Veolia Environnement SA (VIE) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Veolia Conference Call on 2020 Annual Results with Antoine Frérot, CEO; Estelle Brachlianoff, COO; Olivier Brousse, SVP, Strategy and Innovation; Claude Laruelle, CFO. I now hand over to Antoine Frérot. Sir, please go ahead.

Thank you, and good morning, ladies and gentlemen, and welcome to this conference call on the Veolia 2020 annual results. So I am with Estelle Brachlianoff, our COO; Claude Laruelle, our CFO; and Olivier Brousse, our Head of Strategy. During this conference, we will present the very strong 2020 results we have just published, which once again prove various resiliency and exceptional rebound capacity in confronting the sanitary crisis. You will see that we recovered our 2019 level of activity and profit as early as Q3, and that we even exceeded it in Q4, leading to second half 2020 well above 2019, making us ideally positioned for 2021. Since the first signs of the pandemic in China at the beginning of last year, I set the priorities for the year ahead in order to enable the group to tackle the challenges of the COVID outbreak, first and foremost, ensure maximum protection for all our employees throughout the world and provide all essential services for our clients. Second, enable the group to absorb the inhabited economic consequences in order to rebound as quickly as possible. Third, remain focused on operational efficiency to limit the COVID impact on our results. And fourth, maintain the strategic priorities of our Impact 2023 program launched early 2020 in terms of new developments, innovation, ecological transformation projects and continue to invest for the future so as to increase our competitive edge. Thanks to the exceptional commitment of all our employees, whom I thank very warmly, we have successfully faced all the challenges of the COVID crisis and even surpassed the objectives we have signed ourselves. Veolia will have this wiped out all the consequences of the sanitary crisis in less than 9 months. We are starting 2021 with a level of activity higher than that of 2019, which makes me very confident for the year ahead despite the ongoing COVID situation. Estelle will give you details on our 2020 operational achievements. Olivier will then update you on our multifaceted performance objectives as well as on several important and already successful innovation projects. I will then, of course, give you an update on our planned takeover of Suez, which is progressing quite well since the filing of our tender offer on February 8. I will also share with you our financial prospects for 2021. And finally, Claude will give you all the details of 2020 financial performance and results. I am now on Slide 6. 2020 results were clearly ahead of target taking into account the crisis. After Q3, where we managed to offset the first half shock more quickly than expected, Q4 was also above our objectives. This was achieved, thanks to the strategy put in place very early in the year to face the crisis, keep up our prices, launch a specific cost-cutting plan of EUR 250 million, complementing our efficiency program of EUR 250 million and maintain our growth CapEx in order to feed the group's future growth. Consequently, we managed to stabilize activity in Q3, minus 0.6% at constant ForEx, and to resume top line growth in Q4, plus 0.9% at constant ForEx. And in terms of EBITDA, to grow it by 1.7% in Q3 and by 4.2% in Q4, well above our initial objective of stability for Q4. All our teams have remained fully focused on operational performance. And once again, I want to thank them warmly. For the full year, revenue reached EUR 26 billion; EBITDA was EUR 3.641 billion; current EBIT, EUR 1.275 billion; and current net income EUR 450 million. These very encouraging levels allow us to propose a dividend increase to EUR 0.70 per share for 2020. And I now hand over to Estelle, who will detail the 2020 operational performance of the group.

Thank you, Antoine. 2020 has certainly be an exceptional year in many aspects. Of course, the pandemic has had a direct impact notable in the spring. But the resilience of our essential services as well as our ability to react, adapt and recover very quickly have been very strong. Delivering economic performance whilst growing our business according to our strategic plan has been my constant focus throughout the year, and it still is. Starting with our revenue. The rebound we have seen in Q3 has been reinforced in Q4 back to a little growth compared to 2019. I must say I'm particularly happy to see our hazardous waste activity growing by almost 4% in Q4. As for EBITDA, it shows an even better picture, growing by 4.2% in the last quarter and with margin levels back to 15.7%, slightly higher than last year. Altogether, cumulative EBITDA versus the second half of the year was higher than in 2019, despite some percentage of activity still missing here and there. This is really the direct result of our Recover and Adapt Plan launched in the spring, which has led to more than doubling our cost-cutting effort compared to our initial objectives, which have reached EUR 550 million in 2020. I'm now on Slide 8, which gives a little color on the activity level in the last quarter of 2020 by geography, which Claude will detail later on. Starting with Europe. The second wave of COVID in the autumn has not had a major impact. Municipal water and district heating have performed very well, whilst construction work full speed with even some packing up effects. Waste volume have stabilized above 95% in France, Germany and the U.K. until, of course, in the U.K., the new lockdown in November. In Asia, Africa and Middle East as well as Australia, the level of activity was comparable to pre-COVID levels. In North America, we are still missing some volumes in refinery byproducts regeneration and industrial services, and in South America, some dry waste volumes. Going to Slide 9, which shows our cost-cutting plan performance and which is a key factor of our EBITDA performance in the second part of the year, as you have seen. We have exceeded both our annual efficiency plan as well as our specific Recover and Adapt Plan with a total cost cutting of EUR 550 million reaching 2020, more than double our original targets. As you know, our Recover and Adapt Plan was launched in the Spring before COVID impact. I'm pleased to say that our digital road map launched 2 years ago and the Paris tools we have deployed accordingly has been a key enabler to deliver on this Recover and Adapt Plan. We've been able to switch swiftly and seamlessly to remote working whenever that was suitable. Moreover, our 6,600 live control center across the globe as well as our customer health has helped enormously to optimize our services and keep live communication with our customers. Whilst those efforts were delivered, I'm pleased we have been able to sign new contracts and projects as well, which will help sustain our growth. Just to mention a few examples listed on Slide 10, I would like to highlight a nice series in Eastern Europe with the Right Bank Heating Network of Prague and cogeneration in Budapest, both anchored with local partners and able to deliver synergies with our existing business in those countries. In France, the acquisition of OSIS from Suez will perfectly complement and gather place with our existing SARP business, which is a very successful business in environmental maintenance. Now on Slide 11. Reflecting back on 2020, the crisis have strongly confirmed the soundness of our strategic choices, organization and positioning. Starting with our team. Their engagement and professionalism during the crisis have been exceptional. At the time of borders reappearing pretty much everywhere, our decentralized organization at the country level for daily operations, together with local partnerships around the key infrastructures, has been key to our resilience and responsiveness. Our digital transformation has certainly been accelerated as well from strong foundations. Continuing with our business model. It has proven very resilient, thanks to balanced portfolio in various geographies as well as between municipal and industrial customers. When it comes to industrial customers, we are very pleased we've decided a few years ago to ensure we are not too exposed to a specific sector, such as oil and gas or automotive for instance. This was certainly a smart move. 2020 performance of our hazardous waste activities, though serving exclusively industrial customers, is a testimony to our excellence and differentiation in this space. I'm now on Slide 12. You would see that marginally, the development priorities, which underlie our strategic plan Impact 2023, remains fully valid. And we are delivering on this plan. Despite the COVID crisis and our global effort to reduce costs, we made sure to maintain a reasonable envelope for discretionary investments in order to deliver on our strategic plan and enter future growth. You will recognize on this slide the priorities underlying the strategic plan as they were presented to you last February in 3 categories, as you know: accelerate, optimize and reduce. This plan is well underway in each of those categories, as you can see by examples mentioned in the gray boxes on the slide, which I would be happy to detail, if you wish. On Slide 13 now. I would like to focus in particular on 3 examples, which illustrate how our strategic plan is moving forward. Starting with plastic recycling. In 2020, we opened a new capacity for PET recycling in Spain, signed the JV as well with Mitsui and 7-Eleven for a new PET plant in Japan and developed 4 other projects, which should materialize in 2021. Our Indonesian plant should be commissioned soon. Another key commitment we took in our strategic plan was to eliminate coal from our European energy activity by 2030, which represents a total investment of EUR 1.2 billion. We've started to invest in this position in Braunschweig, Germany and plan to do so in the Czech Republic very soon. Poland will be next in 2022. Last but not least, hazardous waste. The economic performance maintained during the crisis with revenue growth and double-digit EBITDA margin even in 2020 confirm our ambition in this sector. We are building new treatment facilities as we speak in China, Singapore, India as well as Saudi Arabia, South Africa, Germany and the U.S.A., and we are developing a few other projects as well. Slide 14 illustrates this most precisely with the map. I'm now on Slide 15. So those strategic sales were translated as well into an asset rotation program in order to free capital to invest in the most promising activities, such as the one I just mentioned. These 2 is well underway with EUR 2 billion already closed or signed, the largest being our municipal energy business in the U.S., of course. Veolia has once again proven in 2020 its resilience in an unprecedented crisis and its capacity to rebound very swiftly and very strongly. Veolia is a strong company, and we are focused on continuing to deliver good results. I now hand over to Olivier, who will present our nonfinancial results for the year.

Thank you, Estelle, and good morning, everybody. I'm on Slide 16. As we've said in the past, we believe that the prosperity of our company is ensured by the fact that it's useful to all its stakeholders, our shareholders, of course, but also our employees, our clients, the planet and the society we operate in. And as you know, this is why last year in February, we launched what we call our multifaceted performance, made of 14 innovators on top of the 4 financial ones. And this is what you can see on these wheel with the stakeholders and the indicators. These indicators, they come with targets that we've made public, that we've assigned to our management team and inserted in our internal management processes. And as we said, they are also externally audited every year. They are designed to address each of our 5 stakeholders' needs, and we strongly believe that by meeting these targets, we will get closer to our stakeholders and we will make Veolia stronger and more competitive. And also, we will stay true to our purpose. On Slide 17, you can see a selection of these -- some of these indicators for each of our stakeholders aside from the financial one. On the left-hand side, for clients, 1 objective, of course, is to ensure that they are satisfied with our services, and the indicator we chose is the Net Promoter Score. And you can see here, not only the target for 2022, but also what we've achieved in 2020, and we're pretty happy with the results. As you can see, we're on track to what we say, we're even above the target. But of course, the pandemic and the crisis has brought us very close to the needs of our clients, if anything, by ensuring the continuity of the services we deliver to them. Second, for the clients. Of course, one of our objectives is to phase out coal from our operations in Europe by 2030, not walking away from it, but converting it to cleaner energy. And as you can see, we've started the investments, and we're on track to meeting our targets. For our employees, one of the indicators we show here is to assess the level of engagement. And of course, this level of engagement is paramount. As we've seen during the pandemic, for instance, with our frontline workers who made wonders to ensure essential services of the leaders come what may. And as Antoine said, we're very grateful to them and very proud of their high level of engagement that you can see on these results with 87% engagement level. Finally, for society. We can't ignore the fact that there are people who are yet not connected to essential services around the world, and one of our commitments is to increase the number of people benefiting from help to access water and sanitation. We've assigned ourselves a target for 2023, 12% increase to number of benefiting from these essential services. And you can see that we're off to a good start in 2020. I'm on Slide 18 now, talking about innovation. In terms of innovation, despite everything that has been going on in 2020, we've managed to focus and accelerate on some very promising projects. These projects not only address major challenges of the green transformation of society and our economy, but also potentially, they can open new significant markets for Veolia in the future. One of them is the recycling of electric car batteries. You probably are aware that 2020 have seen a significant increase in the sale of electric vehicles throughout the world. In Europe, only more than 1 million vehicles sold, which is, for the first time, more than the number of vehicles sold in Asia. Of course, these batteries, in a couple of years, will have to be recycled. One reason is that they are part of hazardous waste. Batteries are a big [ risk ]. They are [ a risk ] really are doing nothing. And the second thing is that they contain very valuable metals: cobalt, nickel, lithium. And if we manage to extract these metals, of course, they will be recycled for the production of new batteries. By 2030, we forecast that there will be more than 1 million of batteries to up to -- available to be recycled in Europe only. We started a joint venture with Solvay. We've got the first glance in France. We've got another one in Asia. We will be ready to be one of the major players of the recycling of this wave of batteries that is coming to us. The second one is carbon capture. Everybody these days is talking rightly about achieving net 0 targets aligned with the Paris Agreement. And net 0 targets will come with carbon capture. There is no doubt about that. This is what Veolia is working on. Because of our competencies, because of our partnerships with industrials, because of our knowledge of handling, capturing and transporting hazardous waste, which is what carbon dioxide is. We feel we are well positioned to address this future market of carbon capture. And in fact, in partnership with a British company called Carbon Clean, we started a number of developments, 1 in India, in fact, there are 2 in India, the other 1 in the U.K. And we hope that by 2023, we will be able to show and demonstrate our industrial ability to capture the carbon. The third one is the bioconversion of organic waste. As you probably know, by converting organic waste, we can now produce -- we can grow insects that will become and produce oil, protein to feed animals and organic fertilizers. We've got the first plant already operating in Malaysia. We've got another one being under construction in South of France. This is a multibillion-dollar market internationally, and we believe that because of our knowledge of the feedstock of the bio, of the organic waste, we can again take -- contribute to this market and take a significant stake of it. And finally, water, on 2 grounds. First, wastewater reuse and desalination. You can see on the slide an example of 1 product we launched, which is called the Barrel, which is a very compact, safe, cost-effective and digitally connected small plants with membranes that will be able to provide desalination water -- freshwater in remote areas. The first industrial full-scale plant will be operated in France by 2021. This will address not only the need for freshwater, but for instance, the needs of agriculture, as we've seen last summer, where water is no longer available at the right time or the right location. Again, we believe we can provide solution. So as you can see, we've got very promising innovations under development in Veolia, and we hope that we can bring them to the market in the coming months and years. Now all these efforts in terms of ESG. I'm on Slide 19 now, start to be acknowledged, by the international rating agencies. And we're very pleased with that because we're working hard on it. As you can see on this slide, we've made progress in 2020 among some of the major agencies. CDP climate ranking increased our ranking from B + to A-. The FTSE4Good index, again, acknowledge our position, ranking us #1 in water utilities and entering Veolia as part of the top 5% best performers in global utilities sector. And finally, ISS ESG ranking has ranked us now #1 in the utilities and multi-utilities sector. So at the end of the day, the hard work we put ESG matters starts to appear in the rankings and put Veolia on top of these rankings. We're very pleased with that.

Thank you, Olivier. And now let me give you an update on our planned takeover of Suez, and I am on Slide 20. The projects we launched at the end of August 2020 to create the world champion of ecological transformation is a major opportunity at the time when climate change is the defining issue. The Veolia-Suez combination is an answer to this emergency. As I have already had the opportunity to tell you, the very strong complementarity between Suez and Veolia in terms of assets, geographies, know-hows, technologies, human resources and clients is very obvious and guarantees the successful integration of the 2 groups. Our respective strategic plans share the same objectives. And combining our forces will, therefore, accelerate the execution of our ambition and enable us to reach our objectives even faster. All of this makes the combination of Veolia and Suez strongly value-creating transaction for all stakeholders. Our clients will benefit from a larger and more innovative service offering. The employees of both groups will benefit from new and expanding opportunities. And finally, the value creation coming from the merger will be strongly accretive to Veolia's EPS and for all our shareholders. So where are we in this transaction? And I am on Slide 21. We are progressing perfectly in line with our plan. After the acquisition from Engie of 29.9% stake in Suez capital on October 6, the legal hurdles we have faced and which have prevented us from filing a formal offer earlier have all been resolved one by one. We have, therefore, filed our tender offer before the IMS, the French stock market regulator, on the 8th of February for the 70% remaining shares of Suez at EUR 18 per share dividend attached. The antitrust process is also progressing as planned with regular and constructive exchanges with the European authorities. We expect to obtain a green light within now 7 to 13 months from now. Finally, the financing of the transaction is, of course, fully secured. And our cash projections for 2021 bring down the net financial debt to below EUR 12 billion. The leverage ratio will decrease to below 3x as early as 2021 and from 2023 onwards. On Page 23 now, you see our financial prospects for 2021. In 2021, we will more than offset 2020, and we expect to deliver strong results growth. In terms of revenue, we plan to recover our 2019 level of activity. The activity loss due to COVID will be fully recovered and complemented by new growth. In terms of the EBITDA, we target growth of more than 10% with an EBITDA above EUR 4 billion, thanks to revenue increase and to a cost cutting plan of EUR 350 million, including EUR 250 million from our recurring multiyear efficiency program and EUR 100 million of additional savings coming from our Recover and Adapt Plan. Net total debt will decrease to below EUR 12 billion. Hence, a leverage ratio below 3x at the end of 2021. In terms of dividends and in view of the very good 2020 performance, EUR 0.70 dividend will be proposed to the AGM. And our objective here is to recover our precrisis dividend policy in 2021. On Page 24, you can see the breakdown of the 2020 revenue and EBITDA decline and their rebound targeted in 2021, leading to an increase of revenue of more than 3% and of more than 10% at the EBITDA level. You see generally that, in 2021, Veolia is targeting financial performance at least equivalent to above 2019 levels, meaning that our objective is also to come back to the same level of dividend we have proposed at the beginning of 2020 for the results of 2019. On Page 25, we confirm that the strategic choices include in our impact 2023 plan remain fully relevant. These choices enabled us to face the crisis, and we will continue their implementation in 2021. Our long-term financial objectives have only been delayed by roughly 1 year. It is clear that the finalization of the takeover of Suez will reinforce and accelerate the execution of this plan. I now hand over to Claude, who will give you the details on our 2020 financial performance. Claude, the floor is yours.

Thank you, Antoine, and good morning, ladies and gentlemen. I'm on Slide 27. I'm sure you remember the very good Q3 number that we presented in November and reminded by Antoine and Estelle. For Q4, we have exceeded our guidance on all financial indicators and accelerated our performance after the Q3 result. In the presentation, we will focus on understanding the Q4 numbers in our various businesses, keeping in mind that Q4 is remarkable on 3 main items: pricing discipline, cost-cutting and cash collection. Regarding Forex, you can see it has impacted all the P&L indicators with a negative minus 1.5%. And thanks to the strong performance of Q4, all the variations that you see on the slide for the full year are improving compared to Q3. Let's move to Slide 28 with the details of 2020 by quarter and by geography. You can see the strong rebound of Q3 with the revenue back to historical level and EBITDA up 1.7%. Q4 shows an acceleration and is a remarkable quarter in 2 ways. First, a revenue increase of 0.9% at constant ForEx for the whole group. And second, thanks to a good operating leverage, an EBITDA increase of 4.2% with the effect of both pricing discipline and cost cutting that strongly delivered. France has more than confirmed its rebound of Q3 while it's plus 2.5% growth in Q4, thanks to good water and waste volumes and also favorable pricing in both activities. The rest of Europe had a very strong Q4 with the boost of the energy business in Central Europe and the continuous effect of the tariff increases in the water and heat businesses. The rest of the world is more contracted with China back to growth at plus 4.1% at constant ForEx in Q4; and North America not fully back yet to its nominal level of activity with lower refinery activity. Global business continued to perform well, plus 2% at constant scope and ForEx with recovery of work and good momentum in hazardous waste as essential view. On Page 29, you have the Q4 revenue bridge. The favorable pricing is more than offsetting the lack of waste volume. You can see on the bridge that the like-for-like growth is very well oriented at plus 0.9% in the context of COVID Wave 2. What is remarkable is a price effect of EUR 80 million, contributing for 1.1% of the revenue increase. As Estelle told you, we continue to have a slight negative effect on volume at group level, minus 0.7% linked to less commercial waste volumes in a few geographies. One last thing to mention, energy and recycled prices are well oriented, plus EUR 48 million or plus 0.6%, which is promising for 2021. Moving to Slide 30. It shows the revenue bridge for the full year with a limited 2.9% decrease compared to 2019 and a sharp rebound in H2 after the COVID outbreak. But then again, remarkable for this year is a green box on the chart of price effect, EUR 286 million for the full year. As we told you, we have learned from the previous crisis, and we have kept our pricing discipline all along the year despite the temporary drop of volumes that will clearly help our 2021 performance. We can move to Slide 31, detailing our waste activity. Waste revenue is back to growth in Q4, driven by waste prices. You can see the yearly revenue sequence with a sharp drop in Q2, the rebound in Q3, but not yet at 100%. And a very good Q4 performance, plus 1.6% at constant scope and Forex. Let's focus on the Q4 column. Q4 revenue growth is, as you can see, strongly driven by price increases, plus 2.3%, more than compensating the negative volume effect of minus 1.8% linked to commercial and industrial waste in the future revenue. France did very well in Q4, plus 2.5% revenue growth with plus 3% price increase, driven by our treatment facility and higher recycled material prices. In the U.K., you are now familiar with the situation. Our PFIs have continued to run at full capacity, producing a large portion of the revenue and results of the company. While the decline in C&I collection volumes linked to the November lockdown have impacted the landfill volumes with lower margin. This is overall a very resilient business model. Germany was flat in Q4, and the rest of the world was sharply up. In Asia, for example, we have the effect of the startup of new hazardous waste facilities combined with commercial developments. Pacific is back to growth, plus 3.4%, and the U.S. recovered quite well with a flat Q4. Hazardous waste in Europe has almost fully recovered. And here again, the business model is very resilient with the treatment unit producing most of the results and running at full capacity. On Slide 32, you have the EBITDA bridge for Q4 only with a strong plus 4.2% increase. Let's focus on the 3 main points. First, cost cutting is strongly delivering with EUR 83 million. Despite all the difficulties linked to the various lockdowns and the travel restriction, we were able to over-deliver our cost-cutting plans in all our business units. It is more than the double of the usual price for it of minus EUR 39 million. Second, now with our adaptation of the COVID situation, our volume impact is very limited, minus EUR 11 million. Third, the energy and recycled prices are well oriented, especially for paper and carbon, which is up compared to Q4 last year, plus EUR 8 million, again, promising for 2021. Moving to Slide 33, you can see the annual EBITDA bridge compared to 2019. The main effects are, of course, the COVID impact, which has led to an overall volume and commercial effect of minus EUR 443 million, concentrated in Q2. And the cost cutting plan for EUR 278 million, fully implemented, as I said, despite the various lockdowns, which have occurred during the year. It is twice the usual price cost with -- of minus EUR 142 million. Moreover, this year, the overall impact of energy and recycled prices has benefited EBITDA by EUR 28 million, due to the energy prices with a favorable combination of increases and electricity prices in our energy business and lower fuel costs in waste activity. Let's go to now on our activities by geography, starting by France on Page 34 with resilient water and waste activities in H2. Focusing on Q4, French water business continues to perform very well with revenue up 2.5%, thanks to volume and tariff and also works associated with our contracts, which are back to normal. Waste activities were also very well oriented despite the second lockdown that was much less impacting than the first one. We took advantage of the volume resilience to continue to increase our treatment prices, which has more than compensated our volume decrease. Recycles, we're also well oriented in France in Q4, helping to boost the results. The EBITDA of the segment was sharply up in Q4, helped by these good business trends and cost cutting measures. Regarding Rest of Europe on Page 35. Revenue growth in Central Europe was very strong. Revenue up 14.9% in Q4 and 6.3% for the full year with the mainstream businesses performing very well in energy and water, and additional revenue and EBITDA coming from the recent acquisition of the Prague Right Bank District Heating Network and co-generation assets in Budapest. We also enjoyed a good start to the year 2021, which is all very promising. U.K. has also a solid Q4 with a resilient business model, as I said, combined with strong adaptation measures. Even though revenue was impacted by the November lockdown, U.K. delivered a strong EBITDA growth in Q4, plus 13.7% at constant ForEx, thanks to the great performance of our PSI and efficiency measures. Germany revenue was flat with Q4 waste volume back to normal level. Southern Europe, which is mostly concentrated on energy business as recovered a normal activity and margin in Q4. Let's review now the rest of the world on Page 36, where we experienced recovery in all regions with a few highlights starting with Asia. China is back to growth with plus 4% revenue increase at constant ForEx in Q4, with good waste and energy activities. Latin America is doing better in the context of lower currency and COVID now under much better control. For example, Brazil is up 10% at constant ForEx in Q4, with a new acquisition in the Southwest region complementing our waste activities very well. North America is still impacted by the lack of gas and jet fuel consumption, with lower volume in our recycling business for refineries. The rest of the business is performing as planned. Australia is back to normal, and our Morocco activities are recovering well after a very long lockdown. EBITDA of the segment is well oriented, plus 5.4%. Of course, it has to be compared at constant scope and ForEx as Q4 2019 included the contribution of the district heating business in the U.S. Moving to Page 37. Global business had a strong recovery in both construction and hazardous waste in Q4. As you know, our VWT transformation is ongoing to focus this activity on value-added technology and reduce the level of risk. VWT activity in Q4 is well oriented, plus 6.2% at constant ForEx, like said, plus 8.1% with a strong catch-up after the long lockdown of Q2. Hazardous waste in Europe has recovered well and today is only impacted by lower oil prices than last year. EBITDA for the segment is almost stable in Q4 compared to last year, minus 1.5%, due to the fact that industrial and energy services were impacted by lower activity levels, which was almost fully compensated by the very good performance of our technology and construction activity. On Slide 38, you can see the EBITDA translation into current EBIT, 2 main variations compared to last year. A significant change in provision reversal and fair value adjustments, minus EUR 12 million this year compared to plus EUR 52 million last year, and also less contribution from our Chinese JV leading to a total net income of JV and associates of EUR 111 million compared to EUR 130 million in 2019. As a result, the level of current EBIT for the full year 2020 is EUR 1.275 million. Moving to Slide 39. You have the detailed translation of current EBIT into current net income. What do we see? First, a significant decrease of the cost of net financial debt at EUR 414 million compared to EUR 441 million in 2019, with a significant decrease of our cost of borrowing down by 62 basis points, thanks to the refinancing of our euro debt and the interest rate decrease in almost all countries. Second, income tax expense decreased in line with earnings before tax, but thanks to the Q3 and Q4 strong performance, the tax rate is well below 30% at 26.1%. Current net income group share has reached consequently EUR 415 million, showing a remarkable H2 performance after EUR 6 million in H1. Net income group share on Page 40 is at EUR 89 million, with many noncurrent impairments taken in H1. The main variation in noncurrent items versus last year is a noncurrent capital gain of EUR 170 million linked with the disposal of our district heating business in the U.S. in 2019. We can move to Slide 41 with a better-than-expected free cash flow of EUR 507 million. Thanks to a very focused management of our cash flow in all our countries, we are able to improve our working capital position at year-end by EUR 233 million compared to year-end 2019. All the geographies where we had some issues in Q2, Morocco and Lat-Am, for example, have improved significantly. We took advantage of this strong cash collection to increase our discretionary CapEx at EUR 435 million, plus 20% compared to last year. In order to exit the crisis, we win some [ embargo ]. For example, as Estelle mentioned, we are building a new biomass boiler in Braunschweig, Germany, which is our first energy conversion project, and we have also invested significantly in hazardous waste projects in Asia under construction or commissioning, and also one in Germany and one in Saudi Arabia, for example. Regarding the debt level, net debt is decreasing at constant scope by EUR 400 million. The debt increase is coming from 2 main effects in 2020. First, the purchase of Suez share for a net EUR 1.45 billion. Second, the asset protection effect with many projects acquired in 2020 for EUR 1.47 billion. This is a temporary situation and linked to the phasing of our asset rotation. Our commitment for 2021 is very clear. Net debt at year-end below EUR 12 billion and a leverage below EUR 3 billion. On Page 42, you can see all the variation of the net debt between end of 2019 and end of 2020. You can see the main increase. They are coming from the level of CapEx to exit the crisis with embargo, the net financial investment and the acquisition of Suez shares. Moving to Page 43. Veolia continues to have a robust balance sheet and a very strong cash position, EUR 6.7 billion at the end of 2020. We have also the full confidence of investors with the latest midterm note issuance done at a negative -- minus 2 basis points for a 6-year maturity. That will help further reduce our cost of borrowing in 2021. After this very strong Q3 and Q4 performance, which has shown a remarkable rebound of our activity and our financial performance, I can fully confirm our 2021 guidance described by Antoine and the medium-term outlook on Page 44 and 45. Thank you for your attention.

Thank you, Claude. And ladies and gentlemen, the floor is now yours for all your questions.

[Operator Instructions] The first question comes from Emmanuel Turpin from Societe Generale.

I will limit myself to 2 questions. First of all, would you mind updating us on the latest trends that you've seen since the start of the year from a business perspective? I'm particularly interested in waste volumes. We had a quarter on -- year-on-year -- sorry, a quarter-on-quarter improvement in 2H last year, but it was still, nevertheless, printing a negative year-on-year growth in Q4. What are you seeing at the start of this year? And is good waste pricing environment still holding? And maybe also a comment on bookings in construction. You were saying they were soft at the end of last year. What are you seeing most recently? And my second question is related to the outlook for 2021. Bloomberg is saying that you're expecting a DPS of around EUR 1, which, if we apply it to your historical payout policy, would imply an ordinary EPS of at least EUR 1.3 per share and, therefore, if my math is correct, ordinary earnings at or above EUR 750 million. Is this the right way to look at it?

Thank you, Emmanuel. Estelle will answer your first question, and I will take the second one.

Emmanuel, on your first question about what is the trend at the beginning of the year like specifically in the waste volume and pricing, the answer is basically exactly similar to what we've seen in Q4. So we don't see any specific difference so far, which means if I go more into details. In terms of volumes, yes, you're right. We're still missing 1% or 2% here and there. And depending on the geographies, which is exactly what is detailed on Page 31 for Q4, but it's more than compensated for the price increases. And therefore, altogether, revenue is slightly up compared to the year before. So it's exactly what we see now. So to answer to your questions, although we still have a little bit of volume missing, we continue with our price increase as well as cost cutting. So in the end, EBITDA related to the waste activities is not only holding, but actually progressing compared to 2019 exactly in a similar way as what the rest of the group is showing.

Okay. And about the outlook of 2021, you understand well, Emmanuel, our objective is to have better or at least equal performance of 2019 in terms of revenue and profit, meaning that if we reach this objective, we will come back to a dividend policy pre-crisis, and this dividend policy pre-crisis was for the result of 2019, with EUR 1 per share in terms of dividends. So of course, coming back on this policy means that if we reach our objective of 2021, we will come back at that level. And you understood also that our Impact 2023 program is fully valid. We will continue to fulfill it. The crisis just made us losing roughly 1 year, so the objective we have in terms of results for this plan could be just postponed from 1 year, but we're still on the same objectives for this strategic plan.

The next question comes from Juan Rodriguez, Kepler Cheuvreux.

And congratulation from the strong performance on Q4 results. I'll limit myself to 2 questions, if I may, to give the floor to everyone. First is on the upcoming negotiations with Suez. What are the points at which Veolia is willing to negotiate or would be more open? And what can be considered a red line in this sense? So this is the first question. And the second one is more on the operational side. Can you tell us what is your current exposure to CO2 prices on your hedging strategy on that front?

So Claude will answer the second question. And after that, I will come back on the first one.

So in terms of hedging strategy for Q2, you know the way it's working. So we -- for 2021, we have hedged most of our Q2, so at EUR 22 per tonne, so which is much lower than the current market. So we are very well covered for 2021 on the CO2 side, and we are starting also to cover 2022. You know the hedging policy that we have. We are starting to sell electricity for 2020 with a higher price because the midterm outlook for electricity is higher than usual. And in the meantime, we are hedging CO2. We stop, but we are only at 30% as we speak.