovation and development. This buyout comes at a reasonable price with a 2025 EV EBITDA multiple of 11 time possibilities. This investment is a strategic and very international activity, allows us to secure future earning growth. I'm now on slide 5. Our Q1 key figures are once again very solid. Sales reach €11.5 billion, up 3.9% excluding energy price, which are essentially pass-through for us, as you know. EBITDA increased by a substantial 5.5% on the life-for-life basis to €1,695,000,000, fully in line with our 5% to 6% guidance, and show a margin improvement of 60 basis points. Current EBIT was up plus 8.4% to €915,000,000, demonstrating good operating leverage. Net financial debt is well under control and even down year on year to 18.8 billion euros. And our leverage ratio is also down from 2.88 last year to 2.75 this year at the end of the quarter, perfectly in line with our target of the leverage ratio below three times at year end. Our resilient and growth business model, as well as our solid human performance, enable us to fully confirm our guidance despite macro uncertainties. I'm now on slide six. Ultimately, Veolia stock is really a combination of resilience and growth, as demonstrated in the last few years. We managed to increase our results quarter after quarter, despite volatile energy price, difficult macro in Europe, political and geopolitical uncertainty, higher inflation and interest rates. This is thanks to our winning formula, based on four key features. And hence ROSE first, in particular with AgroBooster. Second, a worldwide footprint with France only 20% of the group and 38% outside Europe. Third, a continued value creation with EPS and ROSE, of course, growing very fast. And ROSE has been hit 8.8% post-tax at the end of 2024, which is 320 basis points above our weighted average cost of capital. Finally, Veolia as a world leader in environmental services is a unique combination of businesses, wastewater and energy. On slide seven, we remind you of the unique characteristics of Veolia's business model. We have no direct exposure to tariff or very minimal. Since our activities are multi-local, we do not import or export any goods or only insignificant amounts. We are protected against inflation with 70% indexed, solid pricing power for the remaining 30% as we've shown over the last few years. Our activities are very largely not dependent on GDP. This is clearly the case of our municipal activities, but also partially with the commercial and industrial activities, which are very spread over different type of customers from pharma to hospitals, microelectronics to retail, and all that on all continents. In terms of our municipal client base, we enjoy long-term contract with 11-year average, still remaining, and more than 90% renewal rate. You can see on this slide our largest contract expiry schedule. Altogether, we estimate that only about 15% of our revenue is exposed to macro, mostly in CNI waste. Last but not least, our resilience lies also in our proven agility and capacity to boost efficiency and cost cutting when needed. Of course, I will add to that list that we benefit from a diversified geographic footprint on all continents. In terms of political exposure, our contracts are always local contracts. We are never dependent on subsidies or national or federal contracts. Finally, our strength is reinforced by our ability to combine our different businesses. For instance, waste and energy or water and energy. which makes us quite unique to our customers. I'm now on slide eight. As you know, our value creation lies in three pillars. Top line growth, performance, and capital allocation. And I'm going to go through them one by one to illustrate Q1 results. Starting with growth on slide eight. We registered very solid revenue growth of our stronghold. This is plus 3.9% to the energy price. Fueled by our free activities. Starting with water operations, revenue increased by plus 3.3%. It continued to benefit from good indexation and have achieved successful tariff negotiation in Spain, as well as rate cases approval in our US regulated operations. We also enjoyed good commercial momentum in Europe. Solid waste revenue grew by plus 3%, despite sluggish macro. This is thanks to good pricing, A high renewal rate above 90%, as well as very successful offers. In particular, we signed into one a new high-tech material recovery facility in Canberra, Australia, totaling 850 million Australian dollars over 20 years. District heating and cooling networks revenue increased by plus 4.9% extraordinary price. This is faster than last year. Thanks in particular to a favorable weather impact, as well as contract extensions. We continue to invest to decarbonize our assets with double-digit RR, and expect to open a new cogeneration facility in Pozen by year-end, replacing the cold-fire facility. On slide 9, let's have a quick look at each of the boosters' performance in Q1 2025. Water technologies revenue was stable in Q1. This stability is temporary. It is due to a very high comparison basis in Q1 2024 and to the timing of contract delivery. In the last few weeks, we signed key contracts in WaterTech, which will fuel revenue growth in the coming quarters. Starting with a significant contract, we want to provide the technology to supply water in the semiconductor industry in the Midwest in the US, followed by 16 years of operation for a total backlog of $550 million. All that using a patented Z-WID technology. We were awarded as well a new contract to provide technology to help the San Francisco wastewater treatment plant to produce biogas and re-inject it into the gas grid. Thanks to our main gas technology. Again, patented. In both cases, we are in the priority offers as showcased in our deep dive on this activity last October. I'm very pleased as well to see our technologies removed sulfur from offshore oil and gas, that is FPSO, which was again super successful with $170 million additional orders in Q1, notably in Brazil and the Emirates. As the Swiss revenue increased by 5.6%, we are very satisfied with continued strong growth in Europe, up 5.1% despite the industrial macro. which is a good demonstration of our relative immunity to macro, as I explained earlier. We've delivered continued solid growth in the US, up plus 8.5%, with planned shutdowns early in the year, and started new operations in Saudi in the Dubai complex. In bioenergy, flexibility and energy efficiency, revenue was up 16.7% excluding energy price and including our new targeted acquisition, fully in line with our green up plant priorities, in particular flexibility asset in Hungary. Organic growth was still plus 6.1%, which is very good. Let's now deep dive on slide 10 in our second level of value creation, which is performance and efficiency. And this slide shows our first quarter performance in terms of both. On the left-hand side, you have efficiency, where we achieved €91 million in gains, in line with our annual target of €350 million. Efficiency gains at Veolia are not discretionary, the cost-cutting programs of which you could question the continuity. They are rather composed of a very operational and diversified series of initiatives in our thousands of plants. from process optimization, energy efficiency, to upselling of digital gains. Digital is a prime example to show how we constantly look for new efficiency levers. Digital gains already represent 15% of operational efficiency, but we are now moving quickly to Gen AI. And the new partnership with Mistral AI, a worldwide first, is a good illustration of this. In terms of cost synergies derived from the slave merger, we've achieved 25 million in Q1, for a cumulative total of 460 million since day one, in line with our objective of 530 by rent, which as you know, we raised last February. The third pillar, and I'm on slide 11, is capital allocation. And this morning, we announced the acquisition of CDPQ 30% stake in WTF, for 1.5 billion euros. translating into an EBITDA multiple of 11 transposed synergies. Its acquisition is fully aligned with the green-up strategic plan and with WETA Tech as a priority-based booster. It is indeed a very logical step, which will unlock more value for our shareholders by enabling full integration and enhancing proportional performance. We will be able to extract additional rebate cost synergies of €90 million by 2027. But there is more to it. After merging WTS and VVT, we will in fact maximize the operational control of the asset, unlock its full potential for development and innovation, fully control cash flow and capital allocation to pursue our growth trajectory in water tech. This strategic move should therefore enhance the value of our water tech activities. We fully maintain our balance sheet headroom and our leverage will remain below three times at your end, allowing the group to retain strategic flexibility. Finally, this operation will be accretive to our current EPS from 2026 and enhance our ROCE. On slide 12, you see the simplification of the group structure after the merger of VVT and WTF. The removal of minority interest will enhance our control of our water tech operations in terms of synergies, but also cash flow and tax optimization. We will be the sole decision maker, especially as far as strategic decisions such as capital allocation are concerned. This full integration will enable us to enhance operation performance and to unlock full potential for development and innovation. Slide 13. Transaction is very straightforward. We signed an agreement with CDPQ yesterday to buy up the 30% stake in WTS for $1.75 billion, a cash out secured at 1.5 billion euros, representing an EBITDA multiple of 11 times, including additional synergies of 90 million euros. A few words on those synergies. They all relate to operating costs impacting EBITDA and are derived from a simplified corporate structure with our WTO Tech activities. leading us, for instance, to remove SG&A costs, as we do not need to maintain a double government structure as today, both at WTS and VVT level. That being said, there are additional financial benefits to take into account, such as the potential for tax optimization as well as dividend leakage and cash optimization. What matters here is the very low level of eviction risk to deliver these additional oppression synergies. In light of our deep and intimate knowledge of the asset, as well as our strong track record in extracting synergies as highlighted by the Swiss merger. Overall, the transaction will be accretive from 2026 and contribute to group gross increase. We will finance this acquisition through our available net cash position at group level. For CDBQ, the divestment after eight years is part of their normal investment process. For us, it is the opportunity to invest in the merging of our two WaterTech subsidiaries, thus unlocking significant value. We expect to close the deal by the end of June. On slide 14, you will see this acquisition will further strengthen the group position in Water Technologies Activities, which is one of our three strategic boosters, as well as enhance our position in North America, which represents half of WTS business today. You remember from our deep dive last October that the combined VVT and VWTS as a fully merged and integrated entity is the world leader in water technologies with combined revenues of 5 billion euros in 24 and a global footprint, 40% in the US, 13 in Asia Pacific, 13% in Africa and Middle East and 8% in Latin America. We serve over 8,000 clients in 44 countries We hold more than 4,000 patents and have 11 dedicated resource centers. We are now the only player present all along the value chain in the complementary four business lines, which are projects, technologies and products, services, and chemicals, allowing us to select the correct go-to-market package, depending on country or client type. On top of that, as part of the ODIA, our water technology segment benefits from combination of opportunities with our other businesses and segments, as demonstrated in our PFAS unique offer, for instance. We have set ambitious growth targets for 2027, which, of course, are further enhanced by the acquisition of CDPQ minority stacks. So, all this for this activity. We aim to grow our water tech operation by 6 to 10% per year between 23 and 27 on average, and increase our EBITDA even further. Including the additional synergies I've described, the EBITDA CAGR for the period will be now above 10% per year, with growth day increasing gradually. Slide 16 summarizes our three levels of value creation, namely growth, performance, and capital allocations, which is the backbone of our Green Up plan. A very solid Q1 result. The strategic acquisition of CDPQ's minority stake in WTS combined with our unique positioning, a combination of resilience and growth, enables me to fully confirm our strategic plan green-up and associated objectives. They include current net income of growth of 10% per year on average over the period, with dividend growing in line with EPS and ROCE above 9% in 2027. As you remember from our yearly presentation a few weeks ago, we decided to launch a share buyback plan from 25 to 27, sized to neutralize the impact of the employee shareholding program, so that going forward, current EPS will grow in line with current net income growth. In a nutshell, the OIA is all about both resilience and growth. I now hand over to Emmanuelle who will detail our Q1 figures.

Thank you, Estelle, and good morning, everyone. The results for the first quarter are solid and allow us to be very confident for the rest of the year. We have demonstrated for many quarters now that even in a complex economic environment, Veolia is able to deliver growing results. With €11.5 billion in revenue, we experience a good solid growth of 3.9%, excluding energy prices. Taking into account the impact of lower energy prices, revenue was up 1.5%, which is quite ahead of Q1 2024. Thanks to the operating leverage and the good delivery of efficiencies and synergy, we enjoyed a solid organic EBITDA growth of 5.5% at 1,695,000,000 euros and a current EBIT growth of 8.4% at 915,000,000 euros. Net financial debt reached 18.9 billion, down compared to last year and lower than expected. As a result, our leverage ratio was 2.75 times below last year and well below our guidance of 103 times. Our balance sheet is accordingly very strong, which gives us a lot of flexibility in terms of capital allocation and allows us to easily maintain a leverage below 3 times after the financing of the acquisition of CDPQ minority interest in WTS. You can also see on the slide the detailed Forex impacts, which were positive in Q1. I also remind you that we operate in local currency, meaning that our exposure is linked only to translation and not to transaction impacts. As you saw in previous year, the Forex impact at EBITDA level was very much offset down the line, meaning at current net income. Moving to slide 19, you can see the revenue evolution by geographical segments. I will start with water technologies. Revenues were stable in Q1 due to high comparison basis and the timing of project delivery. Q1 2024 was particularly high as we recorded revenue from the delivery of big projects at WTS. for instance, projects for semiconductor industry in Texas, as Samsung in Austin, as well as identified one-off link to end-of-contracts. We are very confident for the rest of the year, and you saw this morning our very strong commercial momentum with the signing of new contracts to produce ultra-pure water for a large semiconductor client in the U.S. and to treat water in the energy sector to supply injection water treatment solution for offshore production units in Brazil. In the rest of the world, revenue was up 5% with all regions performing very well. North America continued to enjoy solid hazardous waste performance and good water activity. Hazardous waste revenue was up 8.5% in Q1. Asia had a solid growth of 4.1% thanks to some recovery in mainland China. Latin America grew double digit thanks to good waste volume centricing. Rest of Europe revenue was up 5.5% excluding energy prices. In Central Europe, the impact of lower energy prices in district heating activity was much lower than last year, minus €239 million compared to minus €628 million in Q1 2024. Electricity prices are down 9.4% on average, but heat prices are now almost stable. In Northern Europe, we registered again solid performance in the UK, in Belgium, in both energy and waste activities. In Southern Europe, the quarter was excellent and revenue was up double speed. Finally, France and hazardous waste, Europe was flat in Q1 with lower solid waste volumes and indexation, offset by a very strong hazardous waste activity. Now let's take a look at our performance by businesses. I will start with water. Water revenue was up 2.4%, fueled by the stronghold water operation, up 3.3%, while water technology was temporarily stable due to the timing of project delivery and high comparison basis, as mentioned earlier. Water operations benefited from good indexation, with continued price increases in Spain, Central Europe, and in the regulated US and Chilean water operations. while indexation was back to zero in France due to lower electricity prices. Volume were on a very good trend, France plus 0.5%, Spain plus 1.2% with the end of route situation in Andalusia and Catalonia, and Central and Eastern Europe increased its volume by plus 3%. Moving to waste. Activities grew by 3.7%, a solid pace, although lower than last year due, as expected, to lower indexation. Volumes were resilient, up on average by 1.2% like last year. Commodity impacts were non-significant and comparable year on year, with lower electricity prices in Q1, partially offset by increased recycled material prices. The strong all solid waste revenue was up 3% driven by tariff increases in all geographies. Regarding volumes and commercial development, Europe was mixed with good volume in Germany, resilient in the UK, slightly down in France, while volume was strong in the rest of the world. The booster hazardous waste had a very strong quarter in almost all geographies. In Europe, plus 5.1%, as well as in the U.S. revenue were up 8.5% thanks to favorable mixed effects and good commercial momentum. Finally, moving on to energy, I am on slide 22. Excluding the energy price impact, growth was faster than last year, up 5.3% thanks to good volumes, helped by a colder winter. Heat prices were on average almost stable compared to last year, and electricity prices lower as expected. Strong activity in energy efficiency, up 6.1% on a like-for-like basis, with strong safe momentum in Spain, Belgium, and in the Middle East. As I have just explained, energy revenue is sensitive to energy prices, which were down as expected again in Q1, but to a much lesser extent than last year. To illustrate the solid performance of the first quarter, we will go on slide 23. It shows our revenue bridge and explains our organic growth of plus 3.9%, excluding energy prices, which is stronger at EBITDA level thanks to our operating leverage. Forex impact was positive, plus 42 million euros, mainly due to the appreciation of the US, Polish, British currencies. Scope was negative by minus 271 million euros, mainly due to the impact of flattier disposals. We expect scope impact to turn positive in the second part of the year. The impact of energy and recycled prices were much lower than last year, as expected, minus 2.2 compared to minus 5.8% in Q1 2024, and include the impact of lower energy prices, slightly mitigated by the positive effect of recycled prices. The weather effect amounted to plus €110 million due to a harsher winter at the beginning of the year in Europe. Commerce and volume contribution was comparable to last year, plus 1.6%, driven by sales momentum and resilient volumes. And finally, price effects were, as expected, lower in 2024 than in 2024 due to lower inflation and continued to 1.5% to top-line growth. On page 24, you have the usual EBITDA bridge detailing our organic growth of 5.5% in line with the annual guidance between 5 and 6%. Essentially, EBITDA benefited from three sources, organic revenue growth of plus 3.9%, operational efficiency, and search synergies. The direct impact amounts to 11 million euros, scope was minus 30 million euros. Weather was favorable by plus 16 million euros due to a colder winter in the first quarter of 2025. Commerce volume works effect was favorable at plus 22 million euros plus 1.4% in line with revenue impact. Efficiency gain of 91 million euros generated plus 2.3% in additional EBITDA, hence a very good retention rate of 42%. Synergies amount to 25 million euros, especially thanks to optimization in purchasing and in the water technology activities, leading to accumulated amounts of 460 million euros, perfectly in line with our objective of 530 million euros by the end of 2025. Going down to current EBIT, this slide illustrates perfectly the operational leverage of our business model. Current EBIT grew by 8.4% in Q1 to 915 million euros at a higher pace than EBITDA. Renewal expense of 74 million euros were comparable to 2024. Amortization and offer were slightly lower than last year due to perimeter and slightly up at constant and forex. We had slightly lower industrial capital gains, provision of others. GVs were stable. Next financial debt reached €18.9 billion at the end of March, lower than expected and down €142 million compared to last year, thanks to strong free cash flow generation and dynamic asset arbitrage launched last year to quickly secure room of manoeuvre to achieve green-ups ambitions. As a result, our leverage ratio was 2.75 times below last year and well below our guidance of under 3 times. Our balance sheet is therefore very strong. Both rating agencies confirm strong investment rate rating after full year results. It enables us to finance the acquisition of CDPQ minority interest in WPS with our available cash position while maintaining a leverage below three times afterwards. As a conclusion, we are very confident for the rest of the year, which is based on solid foundations. We fully confirm our ambitious guidance for 2025, including WTS acquisition, continued solid growth of revenue excluding energy prices, for EBITDA, organic growth between plus 5 and 6%, more than €350 million of efficiency gains, more than €530 million of accumulated synergy at the end of 2024, current net income up 9% at ConsumForex, leverage ratio below sweet time. And as usual, our dividend will grow in line with our current TPS. Thank you for your attention.