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Veolia Environnement S.A. (VEOEY) CEO Antoine Frérot on Q4 2021 Results - Earnings Call Transcript - Energy And Water Development Corp

Veolia Environnement S.A. (VEOEY) CEO Antoine Frérot on Q4 2021 Results – Earnings Call Transcript

Veolia Environnement S.A. (OTCPK:VEOEY) Q4 2021 Results Conference Call March 17, 2022 3:30 AM ET

Company Participants

Antoine Frérot – CEO

Estelle Brachlianoff – COO

Claude Laruelle – CFO

Conference Call Participants

Ahmed Farman – Jefferies

Arthur Sitbon – Morgan Stanley

Philippe Ourpatian – ODDO BHF

Arnaud Palliez – CIC Market

Juan Rodriguez – Kepler Cheuvreux

Antoine Frérot

Thank you, and good morning, ladies and gentlemen, and thank you for connecting to this conference call of Veolia’s 2021 annual results. I am with Estelle Brachlianoff, our COO; and Claude Laruelle, our CFO.

During this presentation, I will come back to our acquisition of Suez Group, which we have closed last February with our successful tender offer, and to the first steps of the indication. Estelle and Claude will detail our 2021 operational and financial performance, which was outstanding, not only measured against 2020, which was impacted by the sanitary crisis, but also against 2019, which had been a record year-over-year of results for Veolia.

I will also share with you our objectives for 2022, a year that is standing in a very difficult geopolitical context, but which should not weigh on our operations. I will come back to this point.

And we will then take all your questions. But before we discuss our results, I would like to come back for a moment to our announcement regarding the change of governance at Veolia. As you know, the Board of Directors decided by suggestion to entrust the group’s general management to Estelle Brachlianoff starting July 1, 2022.

And let me say a word about this decision. 2021 will be seen as a very important year in Veolia’s history, a historical year, if I may say. In terms of results, as I was just mentioning, we had our best year in over 10 years, thanks to our very swift response to the sanitary crisis in early 2020. We were able to offset its adverse economic consequences and then rebound as early as Q3 2020. And we, therefore, started 2021 at full speed and ended it with record results.

2021 was historical also because we succeeded in convincing Suez management and shareholders of the relevance of the merger, so as to give birth to the word champion of the ecological transformation. These successes are the results of several years of relentless and continuous efforts, first, to restore the group’s profitability, then to launch it on the path of sustainable, profitable growth that you have witnessed. These successes were made possible by an exceptional team and committed, passionate staff of 180,000 employees. I want to thank all of them very warmly.

The merger with Suez is a very important news state. So it builds on the achievement of the past few years because we are sticking to our priorities. We are maintaining our discipline, and we are focusing on the same objectives, which are fully aligned with our purpose.

This moment, when Veolia is opening a new chapter in its history, seems to be entirely appropriate for setting up a new general management to lead Veolia on the road to success over a long time period.

Estelle has been part of the transformation from its beginning and has largely contributed to it. It was, therefore, logical to entrust her with the general management of the new combined entity. She has all the qualities to succeed, and she has a great team to help her. She will have all my support.

You all know my strong attachment to Veolia. The Board has, therefore, expressed the wish that I continue to serve Veolia as nonexecutive Chairman of the Board and will propose this to the annual shareholders meeting in June. This is what I wanted to share with you before we begin the presentation.

And now I will start by the takeover of Suez on Slide 5. We have officially acquired Suez as of January 18, the date of the settlement of the tender offer and of the delivery of the shares brought by Suez shareholders on top of the 30% stake we had previously bought of it.

We then purchased the remaining shares and have owned 100% of the capital since February 18. Since the signing of the combination agreement in April 2021, including the acquisition of Suez and the divestment of the portfolio of their assets most differentiated to the consortium of Meridiam, GIP, CDC, we have had to complete 3 major projects.

First, the financing of the operation; second, the antitrust process; and third, preparations for the integration of Suez employees within Veolia.

Regarding the first project, we have completed the divesture of new Suez to the consortium for an enterprise value of €10.4 billion, and we have launched a capital increase of €2.5 billion that was largely oversubscribed.

This financing structure allows us to start the year 2022 with a pro forma leverage ratio around 3x in line with our standards. The antitrust process was completed quickly in the 17 countries out of 18, where the antitrust authorities decided to review the acquisition.

The most significant market was, of course, European Union, where we obtained the green light on December 14. This was crucial, and the EU antitrust authorization was the only condition precedent to the deal.

We were also able to close the tender offer and immediately sell the other assets we did not plan to keep to the consortium. There remains only 1 country, the U.K., where the antitrust process is still ongoing and should be finished during the summer.

Finally, the third objective was to prepare for the integration of Suez teams that were joining us. They have been in writing [indiscernible] since January 19, except, of course, for employees in the U.K. Two months later, it is already clear that this first phase has been a great success, thanks to the warm welcome we extended, the similarities in our corporate cultures, and a shared passion to address the global environmental challenges the world is facing.

The new governance of Veolia has also been announced with an enlarged executive committee and managing committee. Finally, we can fully confirm the financial objectives of the merger, notably €500 million of synergy by 2025 and an EPS accretion of 40% in 2024.

On Slide 6, you have the list of the key projects on our merger agenda that will be implemented in this year. We have begun to welcome the Suez teams that are joining us. They are being trained in our processes, methodologies in all support functions, such as finance, human resources or digital.

Integration has also started at the operational level since late January, in compliance with the antitrust constraints where applicable. The synergy plans are being fine-tuned in order to ensure their ramp-up over the 2022 to 2025 period. And we confirm, of course, the €500 million synergy target, which will contribute to the EPS accretion of around 10% in 2022 and around 40% in 2024.

The first synergies will come from both central and local procurements from the maintenance optimization of our industrial tools from energy purchasing as well as from real estate optimization.

Once we have completed this first year of joint work, we will be able to organize an Investor Day in early 2023. We share with you the good road map that will lead us to the launch of our next strategic program starting in 2024.

And now let’s look at the results for 2021, which reached record levels, and I am on Page 8. Revenue reached €28.5 billion, an increase of 9.6% at constant rates versus 2020 and plus 6.5% versus 2019, which was the previous record level.

EBITDA grew sharply by 16% compared with 2020 and by 6.9% compared to 2019 to €4.234 billion, above our guidance of more than €4.1 billion guidance, which we had raised in 2021 after our very strong first half results.

The operating leverage was fully achieved, thanks to our strong revenue growth and to €382 million of cost savings above our objective of €350 million.

Thanks to the very strong position of EBITDA, current net income more than doubled versus 2020 and increased by 21% compared with 2019, and it reached this year nearly €900 million. Net financial debt decreased by €3.5 billion to €9.5 billion at year end 2021. And this decrease was fueled, of course, by the €2.5 billion capital increase, but also by the strong free cash flow generation of more than €1.2 billion coming notably from very strict working capital and cash collection discipline. And we will propose to the AGM of June a dividend payment of €1 per share.

On Page 9 now, we detail our revenue growth in the fourth quarter, which was particularly sustained. Revenue growth was above 10%, which is above our normal growth rate, as I will explain now.

Sales activity and volumes continued to grow strongly by around 5%. Hazardous waste revenue grew by 25% in Q4, partly due to the integration of Osis. The prices of our services have also been well oriented and have allowed us to compensate for the increase in our operating costs. And this is a very favorable factor in the context of accelerating inflation. But the main factor, which has led to this 10% of the growth level in Q4 after 5.9% in Q3 was a sharp increase in energy prices.

And I remind you that our contractual model, especially of electricity, as well as our purchasing policies, whereby we hedge our energy purchases and sales over a 3-year period, enable us to be protected at the EBITDA level and to be passed through. This rise in energy prices explains why the 10% growth in revenue in the fourth quarter does not really reflect our normal pace of growth.

Adjusted for this increase in energy prices, our fourth quarter revenue growth would be 6.4%, which is already very strong.

On Slide 10, you have the evolution of our net free cash flow over the last 3 years as well as our leverage ratio.

You can see that in 2021, net free cash flow generation was above the already very high level of 2019, which helped reduce our net financial debt at the end of 2021. The 2.2x leverage benefited, of course, from the €2.5 billion capital increase we launched to finance the remaining Suez shares as part of our tender offer, which in early 2022, without this capital increase, our leverage would have been 2.8x, still below our target level of 3x.

On Page 11, you see the evolution of the return on capital employed after tax to the group. We recovered our pre-COVID level as early as 2021. With a WACC of 5.2%, value creation amounted to 330 basis points.

So I now hand over to Estelle, who will give you details about our commercial and operational performance as well as our ESG performance. And Estelle, the floor is yours.

Estelle Brachlianoff

Thank you, Antoine, and thank you for your kind words of introduction. I guess also succession is not unusual in any organization. What is probably not so common is when it happens at a time when the company has never been stronger, and between 2 executives who have known each other for a very long time and have worked together through such exceptional challenges as the ones we’ve faced over the last 4 years. So I’m very honored and keen to continue our efforts to become the benchmark company for ecological transformation as a united team and company.

2021 has certainly been an outstanding year in many aspects, starting with our top line growth and new customers wins. So allow me to start with that. Many examples are shown on Slide 12, a proof of our differentiating factors and of the attractiveness of our offers and services, to become more energy efficient, reduce one’s carbon footprint or treating pollutants.

We have won no less than 10 newly launched PPPs in Italy, so private public initiatives, with the new model designed to drastically improve the energy efficiency of public buildings, starting with our wins in Parma and Milano, which account for €350 million backlog.

Our customers are more and more eager for the alternatives and local sources of energy that Veolia can provide, starting with energy from waste, which makes a lot of sense on an island such as Taiwan, where we’ve won a new contract with the LuTsao plant, a contract of more than €500 million over its duration.

Our partnership with LuTsao aims to up the production of green methane from waste or wastewater degradation as an alternative to full fuel gas. I’m very proud as well of our cutting-edge innovations from the rollout of our unique Barrel technology, to treating new pollutants in water in Switzerland, or our new vitrification technology with EDF Nuclear.

Our top line growth in 2021 has shown a massive rebound in all our diverse segments, and I’m now on Slide 13. And all those segments are now above 2019 levels and obviously above 2020 as well. Our municipal water activities are really back to normal volumes apart from a very rainy summer in France. And you know that our contract revenues are indexed to inflation. You will remember this activity has shown remarkable resilience in 2020. So the rebound is logically less massive. Our order book is back to full health in water technologies as well as for Sade water works in France.

Waste volumes now, they have recovered basically in all geographies, and we have sustained our strong pricing strategy, whilst maintaining a high level of selectivity in low differentiation activities such as municipal waste collection. Both policies are intended to remain key priorities for the time being. Recyclate prices have remained very high throughout the year and show no sign of going down so far. Our growth in hazardous and liquid waste has been really strong, as Antoine has mentioned, with revenue already 10% above 2019 and a faster growth in Q4.

Here again, the key factors behind our success in Europe and in the U.S. have been a duo of strong pricing and volume recovery, whilst we are ramping up new facilities in Asia. Energy price increases have boosted our revenue from district heating activities in Central and Eastern Europe.

At the same time, our team has been exceptional in its operational performance as well as in its ability to seize all opportunities to increase power generation via combined heat and power.

Our energy efficiency activities have sustained a very strong growth, particularly in Spain, Italy and the Middle East. We’ve been helped by energy prices as well as a strong track record in those countries in helping our customers reduce their energy consumption by typically 15% without major investment, thanks to digital, artificial intelligence and waste reutilization.

Regarding our activities on industrial sites, we’ve been quite selective here, avoiding SM-like contracts to the benefit of complex effluent management or CO2 reduction. Given the current context, I would like now to dive deeper into the impact of inflation on our business and I’m on Page 14.

And let me say, the inflation is positive overall for Veolia’s results, given our positioning, our strategy as well as our discipline.

Starting with revenue. Most contracts, actually 70% of those contracts have a built-in indexation formula, which follows inflation with some lagging effect at times, usually less than a year. For those of our contracts which are nonindexed, so it’s typically waste C&I collection or hazardous waste treatment, we are applying relevant price increases to our customer base at least once a year and more frequently if needed in order to fully cover the inflation, and we have seen no significant drop in volumes.

Following up with our cost base, we intend to maintain a strong discipline on all operational costs as well as to sustain our track record in operational efficiency. Regarding commodity prices, high material prices have a net positive impact for Veolia, thanks to our waste recycling activities, even when taking into account profit sharing with our customers or the increased cost base of certain purchases.

As far as power prices are concerned, Veolia is a net producer of electricity, and we benefit from price increases. On the buy side, our hedging policy means we have secured almost all 2022 power purchases.

Looking at coal or gas purchases. Here again, our hedging policy means we’ve already purchased and secured all of our needs for 2022, whilst price increases to end consumers have already been approved for the year. The same applies to CO2.

All these neutral or positive effect of inflation on the Veolia’s performance have been demonstrated in 2021 and will remain in 2022.

Moving on now to efficiency and cost cutting, and I’m on Slide 15. We have outperformed our annual objective in 2021. These renewed efforts have certainly been a key success factor behind our margin level in 2021 at 14.9%, even slightly higher than in 2019.

We have found €290 million of efficiency gains as compared to our €250 million yearly target. As I am stressing, the savings now come more from operational gains than from SG&A savings, as was the case when we started in 2012.

In addition, we’ve delivered €102 million of savings with our Recover & Adapt plan designed as an exceptional effort in 2020 and 2021 to help the post-COVID recovery. I’m actually very proud that we’ve been able to sustain such a high level of efficiency at the same time as we grew our business by 9.6%.

So how have we done this? We launched a few top-down initiatives across all BUs. For example, leveraging of data to enhance operational performance, maintenance of asset optimization, key comparable assets benchmarking, and closer management of underperforming contracts.

But we also encouraged a bottom-up approach from our more than 2,000 main sites, asking each single manager to deliver at least 1% of cost savings on their old P&L and monitoring the results, of course.

Moving ahead to 2022, we will share our best practices with our new colleagues and aim to deliver the same type of efficiency gains over a much larger parameter. This leads to a target of €350 million in efficiency measures. This is, of course, on top of the specific operational cost benefits we will derive by combining the 2 businesses of Suez and Veolia, namely €100 million of synergies.

I’m now on Slide 16. Although today we are walking you through 2021 results, let me spend a few minutes now to give you a few numbers and some color about what the Ukraine war means for Veolia, and how we’ve been able to give you guidance — or we will be able to give you guidance in a minute with Antoine’s speech.

Just to start with some figures. Our activities in Ukraine and Russia are very small with around €120 million revenue and less than 0.5% of capital employed. You will understand that our first priority has been to support our employees in this region and their families as they continue to serve local populations. If I now de-zoom and focus on our Eastern European activities more broadly from the Czech Republic to Poland and Hungary, we are exclusively providing essential services to the population.

We distribute water, we operate district heating, the latter from natural gas and coal-fired consideration units, and mainly during the winter season, which is almost coming to an end now. Both activities are very resilient, as we have seen during the COVID crisis, and we don’t expect any significant drop in consumption.

With regard to the water or heat tariff charged to the population, they have already been agreed for the year with a significant increase compared to 2021 linked to inflation.

Lastly, we have secured more than 90% of our supply in natural gas for the year and even more than 95% for coal, both in conjunction with leading national producers or distributors. All in all, we consider ourselves globally secured for the year 2022. In addition, I would like to remind you that our distribution contracts are usually designed on the basis of the cost purchasing model, which means tariffs follow inflation and commodities purchase price, although at times with some lagging effect.

I’m on Slide 17 now. And I would like to insist that in terms of crisis, Veolia services are absolutely essential and key. And our company has proven to be resilient, thanks to our business model and international footprint. In addition to this resilience, the COVID crisis has proven our ability to react quickly and adapt. You may remember that we have been able to come back to pre-COVID levels as quickly as the third quarter of 2021 — 2020, sorry.

With the help of our new plan, Re SOURCE, we will adapt to this new crisis and minimize our energy consumption, maximize our energy production and reallocate some CapEx to allow flexibility, starting with our own asset base, but of course, expanding to our customers.

This is what allows us to confirm a guidance for 2022, as said later on by Antoine. In fact, Veolia produces locally sold sustainable energy as well as materials in Europe. When it comes to power generation in 2021, Veolia has sold as much as €1.2 billion of electricity from our energy from waste or cogeneration units.

If you think about natural gas, which in fact is methane, Veolia produces 1.6 terawatt-hour of biogas from waste methanization in France alone. And 4 new sites to be opened soon.

Altogether, we estimate that 20% of natural gas use in energy plants could be replaced by methane produced from wastewater treatment plants in France if they were all equipped.

Finally, the circular economy is a way of localizing the supply chain. When we set up a new battery recycling plant, we actually mine waste to find cobalt and lithium, instead of importing those precious metals.

So if anything, the crisis we are experiencing today is yet another brutal confirmation of the urgent need for ecological transformation and of the needs of the kinds of industrial solutions that Veolia already provides and is even expanding through its innovation.

Moving on to the next section. You’ve understood that we are very happy about Veolia’s performance in 2021. But I also wanted to share with you that this satisfaction goes beyond our sole financial performance. Since 2019, we’ve been measuring our impact on our different stakeholders and defined 18 indicators to measure our multifaceted performance, which are summarized in the colored wheel on Slide 19.

These indicators are tracked throughout the whole organization in each BU across the globe and have a direct impact on the incentives of thousands of managers. You can see on Page 20, our 2021 performance assessed against the nonfinancial KPIs, which could be measured in 2021, because some KPIs have midterm 2023 targets.

Veolia continues to benefit from an exceptionally high level of employee engagement with a score of 87% in 2021, as measured through an independent survey of 100,000 employees across the globe. The Osis employees are now a major shareholder, owning 5% of company. Our Net Promoter Score has now been measured on 72% of our revenue base. It has reached a level of 43, which is improving year-on-year and is considered a very strong base in B2B.

6.8 million inhabitants benefit from our inclusive solutions to allow access to water and sanitation, even in the most deprived areas. Although there are still improvements to be made, the company is certainly moving in the right direction, judging from our performance in 2021.

When it comes to Veolia’s ESG performance and environment performance in particular, I must say we are in a very unique position. Veolia’s business is precisely to bring solutions to the environmental challenges of our customers, which I’ve tried to summarize on Slide 21.

Climate change, of course, but also scarcity of natural resources, pollution, biodiversity, and food scarcity. So let me give you a few examples. When we enabled Solvay to replace coal in Dombasle by RDF, which is a biofuel made from waste, it reduces the CO2 footprint by 50%. When we recycle plastic or innovate to recycle electric car batteries, we are moving towards a most circular economy and helping contain the depletion of natural resources.

When we develop state-of-the-art hazardous waste treatment or develop solutions to treat air pollution or endocrine disruptors in water, it is paramount to human health and protection of underground water. When we reuse water and produce organic fertilizer from such, we are helping agriculture to be more sustainable and potentially feed 9 billion human beings on this planet.

Lastly, by their very nature, all these solutions are deployed at a very local level and are grounded in the communities we live in.

I would like to add a few words about our contribution to the climate change agenda as well. As I highlighted earlier, and I’m now on Slide 22. As I highlighted earlier, many of our services help our customers reduce their greenhouse gas emissions and 11 million tonnes of CO2 are avoided each year, thanks to what we do. Just to mention a few examples, energy efficiency, plastic recycling, efficient collective heating, all has a massive positive impact.

If we focus on the EU taxonomy, we estimate that around 80% of our activities are positive or neutral in the green list reviewed by the commission. But of course, we are committed to reduce our own impact as well and to start now using all available solutions. That is why we’ve not only committed to exit coal by 2030 from the district heating networks we manage in Europe, but we have actually started investing real cash now in our decarbonization.

And beyond, we are exploring how we could accelerate various solutions and reach new frontiers. Turn wastewater treatment plants into production unit for power and materials, capture and transform biogenic CO2 in sustainable aviation fuel or for reuse by neighboring industries, and of course, green hydrogen as well.

As you can see, Veolia is championing ecological transformation and can be a major solution provider for all.

Antoine Frérot

Thank you, Estelle. I move now to Page 24, where you can see the key figures of the all formats combined entity Veolia plus Suez for 2021. Thanks to our acquisition, Veolia’s revenue grew by about €10 billion from €28.5 billion to €38 billion.

EBITDA increased from €4.2 billion to €5.9 billion, and EBITDA margin progressed by 70 basis points to 15.5%. And combined net financial debt reached €18.2 billion. These figures are before the antitrust-related divestures in Europe and Australia.

And now let’s move to our 2022 guidance on Slide 29. Given the favorable trends at the end of 2021 until early 2022, and despite the difficult geopolitical impact, we are beginning the year with confidence. We target a solid organic revenue growth in 2022 for our combined group. We aim to reduce costs by €350 million in addition to the €100 million of synergies targeted for the Suez merger for the first year in 2022, meaning total €450 million.

Regarding the EBITDA guidance. It is, first, a random growth; and second, an organic growth, to address the specific context of 2022. We target an EBITDA growth between 4% and 6%. We have set this range in order to take into account the potential economic consequences of the war in Ukraine, provided, however, that it does not extend beyond Ukrainian territory and provided that the current supply of Russian gas is not suspended.

Given the antitrust process, which is still ongoing in the U.K. on the Suez acquisitions, our consolidation scope is not completely known for 2022. So we committed on an organic growth figure. In terms of current net income, this range has only a limited impact, which allows us to confirm €1.1 billion current net income objective, in line with our 10% accretion target.

The leverage ratio is expected around 3x. And our dividend policy will remain unchanged, that is a dividend growth in line with EPS growth. Ladies and gentlemen, as you can see, 2022 will be another year of growth for Veolia. The group is starting this year in good condition and is well equipped to face the inflationary environment, which is generally favorable to us, and also the consequences of the current conflict. The creation of the world champion of ecological transformation is now underway and on track.

And I now hand over to Claude, who will detail our 2021 results. Then we will take your questions. Claude, the floor is yours.

Claude Laruelle

Thank you, Antoine, and good morning, ladies and gentlemen. I have to say that I am really impressed by what we have delivered over the last 12 months with a clear focus and a lot of hard work from our team, with record numbers for 2021 and also record free cash flow generation.

As you can see on Slide 27 for the full year figures, if we focus on the variation with 2019 at constant ForEx, where you can see that the group has fully recovered from the sanitary crisis. Revenue is at €28.5 billion and grew by 6.5%. EBITDA is well above €4 billion, €4.234 billion and grew by 6.9%, and current EBIT is at 5.3%, thanks to strong EBITDA growth and good CapEx management.

Current net income has reached a record level of almost €900 million and is up 20.9%, in line with our very strong Q3 cash performance. Our free cash flow generation is at a record high at €1.2 billion, to which you can add the €122 million dividend that we received from Suez in July.

All of this leading to a net financial debt of €9.5 billion at the end of 2021, with a significant decrease compared to Q3, of course, with a positive impact of the €2.5 billion Rights issue in preparation for the Suez acquisition.

Let’s move to Slide 28, and we have a look at the Q4 dynamics by geographical blocks. You can first notice a strong group revenue increase in Q4, plus 10.1%, with a strong push of the energy prices, the recyclate and the price increase in our waste activities. If you compare these figures with 2019, you get plus 11.3% in Q4, which is remarkable and shows the dynamism of our activities with the equivalent of 2 years of growth.

Let’s have a look at the different segments. First, France, plus 5.2% in Q4. West of France volume was flat in Q4 compared to last year, and we confirmed the recovery in works associated with our contracts.

West of France shows a continuous remarkable performance in Q4, plus 11.7% revenue growth with good volumes similar to Q3, continuous price increase and even higher level of recyclate prices.

Second, rest of Europe, with outstanding growth for the fourth quarter in a row of almost 20% with very strong growth in Central Europe and an acceleration coming from our energy business with a good continued growth in our waste activities in Germany.

Third, from the Rest of the World segment with plus 6% revenue growth. North America had a good Q4, plus 10.5%. Latin America continued to grow at double-digit, 11.2%; as Africa/Middle East, plus 18.8%; and Asia experienced strong hazardous waste business in China and dynamism in India and Taiwan.

And for global businesses, back to growth at 1.3% with continued strong hazardous waste, offset by slightly lower technology and network activity in Q4, but with, as you know, lower margin on this activity.

On Slide 29, you have the revenue reach comparing full year 2021 with 2020. As you can see, the group has well recovered with €28.5 billion revenue, plus 9.6% compared to last year. Three main contributors. First, the volume effect of 3.4% with much better C&I waste volume and solid commercial momentum as Estelle described in all our geographies.

Second main effect, 3.5% is coming both from energy prices, which have increased even further this year, and of course, from the recyclate prices for a total of €904 million. Recyclate prices have stabilized in Q4 and is at a very high level due to the shortage of cardboard and higher commodity prices.

Finally, as we have told you for quite a long time, we have continued to increase our prices, notably in our waste segment, contributing for €405 million or 1.5%.

Moving to Slide 30. We have more details about our waste activities, which is growing by 15.5% year-on-year. As you can see, the Q4 column is not very different from Q3 and from full year. We have a very high contribution from volumes and also recyclate.

If you look at the Q4 column, First, you see the volume rebound, plus 4.8% in Q4. Good contribution from all our geographies. As an average, we are back to 2019 levels with slightly less C&I volumes and more hazardous waste volumes.

Second, a solid pricing contribution, plus 2.6% in Q4 with West of France and Hazardous Waste Europe leading the effort, in line with our policy to gradually increase our pricing. Third, from recyclate prices, plus 5.4% in all geographies.

Cardboard, for example, is at very high level, about €170 per tonne. The scope effect at the bottom of the table is mostly the Osis integration that we bought from Suez in May 2021.

Let’s move now to Slide 31, where you have more details about the EBITDA evolution with a full operating leverage recovery and an EBITDA increase of 16% coming from very supportive business trends and high level of efficiency. What do we see as main contributors, the massive volume recovery impact of €277 million or plus 7.6% impact with strong waste volumes overall and a good commercial momentum, as Estelle talked about.

The strong cost cutting effects of €392 million, resulting from an ambitious cost-cutting plan of €350 million in 2021. One thing to highlight on the slide is a very positive impact of recyclate prices, €113 million, thanks to high commodity prices and high demand for recycled products.

As we told you, Q4 is marked by the closing of CO2 position that had a negative impact on EBITDA, but no impact at EBIT level. You can also release the favorable impact of the scope effect for €78 million, which is mostly the impact of our recent acquisitions in Central Europe and in Osis performing very well.

Let’s move to Slide 32. And we review our activities by geography, and we start as usual by France. West of France experienced rainy and cold summer, as you remember, but registered well with revenue up 1.2% compared to 2020 with tariff increases of plus 0.9% and vast recovery.

We expect much higher tariff increase in 2022 that will well cover the inflation of our costs. Waste in France experienced a very sharp rebound in 2021, plus 18.3% compared to last year. As I said, 3 main effect, volumes plus 5.7% year-to-date, continued price increase and sharp increase of recyclate prices.

EBITDA of France is sharply up at €1.090 billion and if you deduct the €83 million of the one-off item in waste for the Troyes project that we talked about in Q3, EBITDA is above €1 billion, which is more than €100 million more than 2019.

Moving to Slide 33. Let’s have a look at our activities in the rest of Europe. With an acceleration of growth of almost 20% at constant ForEx in Q4 and slightly different segmentation reflecting the new organization of Veolia. Starting by Central Europe, which now includes Germany, revenue increased by 19.6% compared to last year, mainly driven by a very strong contribution of our district heating business, plus 37% linked with energy price increases, which are mostly passed through, as you well know. And the integration of the assets we bought in 2020 in Prague and Budapest, which continue to perform very well.

Germany also experienced excellent results despite lockdown measures at the start of the year, thanks to restructuring, high recyclate prices and strong energy business benefiting from the cold weather in H1.

Northern Europe, including now U.K., Ireland, Belgium and the Netherlands. Revenue increased by 7.6%, showing a solid rebound due to much better C&I waste volumes and the end of the lockdown in U.K., and thanks to the very solid PFI performance, with a record availability at 94.8%, which is a new record for the industry. Northern Europe financial performance has recovered very well. And we continue to increase our prices to fully cover the inflation.

EBITDA performance of the rest of Europe is very strong at €1.730 billion compared to 2020, with an outstanding contribution from Central Europe.

Moving to Slide 34. We have seen a confirmed recovery in all regions and in the Rest of the World segment. We start by Asia. Revenue grew by 1.1% compared to 2020 with strong performance in Taiwan, India and Korea, offset by disposal in waste activities in China.

Our hazardous waste business in these countries continued to grow very well. Revenue up 15.4% compared to 2020, and up 53.6% compared to 2019, boosted by new sites under operation. India is growing fast, plus 38.8%, with new investments in hazardous waste coming online.

Moving to Latin America. It continued to grow at a strong pace, plus 14.1% at constant ForEx, with good commercial momentum and tariff increases.

Our North America operations are growing by 5.2% with continued strong performance of our municipal water activities. As a reminder, 2019 numbers include the contribution of our district heating that we sold at the end of 2019.

Africa/Middle East is performing very well, plus 12.3%, with new BES contract in Middle East and solid volumes in Morocco. EBITDA of the segment, €1.002 billion is up 6.9% compared to 2020 with a strong contribution from the high-margin businesses, such as hazardous waste.

And as a reminder, 2019 EBITDA is also including the district heating business in the U.S. I’m now on Slide 35, where you have the details of our global business activities showing a strong rebound.

Water technologies continued to perform very well with high selectivity on new tenders to focus on higher profitability business. Revenue is flat compared to 2020 at €1.5 billion with a good commercial momentum, but EBITDA is now above €100 million, which is a real achievement for this BU.

And if you look at the margin, it has almost doubled over the last 4 years. SADE network activities have fully recovered at constant scope after the disposal of our telecom activities in November of last year and is well oriented, plus 5.5% at constant scope.

Hazardous Waste is performing amazingly well with price increases and more volumes thanks to increasing capacity in our 14 high-temperature incinerators, leading again this year to a record profitability.

Regarding our industrial service brands, we have secured the continuity of our activities with Stellantis in France. EBITDA of the segment, €426 million is also strongly up in line with price increases, higher margin business and efficiency measures.

Now let’s go down the P&L in the next 3 slides before we look at the cash flow generation and the debt. On Slide 36, you can see how the EBITDA increase is boosting our current EBIT by 41.7%.

Depreciation and amortization, €2.3 billion, includes OFA repayments and of course the effect of the Troyes project, which is accounting for €83 million. €83 million EBITDA contribution has to be deducted in this line. So it has no impact at EBIT level.

This is the main difference with 2020.

On provision and fair value adjustments, we are benefiting from industrial capital gains on asset disposal in Scandinavia and also lower insurance provision as there was a strong provision for insurance over the last 2 years.

Our JVs have performed much better this year and the impact compared to 2020 is mostly coming from the Shenzhen concession disposal closed in December. As a result, current EBIT is at a record high level and is growing by 5.3% compared to 2019.

Moving to Slide 37. Let’s have a look at our record current net income of €896 million, plus 20.9% compared to 2019. The cost of net financial debt is at a record low level, €343 million. As we told you many times, we are benefiting from lower interest rates in many countries, giving also to a lower cost of euro debt swaps into foreign currency.

And as a reminder, we had a €20 million positive one-off in Q2. You can notice the impact of the Suez dividend for €122 million received in Q3. And our income tax rate is at 25%, leading to €330 million in income tax expense.

Let’s move now to the Slide 38, where you have the details concerning our net income group share with noncurrent items increased due to mostly the Suez operation and also the contribution of the COVID cost. The main variation with previous year is related to the Suez acquisition for €217 million in 2021, mostly financial and legal cost. As you know, this operation was very complex. And as Antoine explained, the antitrust process had to be carried out in 18 geographies.

Moving to Slide 39. You have more details about the very strong cash delivery with a record free cash flow of more than €1.2 billion before Suez dividend, which is remarkable. After our very strong free cash flow in H1, we continue to perform very well in H2 by generating more than €900 million for the second semester, just on the operating side, thanks to strong EBITDA growth, good CapEx management and very strict cash discipline in all our countries.

As you can see on the slide, working capital went down in 2021 by €382 million, thanks to better cash collection. To continue to fuel the growth of the group, we have increased our discretionary CapEx at €456 million with new projects on plastic recycling, for example, and hazardous waste.

Looking at the debt level, it is at a record low level before the Suez acquisition, thanks to the very strong free cash flow in 2021, and of course, the impact of the rights issue.

Moving to Slide 40, you can see the details of the rate variation since the beginning of the year, with a net CapEx at €2.2 billion and the working capital contribution in blue for €382 million.

Let’s move now to Slide 41. And after this record high level of results in 2021, I can fully confirm our strong confidence for 2022 with solid organic growth — organic EBITDA growth between 4% and 6% and current net income of around €1.1 billion, representing more than 20% growth compared to 2021, confirming the 10% accretion of the Suez operations. As Antoine reiterated, dividend policy is to grow in line with current EPS.

Thank you for your attention.

Antoine Frérot

Thank you, Claude. And ladies and gentlemen, we are now all ready to answer your questions.

Question-and-Answer Session


[Operator Instructions] First question is from Mr. Ahmed Farman from Jefferies.

Ahmed Farman

Yes. I actually have a couple of questions. I just wanted to start with the inflation protection within the revenues. And I just wanted to sort of — I see a figure you mentioned of 70%, and I just wanted to sort of ask, is that largely simply the inflation indexation from contracts or like sort of within the construct of regulation? And does the positive exposure to commodity prices comes on top of that, so sort of energy prices and recyclate prices, any positive gearing that you have, is that on top of that, or does the 70% include both of them?

And just from an earnings and profitability perspective, is it sort of really the sort of the recyclate and commodity prices where there’s a bigger drop to the profitability of the business?

My second question is broadly on your distribution in energy businesses. I mean you’ve sort of highlighted sort of quite substantial sort of tariff or revenue increases and type increases, which presumably also mean higher energy costs for your end consumers. And I just wanted to understand if there is any sort of regulatory risks around that, that are of concern in the context of broader affordability debate we have right now in Europe?

Antoine Frérot

Estelle? Only 2 questions.

Estelle Brachlianoff

Yes. Two which, if I understand well, divide into others. So the first one on the indexation, if I understand it well. So on our total turnover, 70% is directly indexed and the other 30% of portfolio, we just supply price increase year-on-year and at times quarter-on-quarter.

On the 70% which is indexed, so it’s typically municipal contracts. So it’s embedded into our contracts, and it includes everything including commodities, as in energy, we have to buy typically, or fuel we have to buy, or salaries, of course, and everything is expected. So it’s not on top. So we don’t have a specific risk on commodity price linked with those indexed 70%. And on the other 30%, which is typically C&I with collection or hazardous waste, this is under our stewardship to price increase. And of course, we embed in those price increase the price of commodities, typically the fuel collection.

So some price increases are linked with the fuel price having been raised over the last few weeks and months. In terms of the material sales, which is another of your… So all in all, the hedging is total either through direct indexation or through the price increase we apply, and it’s including all the energy prices.

In terms of metal prices, it’s typically applied when we have a share profit with local authorities, where when it goes up, we share the profit of the metal itself being up. When it goes down, we share the negative as well with the local authorities. And this is what allows us to be not fully passed through.

We have 20%, which ends up in margin when the metal price goes up, which is what we’ve seen in the bridge, as Claude has just explained. In terms of, if I understand your question, increasing the price, so do we have a risk regulator? The answer is no.

That’s what I’ve tried to cover in saying all our price increase had been approved for the year 2022 already. So it’s behind us and approved by local authorities or regulators or make sure depending on the local situation. So we don’t have a risk for the year.

In terms of is it affordable? So basically, will people in their flat being still able to pay for the heat given the price increase? The answer is yes. And if you look at the type of — and of course, otherwise — and I guess, you have to realize that in the countries we’re talking about, the average bill for heating your home is really like something around €50 per month for a family of 4 persons.

So we’re talking about €5, €10 more per month, which is significant, but actually super-affordable. So this is the beauty, if I may, in of the model of collective district heating. It’s very much more affordable than individual typically power-generated heating you will have in your homes. Hence, the very affordable bill we charge even given the tariff increase or the price.


Next question is from Mr. Arthur Sitbon from Morgan Stanley.

Arthur Sitbon

My first question is, if you could please quantify your net exposure to electricity volumes, so in terawatt hour? And if you could give us some details on your hedging levels for 2022 and 2023, that would be helpful.

My second question would be on your activity levels. I was wondering if you could provide us some color on how they’ve evolved in the past 3 weeks with the Russia-Ukraine conflict in mind?

And the last one would be, we’ve seen some developments on your Chilean assets. And it seems that there are discussions of potential nationalization. I was wondering if you could provide us an update on that and how likely the various scenarios are?

Antoine Frérot

Okay. Three different questions. About our volume of electricity we sell and we buy, Estelle, of course.

Estelle Brachlianoff

Yes, I guess, as I alluded to, we are selling more than we buy. We are a net producer of electricity. So…

Claude Laruelle

And we are hedged for 90%. This is your question.

Estelle Brachlianoff

90% of the sales side and pretty much 100% of the buy side of it.

Antoine Frérot

And we sell for €1.2 billion a year, and we buy electricity for €800 million.

Estelle Brachlianoff

Yes. On the 2021 figure.

Antoine Frérot

Yes. How is the activity for the 3 last weeks?

Estelle Brachlianoff

I guess, if we exclude the fact that — I guess, in Ukraine, as you may imagine, like our activities has reduced recently, but we’re talking very, very, very small revenues level. Apart from that, we haven’t seen any — not any specific reduction in activity in none of the countries in Europe we cover.

Antoine Frérot

About the Chile now. A new government has been elected with a new President. It is a left wing President, but [indiscernible] government and general assembly also. And we don’t think that we will have any nationalization of the water businesses. So we’ll continue to direct heat as it is the case today with the system of regulation of tariff as it has been in the past.


Next question is from Mr. Philippe Ourpatian from ODDO BHF.

Philippe Ourpatian

Yes. I have, in fact, 4 short questions. The first one is concerning the figure you mentioned regarding the EBITDA of the combined entity based on ‘21 figure. The figure you mentioned is €5.9 billion. In your document about the capital increase, €6 billion were mentioned, but they were concerning H2 ‘20 and H1 ‘21.

And regarding your strong figure on the Veolia side, is there something negative on the assets coming from Suez, which explained that there is almost no impact of the H2 ‘21 on the combined figure? That’s the first question.

The second 1 is concerning the volumes, commerce and works effect. When I’m calculating the margin between the EBITDA shown in the breakdown and the revenues shown in the breakdown, there is a 31% margin, which seems to be quite high, but very interesting one. Is there something — I don’t want to say nonrecurring, but why this margin is so deviated versus your average? That’s the second question.

The third one is concerning the French municipal water. You have given the French EBITDA. But I was wondering if there is any improvement of the French municipal water business EBITDA in 2021, mainly versus 2019, I would say, because it was a trend already recorded? And just the question was, is it continuing?

And the last question, specifically for Claude Laruelle. Could we have an update about the tax carryforward concerning the French fiscal perimeter and the U.S. one?

Antoine Frérot

Okay. A lot of questions, Mr. Ourpatian. So we begin with…

Claude Laruelle

Yes, I start with the tax carryforward. Maybe the last one or maybe the last 1 to tell you that what is remaining so far is around €350 million in both countries, U.S. and France. That’s the first one.

In terms of French municipal water, we have seen an increase in EBITDA, but a small increase in 2021. Because, as you know, it was a rainy summer, which is what I said during the presentation. So very low increase in the French EBITDA.

Your question about the 31% revenue to EBITDA margin in the waste and volumes. You have to understand that you’re comparing with 2020. And as you know, you are talking about exceptional year in 2020 and a sudden drop of volumes, when you are recovering, and you remember that the impact was significant in 2020. So when you’re recovering the volume, you’re talking about marginal volume that we’re recovering, and it’s normal to have a much higher level of margin than the average of the group.

Antoine Frérot

And Claude, for the…

Claude Laruelle

For the figure of €5.9 billion, so €5.9 billion, meaning that H2 of Suez was, roughly speaking, flat in H2 of what we’re receiving.

Philippe Ourpatian

Okay. Just 1 additional question concerning the volumes, commerce and works. As I understood, it’s only the volume effect. There is no any impact of, I don’t know, more value-added services you signed during the year — I mean contract which has started in ‘21, signed in the beginning or end of ‘20. It’s only the volume effects. That’s correct?

Claude Laruelle

It’s the volume effect and also the Troyes project effect, the one-off effect, you will find it over there as well, Philippe, in Q3. Okay?


Next question is from Mr. Arnaud Palliez from CIC Market.

Arnaud Palliez

Yes. I have just 1 question about your CapEx program for this year. I would like to know what kind of investment you are planning for this year. And also, if you are already taking into account some optimization coming from Suez in terms of CapEx? And in which businesses do you intend to increase CapEx? Especially, is it the case for energy from waste? Do you think that the current situation on energy prices is going to lead to some significant increase in CapEx in this business?

Estelle Brachlianoff

I guess, just to give you some qualitative elements behind what I just said about the results that we have now. Basically, we will tend to increase the level of CapEx, which has a very, very short return and is linked with energy efficiency and locally sourced green energy type of production. As we said, we are producing local energy, local gas as in biogas.

And of course, you can imagine that given the world we live in, this is super-good CapEx with a very good return. So we intend to speed that up, be it in the Veolia or Suez perimeter, if you want, as a group as a whole.

Same applies with the energy efficiency measures. We think we can save a few percent here and there by replacing some equipment with more efficient ones with typically when the price of electricity, what it were a few years ago, was not having a return which was good enough, and now suddenly becomes super, super profitable for us. So that’s qualitatively the type of things we will speed up and…

Claude Laruelle

In terms of numbers, what you have to do? You have to do the math of the Veolia perimeter and the Suez one. In a nutshell, let’s say, €2.3 billion on offside, €1 billion on Suez side, so the total CapEx for the whole group will be around €3.3 billion.


We have no further questions. [Operator Instructions] So, we have another question from Mr. Juan Rodriguez from Kepler Cheuvreux.

Juan Rodriguez

I have 2 on my side, if I may? The first 1 is on the U.K. assets or on Suez U.K. assets. Can you please remind us or update us where the discussions are because this is the last step of the Suez integration? And I know the CMA discussion is more into phase 2. So how are things evolving in that sense?

And the second is around inflation, because you signaled that in the Industrial segment, you might push ahead of 1 tariff review on a yearly context as we see that inflation continues sucking up on 2022. So on the industrial side, how likely that you can update more than once your tariff review?

And the second 1 is on municipalities, because most of the tariffs might have been already agreed for 2022, but we see that inflation this year continues to gain upwards. So can we expect that on the municipal side, that is around 70% that you signal most of the tariff review on current inflation will be applied to 2023?

Antoine Frérot

Okay. I will take your first question and Estelle will answer the second one. About U.K. and the CMA, we are in a classical phase 2 of legal process, meaning that Suez will have a duration of around 6 months. And the date of the end of this inquiry is fixed on July 17.

But it could stop before if they finished their inquiry before. So the volume of the Suez U.K. business is around €900 million. On the total of €10 billion we bought from Suez, net of the divestment to the consortium. So we don’t know, of course, the results of the decision of the CMA, and the deal will be perhaps we have to sell a small part of that or a bigger part, we don’t know. But you have the volume at stake with this inquiry about the U.K. waste business. Is it clear for you?

Juan Rodriguez

Yes, it is.

Antoine Frérot


Estelle Brachlianoff

So with regard to your second question, I guess, I would like to split it into really 2 blocks, the 70% and the 30%. So the 70%, which is indexed covers basically all our municipal contracts, plus some specific private ones. So all our municipal contracts, they have, you’re right, usually yearly indexation, not two yearly one, so it’s every year. So we won’t be able to negotiate with local authorities the fact of having 2 or 3 indexations for the year. But we will have then 1 in 2023 for the ones which are already, I guess, behind us.

But on the cost base, and that’s what I was trying to explain, on the cost base, we are fully covered as well on the same basis. So we are hedged on the cost base. So we know for certain the revenue, and we know for certain where the cost base are. I mean, we know for certain, again, it is covered and hedged, both on the cost and the revenue side. And yes, there will very likely be a new indexation up in 2023, which will follow up part of the inflation of 2022. That’s why there is a little bit of lagging — but again, the fact that we hedge our cost base is the important factor here.

In terms of the other 30%, which is typically the private customers, the hazardous waste ones, or the C&I ones, we have already started — so if your question was, we will be able to have a twice a year, 3 times a year price increase? The answer is yes, because we already have started second, as I said, last part of 2021, and we already are starting this year.

So in the U.S. or in France, typically, we already have started with more than once a year type of price increase and we have not seen any drop in volumes. Just to give you 1 example, in France only, we’ve seen, for the beginning of 2022, price increase in the range of 6% to 10% depending on the region and depending on the type of services. And that was on top of the price increase we had seen last year. So we are very confident that, again, inflation for Veolia is either neutral or positive depending on the segments.

Antoine Frérot

Okay. We have another question or no more?


We have no other questions, back to you for the conclusion.

Antoine Frérot

So, thank you, ladies and gentlemen, for your presence on this con call, and have a good day. Goodbye until the next time.

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