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.

Thank you, Emmanuel, and now we are ready, Emmanuel and myself, to take the question you may have.

Ladies and gentlemen, we will now begin the question and answer session. If you have a question, just press star one on your telephone keypad. First question comes from E.J. Patel from Goldman Sachs. Please go ahead.

Good morning, and thank you very much for the presentation. I have two areas I wanted to dig a little deeper. Firstly, on cost-cutting and the retention rate over this quarter was quite a bit higher than you normally guide. I just wondered how should we think about that in the context of the full year? And then, I guess, maybe alongside that, you talk of AI increasingly becoming a proportion of the overall cost-cutting efforts, increasing in size. I just wondered if the retention rates on the cost savings that you make on the AI side higher than that of maybe the non-AI side, just to understand if there's any dynamic there that we should understand. And then the last one is just referring to the bridge on slide 22. If you could help us with the volumes and commerce element being a limited contribution, just what headwinds, Maybe break out a little bit more of the headwinds that you experienced over Q1, and how should we think about that variable over the course of the year? Thank you very much.

Thank you for the question. So first on the cost-cutting, you're right. You know, it's 62 million out of 96, basically, that we've retained, so which is higher than the usual. Don't translate it into times 4 for the entirety of the year. Good. target is usually between 30% and 50%, but it's fair to say in the recent quarters, we've been more around the 40% to 50% than the lower part of the range. That's a good proxy for me. With regard to your second part of the first question on AI, you're not wrong, as in our AI cross-cutting is mainly on operational things. That's why I mentioned the example of AI helps us to reduce energy consumption, to help us increase the plant efficiency, and so on and so forth. And this type of gains are typically more retained than what would be, say, SG&A type of cost cutting. So you're right. the more we can retain of the cost-cutting gain or efficiency plan, the happier we will be. There always will be some leakage, let's call it that way, because it's part of our business model with our customer. When we renew contracts, we give some productivity back to the customer and then we find other ways of gaining productivity in the years following the renewal of the contracts. That's why there will always be some type of leakage. And, of course, we try to retain the maximum possible. In terms of the second part of your question, I would not highlight anything which would look like – I mean, there is no slowdown. When you look at H2 2025 and Q1 2026 were exactly in the similar type of range of 2 point something, you know, revenue excluding energy price. In the pluses and minus of this quarter in terms of commerce, so commerce is very good, no question about that. Retention of our contract or renewal of our contract is very good. On the plus side, we had a little bit of weather effects in Eastern Europe. On the minus side, we had a little bit of weather effects on the negative side in the U.S. and in Europe on hail and waste. You may have noticed that there was two times a week or a week and a half of the eastern part of the U.S. being totally blocked by minus 15, minus 20 degrees Celsius type of temperature with everything being closed. Of course, that means there's volume in the end. The trucks were not even allowed to to be driven into any type of growth. So that's why pluses and minuses, but nothing which looks like a slowdown. And the effort is good. The demand of our services is sustained. And again, the same type of pace in the revenue as we had enjoyed in the second part of last year.

May I add one more question? Please. The other thing, just kind of opening comments, I think that when we're talking about the conflict at the moment, I just wonder, how does disruption work in your business model in terms of if a certain component doesn't turn up on time or there are some restrictions on how you operate in terms of some form of rationing? I know that we're not at this level yet, but if these types of impacts happen, are they... or is there some exposure on that side? I didn't quite necessarily get that from when I was listening to the presentation.

So when it comes to the Middle East activity, we have not seen disruption in supply chain. The thing we've seen is, you know, like a few days on and off in the refineries which were nearby our site. Therefore, you know, a little bit less activity from one day to the next. But we don't depend on very sensitive components or chemicals which only go through, or a lot of it goes through the straight of hormones, if it's your question. We are very decentralized in our supply chain. So we have, of course, you know, some centralized procurements. but we usually are more on a regional basis anyway. So, honestly, we have not seen any disruption, and I don't anticipate any disruption in the supply of everything Veolia needs to operate.

Thank you. Very clear.

The line is...

The line is blurred.

We cannot hear you, so... I think, Arthur, it's your turn. Please go ahead.

Yes, hello. Can you hear me well?

Yes, perfectly.

Please. Okay, great.

Apparently, the only line which doesn't work well is that of the operator, which is not exactly helpful, but we'll try to go ahead anyway. Please go ahead.

Okay, thank you very much, and thanks for taking my questions. So the first one would be just on the headwind to waste organic growth that you mentioned related to bad weather in Europe in January, February, and plant outage. I was wondering if you could quantify that negative effect on EBITDA in Q1. And I was also wondering, basically, more generally speaking, How should we expect weight volumes to look later in the year? In particular, you're mentioning a bit of a slow start in January, February. How was it looking in March and April? I suspect you already have some indications of trends for those two months. And the second question is just on what's happening in the world at the moment, which is higher inflation due to the geopolitical uncertainty. I was wondering about the sequence of events for Veolia. Is it possible that basically you have a slightly weaker end to 2026 because of the slower volumes and higher costs and then a recovery or a more positive effect in 2027 with your inflation closes that you flagged that have a little bit of a lag? Thank you.

Thank you. So, I guess, you know, I would like to highlight, by the way, some opportunities, you know, and I will start with that. What we discover, rediscover, or the general public realizes when it comes to the water release is be dependent on imports. It's never a good idea. We rely on supply of water, otherwise nothing happens. and everybody is super concerned by their health and that of their kids. That's exactly what Veolia offers solutions to. So in a way, in my opinion, the crisis reveals anything but the strength of the business model Veolia is positioning. To answer specifically your question, there is no slow start to the year in terms of volume when it comes to, say, economy underlying this, even in waste in the first part of the year. We haven't seen that. The only negative, again, was weather-related. There's a number of days where we cannot even circulate it. Our customer could not, so they haven't generated waste, and that was it. But don't take it as a stop. As a slow down or slow stop to the year in terms of underlying trends. because I think that would be a mistake. So the underlying trend is exactly the same as the end of last year. That's exactly what we've seen, to answer your second part of the question, in March and April, which were exactly good. When you exclude the weather effects elements, which were a few days here and there, and even two weeks in the U.S., That's the only component. But again, the demand is sustained, so the volumes are there, and they are coming back once you can transport them, if I may. In terms of the impacts beyond the Middle East itself, of the Middle East crisis, on cost, if I understand the second question. As we've demonstrated through the war in Ukraine, in a way, we have the ability to pass on the cost to protect our margin. We've demonstrated it. There is a little bit of lag effect, but we have a bit of positive as well in terms of commodities and things like that. So that's why I can confirm fully our guidance for the year. So, you know, we will maintain our 5% to 6%, you know, EBITDA margin growth for the year.

Thank you very much.

Thank you. I'm going to play the operator, so I think the next question is coming from Philippe from . Operator, if you can please open Philippe's line. Thank you. No, so from . Thanks.

Good morning. Two questions for me, please. One is just on the free cash flow. There's a bit of improvement versus Q1 last year. Does this put you on track, do you think, to see, you know, a similar improvement for the full year for net free cash flow versus 2025 so we can see a bit more meaningful growth there? I mean, just coming back to the inflation point, I mean, presumably with inflation expectations where they are currently and, you know, we can see those continue to increase perhaps. If there's any benefit from that with your tariff indexation, presumably the bulk of that would start to come through in 2027. If you could just confirm the mechanics of that again, that would be very helpful.

Thank you.

Good morning, Oli. So, as mentioned, we are very satisfied with the progression of free cash flow beginning of the year. As you have seen, it has increased by just €144 million. And part of it comes from the very strong discipline we had on CAPEX. I mentioned it. We spent €860 million when it was more than €1 billion last year. You know that we are very committed to have a strong free cash flow generation to be able to cover our dividend. are fully committed and we have a lot of action regarding that, working on the time to invoice, putting control on our capex, improving the collection. So our target remains for the year to have a strong cash flow, to be able to cover our dividends. And as you may see, we have a very strong liquidity, 6.7 billion euros, and a very strong balance sheet for 2026.

So our aim is always to grow free cash flow on a yearly basis. We don't give guidance because there is seasonality in this, in Veolia, but of course we always try to do our best to improve the free cash flow generation of the group, which allow us then to decide where to invest. I remind you that it's free cash flow after gross investment, by the way, which is, you know, in our hands. In terms of inflation, Maybe I was not clear enough, so Manuel, do you want to have a go at that? And fuel surcharge, maybe.

Yes, so your question only was on the impact of inflation and fuel surcharge. So, as mentioned by Estelle, you know that our model is well protected against cost increase. We have 70% of our portfolio, which benefits from indexation formula, and we have 30%, where we have from pricing power and where we can do price or charge. Coming to the specific elements on inflation, we showed in the past that our model was very strong and able to pass the cost to our clients in 2022, 2023. And what we have done since the beginning of the year is to be very agile and very reactive on the 30%, specifically on the future churn. We start beginning of March. It has been put in place. We can have a small timeline, but it's very efficient. You may remember that in 2022-2023, we were able sometimes to do three to four times increase when it was necessary, so it's fully put in place. The element to have in mind is that for our municipal clients, which is 50%, we may have a timeline of three to six months. But we have put in place all our action plans, as mentioned before, to have really strong discipline on cost, to not accept automatically the increase of our supplier, to have restricted move or deplacement if it's not necessary, and of course to increase our strategic inventory when necessary.

So for the 70% which is indexed, if there is a little bit of lag effect on the revenue, there could be a lag effect on our supplier in a way and our cost base in other terms to protect our margin. And for the fuel surcharge, it's already in place and if you have to do two, three this year or one will be enough, we'll see. But it's already in place now as we speak. I would like to highlight again, if I may, I said it in my speech, but the type of discussion we have with customers is not only about cost protection. Actually, it's quite the opposite, and I just wanted to share this with you. It's incoming calls on, can you help us with energy efficiency? Of course, energy is higher in price. Therefore, can you help me with that? It's, can you help me with securing local sources of energy? It looks like you do that, Veolia. Can you help me with that? Because it helps. Same with stock of our economy. When you recycle, it avoids importing from far away and be dependent, therefore, from the up and down of commodity prices. So all that means, you know, we have a lot of incoming calls of customers. where for them the war means I want more of the earlier type of services. Starting in the Middle East, by the way, where they already are preparing for the post-war and discussing about, you know, how can we be even more resilient going forward in terms of the infrastructure reconstruction or depollution of sites.

Thank you. Next question. The next question comes from the line of Philip Odo. Please go ahead.

Yes, good morning. Not Philippe Odeau, I will be more rich than I am. Philippe Odeau. But Philippe from Odeau, even if we have the same letters as Philippe and Odeau versus my first and last name. Just one question, most of my questions have been already answered, concerning the divestments. You mentioned in your slide that three operations, the top three programs, have been already signed or being closed in the coming months, I would say. Could you just give us, as you have also mentioned that there is your plan and several scenarios are prepared, could you have the idea of what's the amount of divestment already under bracket secure versus the $2 billion targeted? without mentioning any specific operation, but just to give us where you are exactly, 26 and 27, because I do suppose that it's already started and you have some discussion and some assets which have been already determined to be divested.

Many thanks. Thanks for your question. A few things. We said we'll divest 2 billion in the two years following the closing. So we're talking about from now till mid-28. So we have plenty of time and, you know... during our balance sheet is compatible with the time scale I just gave. In terms of what we've already done at the criteria, I said non-top three, so things which we are number five, number six on the market and we don't see any possibility to be up very, very quickly. mature, as in we don't see how we can grow the EBITDA or the EBIT, you know, even with our best efforts going forward, or non-strategic, like we've done with SAD, which was an activity in construction we didn't want to go on with. So that's the typical criteria. That's typically in the criteria of what we've already, like, signed and closed, secured. We're talking about, you know... you know, smaller and medium objects, which are listed there, plastic in Korea, industrial thinning in Belgium, so all together it will be a bit in excess of 100 million, 200 million, this type of order of magnitude, if I remember well. In terms of the larger objects, I will consider them secured when they are signed, and when they will be signed, they will be announced. And you will have to wait until that date to have them secured. But I'm very confident. I'm very confident because we've done a few market testing and we have alternatives in case for whatever reason one doesn't go ahead in the type of price range we were expecting. So we have plan A and plan B if you want. So we will secure this $2 billion in good condition in the two years following the closing.

May I have an additional comment? Because it's very interesting what you said concerning your capacity to choose some assets. In order to do $2 billion, what's going to be your, let's say, global potential of divestment? Are we discussing about $3, $4, $5 billion, means the buckets, of the basket of potential disposal regarding the size of your group and the numbers of subsidiaries you have around the world. Just for an idea about where we are exactly, what you mentioned too, you can age your calculation on how much more than that.

We have enough headroom to be able to be very confident. That's the only thing I can say. But those businesses, you know, it's always a choice. The businesses which are Plan B are businesses we like. They are only a money. They are a little less interesting than others, so I have no problem in selling them. But they still are good businesses, so we don't have any problematic one in the list. Therefore, you know, like, I guess, you know, like, we have sufficient security on the achievement of this program, I can tell you.

Just one element I wanted to share with you. So we told you already, very clear plan. We know what we want to do. We have different scenarios allowing us to be agile. There is no pressure on timing because our balance sheet is very strong. We don't need to do this device development to be able to find a cleaner. That's not the issue. And you may have seen that in terms of transaction delivery and execution, we have been showing an amazing track record, so not under pressure of time. We also shared with you before that part of the $2 billion will be business which will be divest. The other one will be, and one fortune, one third, will be linked to the portfolio cleaning that we have also launched before and that we will continue. So we don't need to do everything everywhere. We have a very clear picture on where we want to do. on where we want to go, and a very good track record in terms of execution.

Just, you know, to illustrate what we said by portfolio pruning, we said plastic in Korea. It doesn't mean that we don't like plastic or we don't like Korea, but it looks like plastic in Korea, we are not in the top three and not being able to get in the top three. That's why we stole this. In terms of our industrial cleaning activities in Belgium, it was more the non-strategic criteria here. You know, industry opening is not a priority for the group, and therefore, you know, have no ability to be duplicated any time soon in nearby geography, so we decided to sell it. Each time with, you know, value-added sales, so it was good sell for us. So that's, I think, it gives you an idea of what Emmanuel said by the smaller ones, which are more portfolio-printing type of activities of disposals.

Many thanks, very clear.

Thank you. So I think next question is coming from . Yes, hello, thank you very much.

Can you hear me?

Yes, we can hear you very well.

Yes, yes. May I ask what is the impact of the delays in terms of project in the Middle East in terms of EBG impact or the order of magnitude?

So basically, you know, WaterTech EBITDA has progressed very, very, very well in the first quarter, like it had been in the quarters before. So the short answer to your question is none. As we already said, projects, you know, are a lower margin of effectiveness within WaterTech. It's only 25% of the business. We like it because it fuels potential buy of, you know, membranes and stuff like that in the end, but it's a positive margin still, but lower than the average. So the answer is no, roughly. Very nice improving of the EBITDA in the first quarter in WaterTech. So again, WaterTech excluding project was plus 4.2% revenue increase, which is very nice. EBITDA increased by even more than that, thanks to, again, the usual cost efficiency and so on and so forth, added to the 10 million synergies we've delivered in the first quarter, in addition to the 20 million we already had delivered for the second part of last year. So no impact is the answer.

Thank you very much. Next question comes from .

And I'm very confident again that it's only delays in signing. And we still have discussion with the customers about not only signing whenever they will be able because the work is, you know, like a bit more under control. And we even have specific orders like of mobile units and stuff like that in emergency type of situation in the release in WaterTech. So, you know, it has created even some opportunities.

The next question is .

Hi, good morning. Thanks for taking my question. Two follow-ups and one question on guidance, please. The first follow-up on the weather for waste, I don't think that was a specific item that was disclosed in the revenue bridge before, and maybe because the impact was just always, you know, much smaller than this quarter. But is that something we need to consider on a more recurring basis, given climate change around the world? And similarly on phasing, just to expand on some of the other questions, should we not see good volumes in Q2 to catch up on the missed rounds you've had in Q1, which would then normalize in Q3? Second follow-up on disposals. Why not perhaps rotate capital more rapidly? I think you mentioned that you had a lot of headroom beyond the $2 billion of asset disposal target. But if these assets are not number three, well, sorry, top three, mature and, you know, are non-strategic, why not also increase the base of disposals and perhaps get money back to shareholder or even create plenty of headroom for yourself to do some more strategic acquisition? Question and last question on guidance. Given the operating leverage of the business, you know, revenue up 2%, EBITDA plus 5, EBIT plus 7, is the plus 8% net income guidance not too competitive for the year, or are there any below-the-line items we need to be mindful of? Thank you.

Okay, so weather on the bridge, Emmanuel.

Yes. Good morning, Alex. So, regarding the bridge on the column weather, we have always, we have the same methodology than before. It's just that in the past, we are not facing this type of weather conditions. So, you had in the past, mainly in the weather column, the energy impact almost all time, and you had one or twice some effect from waste when it was the case, but it was more an exception than the rules. You were mentioning the impact of volume. So you're right. We benefit in Q1 in terms of weather from good impact on energy. So we will not have that in Q2. We will not have this positive effect, but we will benefit. from a form of rebound, as we will not have, as we had in Q1, the weather having impact on high sea roads, high sea waste, no project control remediation. So we have a form of rebound in Q2, that's for sure, and we are starting to see that in April, which is positive. And as we are speaking a bit on the month of April, what we could see is that we have plus and minus. On the waves, as mentioned, we had more outage in Q1 and we will not have that in Q2, Q3, Q4. We will not have the negative impact of the meteo. We may have a slight fuel surcharge or delay, but between Q3 and Q6 we have mentioned. On the energy side, we had the positive effect of weather that we had in Q1. We are not going to be in Q2. And we may have a small impact on energy prices, as I mentioned, linked to fuel surcharge. But we have opportunities for the non-sparks, which have been hedged. You know that we have full visibility on energy margins. On the waste side, On the waste business, we have part of the electricity. We are edging 85%. So, for the 15%, we can have a positive impact. Also, positive impact, as mentioned before, by SL potentially on the recyclables, notably on the plastic side. It's marginal because you know that we have put in place back-to-back-to-contract. And on water, we spoke already about what technology... timing effects on project top line, and we see the good trend we have seen on water, especially in terms of pricing, and in terms of volumes, we don't see any change of trend in April.

So altogether, April will be good, and we haven't seen any change in underlying trends. You have the ups and downs of weather, but apart from that, nothing specific. And no, there is no... It was really exceptional in the West. It never happens. It happens every, I don't know, back five to ten years. This type of circumstances, it was really, really exceptional. So I don't anticipate that it will come. Again, very much. In terms of the capital allocation, yes, we have a group. That's a question you always ask. What about we sell this and that and then we give money back to the shareholders? I'm really keen on one. We still create value with those assets by increasing thanks to our professional efficiency, thanks to you know, like thanks to everything we're doing. We are creating value. Shall I remind that, you know, we've increased the dividends quite a lot in the last few years and the net result by basically 12% year-on-year in the last two years and doubled the net result in the last five years. So this creates value. So we already are giving to the shareholders, you know, like some elements via dividends. We have topped up that, starting last year, by a first in the history of the group, which was the Shell Buy Back to Avoid the Deletion Program. So I guess I'm very... very focusing on delivering shareholder value, but I think we do create shareholder value with the business model we have. In terms of the, will we stop there, irrespective of the, I mean, irrespective of the buying opportunity, we are doing the printing of portfolio anyway. You know, the non-stop free is a strategy which was in the Green Net Plan, you may remember that. So we've tried in Typically, in the plastic inquiry I just mentioned, we've tried for two years to try to see if we could be in the top three. We didn't manage to be successful. Therefore, we decided to sell it. That's more the way to see it. There is an up or out strategy here which we are implementing. Yes, I can confirm that we are very confident about the 8%, you know, net income. But, Emmanuelle, do you want to elaborate on that?

Yes, with pleasure. So you know that when you look at our performance this year, very strong performance with the increase of EBITDA of 5.1%, as mentioned before, without the synergies, meaning that we are cruising at the same pace, showing that our strategic decision to go for faster-growing and higher-margin activity is delivering results. Down the line, we will, of course, continue to benefit from our operating leverage. We have shown that before, plus 2.1% revenue increase, plus 5.1% EBITDA increase, and plus 7.2% EBITDA increase. So, as you see, we keep a tight control on capex so that our DNA will not increase significantly. Our total cost of financing, which decreased slightly in 2025, will only grow in 2026 a bit, linked to the financing, for instance, of the water tech acquisition we did last year in June, and we believe we can sustain a stock rate between 25% and 26%, meaning that we are fully confident to confirm our target in terms of current net income for the year.

Thank you. I think the next question is coming from Claire from Juan.

Hi, thank you. Good morning. Can you hear me? Yes, you can hear very well. Excellent. Perfect. Thank you. It's just a follow-up as most of the questions have been already answered. I want to have more clarity on the net income guidance because you see that the closing for Clean Earth is expected on June after the two major steps in the AGM and the antitrust clearance. So can you help us quantify the expected net income effect from the integration for 2026? As you signaled, the 8% growth is ex-Clean Earth with a positive contribution from 2027. So what is the expected net income effect that you expect to have from the integration of Clean Earth for 2026?

Thank you. I will refresh what we've said in a way which we can confirm when we've announced the acquisition of Clean Earth. which will be assuming it's mid-year. Therefore, since we publish, so we can have, if we were to do accounts at mid-year with everything and dividends and so on and so forth, which is not the case, it would be a different story. But basically, given the fact that it's likely to be mid-year, it means it will be accretive default PPA, the cleaners acquisition from 2027, and accretive even after PPA from 2028. The PPA, we don't know yet what it's going to be, so we have a few uncertainties on dates, on things like PPA, so we cannot give you numbers, but it will be accurate very soon. In a way, it will be for PPA from year one and even after PPA from year two. That's what we've announced and we're confident we will deliver. In terms of integration, you remember we spent over four years of synergies. So we have not included any synergies in 2026. It will start in 2027. But again, all that depends on the date and the detail of it. Of course, if we are able to manage some synergies this year, we will be very happy with it. But it is not what we've included in our business plan or what we've announced so far.

Thank you. Thank you. Thank you. Thank you. Thank you very much.

We talk about, you know, access to local sources of energy. When we talk about securing supply chains, this is exactly what we offer to the customer. And if anything, the crisis in the Middle East is reinforcing the importance of our services and the demand for our services. So I'm very confident not only in confirming the guidance for this year, but in the years to come. And the last point is, of course, we'll have various opportunities, myself, Emmanuel, and the investor relations team to see some of you in the roadshows to come. So I'm sure you will have plenty of opportunities to ask detailed questions. And see you otherwise in July for H1 results. Thank you very much.