Veolia Environnement Adr

Good morning, ladies and gentlemen, and welcome to the VOEA Publications and Affluent Financial Information Conference call with Estelle Braxton of CFO of CFO. At this time, following the presentation, we will conduct question and answer session. If at any time during this call, you require immediate assistance, please press start. Thank you very much and good morning everyone.

Thank you for joining this conference call to present Veolia's Q1 key figures. I will start on slide 4 by highlighting the key achievements of the first quarter. We delivered a strong Q1. Resilient growth and solid EBITDA progression fully aligned with our annual guidance in spite of a difficult environment. Our unique multi-local model has proven its value again, combining resilience with growth potential based on the sustained demand for essential services. which has led to limited impact from the Middle East conflict and even future opportunities. I will come back to that in a minute. We are continuing our strategic transformation towards international markets and technology-driven solutions with new settings in Q1. I will also come back to innovation after our dedicated day recently held in London, as it is core to our strategy, fueling growth and efficiency targets for years to come beyond the Greenland plan. I, of course, will fully confirm our 2026 guidance as well as our grid-up trajectory. This result demonstrates that Veolia's business global strategy is robust, diversified, and well-positioned to navigate uncertainty while capturing growth opportunities in essential environmental services. Now, let's look at the specific numbers for Q1 2026, and I'm on slide five. Revenue reached €11.4 billion, up 2.1% at Constant Scope and Forex, and excluding energy prices. This represents resilient growth in a geocritical latency environment and very comparable to the second half of 2025. Our EBITDA came in at €1,766,000,000, up 5.1% as concerns open forex, and up 5.8% when including checking acquisition. And, I recall, without any contribution of safe synergies that we enjoyed during the previous quarters. Its performance is therefore excellent, especially in a complex macro and geopolitical environment. Perfectly noteworthy is our EBITDA margin expansion of 73 basis points year-on-year, reaching 15.5% difference. This margin improvement is due by strategic choices and operational efficiency. Current credits reach 971 million euros, up 7.2% as concerns OpenForex, demonstrating strong operational leverage. Our net free cash flow improved significantly by €144 million compared to Q1 2025, driven by strict management of goods capture expenditure and working cap requirements. Net financial debt to that €20.8 billion, which is fully under control, and this result gives me strong confidence for the full year 2026. I'm now on slide 6, and I want you to recall what makes Veolia truly unique, which is our positioning that combines both resilience and growth. We are an international number of services leader, operating in 44 countries across five continents, which gives us the firepower to lead in technology and innovation, thanks in particular to our 14 R&D centers and over 5,000 patents. We rank in the top three in Europe, the Americas, Asia, and the Middle East, which give us pricing power. But no capital employee in a single country exceeds 10% outside the U.S. in order to de-risk the group. This is a choice. Our customer base is diversified, roughly 50-50 between municipal and tertiary and industrial clients. Our multi-local delivery model is encouraged in local communities. That means we have no impact on tariffs, no impact on the margin rates for forex volatility or the inflation effect, and no dependency on subsidies or government contracts. Our long-term contract, on average of 11 years in duration, with 70% being inflation indexed, we estimate that 85% of our business is macro-immune and commodities are SMC-pass-through in our contracts. By the way, in addition to what I already said, we offer a unique way of integrating solutions combining waste, water, and energy services. This combination of growth potential and resilience is rare in today's markets. Slide 7. Given the current headlines, I want to address the Middle East situation directly. I believe it is a perfect illustration of the multiple strengths of our business model. We can see this first with the sustained demand for essential services. In the region, we maintain constant and direct daily connection with local authorities and clients to ensure the continuity of critical services. This includes operating desalination units, for instance, which can account for up to 95% of the water supply. These direct contacts confirm that our partners are already preparing for the post-crisis phase and require partners like Veolia to be by their side. Furthermore, our multi-local model ensures our direct financial exposure remains very limited, with €1.3 billion revenue in 2025 and capital employed around €300 million in the region, which is less than 1% of the group's total. Consequently, the local impact on Veolia has been largely neutral. only limited operational disruption, like a bit lower hazardous waste volumes, and a slowdown, or I would say more a delay, in water technology projects being signed. Regarding consequences on other geographies, we are well protected against rising costs. Our long-term index contract covers 70% of our contracts and covers all our cost base with some late effects. For the remaining 30%, we have proactively already put in place specific fuels such as were needed, particularly in the wind business and with secured key supply. And on slide 8. In a way, this crisis in the Middle East highlights the power of our unique Veolia offer. It explains why it may even lead to a few opportunities. Our proprietary solutions help secure access to water supply, which is as critical as oil, if not more, as we see now. Our solutions give access to an intact reservoir of local energy at fixed price, instead of import. You can imagine how important this is, and let's hope people realize it. In addition to that, our solutions can contribute to securing supply chains, thanks to the circular economy. And those solutions can as well depollute industrial sites and protect human health. You will understand, I'm sure, why I'm very confident about our super performance, as we have built with Veolia a unique positioning as the environmental security powerhouse, addressing critical needs for our clients. Slide 9. Our international footprint has largely contributed to our good results in Q1. I would like to highlight the continued standout performance in our region outside of Europe, which grew by a strong 3.1% and even 5.3% at constant forex. I will insist on the performance of the USA, which grew by 7.5% at constant forex. In spite of extreme cold weather conditions, which impacted health service volumes in January and February, the demand for services is very strong. We also passed the main steps in the clean earth acquisition process, which ensures a closing at mid-year as announced. The water technology segment performed quite well, up 4.3% excluding the project business lines, which were penalized or even more like delayed in signing by the crisis in the Middle East, and continued to deliver a remarkable EBITDA growth in this segment. In Europe, we grew by a solid 3%, anchored by strong performance of Central and Eastern Europe, the UK, as well as Spain, all enjoying strong commercial momentum and positive weather. Finally, France has the Swiss Europe with resilience in spite of adverse weather conditions which have penalized its waste activities. I expect the Swiss Europe to grow faster in the coming quarters without the Q1 disturbances. Looking at our performance by business line on slide 10, we see resilient growth and solid EBITDA progression across all our activities. Our stronghold activities, municipal water, solid waste and district heating, generated €8.4 billion in revenue, up 2.5% at constant scope and correct and excluding energy price. Our booster activities, water tech as the source of bioenergy, generated a little bit more than 3 billion euros in revenue, up 2.2%, including tuck-ins. You have to remember, again, that Q1 was quite specific, with negative impact from the iron wall on the delay of signing specific projects with WAPE Tech, added to extreme weather events and timing effects in Helmetswift. The demand for our booster activities keeps being very strong. If we were to exclude water technology project delay, our boosters would have grown by 4.6%. The combination of struggle and boosters now represents already 30% of our revenue, demonstrating a strategic evolution towards high growth, high margin activities, while maintaining the stability of our core business. And I will give you all the details of our activity in a moment. And now on slide 11. Terogel continues its transformation as set up in Greenup towards more international, more tele-exchange-driven activities, which is our boosters. We are very active in strategic portfolio management with €8.5 billion assets, which will have rotated over four years. You remember that 2025 was a pivotal year as we successfully achieved the trade integration, but we've also crystallized strategic moves with two major acquisitions signed or closed. First, 1.5 billion euros invested in water tech to enhance our combined technology portfolio capabilities. We have already extracted one-third of the time 90 million synergies, which is 30 million, including 10 million euros in Q1. And of course, 3 billion dollars with the acquisition of cleaners in the U.S. We have obtained both the antitrust clearance and on-the-raise shareholders' approval on Monday, which means we are fully on track to close the deal mid-year. Those acquisitions will gradually create value, but also will enhance the group's profile going forward. Lastly, we announced €2 billion of non-strategic assets device structures in the two years following the Cleaners' closing. The process has started with clear lists and various scenarios. We have already achieved several small and medium divestments of mature assets or not in the top three, which you know are some of our criteria, and we will continue pruning our portfolio. On slide 12, I would also like to say a few words about our exciting growth ambition related to innovative offers for 2030, which we have explained in a dedicated session last April. I will start with our new offer dedicated to AR industries. covering data centers and chips manufacturing. Those industries are in high demand to secure steady water supply for cooling systems, continuity of supply of ultra-ferro water, and they use large amounts of high-quality solvent and acids. Data centers are starting to see resistance from local communities to be granted permits, given the intensity in resource consumption. Our data center results 360 new offers help secure local acceptance and license to operate with recycled water technologies and heat recovery, as seen in our recent contract with AWS in Mississippi. We already grew very quickly in those AI industries from 150 million in 2019. to 560 million in 2025, and we're now targeting approximately 1 billion by 2030. We have a unique set of assets and technologies to support this growth. Patented technologies, such as electrodeionization for ultra-pure water, seaweed membrane for water recovery, without mentioning a new Taiwan-based electronic-grade sulfuric acid recovery, which is really promising. but also a worldwide install date of hazardous waste treatment facilities. In addition, we'll soon have a presence in all 50 states of the U.S. with the Clean Earth acquisition. I'll remind you that the offer we launched in 2024 on PFAS is already very successful, and I'm very confident we'll reach our ambitious 1 billion revenue by 2030. We had zero revenue in 2022, 259 in 2025, which is up 25%. And our recent acquisition of Soil Remediation Specialists in Australia, at a very reasonable multiple, will complement NICR's comprehensive solution portfolio and offer duplication opportunities. These inefficient-driven growths are testimony of the group's transformation towards more value-added offering services as an environmental security powerhouse. On slide 13, we will also derive from digital AI innovative tools, and increasing contributions to our efficiency plan. In 2025, 23% of our operational efficiencies were already derived from AI and digital, and we aim at 50% by 2030. This is by scaling up AI-based tools we've already tested to maximize plant productivity, to reduce energy or chemical consumption, or to help detect leaks. Or talk to my plants. tool dedicated to plant maintenance operators is particularly very promising. It is a very exciting journey and we are only on the very beginning here. Slide 14, I just want finally to fully confirm our 2026 guidance, which is a reminded fully on this slide, in particular with EBITDA to grow 5% to 6% organically and current net income by 8% at current forest and before PPA, and this is of course excluding cleaners. Additionally, assuming a mid-2026 closing, the cleaners acquisition will be accretive to current net income from 2027 before PPA. Confirmed as well are green-up trajectory. This reflects our confidence in our business model and strategic execution. Emmanuel, the floor is yours to elaborate on Q1 results.

Thank you, Esther, and good morning, everyone. Revenue in Q1 amounted to €11.4 billion, up 2.1%, excluding energy prices. Organic growth of EBITDA was 5.1%, in line with our annual guidance, which is an excellent performance, as we no longer benefit from such synergies. And our EBITDA margin continued to increase by 73 BP to 15.5%. We continued to enjoy a strong operating leverage, leading to a 7.2% progression of current EBITDA. Net free cash flow increased by 144 million euros, thanks to tight capex control. And net debt landed at 20.8 billion euros, including the seasonal reversal of working cash. Forex impact on EBITDA was 33 million euros, as forecasted, due to a lower US dollar, British pounds and Latin currencies. Forex is moving, notably due to the crisis in the Middle East. And the final impact on 2026 EBITDA is hard to predict. It will be lower than initially expected with the current exchange rate. We will see, but remember that, as a multi-local group with very limited international trade, Forex does not impact our world businesses or margin rates. And forex has a very limited impact at net income level. Moving to slide 17, you can see the revenue and EBITDA evolution by GeoRefit. As Estelle mentioned earlier, growth outside Europe was quite satisfactory at plus 3.1% and even plus 5.3%, including the king. Most regions rediger mid-single-digit growth. USA grew by plus 5.2% and 7.5% including tokens, in spite of adverse weather conditions, which impacted other swathes volumes in January and February, and other swathes in the US still grew by 5.7%. Pacific grew by plus 8.1%, including the successful acquisition in Australia, which extends our leadership in other swathes and PFAS treatments. African Middle East revenue increased by plus 4.4%, and by the way, Middle East succeeded to be up plus 2% in a complex geopolitical context. Wood Technologies was quite resilient, executing projects and progress by 4.2% like last year, and as I remember, 70% of our activities are recurring, corresponding to products, services, and chemicals, while 30% is more volatile by nature, what we call projects. In Q1, projects were impacted by several booking and milestone delays due to the middle-age crisis, and we forecast this to continue in Q2. Above all, water technologies continue to deliver a strong EBITDA growth, fueled by our business refocusing and efficiencies at synergies. Europe grew by 3%, including energy prices, fueled by favorable weather and heaven eating, and by good water activities. And finally, France and other fresh Europe were resilient. Now, let's take a look at our performance by business. I will start with water. It represents 40% of our revenues and 50% of the group EBITDA. Water revenue was up by 2%. Water operations benefited from good indexation in Europe and in the U.S., except in France due to the lower electricity prices. Volume fell on a very good trend, up 1.1% in France, 2.4% in Central Europe, 2.9% in U.S. regulated. And as I just explained, the underlying growth of water technologies excluding the timing of project delivery remains quite strong, at 4.2%. Moving to waste, representing 35% of our revenues, waste activities succeeded to stay flat despite unhelpful micro and are very comparable to previous quarters. Indeed, excluding external factors as weather, recycling or electricity prices, which revenue was up plus 1% at Constant Scope and Forex. Starting with solid waste, we did not experience in Q1 any significant impact of the higher diesel cost. In terms of diesel price increase, I remind you that it's path through. The group diesel purchases for the waste activity amounted last year to €218 million, Half for multiple contracts with automatic pass-through in indexation formula with three to six months' time. And half for CRI clients with immediate sales surcharge. In terms of volumes and commercial developments, performance was mixed in Europe. Slide volume decreased entirely by bad weather, high sea road and frozen waves. Good incinerator availability rates and activity continued to progress in the rest of the world. As others went through by plus 1.7% and plus 6% including tech-ins, Europe was slow due to the combination of adverse weather and maintenance outage timing to rebound planning Q2. Growth remained strong in the US, plus 5.4% with average price increase of 3.6% and volume up despite unfavorable weather conditions. For Q2, we expect further price increases alongside closer charge and better volumes. The performance of last year's tokens in the U.S., Brazil, and Japan was very good. Finally, moving on to energy, I am on slide 20. Regarding the evolution of gas and fuel prices, I remind you that our energy business model is very strong. As we demonstrated in 2022 and 2023, it is regulated and our margins are protected. We can also marginally take advantage of higher electricity prices and of volatility over meters. For 2026, we are largely hedged in terms of gas, CO2 costs and electricity revenue. Energy prices were down as expected, but to a much lesser extent than last year. Excluding the energy price impact, U.N. growth was quite good, plus 4.1%, thanks to good volumes, helped by a colder winter, and with a resilient activity for the booster. The revenue breach on site 21 explained the driver of our resilient growth in July. Forex impact amounted to minus 2.3% due to US dollar, GPP, Argentine and Peso and Yen. Scope was positive, by plus 69 million euros, including hazards waste taken. We expect the consolidation of cleaners in the second semester of 2026. And we are pleased to have now obtained both antifreeze clearance and unvarying shareholder approval. The impact of energy prices was as expected more than divided by two compared to Q1 last year. Recycling prices were almost neutral. And the weather effect amounted to 66 million euros due to a colder winter in Europe, partially offset by adverse weather impacts for waste utilities. The contribution of commerce volumes and pricing was plus 1.6%. Pricing in water and waste remained sustained, contributing to plus 1.4%. Let me walk you through the EBITDA bridge, which illustrates our strong operational performance. We experienced correct translation impact of €33 million. It's important to remember that correct has no impact on our margin rate. It's purely translation effect in our revenues. and costs are in the same currency in each of our countries. Scope effects from tokens contribute positively to this 1% EBITDA increase, showing good revenue to EBITDA conversion and fueling future EBITDA growth. Energy and recycled material prices had an impact of minus 16 million euros. Weather effects contributed positively to 1% EBITDA growth. And the most impressive component is our growth and performance contribution of 5.1%. This breaks down into 62 million from net efficiency gain with a very good retention rate, thanks to action plan implemented across Europe. And we have also 10 million euros from water technology synergies. The volumes and commerce contribution was limited and in line with revenue. This represents organic growth of 5.1% as concerns copper spikes, which is quite good. As mentioned, we do not benefit anymore from the 1.5% contribution of this synergy. A few highlights on the efficiency gain. I am on slide 23. We delivered 96 million euros of efficiency gain in Q1 in line with our annual target. Two important characteristics you need to consider regarding efficiency. First, efficiency would indeed increase a permanent level of fault value creation. It's embedded into our operation. Efficiency gains are not discretionary cost-cutting programs, but they come from a very diversified series of initiatives in our thousands of plants. In case of Edwin, we can and we know how to boost efficiency programs as we demonstrated in the past by specific plans like the one we have conducted in China, in Spain and in France. Second, digital and AI gain, which already accounted for 26% of our recurring operational efficiency in 2025, will continue to increase, and we have set an objective of 50% of digital gain in 2030. Let's now analyze our performance below EBITDA. I am on slide 24. Going down to current EBITDA, this slide illustrates perfectly the operational leverage of our business model. 2.1 revenue growth. 5.1 EBITDA growth, and 7.2% EBIT increase. Current EBIT grew to 971 million euros at a faster pace than EBITDA. And let me highlight, amortization and offer, which were slightly up at Consumscope and Forex, and industrial capital gain provision were stable, showing a continued strong quality of results. Now, free cash flow generation, which is key, and net financial debt, I am on site 25. I am satisfied with the promotion of the net free cash flow of 144 million euros, which we achieved despite the seasonality of working capital. And thanks to a tight capex control, you see a strong discipline on industrial investment at minus 860 million euros compared to more than 1 billion last year. Limited increase of taxes and financial charges linked to last year's technology acquisition. Working cap reserve sold was close to last year. Net financial debt is therefore well under control, reaching 20.8 billion euros. And this increase of 1.1 billion is due to the seasonality of working cap and financial investments of minus 172 million euros. Our net debt is 85% fixed. Our net group liquidity is very solid. 6.7 billion, and our balance sheet, therefore, remains very strong. Both rating agencies confirm strong investment break rating beginning of 2026. Before concluding this slide, this slide reminds you of our 2026 guidance, which Estelle fully confirmed earlier. Continued solid organic revenue growth, excluding energy prices. EBITDA organic growth between 5% and 6%. Current net income of minimum 8% as compared to forex excluding clean air, which will inflow in 2026. Leverage ratio equal or slightly above 3 times with clean air acquisition. And as you know, our dividend will be in line with our preemptive year. As you see, we are very confident for 2026. We deliver a strong pre-run, resilient growth, and solid EBITDA increase, fully in line with our annual guidance. Thank you for your attention.