Veolia Environnement SA ($VIE)

Good morning, ladies and gentlemen, and welcome to the Veolia Publication Financial Information Conference Call with Estelle Brachlianoff, CEO; and Emmanuelle Menning, CFO. [Operator Instructions]

Thank you very much, and good morning, everyone. Thank you for joining this conference call for Yes, no, because the line is a little bit blurred. So I thought you had finished your introduction. . Anyway, I will go on. I'm accompanied by Emmanuelle Menning, our CFO, 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 in line with 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 tuck-ins 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 target for years to come beyond the GreenUp plan. I, of course, will fully confirm our 2026 guidance as well as our GreenUp trajectory. These results demonstrate that Veolia's business and strategy is robust, diversified and well positioned to navigate uncertainty while capturing growth opportunities in a central enviromental services. Now let's look at the specific numbers for Q1 2026, and I'm on Slide 5. Revenue reached EUR 11.4 billion, up 2.1% at constant scope and ForEx and excluding energy prices. This represents growth in a geopolitical wait environment and very comparable to the second half of 2025. Our EBITDA came in at EUR 1.766 billion, up 5.1% as constant scope and ForEx and up 5.8% when acquisition. And I recall without any contribution of sales synergies that we enjoyed during the previous quarters. This performance is therefore excellent, especially in a complex macro and geopolitical environment. Practically noteworthy is our EBITDA margin expansion of 73 basis points year-on-year, reaching 15.5%. This margin improvement is due by our strategic choices and operational efficiency. Current EBIT reached EUR 971 million, up 7.2% as constant scope and ForEx, demonstrating strong operational leverage. Our net free cash flow improved significantly by EUR 144 million compared to Q1 2025, driven by strict management of good capital expenditures and working capital requirements. Net financial debt stood at EUR 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 wanted to recall what Veolia truly unique, which is our positioning combined both resilience and growth. We are an international services leader, operating in 44 countries across 5 continents, which gives us the firepower to lead in technology and innovation. Thanks particularly to our 14 R&D centers and over 5,000 patents. We rank in the top 3 in Europe, the Americas, Asia and the Middle East, which gives us pricing power, but no capital employed in a single country exceed 10% outside the U.S. in order to derisk the group. This is a choice. Our customer base is diversified, roughly 50-50 between municipal and and industrial clients. Our multi-local delivery model is uncage in local communities. That means we have no impact from tariffs, no impact on margin rates or ForEx volatility or the translation effect and no dependency on subsidies or government contract. 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 communities are ownership through in our contract. 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 gross potential and resilience into these 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 social services. In the region, stayed constant and direct daily connection with local authorities and clients to enter the continuity of critical services. This includes operating desalination unit, for instance, which can account for up to 95% of the water supply. These direct contracts confirmed that our partners are already preparing for the post-crisis phase and require partners like Veolia to be by their side. For more, our multi-local model ensures our direct financial exposure remains very limited with EUR 1.3 billion revenue in 2025 and capital employed around EUR 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. On the limited operational disruption, like a little bit lower at the sale volumes and a slowdown of the same or delay in Water Technology project been 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 bases with some lag effects. For the remaining 30%, we have proactively already put in place specific fuel surcharge when needed, particularly in the Waste business and with secured key supply. I'm on Slide 8. In a way, this crisis in the Middle East highlights the power of our unique Veolia offer, 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 untapped reservoir of local energy at fixed price, instead of imports, you can imagine how important it is and lots of people realize it. In addition to that, our solution can contribute to securing supply chain, 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 future 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 U.S.A., which grew by 7.5% at constant ForEx. In spite of extreme cold weather condition, which impacted volumes in January and February. The demand for our services is very strong. We also passed the main steps in the Clean Earth acquisition process, which secures a closing at midyear as announced. The Water Technologies segment performed quite well, up 4.3%, excluding the project business lines, which was penalized or even more by 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%, concurred by strong performance of Central and Eastern Europe, the U.K. as well as Spain, all enjoying strong commercial momentum and positive weather. Finally, was resilient in spite of adverse weather conditions, which have stabilized a bit waste activities. I expect Hazardous Waste Europe to grow faster in the coming quarters without the Q1 disturbances. Looking out at our performance by business line on Slide 10. We see resilient growth and solid EBITDA progression across all our activities. Our strong all activities, municipal water, solid waste and district heating, generated EUR 8.4 billion in revenue, up 2.5% at constant scope and ForEx and excluding energy price. Our Boosters activities. Water Tech as the and Bioenergy, generated a little bit more than EUR 3 billion in revenue, up 2.2%, including tuck-ins. You have to remember again that Q1 was quite specific with negative impact from the iron war on the delay of signing specific projects with, added to extreme weather events and timing effect in. The demand for our Booster activities keeps being very strong. If we are to exclude Water Technology project delay, our Boosters would have grown by 4.6%. The combination of Strongholds and Boosters now represents already 30% of our revenue, demonstrating our strategic evolution towards high-growth, high-margin activities while maintaining the stability of our core business. Emmanuelle will give you all the details of activity in a moment. I'm now on Slide 11. Veolia continues its transformation as set up in towards more international, multi-local driven activities, which is our Boosters. We are very active,in strategic portfolio management. with EUR 8.5 billion of assets, which will have rotated over 4 years. You remember that 2025 was a pivotal year as we successfully achieved the stress integration, but we've also crystallized strategic moves with 2 major acquisitions signed or closed. First, EUR 1.5 billion invested in Water Tech to enhance our combined technology portfolio capabilities. We have already extracted 1/3 of the EUR 90 million synergies, which is EUR 30 million, including EUR 10 million in Q1. And of course, $3 billion with the acquisition of Clean Earth in the U.S. We have obtained both the antitrust and on very shareholders' approval on Monday, which means we are fully on track to close the deal midyear. Both acquisitions they create value, but also will enhance the group's profile going forward. Lastly, we announced EUR 2 billion of nonstrategic asset divestitures in the 2 years following the Clean Earth's closing. Process has started with clear list and various scenarios. We have already achieved several small and medium divestments of mature assets or not in the top 3, 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 through 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. The industries are in high demand to secure steady water supply for coding systems, continuity of supply of untapped water and they use large amounts of high-quality solvent and assets. Data centers are starting to see resistance from local communities to be granted permits given the intensity and resource consumption. Data center resource 360 new offers help secure local acceptance and licensed operate with recycle water technologies and heat recovery as seen in our recent contract with AWS in Mississippi. We already grew very quickly in those AI industries of EUR 150 million in 2019 to EUR 560 million in 2025, and we're now targeting approximately EUR 1 billion by 2030. We have a unique set of assets and technologies to support this growth. Patented technologies, such as electrodeionization for ultra-peer water, for water recovery. Without mentioning a new high on base electronic rate sulfuric acid recovery, which is really promising, but also a worldwide installed base of Hazardous Waste treatment facilities. In addition, we'll still have a presence in all 50 states of the U.S. with the Clean Earth acquisition. I'll remind you that the offer relaunch in 2024 and PFAS is already very successful, and I'm very confident we'll reach our is EUR 1 billion revenue by 2030. We had the revenue in 2022, EUR 259 million in 2025, which is up 25%. And and our recent acquisition of soil remediation specialists in Australia at a very reasonable multiple, we complement nicely our comprehensive solutions portfolio and offers duplication opportunities. This innovation-driven growth are a testimony of the group transformation towards more value-added offer services as an environmental security powerhouse. On Slide 13, we will also derive from digital, innovative tools and an increasing contribution 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 tool, we've already tested to maximize productivity, to reduce energy or chemical consumption or to help detect. Our top to my to dedicated to maintenance operator is particular 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 reminded fully on this slide, in particular, with EBITDA to grow 5% to 6% organically and current net income by at 5% at constant ForEx and before PPA. And this is, of course, excluding Clean Earths. Additionally, assuming a mid-2026 closing, the Clean Earth's acquisition will be accretive to current 2027 before PPA. The firm as well or green or trajectory. This reflects our in our business model and strategic execution. Emmanuelle, the floor is yours to elaborate on Q1 results.

Thank you, Estelle, and good morning, everyone. Revenue in Q1 amounted to EUR 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 the synergies and our EBITDA margin continued to increase by 73 bps to 15.5%. We continue to enjoy a strong operating leverage, leading to a 7.2% progression of currencies. Net free cash flow increased by EUR 144 million, thanks to tight CapEx control. And net debt ended at EUR 20.8 billion, including the seasonal reversal of working cap. ForEx impact on EBITDA was EUR 33 million as forecasted due to a lower U.S. dollar, British pound and LatAm currencies. ForEx is moving 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 businesses or margin rate and ForEx has a very limited impact at net income level. Moving to Slide 17, you can see the revenue and EBITDA evolution by geography. As Estelle mentioned earlier, growth outside Europe was quite satisfactory at plus 3.1% and even plus 5.3%, including the team, most recent mid-single-digit growth U.S.A. grew by plus 5.2% and 7.5%, including tuck-ins in spite of adverse weather conditions, which impacted volumes in January and February, and the U.S. grew by 5.7%. Pacific grew by plus 8.1%, including the successful acquisition in Australia, which extends our ownership in treatment. Africa Middle East revenue increased by plus 4.4%. And by the way, Middle East succeeded to be up plus 3% in the complex geopolitical context. Water Technologies was quite resilient, excluding projects and progress by 4.3% like last year. And as 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 East crisis, and we forecast this to continue in Q2. Above all Water Technologies continue to deliver a strong EBITDA growth through by our business refocusing and efficiencies and synergies. Europe grew by 3%, excluding energy prices, fueled by favorable weather in and by wood water activity. And finally, France and Hazardous Waste Europe were resilient. Now let's take a look at our performance by business. I will start with water, which 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. volumes were 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 technologies, excluding the timing of project deliveries remained quite strong at 4.3%. Moving to waste, representing 35% of our revenues. With activities succeeded to stay flat despite an helpful macro and are very comparable to previous quarters. Indeed, excluding external factors as weather recycled or electricity prices, whilst revenue was up plus 1% 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 pass-through. The group gives us purchase for the activity amounted last year to EUR 280 million, half from multiple contracts with automatic indexation formula with 3 to 6 months' line, enhance our C&I clients with immediate fuel surcharge. Some of volumes and commercial developments. Performance was mixed in Europe, slight volume decreased in part by weather, high sea road and frozen waste, good incinerators availability rates and activity continued to progress in the rest of the world. Hazardous Waste grew by plus 1.7% and plus 6% including tuck-in. Europe was slow due to the combination of adverse weather and maintenance outage timing with rebound planning in Q2. Growth remained strong in the U.S., plus 5.4%, with an average price increase of 3.6% and volume up despite unfavorable weather condition. For Q2, we expect further price increases alongside fuel surcharge and greater volumes. The performance of last year's tuck-in in the U.S., Brazil and Japan was very good. Finally, moving on to Energy, I'm on Slide 20. Regarding the evolution of gas and produces, 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 volatility over midterm. For 2026, we are largely hedged in terms of gas, cost and electricity remain. Energy prices were down as expected, but to a much lesser extent than last year. Excluding the energy price impact, Q1 growth was quite good, plus 4.1%, thanks to good volumes helped by our colder winter and with a resilient activity for the Booster. The revenue bridge on Slide 21 explains the draw of our resilient growth in Q1. ForEx impact amounted to minus 2.2% due to U.S. dollar GPP, argentina Between Scope, again Scope was positive by plus EUR 69 million, including Hazardous Waste tuck-in. We expect the consolidation of Clean Earths in the second semester 2026, and we are pleased to have now obtained Boosters clearance and shareholder approval. The impact of energy prices was as expected, more than divided by 2 compared to Q1 last year. recycled prices were almost neutral. And the weather effect amounted to EUR 66 million due to a colder winter in Europe, partially affected by adverse weather impact activities. The contribution of 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 ForEx translation impact of EUR 32 million. It's important to remember that ForEx has no impact on our margin rate. It's purely translation effect in our revenue and costs are in the same currencies in each of our countries. Scope effect from Turkey contributed positively, plus 1% EBITDA increase, showing good revenue to EBITDA conversion and fueling future EBITDA growth. Energy and recycled material prices had an impact of minus EUR 16 million. Weather effect contributed positively to 1% EBITDA growth. The most impressive component is our growth and performance contribution of 5.1%. This breakdown to EUR 62 million from the efficiency gain with very good retention rate, thanks to action plan implemented across Europe. And we have also EUR 10 million from Water Technology synergies. The volumes and commerce contribution was limited and in line with revenue. This represents organic growth of 5.1% at, which quite good. As mentioned, we do not benefit anymore from the 1.5% contribution of the energy. A few highlights on the efficiency gain, I am on Slide 23. We delivered EUR 96 million of efficiency gain in Q1, in line with our annual target, two important characteristics you need to consider regarding efficiency. First, efficiency was indeed a permanent level for value creation. It's embedded into our operation efficiency gain at Veolia and our discretionary cost cutting program, but they come from a very diversified series of initiatives in our talent of plants. In case of headwinds, we can, and we know how to boost efficiency program as we demonstrated in the past by specific plan, like the one we have conducted China in Spain and in France. Second, digital and AI gain, which already accounted for 23% 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 had on Slide 24. Going down to current EBIT the operational leverage of our business model. 2.1% revenue growth, 5.1% EBITDA growth and 7.2% EBIT increase. Current EBIT grew to EUR 971 million at a faster pace than EBITDA. And let me highlight amortization and which was slightly up at constant scope 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 Slide 25. I am satisfied with the progression of the net free cash flow of EUR 144 million, which we achieved despite the seasonality of working capital. And thanks to a tight CapEx control, you see a strong discipline on industrial investments at minus EUR 860 million compared to more than EUR 1 billion last year. Limited increase of taxes and financial charges linked to late technology acquisition, working cap reversal was close to last year. Net financial debt is, therefore, well under control, reaching EUR 20.8 billion, and this increase of EUR 1.1 billion is due to the seasonality of working cap and financial investment for minus EUR 172 million. Our net debt is 85% fixed. Our net group liquidity is very solid, EUR 6.7 billion, and our balance sheet, therefore, remains very strong. Both rating agency confirmed strong investment-grade rating beginning of 2026. Before concluding this slide reminds you of our 2026 guidance, which Estelle fully confirmed earlier continued solid organic revenue growth, excluding energy prices. Our EBITDA organic growth between 5% and 6%. Current net income of minimum 8% to 10% at constant ForEx, excluding Clean Earth, which we will close mid-26. Leverage ratio equal or slightly above 3x with Clean Earth acquisition. And as you know, our dividend will be in line with our. And you see, we are very confident for 2026. We delivered a strong Q1, resilient growth and solid EBITDA increase, fully in line with our annual guidance. Thank you for your attention.

Thank you, Emmanuelle. And now we're already Emmanuelle and myself to take the question you may have.

[Operator Instructions] First question comes from Ajay Patel from Goldman Sachs.

I have 2 areas I wanted to dig a little deeper. Firstly, on cost cutting and the retention rates 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 assets increasing in size. I just wondered, is the retention rates on the cost savings that you make on the AI side, higher than that of maybe then on non-AI side. Just to understand if there's any dynamics 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 for the questions. So first on cost cutting, you're right. It's EUR 62 million out of EUR 96 million basically that we've retained, so which is higher than the euro, don't translate it into x4 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'll be 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 half part of the first question on AI, you're not wrong. As in our AI cost-cutting is mainly on operational things. Like -- 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, our efficiency plan, they're happier, we will be. There always will be some leakage, let's go it that way because it's part of our business models, our customer. When we bring new contracts, we gave some productivity back to the customer, and then we find other ways of, again, productivities in the years following the renewal of the contract. 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 highlife anything which would look like -- I mean there is no slowdown in revenue. When you look at H2 2025 and the Q1 2026 were exactly in the similar type of range of 2-point-something revenue, excluding energy price in the places and minus of this quarter in terms of commerce. So commerce is very good. No question about that. So 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 Hazardous Waste. You may have noted that there was a 2x a week or 1.5 of the eastern part of the U.S. being totally blood by minus 15, minus 20 degrees Celsius type of comfort share with everything being closed. Of course, -- that means that volume in the end, are not even allowed to be driven into any type of roads. So that's why pluses and minuses, but nothing which looks like a slowdown. And April is good. The demand of our services is sustained. And again, the same type of pace in revenue as we had enjoyed in the second part of last year.

May I add one more question? .

Please.

It was just -- the other thing just kind of opening comments, I think that when we're talking about the conflict at the moment. I just wondered if -- what -- how does the disruption working your business model in terms of if a 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 impact happen, are they passed through? Or is there some exposure on that side? I didn't quite necessarily get that from when listening to the presentation. .

So when it comes to the Middle East activity, we have not seen disruption in supply chain. The thing we think is like a few days on and off in the refineries, which were near by our sites, therefore, a little bit less activity from 1 day to the next. . But we don't depend on very sensitive component with our chemicals, which only go through all of it goes through the Straight of Hormuz, if it's your question. We are very decentralized in our supply chain. So we have -- we have, of course, some centralized procurement, 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 needs to operate.

[indiscernible]

The line is blurred. We cannot hear you. So I think, Arthur, it's a please go ahead.

Yes. Can you hear me well? .

Yes, perfectly clear. apparently, the only work well is that of the operator, which is not exactly helpful, but we'll try to give ahead anyway. Please go ahead.

Okay. So the first one would be just on the headwind to waste organic growth that you mentioned related to 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 waste 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 2 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 because of the slower volumes and higher cost and then a recovery or a more positive effect in 2027 with your inflation clauses that you flagged that have a little bit of a lag

Thank you. So I guess I would like to highlight, by the way, some opportunities and I will start with that what we discover, we discover or the general public realizes when it comes to the one in the Middle East, 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 of the is positioning. To answer specifically your question, there is no slow start to the year in terms of volume when it comes to the 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 as a number of days where we cannot even circulate it. Our customer could not, so they haven't generated waste and that's with it. But don't take it as a sort as a slowdown in our slow start to the year in terms of underlying trends because I think that would be a mistake. 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 your question in March and April, which were exactly good. When you exclude the weather effects element, which were a few days here and there and even 2 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 costs, if I understand your second question. As we've demonstrated through the war in Ukraine in a way, the -- 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 little 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 we will in our 5% to 6% EBITDA margin growth for the year.

So I think the next question is coming from Philippe Ourpatian from ODDO. So let's move to Olly from Deutsche Bank.

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 a similar improvement for the full year for net free cash flow versus 2025, so we can see a bit more meaningful growth there. And then just coming back to the inflation point, I mean presumably with inflation expectations where they are currently and we can see those continue to increase perhaps. If there's any benefit from that with your tariff ideation, presumably the bulk of that would start to come through in 2027 if you could just confirm the mechanics of that again. So that would be very helpful.

Emmanuelle on free cash flow. .

Yes. So as mentioned, we are very satisfied with our with the projection of free cash flow beginning of the year as you have seen, it has increased by plus EUR 144 million. And part come from the very strong discipline we had on CapEx. I mentioned it. We spent EUR 860 million, when it was more than EUR 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. We are fully committed, and we have a lot of action regarding that, working on the time to invoice put in control of our CapEx, improving the collection. So our target for the year to have a strong free cash flow to be able to cover our dividend. And as you may see, we have a very strong liquidity, EUR 6.7 billion 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 will try to do our best to improve the free cash flow generation of the group, which allow us then to decide where to invest on. I remind you that it's free cash flow after gross investments, by the way, which is in our hands. In terms of inflation, -- maybe I was not clear enough Emmanuelle, do you want to go to have a go at that and fuel surcharge maybe .

Yes. So your question, Oliver, on the impact of inflation and fuel surcharge. So -- as mentioned by Estel, you know that we -- our model is well protected against cost increase. We have 70% of our portfolio, which benefit from indexation formula, and we have 30%, which -- where we have strong pricing power and where we can do price surcharge. 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 light and very active on 30%, specifically on the future churn. We start beginning of March. It has been put in place. We can have a small time lag, but it's very efficient. We also, you may remember that in 2022, '23, we are able sometimes to do 3 to 4 countries 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 time lag of 3 to 6 months. But we have put in place all our action plan, as mentioned before, to have really strong discipline on cost to not accept automatically the increase of our supplier to had restricted move or the placement if it's not necessary. And of course, to increase our strategic inventory when necessity.

So for the 70%, which is indexed, if there is a little bit of lag effect on revenue, there could be a lag effect on our suppliers the way in other terms to protect our margin. And for the fuel surcharge, it's already in place. And if you have to do 2, 3 this year or 1 will be in, but it's already in place now as we speak. I would 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 in coming calls on, can you help us with energy efficiency? Of course, energy is higher in parts. Therefore, can you help me with that? It's -- can you help me with securing local source of energy? It looks like you do that. Can you help me with that because it helps same with circa economy, when you recycle, it avoids importing from far away and be dependent, therefore, from the ups and downs of commodity prices. So all that means we have a lot of incoming calls of customer where for them, the war means I want more of late of services. Starting in the Middle East, by the way, where they already are preparing for the postwar, and I'm discussing about how can we be even more resilient going forward and in terms of the infrastructure, reconstruction or the pollution of sites.

The next question comes from the line of Philippe, ODDO. .

Yes. call Philippe ODDO, I will be more than I'm. Just 1 question, most of my questions have been already answered. Concerning the divestments. You mentioned in your slide that's 3 operation, I mean the top 3 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 -- could we have the idea of what's the amount of divestments already under bracket secure versus the EUR 2 billion targeted with mentioning any specific operation. But just to give us where you were 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.

Thanks for your question, a few things. We said we'll divest EUR 2 billion in the 2 years following. So we're talking about from now until mid-'28. So we have plenty of time and hearing our balance sheet is compatible with the time scale I just gave. In terms of what we've already done at the as said, non-top 3, so things which we are now the 5 #6 of 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 go the EBITDA or the EBIT even with our best efforts going forward. All nonstrategic, like we've done with SaaS, which was an activity in construction, we need to go 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 smaller and medium objects, which are listed there, in Korea, interesting in Belgium. So altogether, it will be a bit in excess of EUR 100 million, EUR 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 part of price range we were expecting. So we have Plan A and Plan B, if you want. So we won't secure this EUR 2 billion in good condition in 2 years for foregoing the closing. .

May I have an additional comment because it's testing what you said concerning your capacity to Summit. In order to do EUR 2 billion, what's going to be your, let's say, global potential of divestments, are we discussing about EUR 3 billion, EUR 4 billion, EUR 5 billion means the bucket of -- or the basket of potential disposal regarding the size of your group and numbers of subsidiary you have around the world. Just to have an idea about where we are exactly when you mentioned too, you can pace 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, it's always is a choice. The businesses which are Plan B, our businesses, we like their own new money. They're a little bit less interesting than others. So we have no problem in selling them, but they still are good businesses. So we don't have any problematic one in the list. Therefore, like, I guess, like we have sufficient security on the achievement of this program, I can tell you. . And just 1 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 a dry. There is no pressure on timing because our balance sheet is very strong. We need -- we don't need to do this divestment to be able to finance Clean Earth. 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 we will divest part of the EUR 2 billion will be a business, which will be diverse. The other one will be -- and 1/3 will be less 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 person on picture on where we want to do and where we want to go and a very good track record in terms of execution. Just 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 were not in the top 3 and not being able to get in the top 3. That's why we sold it. In terms of our industrial cleaning activities in Belgium, it was more of a nonstrategic criteria here. Industrial King is not a priority for the group. And therefore, you have no ability to be duplicated anytime so the near by geography. So we said we decided to sell it. each time with value-added sales. So it was a good sale 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 actives of disposal.

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 projects in the Middle East in terms of EBITDA impact of the order of magnitude?

So basically, Water Tech EBITDA has grossed very, very, very well. in the first quarter, like it had been in the quarters before. So the short answer to your question is no. As we always said, projects are lower margin top of activities within Water Tech. It's only 20% of the business. We like it because it fuels potential buy of membranes and stuff like that. in the end, positive margin still, but lower than the average. So the answer is no, roughly. Very nice improving in the -- of the EBITDA in the first quarter in Water Tech again, Water Tech, excluding project was plus 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 EUR 10 million synergies we've delivered in the first quarter, in addition to the EUR 20 million we already have delivered for the second part of last year. So no impact is the answer. .

Next question comes from the line.

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 world will be like a bit more under control. And we even have a specific orders like of mobile units and stuff like that in emergency type of situation in the Middle East in Water Tech. So it has created even some opportunities.

The next question is from Bank of America.

Two follow-ups and 1 question on guidance, please. first follow-up on the weather wings 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 much lower than this quarter. 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 mix rounds you've had in Q1, which would then normalize in Q3? And 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 EUR 2 billion of asset disposal target. But if these assets are not #3 well, I'm sorry, top 3 mature and nonstrategic, why not also increase the pace of disposals and perhaps get money back to shareholders 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, revenue up 2%, EBITDA plus 5%, EBIT plus 7. is the plus 8% net income guidance on for the year? Or are there any below-the-line items we need to be mindful of?

Okay. So weather on the bridge. Emmanuel?

Yes. Alex. So regarding the bridge on the on the column well, we have the same methodology than before is 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 have 1 or twice some May when it was the case, but it was more an exception than the holes. You were mentioning the impact of volume. So you're right, we benefit in Q1 in terms of material from -- of weather from a good impact on energy. So we will not have that in Q2, we'll not have this positive effect, but we will benefit from a form of rebound, as well not have as we had in Q1, the weather impacting -- having impact on high-field IC waste, no project on foreign remediation. So we have a formal 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 Waste, as mentioned, there will be -- so we had more outage in Q1, and we'll not have that in Q2, Q3, Q4 will not have the negative impact of the mid. We'll have a slide -- we may have a slight fuel surcharge or delays. But between 3 and the 6 months' line 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 which has been hedged that we are -- we have full visibility on the energy margin. On the Waste business, we have part of the electricity we are hedging 85%. So for the 15%, we can have a positive impact. Also positive impact, as mentioned before by on the recyclate, notably on the plastic side. It's marginal because you know that we have put in place back-to-back contract. And on water, we spoke already about the wood technology timing effects on project top line. And we see the trend we have seen on water, especially in terms of pricing and in terms of volume, we don't see any change of trend in April.

So altogether, April will be -- has been 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. No, there is no -- it was really exceptionally in Waste. It never happens. It happens every 1 else every, I don't know, back 5 to 10 years. These type of circumstances is 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 room. 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 like thanks to everything we're doing. We are creating value. Shall I remind that we've increased the dividend quite a lot in the last few years and the net result by basically 12% year over the last 2 years and doubled the net result in the last 5 years. So this creates value. So we already are giving to the shareholders like some elements via dividends. We have topped up that starting last year by a first in the history of the group, which was a share buyback to avoid the deletion program. So I guess one very very focusing on delivering shareholder value. But I think we do create shareholder value with the business model we have. In terms of will we stop there irrespective of the -- I mean, irrespective of the buying opportunity, we are doing the of portfolio anyway. The non-top 3 is a strategy, which was in the GreenUp plan. You may remember that -- so we've tried in typically in the plastic in Korea, I just mentioned. We've tried for 2 years to try to see if we could be in the top 3. 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 have implemented. And yes, I can confirm that we are very confident about the 8% net income. But Emmanuelle, do you want to elaborate on that?

Yes, with pleasure. So you know that when you look at our performance here, very strong performance. 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% EBIT increase. So I think we -- as you see, we keep a tight -- tight control on CapEx so that our D&A will not increase significantly. Our total cost of finance, which decreased slightly in 2025, we only grow in 2026 a bit linked to the financing, for instance, of Water Tech acquisition we did last year in June, and we believe we can sustain a tax rate between 25% and 26%. Meaning that we are fully confident to confirm our targets in terms of current net income for the year.

our next question is coming from...

Can you hear me? .

Yes, you can hear very well.

Perfect. 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 signaled at the closing for Clean Earth is expected on June after the 2 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 integration for '26 .

I will refresh what we've said in a way, which we can confirm on when we've announced the acquisition of Inert, which should be assuming it's midyear, Therefore, since we publish, so we can have -- if we were to do accounts at midyear with everything and dividend 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 midyear, it means it will be accretive before PPA, the Clean Earth 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 on things like PPA. So we cannot give you numbers, but it will be accretive very soon in a way for PPA from year 1, even after PPA from year 2. That's what we've announced and we're confident we will deliver. In terms of integration, you remember with an over 4 years of synergies. So we have not included any synergies in 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 business. [Technical Difficulty] About access to local sources of energy. When we talk about securing supply chains, this is exactly what the customer. And if anything, the crisis in the Middle East, it reinforces 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 a detailed question and see you otherwise in July for H1 results. Thank you very much.

Thank you.