Veolia Environnement SA (VIE) Earnings Call Transcript & Summary

Thank you, and good morning, everyone, and thanks for joining us for this conference call to present Veolia's H1 results, and I'm accompanied by Emmanuel Mining, our CFO. We'll start on Slide 4. And let me start by highlighting the key achievements of the first half. We delivered a new semester of strong performance with another improvement of our EBITDA margin and an excellent 10.4% growth in current net income, well in line with annual guidance. Given the volatile geopolitical and macro environment, these results show how Majoria is standing out with resilient growth quarter after quarter. This is showing the strength of our model with a strong combination of stronger and booster activities and international presence and a rigorous operational execution. If anything, this semester has shed a light on the importance of water security in the context of recurring heat wave, deamination unique become geostrategic and data centers hitting bull of acceptability in REC regions. Our unique positioning as a powerhouse of eligible security and resource sovereignty has become even more precious. This semester was moreover, a good illustration of the active portfolio transformation designed to enhance value creation and boost growth. We will have rated more than EUR 8 billion of assets in full year through targeted acquisitions, such as cleaners, closed earlier than expected early June and asset divestitures, which I expect to sign EUR 500 million this year. Last but not least, our excellent H1, the good beginnings of cleaners within Veolia and our confidence in our business model allows me to improve our full year guidance. We now expect to grow current Metacom but at least 8%, including and not excluding cleaners. Our grid of trajectory is, of course, fully concerned. Now let's look at our H1 results, and I'm on Slide 5. Revenue reached EUR 22.193 billion, up 1.5% at current to ForEx and excluding energy price as usual. Our EBITDA came in at EUR 3.552 billion. This is up 5% at constant scope and ForEx, in line with our guidance and a very good performance given the complex macro and the environment, and this is, of course, in the absence of any contribution of a synergy we had used previously. Noteworthy is our EBITDA margin expansion of another 70 basis points, reaching now 16%, which is an increase of 120 basis points in 2 years. This margin improvement quarter after quarter is fueled by 2 levers: our strategic choices towards more international and technology-driven activities, as well as our continuous operational efficiencies. This is EUR 195 million this semester alone. Current EBIT was up 6.4% at constant stop and ForEx, demonstrating strong operating leverage. Our net free cash flow improved significantly by EUR 164 million compared to H1 last year, driven by strict management of capital expenditure and working cap requirements. Net financial debt stood at EUR 24.5 billion, including cleaners acquisition, as anticipated, we are perfectly on track in terms of leverage, slightly above 3% at year-end. This result gives us strong confidence for the full year '26 and even raise our guidance. On Slide 6, you can see a snapshot of our unique strategic positioning, which gives us confidence not only for this year's performance, but for very long. Veolia provides ecological security, supplies essential services and therefore contribute to Wissous sovereignty. Our proprietary solutions and technologies help secure access to water supply which is as critical as if not more, as we see now very striking me in the Middle East with decimalization on being targeted or even with data center permits being rejected locations. Our solutions also give access to an untapped reservoir of local energy at fixed price instead of imports and help secure supply chains, thanks to the soccer economy. The disruption we've experienced recently with the set of our moves is another testimony of the strategic importance of our services for our customers. Last but not least, our solution protects health when we dilute and decontaminate as when we treat PFAS faces. We have built with Veolia, a unique unvented security powerhouse addressing critical needs for our clients. In terms of business model, and I'm now on Slide 7. Veolia offers a unique combination of resilience and growth. And I say this has been tested and demonstrated quite a lot in recent years. with results growing quarter after quarter, when simultaneously, we faced inflations, trade wood, economical downturn than more recently the warn you run. In parallel, we enjoy our international presence and vital services leader operating in 44 countries across 5 continents which gives us firepower to lead in technology and innovation, thanks to our 14 R&D centers and over 5,000 patents. This enables us to offer unique integrated solution combining Westwater and Energy Services and combining the strength of our infrastructure like strong goals together with our agile boosters. Slide 8 illustrates in a trial how strong our model is. With strong results delivered despite external headwinds after the strike in Iran and a confirmation, therefore, of our positioning. The crisis in the Middle East led to delayed projects such as new destinations, loans or oil and gas effect treatment. Paradoxically, on the other hand, the war has reinforced the importance and critical nature of those same projects. I would expect anything but an enhanced pipeline eventually. As a direct consequence of the wall, we included higher fuel and chemical costs in our contract, of course, we're rapidly passed through this surcharge to our private clients. We are also, as you know, automatically protected by our indexation formulas in our municipal contracts with some lag effect and therefore, temporary margin squeeze in order to compensate -- we have ensured a strong pace and even a stronger pace of efficiency program delivery and put in place specific action plans. Altogether, given the volatile and complex context, I'm very pleased about our 5% EBITDA and above 9% net income growth in H1 and even our ability to improve our full year guidance. With regard to long-term group's perspective, the Middle East conflict, recently traded in Europe and droughts have highlighted water security was absolutely key, and technology secure this precious. Looking now at our performance by business line. We see resilient growth and solid event acquisition across all our activities. I'm on Slide 9, and we'll start with our strong all activities. This is municipal water, so it was an district. They generated EUR 15.992 billion in revenue. up 2%, with an EBITDA up 4.7%. In terms of certainty of strong or solid foundations for our group performance. And Municipal Water was a real driver in H1, with revenue up 4.1% and EBITDA up 7.7%. Not only have we benefited from a very good volume momentum in allo but also for a renewed commercial dynamism. When droughts hit, cities face with restriction or industries realize the cost of having the water just for a few days, or even when data center face being turned down their permit application, it is time to go biolifesolutions. In H1, we enjoyed in France close to 100% renewal rate of contract and we registered new commercial successes. For instance, in Cucuta in Colombia with a EUR 2 billion backlog over 20 years. This is a very significant contract. I would like to stress also that we are growing our district cooling offer in front with more than 100 sites identified, covering 3 million inhabitants, an offer which has gained traction since the heat wave in June. This is illustrated by our very innovative solution deployed in Saclay, where nature is helping cooling down data centers, flats and universities for minimal energy consumption. Now to our booster activities. So this is water Technologies has wise Bioenergy. They generated EUR 6.201 billion in revenue, up 4.1%, including tuck-ins and excluding projects. with a very solid growth of EBITDA, up 6.2%. Regarding Water Technology, revenue was slightly down due to project delays in the Middle East crisis, which is temporary as I just explained. And we expect a recovery from H2, thanks to the actions that we've put in place, including pricing initiatives, commercial actions, for instance. Moreover, we see renewed demand and a healthy pipeline. The month of June was very promising in terms of bookings, notably with large macro electronics clients totaling EUR 343 million of orders in MicroE and we will continue our strong EBITDA growth and margin expansion. Has the Swiss underselling growth after the first quarter penalized by weather events, as you remember. In the U.S., we succeeded in closing cleaners early June. -- and I'm very satisfied with the ramp-up of the integration and PBs. The month of June was excellent and very promising regarding the rest of the year. You remember, we built in parallel our future growth for years to come with 5 new treatment plants under construction of ramping up across the globe in has waste, which is an additional 486,000 tonnes of capacity eventually. I'm pleased to are progressing well with the commissioning in the U.K. in January and the beginning of the commissioning of the high contract transmitter in January in June and ramp up, which is starting, therefore. On Slide 11, I'm very happy about the progression of our innovative offers, which are on trajectory of reaching each EUR 1 billion turnover by 2030. The -- with regards to AI industries, this is data centers and chips manufacturing. They are in high demand to secure steady water supply for cooling system, tapwater and they use a large amount of equity solvents and assets. Data centers are starting to see resistance from local communities to be granted permits given the intensity in resource consumption. And our data center resource 60 new offer helps secure local acceptance and license to operate. We recycled water technologies and heat recovery for instance. As explained in our April event in London, we already grew very quickly in those industries from EUR 150 million in 2019 to EUR 560 million in 2025 and we're now targeting approximately EUR 1 billion by 2030. In H1, we secured multiple commercial successes by leveraging our new offering and technological capabilities. resulting in new contract wins in data centers and Macri, such as our recent contract with AWS in Mississippi, the 1 we just announced today in Ohio, and the more than $200 million ultrapure contract or large Macrorie with U.S. cat players in the water tech. Regarding PFAS and new publicans, we have also an ambition of EUR 1 billion revenue target by 2030, and we are already very successful. Our recent acquisition of cleaners will enhance our U.S. capabilities with a presence in 50 states. So will the acquisition of the sole remuneration specialist in Australia with duplication possible. This innovation-driven growth are testimony of the group's transformation towards more value-added offers and services. Our international footprint has largely contributed to our good results in H1, and I'm now on Slide 12. I would like to highlight the continuous standard performance in our regions outside of Europe, which grew by a strong 7.1% at constant ForEx, with a noticeable acceleration in Q2. Outside Europe, our growth is much faster than the group's average and it's estimated to our asset portfolio internalization. All geographies outside Europe showed commercial traction, notably Australia, Asia rebounding and a sustainable growth very strong in Latin America. That was accompanied by significant EBITDA progression as well. In the U.S., we closed cleaners earlier than expected, and I will come back to it. The Water Technology segment was temporary penalized by the crisis and believe I explained earlier, but continue to deliver remarkable EBITDA growth. In Europe, we grew by a solid 2.6% as France and has the first year of passion resilience. I would like now to spend a few minutes on efficiency, Slide 13 because at Veolia, it is a backbone of our value creation process as our track record shows and again, in H1, with EUR 195 million. Our recurring efficiency plan are enabling us to enhance year after year the profitability of our operations with commercial efficiency, smart pricing, upselling, cost optimization and synergies. AI and digital games will even support our efficiency in the years to come. And we've started already with 23% of our gain last year, is from AI and digital. And we are deploying more Wiley solutions that I talk to my phone enhancing maintenance manager in our waste or burdens. Regarding synergies and integration processes, we've been successful executing the SEZ acquisition, which put quite well for the upcoming progression of clearers. I'm now on Slide 14. Veolia continues its transformation and sorry, in Grenoble more international and more technology-driven activities are posters. These 2 fuels margin improvement and value creation cost profile. We are very active in strategic portfolio management with EUR 8.5 billion of assets, which will have rotated over 4 years, which is massive. You remember that 2025 was a pivotal year as we successfully achieved the integration, but we've also crystallized strategic move with 2 major acquisitions and no closed. EUR 1.5 billion invested in water tech -- we have already extracted nearly half of the planned EUR 90 million synergies. This is EUR 40 million, including EUR 20 million in H1. And of course, EUR 2.5 billion with the acquisition of Clean Earth in the U.S. closed early June. Lastly, we announced EUR 2 billion of nonstrategic asset divestitures by mid-'28, and I'm fully confident in this process, which is accelerating now. We have processed already ready for more than EUR 2 billion disposal, and I expect around EUR 500 million of site divestitures in '26. A few words on the Lombard acquisition of cleaners in the U.S. This is Slide 15. Not only are we're doubling our size in the green U.S. hazard Swiss market, reaching the #2 position with more than $2 billion of revenues. but we are also building a national platform to offer a full range of the other services throughout the U.S. Integration started at full speed. I'm very confident in our capacity to deliver the around $120 million cost synergies by year 4, better on the growth enhancement I expect from this acquisition. The acquisition is dilutive in year 1, as you would expect, but we will offset it as you will see in a minute with our enhanced guidance. And the deal will be accretive as early as year 2. Now Veolia generates more than $6 billion of revenue in the U.S. that is the second country of the group. Finally, I would like to say a few words about our guidance on Slide 16. Veolia, as you know, is not used to increasing its target year, but I will do it this time. We now target a current net income growth of at least 8% even including cleaners and not excluding cleaners. This shows our confidence regarding this acquisition as well as in our capacity to continue to deliver growing results in spite of a volatile macro angeropatical context. I, of course, confirm as well our brine plant trajectory. Emmanuel, the floor is yours to elaborate on H1 results.

Thank you, Ester, and good morning, everyone. In the current environment, our results are continuously progressing, thanks to solid operational execution and a unique combination of growth and resilience. I will start with revenue, which amounted EUR 22.2 billion, up 1.5%, excluding energy prices. Organic growth of EBITDA was 5% in guidance. -- remarkable performance as we no longer benefit from synergies and given the temporary negative impact of energy prices in H1. And our EBITDA margin continued to increase by 70 bps to 16%. We continue to enjoy a strong operating leverage, leading to 6.4% production of current EBIT with the good quality of earnings. Core net income jumped by 10.4% at constant rate, largely in line with our annual guidance, thanks to stable financial charges, which is excellent when considering the higher average net debt linked to our M&A operation. and thanks to stable and modest tax rate of 25.8%. Net free cash flow grew slightly by EUR 163 million, thanks to tight CapEx control. As expected, net debt landed at EUR 24.5 billion, including the closing of cleaners acquisition and the seasonality of working capital. Worth noting, ForEx impact reversed in Q2 became positive, thanks to stronger dollars in Q2 and the appreciation of Central European currencies. Moving to Slide 19, you can see the revenue and EBITDA evolution by geography. Starting with America, APAC and me. As Esther mentioned earlier, growth outside Europe was excellent. -- at plus 3.9% and even plus 7.1% at constant ForEx, with an acceleration in Q2 at 4.6% and even 9.1% at constant fracs. Above all, EBITDA jumped by nearly 9% outside Europe. Most region reduced our mid-single-digit growth. Let's mention some of them. The U.S. grew by 3.9% and 11%, including tuck-in in spite of adverse weather conditions, which impacted ad volumes. Cleaners contributed 1 month perfectly in line with expectations and integration has started promptly after closing on dose. LatAm was up by 10%, benefiting from strong commercial momentum, good wage activity as well as water tariff increases. Africa Middle East revenue increased by 1% and with limited decrease of Middle East revenue in a complex geopolitical context. For Technology was a bit disappointing in H1 with revenue up 0.6%, excluding project. Projects were impacted by several bookings and milestone delay due to the global attention linked to the middle Esquire. Markets in the U.S. was mixed with strong broadband death, I and McCurry, offset by lower petrochemical and oil and gas clients. We expect recovery in H2, thanks to the action plan we have put in place, including pricing initiatives, volume bonds and commercial actions. Above all, we continue to deliver a solid EBITDA growth of plus 6.7% sued by our business refocusing efficiencies and synergies. Europe grew by 2.6%, sold by favorable weather in urban heating and strong water activity. Finally, France and Asadero was resilient as always, in spite of weather conditions, water volumes were very good. thanks the solution to face ways. Now let's take a look at our performance by businesses. I start with water, which you remember, represents around 40% of our revenues. H1 water performance was outstanding. Revenue was up by 1.6%, thanks to an excellent performance of municipal. EBITDA increased by 7%, and we reached a record EBITDA margin of 19.8%. Water operation grew by a remarkable 4.1%. We benefit from a good volume momentum in all geographies, but also from a strong commercial dynamism combined with positive indexation in Europe and in the U.S. except in France due to lower electricity prices. And it ruled by excellent volumes in France, in Spain, in Central Europe and in the U.S. This confirms the strong momentum as the water stress expense we expect a good true on that front, and we are very pleased with the new contract in Colombia. As I just explained, would, technology continued to be impacted by lower project bookings, but we expect a rebound in H2. Moving to waste, representing 35% of our revenues with activity are overall stable, despite an helpful macro and is very comparable to previous quarters. Excluding external factors, whether recycled and electricity prices, where revenue was up 0.9% at constant core -- and what is remarkable is that we continue to improve our profitability. EBITDA grew by 5.5% and EBITDA margin increased by 100 bps close to 14%. Dealing with solid waste revenue was flat as in previous quarters with solid growth in the U.K., Australia and LATAM, offset by slower Germany in France impacted by lower electricity and recyclate prices. We start to invoice for surcharge to our clients after the diesel cost increase, and we expect to fully recover the cost of rent by year-end or early next year for municipal contracts. As our discos grew by 2.1%, plus 6.2%, including tuck-ins, growth remains strong in the U.S. with solid price increases and good commercial momentum in Q2. Finally, moving on to Energy on Slide 22. Energy performance was quite strong with revenue up by 2.7%. And -- the strict hitting and cooling network revenue progressed by 1.9%, excluding energy prices, with a very good heating season in Central and Eastern Europe. We register less flexibility services, marginally benefit from the heat wave in Q2 boosting our electricity side. Energy prices were down year-on-year, but as you know, it is regulated and our margins are protected. Excluding the energy price impact, growth was quite good, plus 2.7%, with a strong activity in the Booster Energy, up 4.7%. The revenue bridge on Slide 23 explains the driver of our real growth in H1 2026. price impact reverses as I just indeed Scope was positive by plus EUR 189 million, including as waste and 1 month of consolidation of cleaners. The impact of energy prices was as expected, more than divided by 2 and recycled prices were slightly negative due to mostly paper. The water effect amounted plus EUR 84 million, the contribution of commerce volume and pricing was plus 1.2%. Let's focus on the EBITDA bridge, which illustrates our strong operational performance. The retranslation impact become positive in Q2, plus EUR 4 million and minus EUR 29 million for H1, representing less than 1% of EBITDA and is not significant at net income level. effect. So good revenue to EBITDA conversion and will fuel future EBITDA growth. Energy and recycled material prices had an impact of EUR 60 million with a more significant impact in Q2 than in Q1 due to higher diesel costs incurred after the crisis in the Middle East which we progressively pass through to our clients. Whether effect continues positively, the most impressive component is our growth and performance contribution of 6%. It's higher than last year in if no more stress synergies and ever higher than in Q1. This breaks down into EUR 130 million from net efficiency gain, which is a very good record retention rate, thanks to action plan implemented across Europe, fuel surcharge invoicing, plus EUR 20 million from wood technology synergies. The volume and commerce contribution was much more robust than in Q1 at EUR 52 million. This brings us to an EBITDA of EUR 3.55 billion. Let's now analyze our performance below EBITDA on Slide 25. Going down to current EBIT, H1 performance illustrates again perfectly the operational leverage of our business model. 1.5% revenue growth, 5% EBITDA growth and 6.4% EBIT increase. Current EBIT grew at faster pay than -- let's me highlight amortization and wholesale were slightly up at constant cope and ForEx. Industrial capital gain provision and other lower than last year, showing a continued strong quality of results. I am very pleased with our financing costs and other financial charges, which are stable year-on-year in spite of a higher average net debt of EUR 2.8 billion due to the financing of M&A. 30% minority interest in water tenuity in 2025, several tuck-ins and lastly, the closing of cleaners. This was due to the combination of a well-controlled cost of debt at minus EUR 371 million and lower other financial charges coming to different foreign exchange results. In H2 though, I remind you that we'll be a 6 months of cost of the debt raise to acquire cleaners so that I will continue to expect for the full year 2026, fix a cost of debt at around EUR 800 million while other financial charges should remain below EUR 300 million. Tax charges were slightly higher by EUR 22 million, and our current tax rate was flat at 25.8%. Finally, current net income increased by 10.4% when in line with our yearly guidance of inner CP will be treated as an on-trend item. Given our strong H1 performance, the very promising first month of cleaners, we are slightly improving our objective, which now include clean earth consolidation. Moving to net income group share. I am on Slide 27. Noncurrent charges increased by minus EUR 50 million due to higher integration costs associated with the WaterTec merger and Clemens integration. non-rent impairment PP and other charges include the specific cleaners acquisition cost and net income group share, which is EUR 682 million, up 3.8%. Now free cash flow generation, which is key and net financial that I am on Slide 28. I am satisfied with the progression of net free cash flow. Despite the seasonality of working cap, which reversal was close to last year and thanks to a very tight control on CapEx. Net financial debt is well under control, reaching EUR 24.5 billion. The increase of EUR 4.9 billion due to the seasonality of working cap, the dividend payment and financial investment for minus EUR 2.9 billion, including Onvio Pacific and cleaners. In terms of our net debt, 76% our net debt liquidity is very solid, our balance sheet, therefore, remain very strong. Both rating agencies consider strong investment-grade rating beginning of 2026. Before we conclude, let's revisit our improved 2026 guidance. continued solid organic revenue growth, including energy prices. EBITDA organic was between 5% and 6%. A net income of minimum 8% at constant ForEx, including and not anymore excluding cleaners. Leverage ratio equal or slightly above 3x and as usual, our dividend will grow in line with our current EPS. And as you see, we are very confident for 2026. We delivered a strong H1 resilient growth and robust underlying EBITDA progression well in line with our guidance. In addition, I'm also very confident in the delivery of our EUR 2 billion disposal plan by mid-'28, -- all processes are already launched, and we are expecting around EUR 500 million signed by the end of '26. Last, we obviously fully confirm of our green or trajectory, the very good results regarding in the first illustration ability to leverage its strategic positioning for ecological Securities. Thank you for your attention.

Thank you, Emmanuel, and we are ready to take your questions.

[Operator Instructions]. And your first question comes from the line of Arthur Sitbon with Morgan Stanley.

The first 1 is on the change in guidance. So you -- obviously, given you changed the guidance, you seem more comfortable with the prospects on the outlook for net income for 2026. On the other hand, the organic EBITDA growth at the moment is more towards the bottom end of your 5% to 6% range from what we can observe in H1. So I was wondering what is driving that higher conviction that stronger conviction on net income for the year? Is it -- given it's not organic EBITDA, I assume is it perimeter maybe with disposals coming more in '27 than in 2026? Is it FX? Is it something below the EBITDA line? A bit of color on that would be would be helpful. And the second question I would have is, quite often, you give a bit of color on what's your view on the full year impact of FX on your EBITDA, net income as well as energy prices, I would be quite pleased to have a bit of an update on that.

Thanks for your question. I will start on, probably Emmanuel will complement. Starting with your guidance, you're right. I'm very happy that we've raised our guidance for net results. Just in a nutshell, the 8% before cleaners, which is now 8% after cleaners, given the fact that cleaners was dilutive to around 1%. This is what we're talking about in terms of net result improvement of our guidance. What gives us confidence to do it? So 1 is the first half was very which is over 10.4%. I'm very happy about it. Two, I'm confident about the H2 in terms of operational performance as well as everything which is below -- Is it anything specific? No, so it's not a question of disposal, which we later rather than earlier. We had not -- we are really exactly on our trajectory that we had anticipated in with regard to disposal. ForEx, again, it's the same. So it's really a series of small things, if I may, which makes us being very happy about our performance in net results. Well controlled in terms of cost of debt, as Emmanuel said, very nice control of our tax ratio, as Emmanuel said, a series of smaller stuff. So it's more the small flows, which makes big drivers rather than a big 1 thing, which explains why we are raising our guidance in net results. I must add that when you say EBITDA is on the bottom end of our guidance, Yes. But you have to have in mind that I'm very happy about this performance because this is despite the temporary squeeze in our margin, which I've explained with the delay in recouping the margin in terms of our index section formulas which will be in H2. So to be able to deliver 5% despite that, is a very good performance, and this is thanks to our efficiency plan, which we've enhanced in particular. So I'm very confident altogether about H2, which is the global tone that I wanted to highlight, I would say, in addition to just the figures. In terms of the tax of ForEx, all that, Emmanuel, do you want to elaborate a only given guidance as well.

Yes. Thank you for your question. So as you have seen, we are very happy with the performance of the bottom line and of the margin to net income jumped by 10.4%, which is more than largely in line with our annual guidance. And the move that we have done on the guidance, it's linked to the bottom line of our P&L with stable financial charges, which is excellent when considering the higher average net debt linked to our M&A operation and also thanks to the stable and modest tax rate of 25.8%. So as you have said, it's a stronger prediction of the profitability that we are going to deliver. Regarding your question on ForEx, you have noted that ForEx impact reverse in Q2 and became positive. So it's linked to the evolution of dollars and the appreciation of central reopen currencies. When we have guided beginning of the year, we have communicated around a ForEx impact, which is estimated at EUR 100 million. So we cannot have a perfect estimation of ForEx, but our estimation today is minus EUR 50 million compared to the minus EUR 100 million that we have communicated. And if we are using the ForEx rate of the 21st of July, it gives us the FX impact, which is between minus EUR 50 million and 0. So our best estimate today is minus EUR 50 million. So altogether, it's improving. I just wanted to add to what Anand said about ForEx, a few things, which we know, but you know, but I'm just repeating them, which is only a translation nor transaction. So it has no impact on our margin rate as we've demonstrated again last year, the year before and this year, this has nothing to do with our margin rates. And you remember that the impact being 100 at the top of our P&L, ends up being basically 20 at the net results. So it's a kind of banish when it comes to net results. I'm just doing the link with the previous question as. On Energy, maybe Emmanuel.

Yes, on energy costs. So on energy costs, you have seen that in the bridge, the impact of -- on EBITDA was minus EUR 60 million. A bit less than 50% of it was linked to the evolution of our electricity prices and the rest was linked of what has been mentioned in the call by Estel and myself is the increase of fuel prices. With in Q2, a slight squeeze that we have as we have been able to fully pass -- our energy cost increased in the 30% of our contract with which where you don't have indexation formula and for the 70% of the rest part of it has been passed. But you know that we have a bit of time line, which can go to 6 to 12 months, meaning that we fully have passed it in H2 or beginning of Q1 next year.

And the next question comes from the line of B.J. Pita with Goldman Sachs.

Look, I think I want to just revisit the earnings again. So in the first half, you achieved 10% growth. And I'm thinking about the second half, I'm thinking is that implying a deceleration of earnings growth in the second half -- or is there any sort of timing effects between the halves that we need to take into account? It feels to me the 8% seems modest in the sense that implying by the strong H1 results, why not 9% -- not at 10%, given this, I'm just making sure that I am not missing something for H2 when it comes to the modeling. And then secondly, on cost cutting, you've been achieving a run rate of around EUR 400 million for the last couple of years now. Should we now be beginning to dream bigger on the cost-cutting side and therefore, we should be thinking about that as a more of a run rate going forward? And then on the asset rotation, we talk about the EUR 8 billion of asset rotation in the last 4 years. Is that more reflective of the run rate we should be thinking going forward that this is in the sort of step journey that reverses that this is now more of a picture of the level of asset rotation that we should be thinking about in the BVAL strategy.

Thanks for your question. Do you want to take the first one? Emmanuel? Yes. Why are we so what is increasing our guidance by only roughly by 1 to 30 ml on net results.

Good question. , just for you to have in mind that when we have defined our guidance of -- so at least 8% in terms of net real growth. We knew that we were going to have a stronger H1 than H2 because in H2, you will have 6 months of financing on cleaners. that we were not having in H1. So now it has been slightly adjusted as we have 1 month of financing, which is June and will have 6 months of financing. That's the explanation. So meaning that when we did -- when we forecast our guidance, it was strong H1, close to 10% and lower H2 between 7% and 8%. So in terms of your second question of can you Dream Big in terms of efficiency. The way I see it is a run rate of EUR 250 million per is already very, very good. What happens is when the oneand started in -- when was it March, something like that, if I remember well, we've enhanced a few specific local efficiency plan. We've enhanced the 1 in the Middle East. We can handle 1 in Germany. We've enhanced the 1 in France. I mean, enhance stayed at a very, very high level, like last year, and we've enhanced the 1 in the U.S. and specifically in SG&A. So the way to think about it is our ability to react fast and quick -- and therefore, to deliver, again, a 5% EBITDA growth despite the squeezing margin, which would have been the case if we had not done anything, if you want. Given the fuel cost in front. Am I targeting always higher? Yes, I am. As you can imagine, when you run the company, always ask everybody to do that best. And if we can do more, we will always be in this type of mindset as well. That's what I can tell you. And I guess it would be a good guess to expect that this year, given the first half we've done, we will probably be higher than our 1 target. That would be, I guess, a good guess. I would discourage you to think that given again that we've enhanced a few specific action plans. In terms of asset rotation, that's a good question. Are we going to stop here? The answer is no, but we want to target as well. So in a way, that's a strategic asset rotation. Strategic we are very clear that what we want to buy and what potential like divestitures as well. On the plus side, this is not buying for the sake of it. This is really outside European priority and in our boosters. And that's exactly what we've done with 90% of our investment in exactly those. That enhances our growth profile and margin rate as well. And that's why we are continuing with stock is typically like we demonstrated in the first half, and I expect to go on with a rhythm of tuck-ins because it enhances again, the value added of the group. In terms of divestitures, we have our rules of either nonstrategic or mature or not in the top 3. And we're constantly reviewing the portfolio to see if we can be better. That's why I've mentioned in my introduction speech that we had like already launched processes for more than the EUR 2 billion of asset divestitures to just to have a room for maneuver and to be able to go from plan A to plan B in cases. So I guess like don't expect that we will certainly, once all that is over. just to stop and keep the portfolio exactly as is. If we have good opportunities of talking, we will go on looking for them. And if we have a divestiture which would make sense and value creation, we will as well.

And your next question comes from the line of Peter Compton with Barclays.

Peter Crampton here from Barclays. We've obviously got this big heat wave going on right now in kind of Europe. And I was wondering how we should think about the related kind of impact for Veolia. In the past, you kind of sold more drinking water volumes, but there's obviously a really bad heat wave. Should we worry about risks as well? Or what are your thoughts on this?

You're right. In Europe, but I must say, it's not only in Europe, although it's particularly striking in Europe this summer. -- we have heat waves, droughts, I read an article yesterday saying that 3/4 of the U.K. was in drought situation and income drug situation now. which is probably less expected than the Spain, which we've talked about for quite a few years now, which is as well in this. So altogether, I don't want to feel -- to let you feel that I'm in, but all that is pretty good for the Oliaeventually. Why is that so? Because it supports the need for our services. So the immediate 1 is not necessarily positive, and I will elaborate on that, but the mid-long term 1 is because it supports the need for water reuse project for desalination you need at times, for AI to detect like and all that. So we have incoming call following wave or for even district cooling, which we've developed in Sycle for instance. So altogether, mid-long-term is a positive support to our services, which are critical needs. And even in a way in the Middle East with the critical nature of desalination unit. In terms of the immediate situation, in, when you have a summer like that one, what do you expect? On the positive side, water volume should be on the good side, although you should remember that it was already quite good last year. So the comparison basis is relatively high. We don't have so far so much of the restriction of water distribution because the winter was relatively wet, therefore, we have water that we can distribute. So that's the first bit. In terms of the large fires, which you have in France and in Spain, and, to a lesser extent, the heat way, it has a modest negative impact to. On the short-term economy because everything is closed at times and you have tourism, like going down, so on so first, so I guess the waste activities or we even have motorways, which are closed, where your trucks cannot just get into our plant stuff like that. So I guess on the west side, you have a modestly negative on the water, it's largely positive. Just to give you a global picture. And in terms of energy, as in heating and cooling, short term, we don't have that many networks, so we don't expect a large positive. But it's more positive for the mid-long term, as I explained, because suddenly, people realize that it would be a good idea to have district cooling systems because it's more efficient, less costly and more virtuous nventory speaking. So I hope I hope that answers your question.

And your next question comes from the line of Martin Kubicki with Bernstein.

I would like to touch base 3 issues, please. Firstly, again, coming back to the guidance, but I would rather prefer to look at the reported net income and tool related questions. First of all, -- what will be the impact of the PPA on the reported net income. So let's say, what would be the recognition of on an annual basis? And also how much the reported net income growth will lack the recurring net income growth given I assume also increasing restructuring costs, that would be question number one. Question number two, on the disposals. You mentioned EUR 500 million to be potentially signed by the end of the year. So the 2 related numbers I would like to get on this is what could be the impact on EBITDA from scope next year coming from this EUR 500 million of disposals and also whether this would be ROC dilutive or actually accretive. And the third point, more like a discussion, EU Commission has proposed to put CO2 costs on municipal waste incineration. And we are just wondering how it could impact your profitability on your businesses.

So the PPA and everything. So obviously, we haven't done the full exercise of PPA. We just have the keys of cleaners for water months or something. So we are really just starting. But maybe you will in a minute, Emmanuel. In terms of restructuring costs, you will notice that over the years, the difference between net result current and net results net-net has decreased have a difference a decrease. So I guess the restricted costs are more on the management side. If you exclude, of course, the cost of synergies, which is in a different category, in my opinion, than the restoring cost as such. So I guess restrain in a classical sense is really on the reduction side and of course, you have the cost of synergies, but which is a benefit or more an investment that you have can the benefit from the synergies evenly. But on that one, maybe, Emmanuel?

Yes, with pleasure. So first question on PPA. So have you seen Bart -- we have 2 good news. The first 1 is, as you have seen, we have increased or improved our guidance, meaning that with the very strong part of the year, we are able to compensate dilution or negative impact of roughly 1% of net real. The second good news is that we are confirming you today that the PPA will be in noncurrent which makes sense as it's fully in line with what we did for the res acquisition. As mentioned by ESL, we have 12 months to do the PPA work. The first estimation we had, it was communicated when we did the signing and closing of cleaners, where the first estimation was around EUR 50 million. And as you know, -- so it will be in noncurrent. And as you know, dividend is based on net. Regarding restructuring costs, it was also a good news that we have communicated to you during the signing and cloning of cleaners. When we did the acquisition, the number -- the amount of restructuring cost was the same than the amount of synergies that we are going to deliver. And the amount that has been communicated on restructuring costs for cleaners, it was below the $120 million of synergy that we are targeting. It was around $90 million. Although I would Tend to call it, cost of synergies rather than restructuring, which will something into -- of course, I won't it's more integration cost than restructuring the way Introducing that, you're right.

For the 2 other questions.

Yes. So for the disposal, we are -- I'm very happy that we are really exactly well on track to deliver our EUR 2 billion by 2028. -- with EUR 500 million signed this year. I won't give you the full detail of it. And of course, in terms of scope, there will be a bit of negative of EBITDA and revenue and so on forth. The thing you can retain from that is, of course, what we invest has a higher margin than what we divest. So in a way, this is enhancing margins in altogether. I think that's the way to look at that one. Do you want to elaborate on that or time of yes.

Nothing to add on that one.