Veolia Environnement Adr

Good morning, ladies and gentlemen. Welcome to the Viulia H1 2025 results conference call with Estelle Grashinov, 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 Thursday, July 31st, 2025. I would now like to turn the conference over to Estelle Rationale. Please go ahead.

Thank you, and good morning, everyone. Thanks for joining this conference call to present the ODS H1 key figures, and I'm accompanied by Emmanuel Mening, our CFO. I'm on slide four for the key takeaways. First and foremost, our H1-25 results are very strong. with Q2 performance in line with Q1. Those results are perfectly in line as well with our annual objectives and enable us to fully confirm our guidance for the year. In a rather challenging environment, this performance is really a testimony to the strength of our business model of resilience and growth, with a successful combination of stronghold and booster activities and a diversified international portfolio. As you know, the Velia value creation model is fueled by three levers, growth, performance, and capital allocation. Those three levers were again successfully in action in H1, and I will detail each of them in a minute. Regarding capital allocation, I would like to highlight that H1 has been particularly dynamic with 2.2 billion euros of net M&A, invested many in our boosters, while keeping debt under control, of course. This includes the buyout of CDP2 30% stake in water technologies, enabling us to accelerate value creation, as well as nearly 300 million in targeted acquisition in hazardous waste treatment in the US, Brazil, and Japan. Those excellent H1 achievements confirm the relevance of our greener growth priorities, as the challenges related to health, resilience, competitiveness, and sovereignty are all the more crucial and confirms the sustained demand for our services. I'm now on slide 5. Our H1 key figures are once again very strong. Revenue reached €22 billion, up 3.8% excluding average price, which are essentially pass-through for us, as you know. EBITDA increased by a substantial plus 5.5% on a light-for-light basis to €3,367,000,000. fully in line with our 5% to 6% guidance, and shows a margin improvement of 50 basis points, thanks notably to our recurring efficiency gain, complemented by the last energies coming from the sales acquisition more than three years ago. Current EBIT was up plus 8.1% to 1,834,000,000 euros, demonstrating good operating leverage. Current net income reached 762,000,000 euros, up apparently by plus 4.3%, but in reality up by more than 12% if we exclude last year's capital gain from the deficit of Saudi and France. So quite a remarkable performance down to the bottom line. This means we are very confident in our 2025 guidance. Net financial debt remains well under control and leveraged up three times. we are perfectly on our trajectory to less than three times at your end with the usual seasonality. Our solid H1 performance enables us to fully confirm our guidance. Am I on slide six? In these uncertain times, EULIA stands out as a powerful combination of resilience and growth as demonstrated over the last few years. Remember, 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, just to mention a few recent shocks. And why is that so? Let me insist on a few elements of our winning formula. One, our diversified geographic footprint, and we make sure we are in the top three in each of our countries. Two, our very local activities with cities and industries rather than governments. Consequently, we are immune to the current trade war and the no forex transaction exposure, only transaction in our accounts. Three, we have protected business models with 70% of raise-renew automatically indexed and solid pricing power for the remaining 30%. We have long-term contracts, 11 years on average, and more than 90% renewals. And 85% of our revenue are quite macro-immune. This is clearly the case of our municipal activities, but also largely of our commercial and mutual activities, even in the waste business, as detailed recently during our waste deep dive. Our customer base is spread out from pharma to hospitals, macro-e to retail, and on all continents. And we are very agile with extra cost cutting when needed. And fourth, finally, our differentiation is reinforced by our ability to combine our different businesses. talking about waste and energy or water and energy, which makes us quite unique to our customers. And as you know, 25% of Veolia's revenue stems from the combination of two or more businesses. And now on slide seven. As you know, our value creation and EPS grows from three pillars, top-line growth, performance, and capital allocation. And I'm going to go through them one by one, as always. to illustrate how they've each contributed to our performance in H1M. I'm starting with growth, and growth on our stronghold activities on slide seven. We've registered very solid revenue growth of those strongholds with plus 3.4% XUD energy price. And this was fueled by our three activities. Let's start with water operations. Revenue increased by 3.6%. It continued to benefit from good indexation, and have achieved successful tariffs for negotiation in Spain, as well as red-case approval in our US-regulated operations, which protects, altogether, our future margins. We also enjoyed good commercial momentum in Europe with a few new contracts in France, for instance. Solid Waste, revenue grew by plus 1.5%, or 2.1%, excluding energy price, despite a sluggish macro. This is thanks to good pricing, and a high renewal above 90%. In particular, we signed into the renewal of our energy from waste contract in the greater Porto area for another 10 years, totaling €178 million backlog, including innovation to enhance the carbonized energy produced. Revenue from districating networks increased by plus 5.1% in energy price, which is faster than last year. thanks in particular to a favorable weather impact, but also to new connections with network extensions. Let's now have a quick look at each of the boosters performance in H1, and I'm on page eight. Those boosters have performed very well, with plus 8.9% growth in H1, including targeted tokens, prioritized, as you know, in Greenup, but would have been still very good organically. As expected, water technologies rebounded significantly in Q2 in terms of revenue and EBITDA, but also from an order book point of view, confirming the strength of our technologies portfolio. As we explained earlier in the year, Q1 apparent stability was due to a very high compression base in 2024 and to the timing of contract delivery. In Q2, revenue increased by plus 5.4% with still a very high comparison value in Q2-24. Bookings amounted to €1.2 billion in Q2 alone, which is up 50%, so 5-0 versus Q1, and reached €2 billion for H1, comparable to last year. And our pipeline, I must say, is very healthy. This with fuel revenue growth in the coming quarters. As the Swiss revenue increased by plus 5.4%, I would like to highlight in particular the continuous strong growth in Europe, plus 5.8% despite the industrial macro, which is a good demonstration of our relative immunity to macro, as explained earlier. We have also delivered solid growth in the U.S., despite planned shutdown of Paul Harper earlier in the year, and we started new operations in Saudi Arabia and the Dubai complex. Only China is still lagging behind in terms of price, but we start to see some rebounding in volume. In bioenergy, revenue was up plus 21.8% ex-energy price, but including our new targeted acquisition. And if I were to go to organic growth, it would still be plus 6.6%, which is very good. Now let's dive into our second level of value creation, which is performance and efficiency. I'm now on slide 9, which shows our first half performance. In terms of our yearly efficiency plan, we've achieved €198 million in gains, in line with our annual target of €350 million. As you know, this is a recurring lever, embedded into our operations, and therefore one we can count on for years to come, not forever. Efficiency gains at Veolia are not discretionary cost-cutting programs of which you could question the continuity. But rather, they come from a diversified series of initiatives in our thousands of plants across the globe. In terms of cost synergies derived from the threat merger, we've achieved 47 million in H1, for a cumulative total of 482 million since day one. This is in line with our objective of 530 by year end, which, as you know, we raised a year ago. I'm now on slide 10. The third pillar of value creation and EPS growth is capital allocation, with a priority to our boosters when using our balance sheet headroom, as per our strategic plan, Green Up. You will see a powerful H1 in that respect, notably in water tech and hazardous waste. I want just to highlight that the EBITDA increase in H1 of 10% in those two boosters gives us confidence that these are good investments to sustain future earnings. In each one, we've been successful in crystallizing 2.2 billion euros of acquisition. First, in water technologies, with CDPQ 30% stake in WTS for 1.5 billion euros. An operation which will be accretive to our current TPS from 26, and rosy enhancing thanks to 90 million euro cost synergies by 27. But there is more to it. A merger of WTS and VGT allows us to gain full operational control of the asset, unlocking its full potential for development and innovation. It has the swathe on top of our continued strong organic growth. We signed five Bolton acquisitions in Q2 for a combined EV of €300 million and good multiples, notably in the US and Japan for those acquisitions. Of course, we maintain our balance with discipline, and our leverage will remain below three times at your end, allowing the group to retain strategic flexibility. I'm on slide 11, and you know this slide, which summarizes our enhanced ambition in water technologies, as detailed in our deep dive last November. We aim to grow our water tech operations by an average of six to 10% per year, from 33 to 27, and increase our EBITDA even further, including the additional synergies derived from the buyout of the CDBQ minority interest, the EBITDA category for the period will now be above 10% per year, with ROCE increasing gradually. Slide 12, and you also know this slide, which summarizes our strong ambition for our has-this-way business, as detailed in our last big dive. This is thanks to supportive megatrends, notably health protection, nature protection, industrial reshoring and regulation, notably on new pollutants, such as PFAS. Our strong asset base and technologies, as well as our leadership position in the world, as well as in Europe and in the US, further reinforced by new assets to be commissioned, as well as stocking acquisition. And as announced during our recent deep dive, we expect top-line to grow mid to high single digits, EBITDA to grow by 10% per year on average, resulting in margin expansion at least 200 BP, where our growth rate should increase by plus 50% by 27 to 9% of the tax. I'm now on slide 13. Our strong H1 results, of course, allow me to fully confirm our guidance for 2025. In particular, I want to stress again the strength of our H1 performance in terms of growth, Our booster delivered plus 8.9% top-line growth. So in terms of organic EBITDA performance and bottom-line delivery. In H2, we are certainly heading towards the same momentum. So we are very confident on our 2025 guidance, which is summarized on this slide. And finally, on slide 14, as a conclusion, I wanted to remind you of our long-term guidance. fueled by our three levels of value creation, namely growth, performance, and capital allocation, which are the backbone of our green-up plan, and fully confirm our 2027 objective. They include current net income growth of 10% on average over the period, with dividend growing in line with current EPS, and ROCE above 9% in 2027. As you remember from our yearly presentation, we decided to launch a share buyback plan from 2025 to 2027, signed to neutralize the impact of the Employee Shareholding Program, so that going forward, current EPS will go in line with current net income growth. In a nutshell, Veolia is all about resilience and growth. And now on over to Emmanuel, who will detail our H1 figures.

Thank you, Estelle, and good morning, everyone. The results at the end of June are solid, fully in line with our annual guidance, and allow us to be very confident for the rest of the year. With €22 billion in revenue, we experienced a solid growth of 3.8%. Taking into account the impact of lower energy prices, revenue was up 2%, showing an improvement in the second quarter, at 2.4% versus 1.5% in Q1. and an improvement compared to 2024. Thanks to the operating leverage and the good delivery of efficiencies and synergies, we enjoyed a solid organic EBITDA growth of 5.5% at 3.4 billion euros, and a current EBIT growth of 8.1%. Current net income reached 762 million euros, up apparently by 4.3%, but in reality, up by more than 12%, including last year's 53 million euro financial capital gain. Therefore, the current net income underlying growth is quite strong, and we are very confident about our 9% growth guidance for the full year. Net financial debt reached 20.8 billion euro at the end of June, up from December 24 due to the seasonality of working capital and M&A activities. and showing a leverage ratio of three times in spite of €2.2 billion of net financial acquisitions in H1. We expect the leverage ratio to be below three times at your end and after a full seasonal working capital reversal in the second half of the year. You can also see on the slide the detailed Forex impact, which reversed in Q2. I remind you that we operate in local currency, meaning that our exposure is linked only to translation and not to transaction impact, largely offset at current net income level by financial, tax, and minority. Slides impact was minus 24 million euros at EBITDA level and neutral at current net income level. Moving to slide 17, you can see the revenue evolution by geography. I will start with what the technology is. Revenue were stable in Q1 due to a high comparison basis and the timing of project delivery. As mentioned by Estelle, WaterTech Q2 revenue had a strong rebound, as expected, by 5.4%, with a still very high comparison basis in Q2 2024 and EBITDA increase double digits, leading to a 9% EBITDA growth in H1. Meanwhile, Booking were up 50% in Q2 compared to Q1, and reached 2 billion at the end of June, a level comparable to last year, and we expect significant further signing in H2. In the rest of the world, revenue was up 3.7%, with all regions performing well. Very strong performance in LATAM, plus 10.5% in Africa and the Middle East, up 6.7%. In Asia, very solid waste activity in Hong Kong and water operation in Japan. In China, hazardous waste is progressively recovering, with volume up, but prices still under pressure. In the US, strong regulated water and hazardous waste revenue was up 5.3% in H1. In the rest of the world, it was up 5.6%, excluding energy prices. In Central Europe, revenue increased by 5.7%. Eating activity benefited from a cold winter. while the impact of lower energy prices was much lower than last year. In Northern Europe, we registered a solid activity for waste in the UK and energy services in Belgium. In Southern Europe, the semester was excellent, notably in Spain, and revenue was up by 8.6%. Finally, France and others with Europe was flat in H1, with lower solid waste volumes and indexation and timing of efficiency gain impact. Offset by strong hazardous waste and good water activity, we expect a rebound in H2. Now, let's take a look at our performance by business, and I will start with water. Water revenue was up 3.4%, fueled by the strong gold water operation, while water technology rebounded as expected in Q2, up 5.4%. 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. Volumes were on a very good trend, for example, plus 2.6% in France. Moving to waste. Waste activities grew by 2.4%, a solid pace, but a bit slower than in Q1 due to the slightly lower indexations and volumes. Revenue from the solid waste from all was up 1.5%, driven by tariff increases in all geographies. In terms of volumes and commercial development, Europe was mixed, with resilient volume in the UK and in Germany, but down in France, notably in landfills. Activity was still progressing in the rest of the world, notably in Latin America and in Hong Kong. Commodity impacts were non-significant and comparable year on year, with lower electricity prices in H1, partially offset by the increase of recycled prices. The hazardous waste booster had a very strong semester in all our geographies, in Europe as well as in the US, thanks to a favorable mixed effect and good commercial momentum. Finally, moving on to energy, I am on slide 20. As you know, energy revenue is sensitive to energy prices, which were down as expected in H1, but to a much lesser extent than last year. Excluding the energy price impact, growth was faster, up 5.5%, thanks to good volumes, health by all the winter. E-prices were on average almost stable compared to last year, and electricity prices were down as expected. Strong activity and energy efficiencies, up 6.6%, with strong sale momentum in Belgium, Southern Europe, and the Middle East. The revenue breach on slide 21 explained the driver of our growth in H1. Scope was negative and reached minus 334 million euros, mainly due to the impact of flasher disposals. Forex impact reversed in Q2 due to notably the decrease versus the euro and the Argentinian peso. the Australian and Europe doula, as well as Brazil in real, the impact was minus 196 million euros for the first half. The impact of energy prices was, as expected, much lower than last year, at minus 395 million euros. The weather effects amount to plus 169 million euros due to a colder winter at the beginning of the year in Europe. The contribution of commercial volumes were comparable to last year, plus 1.4%, driven by sales momentum and resilient volumes. Finally, price effects were as expected lower than in 2024 due to lower inflation and contribute plus 1.4% to top-line growth. On page 22, you have the EBITDA bridge detailing our organic growth of 5.5%. In line, with the annual guidance between 5% and 6%. Scope amount to minus 53 million euros. Forex EBITDA impact was minus 24 million euros, but its impact was very much offset down the line for EBIT, only minus 13 million euros, and neutral accurate net income. Weather was favorable by plus 31 million euros, Commerce volumes worked effect was positive at plus 1.4% in line with revenue impact. Efficiency gain generated plus 2.3% in additional EBITDA, hence a very good retention rate of 39%. And finally, synergies amounted to 47 million euros, leading to a cumulated amount of 482 million euros, perfectly in line with our annual objective of cumulative €530 million 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 8.1% in H1 to €1.8 billion at a faster pace than EBITDA. Renewal expenses of €157 million were comparable to 24%. Amortization and OFA were slightly lower than last year due to perimeter. Industrial capital gains, provisions and other were stable and are expected to decrease at URAN with fair value adjustments and full impact of IFRS2 charges. Joint ventures were comparable to last year. The cost of debt was stable at minus €330 million as well as cost of financing at 3.79%. Other financial charges decreased by 26 million euros due to variation in forex impact. It was partially offset by a decrease of 57 million euros net financial capital gains, which included the SAD disposal last year. The current tax rate was flat at 26.2%. Finally, minority interest came to minus 246 million euros, a small increase linked to higher results in Spain and Central Europe. Current net income, therefore, reached 762 million euros, up by 4.6%, but by 12.5% if we restate last year's financial capital gains. Therefore, we are very confident about our 9% growth guidance on the full year. I am on slide 25. Net income group share amounted to 657 million euros, which is stable versus last year, as non-current item increased by 25 million euros. due to a charge associated with the end of a long-lasting litigation in Lithuania for minus 35. Restructuring expenses were stable, excluding sad capital gain last year. Net income group share increased by close to 10%. Net capex amounted to €1.7 billion, which is stable compared to last year, despite having increased gross capex from €2,028 million to €258 million. million euros, notably in our booster activities. Net free cash flow amount to minus 451 million euros due to working capital seasonal variation of minus 1.17 billion euros, which will be reversed at your end, coming from finitification cash out, scope entries with negative working capital position in H1, and the effect of accelerated repayment of quota fees in water fronts. In Q2 standalone, working capital variation was almost neutral at minus 24 million euros, leading to a net positive free cash flow of plus 455 million euros. We fully confirm a leverage ratio below three times at your hands. As you can see on slide 27, net financial debt is well under control, reached 20.8 billion euros at the end of June versus 17.8 at the end of 2024. This increase of 3 billion is due to usual working capital seasonality and dividend payments, net financial investment of minus 2.2 billion euros, which includes the purchase of CDPQ 32 cents shake in WTS, partially offset by cash flow from operations. In spite of significant M&A activity, leverage was at 3.01 times and will decrease to below 3 times at your end, with a seasonal reversal of working capital variation and strong free cash flow generation expected in H2. In H1, we have successfully issued new bonds, which attracted market interest and was done with very good market conditions. We anticipate partially the 1.35 billion euro hybrid bond 26 maturity by issuing a 500 million euro hybrid bond in May, We also issued in June 1.5 billion euros in two tranches of 7 and 12 years at respectively 3.32% and 3.79%. We have also repaid 836 million euros bonds during the first half and the next maturity of 500 million euros is in September. Our balance sheet, therefore, remains very strong. Both rating agencies confirm strong investment grade ratings in H1 2025. Before concluding, I remind you on this slide of our share buyback program, which has been launched to offset the division of the employee shareholding program, and our upcoming investor events. Our strong H1 results allow me to fully confirm our guidance for 2025. I wanted to underline again the strength of our H1 performance in terms of growth at revenue, EBITDA, and underlying current net income. H2 is on track for the same momentum so that we fully confirm our ambitious guidance for 2025. Thank you for your attention.