Earnings Call: Q1 2021

May 5, 2021

Ladies and gentlemen, welcome to the Veolia Conference Call on Q1 2021 Results Publication with Antoine Ferro, CEO Etel Bracelinof, COO Claude D'Aruel's CFO Olivier Bruce, Head of Strategy and Innovation. I now hand over to Mr. Antoine Frerot. Sir, please go ahead. Thank you. Good morning, ladies and gentlemen, and thank you for attending this conference call on the earlier Q1 2021 results. This morning, I am with Estelle Brachlenauf, our CEO Claude Larbela, our CFO and Olivier Brouss, Head of Tramadie. Before presenting you our Q1 highlights with Estelle, I will say a few words about the agreement signed on April dividends with the Board of SUEZ to acquire the majority of SUEZ assets outside France And thus to become the undisputed leader in the ecological transformation. Claude will give you details on Q1 key figures and we will then answer your questions. So I will begin on Page 5. On the 11th April, we signed a landmark agreement With the Board of SUEZ to buy SUEZ shares at €20.5 per share, dividend included. This project has been considered several times in the past, but has never been accomplished. It is now finally happening, and it opens up great opportunities for the combined entity. With this agreement, Veolia is adding nearly €10,000,000,000 of international revenues to its existing perimeter. The Frerot Group will remain, including on the one hand, all its French activities, which We would have been obliged to sell for anti trust purposes and on the other hand, some international assets, Totaling revenue of about €7,000,000,000 This offer, which will be recommended by the Board of SUEZ, Includes strong social commitments for a period of 4 years after the closing of the offer. Both sites Have agreed to drop all legal actions. I now move to Slide 6. The purchase of Sled by Veolia will create a group with €37,000,000,000 of revenue With reinforced geographical presence, a unique service and technologies offering and an enlarged client base, thus making it the undisputed leader of the ecological transformation. From a geographical standpoint, we will strengthen our footprint in the U. S, In Latin America, in Australia, in the Middle East, in Spain and in the UK. In terms of offering, the combination of our expertise will give us a unique positioning in technologies and Know How in Water, Waste and Energy. The combination of our 2 groups will also be significantly value creating. The €500,000,000 expected synergies are confirmed. We expect a double digit EPS accretion as of 2022 and of nearly 40% in 2024. The financing of the transaction is designed to maintain our financial robustness with a net debt to EBITDA ratio below 3 times from the 1st year Of the consolidation of the combined entity. The purchase of the 70% stake in trade we do not already own Will be largely financed by the asset divestitures, which will constitute a new phase and will be complemented by a capital increase of between €2,500,000,000 After the announcement of the agreement, The rating agencies, Standard and Poor's employees have both confirmed our ratings with a stable outlook. On Slide 7, you can see the expected profile of the new group based on 2019 performance figures. The new Bouygues will generate revenue of about €37,000,000,000 And an EBITDA of €6,000,000,000 before synergies. In terms of businesses, water will represent 47% of the group versus 41% from earlier today, waste with account for 37% and Energy for the remaining 16%. On Slide 8, you have the detailed geographical footprint of Veolia and SUEZ on a standalone basis And after the combination, I have already mentioned the geographies where the combination will have the most impact: North America, where spreads will increase Veolia revenue by 50%. Latin America, where revenue will double Australia, where it will increase by 60% And global businesses by 60% as well. Revenue growth is more and more direct In Europe, taken out of the role, but it is very significant in the UK and in Spain. On Page 9, you have an indicative timetable of the next steps of the transaction. When we signed the agreement on April 11, we gave ourselves until May 14 To finalize the agreement in detail, we will then have the valuation of the main assets which will be contributed to the new SUEZ as well as the details of its new shareholding structure. We will then be In a position to file revised tender offer document to the Trans Stock Market Regulatory Body, ANX. In parallel, the antitrust process will be processing. We have already obtained clearance in 5 countries, And we expect the EU clearance in the Q3. The tender offer on Suede will be opened during the Q3 And before year end. 2022 will of course be the 1st year of the full combination of the new group. Our new work champions of ecological transformation will then be ready to take advantage of the value stimulus plans underway in Europe, In the U. S, in the U. K. And in all the other countries that see ecological transformation as both an imperative and as one of the ways out of the crisis. This is what I wanted to share with you regarding the purchase of trade. Let us now move to our Q1 results. And for that, I am on Slide 11. 2021 is off to a very good start for Veolia. Despite the 3rd wave of COVID in Europe, we have enjoyed a strong rebound in revenue and revenues, Thanks to the resilience of our business model and continued strong efficiency actions. We have continued to apply strict pricing discipline while maintaining vigorous commercial dynamics. We are pleased of our annual objective in terms of efficiency gain with €92,000,000 achieved in Q1 Compared to a €350,000,000 annual target and then largely above Q1 2020 achievements. We have also benefited from the sharp rebound of recycled material prices. And in total, Q1 revenue reached €6,807,000,000 a 4% Increased at constant price versus Q1 2020 and EBITDA totaled €1,078,000,000 Strongly up by 13.6%, thanks to the operating leverage and record efficiency gains. If we now compare Q1 2021 to Q1 2019 before the sanitary crisis, You see that here again. We have enjoyed a sustained growth, plus 2.8% at Constant Rx for revenue and plus 7.5 percent at TransAltaerex for EBITDA. Our activity level and Profit delivery is well above Q1 2019, which clearly shows that we have managed to write out All the impact of the crisis and to recover our normal growth trajectory in the short period of time. It's very strong Q1. It's very encouraging for the rest of the year. I now hand over to Estelle, who will give you details on the operational trends of the Q1. Estelle, your review. Thank you, Antoine. I am very satisfied with Q1 results in many respects, strong revenue growth and an even stronger growth in our results, Both the testament to our focus on continuous delivery. Digging now into the various components of this really strong quarter revenue growth, you will see on Slide 12, how it splits between our various business segments. Municipal Water, first, has been Super resilient and so has our ENGIE business helped by cold winter. Our solid waste business has adapted very well to quite Volatile C and I volumes still down in the Q1 with lockdown measures in place in most geographies. But we have driven massive efficiency measures as well as continued our price increases in most geographies as well. It has also benefited from higher levels of recycled prices. Husqvist continues to be a success story of Sustainable performance and growth, with volumes up, sustained prices and no less than 7 new facilities He's under construction in Asia, Europe, Middle East and America. On-site services for industry are not completely back yet. With our services to the automotive industry, a little behind in Europe and our services to oil and gas, not yet back to full capacity, although they have rebounded very strongly. I'm quick to mention On Slide 13, a few very important wins of new contracts, which have materialized in the Q1 of 2021. As it could have been difficult to win new customers when you cannot even travel or meet them in person given COVID restrictions. I would highlight in particular a very good series in our municipal water activities, starting in France with the game of Cholet, Suez being the incumbent and Colmar, which was previously run mainly by the city. For the rest, it was a great treatment to win the 1st PPP contract with the municipality of Miyagi in Japan, which represents €800,000,000 backlog. It follows exactly the same model as our successful Hamamatsu concession in the same country. Many interesting wins as well with our industrial customers. For example, with Petro Peru, where we have managed To leverage the experience in sulphuric acid recovery of our U. S. Team. Our €200,000,000 contract with BASF new factory dedicated to electric car batteries in Finland is another source of satisfaction. Now on Slide 14. Our strong results in Q1 have obviously been driven not only by our revenue growth but also by our continued efficiency measures, as you can see from the operational level. After the second half of twenty twenty, where we managed To get EBITDA back to pre COVID level, we are really accelerating the rate of recovery with a 14% EBITDA progression against 2020, But also a 7.5% increase compared to 2019. We are on target with €92,000,000 cost cuttings in the Q1. As you know, our annual target is €350,000,000 as we've kept an additional €100,000,000 Recovering that plan on top of our annual €250,000,000 efficiency plan as COVID consequences are still visible. We have sustained our effort in G and A squeezing, key asset efficiency and digital. Just to mention a few examples, Our upgrade live monitoring of photometers has helped us to shave after non billed customers in France and Ecuador. Well, our American team has managed to reduce the cost of reactives in our hazardous waste units by recycling some byproducts. So that's typical example of what's Underlying those efficiency measures. In summary, this gives me a lot of confidence in our team to keep the focus on delivering very good results quarter after quarter. And it shows we are ready for the merger with SUEZ Later in the year. I hand over back to you. Thank you, Estelle. And I am on Page 15, where you can see how we can take what is going to be one objectives before the combination of these phases. As I said earlier, this excellent start to the year makes us particularly confident that we will reach our target. Our objective for 2021 is clear. We want our level of activity and profit to be above 2019 performance. More specifically, revenue is expected above 2019. EBITDA is expected above €4,000,000,000 a growth Of more than 10% versus 2020, we are targeting €350,000,000 of savings. Regarding our balance sheet, we are targeting a net financial debt below €12,000,000,000 with a leverage ratio below 3 times Before the combination with SUEZ and in terms of dividends, we clearly intend to recover our pre crisis dividend policy in 2021. I now hand over to Claude, who will give you details Thank you, Antoine, and good morning, ladies and gentlemen. I'm very pleased to detail the sharp Q1 rebound with a solid growth momentum and a weaker profitability. As you can see on Slide 17, revenue grew by 4% in Q1 at constant ForEx. And thanks to a very strong operating leverage, EBITDA jumped by 13.6% With a recovery in almost all our activities as Estelle described earlier, current EBIT is also well oriented at €469,000,000 plus 22.7% compared to last year. And current net income is up 59.8%. Thanks to a strong and continuous focus on cash management and lower CapEx spending, Our free cash flow generation is excellent in Q1 and has improved by €468,000,000 compared to last year, leading to a net financial debt almost flat compared to December 31. Moving to Slide 18. Let's have a look at the Q1 performance by geography. You can first notice the group revenue acceleration Over the last quarters, minus 0.6% in Q3, plus 0.9% in Q4 And plus 4% in Q1. Where does it come from? 1st from France, plus 5.7% in Q1 with a resilient Waterfront with good volume and tariff increases And a sharp recovery of West France, plus 11.2%, despite wave 3 of COVID due to solid volumes, price increases and sharp rebound of recycled prices. 2nd, With the outstanding growth in the rest of Europe, plus 9%, with very strong growth in energy and in Central Europe And a good resilience of our waste activities in Germany. 3rd, from the West of the world, which is still more contrasted with a very dynamic China, plus 12% and North America and Morocco still behind last year activity level. And 4th, From global businesses that continue to perform in line with previous quarters, with continued recovery in hazardous waste and construction, in line with the industrial recovery in many countries. On Slide 19, You have our usual revenue bridge where you can see the details of the 4% growth. The like for like growth is plus 3% and the scope effect Is 1%, mostly due to our recent acquisitions in Energy in Central Europe. What is noticeable is the volume box Minus 0.5 percent, showing that our C and I waste business has not yet fully recovered in Europe With the lockdown that happened in the UK, Germany and France, which will lead to a further rebound as lockdown measures are lifted. As you can see, the colder weather that we all experienced in February March helped our revenue by 1%. And energy and recycler prices are benefiting from the strong commodity prices and the high demand for cardboard. Finally, our prices are well oriented, thanks to a strong price discipline that is one of the strong marker of this crisis in both water and waste, which is boosting further the revenue by 0.9%. Let's have a look at our waste activity on slide 20. The sharp increase of recycled prices has a strong impact on our waste revenue plus 3.2%. Prices continue to be very well oriented at +1.7 percent, thanks to continuous pricing discipline and price increases In some segments where treatment demand is high, like hazardous waste, for example. On the volume side, as I told you, Q1 2021 is Below Q1 2020 by 0.9%, which was itself 1.8% below Q1 2019. We are clearly seeing impacted by the lower C and I volumes in Europe and recycling activities in the U. S. By geography, volumes are back in France, plus 1.6 percent Asia, plus 15% and LatAm, plus 0.8 percent, But still down in the UK, minus 7.6 percent Northern Europe, minus 1.4 North America, minus 1.8% and Australia, minus 4%. Regarding the geographies, One country to mention is the UK, which came late last year in the lockdown and early this year. West revenue is down by 6.5%, but thanks to its resilient PSI model, the financial performance It's almost flat, which is remarkable. Let's move to Slide 21 with our Q1 EBITDA bridge And focus on the 3 main points. 1st, the contribution of the recent acquisitions in Central Europe, which are performing well in Q1 and boosting EBITDA by almost 5%. 2nd, The impact of the colder weather, plus €23,000,000 and the recycled prices, plus €24,000,000 in line with the revenue trends. And third, the cost cutting of €92,000,000 that includes €68,000,000 of usual cost cutting and €24,000,000 of recovery and ADAP plan that is strongly contributing to EBITDA growth. And I can confirm that we are fully on track to achieve our €250,000,000 target for 2021. Moving to Slide 22. Let's review now our activities by geography, and we start as usual by France. Waterfront in Q1, as you can see, is slightly up 0.8% with tariff increase 0.7%, works recovery More than offsetting the end of the Toulouse wastewater contract in 2020. West in France experienced a very sharp rebound in Q1, Plus 11.2% compared to last year and even plus 7.2% compared to Q1 2019 With 3 main causes: 1st, volumes still impacted by lockdown measures, but overall up 1.6% Compared to last year, continuous price increase in C and I collection and treatment and sharp increase of recycled prices, especially In non ferrous metals and carbon. EBITDA of France is sharply up, in line with the resilience In the water activities and the jump in the waste business. Moving to Slide 23. Let's have a look at our activities in the rest of Europe. Starting by Central Europe, revenue increase is 23.5 compared to last year, mainly driven by a very strong contribution of our energy district heating business linked with Energy price increase, hit tariffs up between 5% to 10% and the integration of the assets we bought last year in Prague and Budapest. UK revenue decreased by 6% compared to a strong Q1 2020 as lockdown started later in 2020 due to lower C and I waste volumes with a strict lockdown in Q1 2021. Thanks to the very solid PSI business model and good cost control, UK financial performance is very steady. Germany also experienced excellent results despite lockdown measures, thanks to the restructuring and recycled prices. EBITDA performance of Rest of Europe is very, very strong with a good operating leverage. Moving to Slide 24. We have seen a recovery in all regions in our Rest of the World segment and a good operating leverage. Let's start by Asia and especially China. Chinese activities are up 12% and EBITDA 30%, With all activities strongly recovering after a low Q1 2020 and a special mention to our hazardous waste business Boosted by the new sites under operation like Ginning are ramping up and overall significantly increased volume in all our facilities. We expect 2 other hazardous waste sites to start up this year, Dongfeng and Dalian. Latin America continues to grow at a strong pace with little COVID impact in Q1 due to the warm weather. As we told you, North America refineries are still running at 85%, impacting our sulfuric acid recycling activities. U. S. Municipal water on the other side had a strong Q1 with good financial performance. Australia, Despite good weather conditions, experienced some remaining COVID impact and has not yet fully recovered Its nominal C and I waste volumes. EBITDA of the segment is sharply up with a strong contribution of the high margin businesses. On Slide 25, you have the details of our global business activities. VW Tea continues to perform well With revenue up 2.1%, benefiting from the transformation initiated a couple of years ago, Focusing on technology and higher margin business. We have, as we speak, a large pipeline of desalination projects As the demand in the Middle East remains very high for municipal and industrial end users. Network activities of SAD are stable at constant scope after the disposal of our telecom activities in November last year, And we have seen a recovery in the tender activity in Q1. As our growth rate is recovering well with price increases offsetting a little bit of volumes that are still missing. EBITDA of the segment is also strongly up, in line with better revenue and efficiency measures. On slide 26, You have the detailed EBITDA to current EBIT bridge with a very strong current EBIT increase, up 22.7% at constant ForEx. Renewal expenses are slightly up in France and back to a normalized level in Q1. Depreciation is almost flat And if held by less OFA repayment in 2021. But the main variance is coming from the provision line, Coming from various items, including litigation, employee share plans, insurance and CO2. And finally, you can notice the impact of the Shenzhen disposal in the contribution of our Chinese JVs down to €11,000,000 in Q1. As a result, the level of current EBIT for Q1 2020 is €469,000,000 Let's move to Slide 27 to the current net income calculation for Q1, which is up 60% at constant Forex. What is remarkable is the cost of the net financial debt Down by €26,000,000 to €86,000,000 with two main reasons. First, the lower cost of our euro denominated debt With the continuous refinancing of corporate midterm notes, which is now as an average below 2%. 2nd, The benefit from low short term interest rates in most countries where we operate, helping the cost of the swaps Of euro debt into foreign currencies to go sharply down. Regarding tax, current tax rate is at 27% And we are still projecting the tax rate of around 25% for the full year 2021. Moving to slide 28. Let's have a look at our free cash flow generation in Q1 With a €468,000,000 improvement compared to last year. Where does it come from? 1st, From a very good level of working capital improved by €314,000,000 thanks to continuous focus on cash collection And cash management in all our views where we monitor cash on a daily basis and have already set a cash awareness since the beginning of the COVID crisis. 2nd, from a good CapEx management in Q1 at EUR 426,000,000 down by €32,000,000 As a result, the net financial debt is only slightly up compared to December 2020 By less than €300,000,000 and almost half of it is coming from ForEx impact for €131,000,000 On Slide 29, you can see the details of the debt variation since the beginning of the year with the net CapEx box at €426,000,000 and the working capital variation sharply reduced at €480,000,000 thanks to strong collection in most of our geographies, including LatAm and Africa Middle East. On slide 13, after this very good Q1 and its outstanding financial performance, I can fully confirm our strong confidence in 2021, and I can fully confirm our guidance for the year. Thank you for your attention. Thank you, Claude, and we are now ready for your questions. Thank you. We have one first question from Mr. Emmanuel Turpin from Societe Generale. Sir, please go ahead. Good morning, everybody. I'd love to ask one financial question and then a couple of questions on business development. On the financial side, starting with CapEx, you You basically spent a little bit less than last year, about €30,000,000 Could you give us an update on your plans for the full year? It's going to be a very special year with the merger with SUEZ. But if we focus on Veolia on its own, how do you see the rest of the year as the economy is restarting And your business seem to be going well. The second financial question is actually a cross between business on financial. You mentioned that thanks to the nature of your PFI contracts in the U. K, you ensured I understood it as a flattish EBITDA despite lower volumes and lower revenues. Would you mind explaining to us how This contract this type of PFI contracts work on Protecting your EBITDA even if volumes are down. And what would be the implications when volumes are up? Would your EBITDA kind of lag this volume rebound As they were protected as volumes were down. And then a couple of questions on business development. You announced your second Confession in water in Japan. Japan is a large economy, one which has been historically difficult to penetrate for foreign operators. If you look out 5 years or more, how big could Japan become in terms of potential market for Veolia, especially new Veolia as The 2 companies will combine their forces there. On the second business development question is about your service offer around air quality. I remember a couple of years ago you launched this business and explained to us was you had a couple of pilot projects and you strongly believed There was a great future for this type of business. Now the COVID crisis is putting air quality at the center of discussions. And I was wondering To what extent you felt public authorities were becoming more aware of the need for service there? Thank you. Thank you very much, Emmanuel. You have questions for all of us. For the CapEx For the full year, close. For the EBITDA, UK and the good resilience of our business I will take your Japanese question and Olivier about air quality. So I will start with the CapEx? Yes, please. So regarding the CapEx, if you look at what we spent over the last couple of years, 2019 was 2.2 Last year, a little bit more than EUR2.1 billion, which and you know that we managed the CapEx quite well last year. So this year, because we are we have a lot of discretionary CapEx to spend Both on hazardous waste and also on the conversion of energy transition In Germany and in Central Europe, we expect CapEx of around €2,300,000,000 for the full year. About the U. K. Business, Estelle? About the U. K. Business, very confident into it. I guess, P and I On PSI, just to take 2 large continents. C and I wise volumes were down, as Claude Because there was a big lockdown in the Q1 of 2021, and there had been no lockdown last year. It happened later on. So we have a very large decrease in volume compared to last year in C and I, but cost cutting managed to keep our results where they should be basically stable, something like that. With regards to PFI, which is another type of business, it's relatively resilient to volume level Short term. Basically, we share the volume and price effect with the customer with type of Color and floor type of arrangement. Each contract is different, but on majority, that's the case. So at one point, we benefit From a little bit more volume, but not 100%. And on the other hand, when volumes are down, we are not down to 100% The volumes on our side. So we really are sharing with the customer. So all in all, in the PS5 business, volume is not a big thing As long as we manage to keep the ENGIE from waste to full, which we have throughout the crisis, we can prioritize them against landfills or other type of activities. So what's really important is more the prices, so price of recyclate, as much as our performance Industry wise, as in energy from waste level of availability. So basically, resilient to volume in a large to a large extent. Thank you, Estelle. About Japan now, you remember that We were the 1st foreign company to enter the water market in Japan about 20 years ago. It is, of course, a difficult market, and we need time to be Japanese in Japan Graplanoff. Now we enjoyed a turnover of about more than €600,000,000 in this country, mainly in water business. And we take profit year after year by the fact that we were the first one into this market, and we are still The first one amongst the foreign companies. We introduced the PPP model In this country, where the major parts of water services are performed by public authorities And regularly, we make progress. Our water presence allowed us Also to inter obviously in the waste business, especially in recycling, but also in energy business And with €600,000,000 of shareholders, we are far off what we can expect In the next next year. So, Japan is for sure an extension zone, extension territory for Veolia. And now I can say that in Japan, we are seen as also a Japanese company. Mostly indoor air quality and what we can say in the last month is that the trends From especially public authorities to deal or to improve or maintain the air quality in buildings, especially public spaces is accelerating. We're seeing more and more tenders, for instance, in schools from regions, from departments, in order to ensure Good air quality in cat food. What is interesting though in the last weeks, and I'm sure you've heard that, is that Air quality, it's an important risk to health care and public authorities are aware of that. But now with COVID, it could be an element of being open for business or not. Public authorities are talking for instance about How to ensure class sorry, school class availability, thanks to air cleaning between sessions. The leisure industry like cinemas are talking about how to negotiating with government and public authorities about how to stay open or reopen By cleaning the air between cinema stations. So all the experience We've that was accumulated by Veolia in the last 2 years on this matter, could become essential for some Services, public services or business services to remain open in the case of a long COVID economy. So we're seeing a steady growth in that and we're well positioned to take advantage of that. Thank you, Yves. Bratlenoff. We have another question from Philippe Auquation from ODDO BHF. Yes. Good morning to everyone. I have several questions, let's say 3 or 4. The first one is concerning the COVID impact. You mentioned that your economies were €92,000,000 and you break down between the normal plan and the recovery plan. And out of this €24,000,000 what are the level of economies which might be seen as recurrent one? I do think that the travel are still limited and you will use more, for example, some Digital meetings versus traveling, is there some millions which could be, let's say, permanent Or resilient in this figure. That's the first question. The second one is concerning the deviation in terms of price effect Between revenues and EBITDA, you have plus €61,000,000 and minus €52,000,000 Could you just elaborate a little bit more about this Deviation, I would say. The first question is concerning tax carry forward. Is there some additional use In the French fiscal perimeter and U. S. Perimeter of the tax carry forward inventories you have had due to the better results you extract in Q1? And the two last questions are first concerning the French pipe request of improvement. There were some articles in the French press that there is clear need of investments. What could be your thought and the impact on the Veolia's Activities in the coming years. And the last one is concerning the capital increase for the SUEZ merger. You were mentioning previously MAX 2. Now you are putting the range between 2% and 2.5%. Why this has changed and why on higher figures? Many thanks. Okay. I'm not sure I completely understood well your question about the French Quarter Business. Could you repeat it, Philippe? Yes. I mean, I was saying that French press was mentioning During the last day that there is clear need of investments for water pipes in the French municipal business. I do think that with Lafader, you are working in this area. Is there some sign or, let's say, expectation of better businesses, the level of businesses In this way, as most of these investments are going to be done by the municipalities. Okay. Thank you. So we will begin with Cecile about the basket team. So thanks for your question. So if I refer to Page 14 of the presentation on our efficiency plan, The part which is the efficiency plan, as in the traditional one, is fully a recurring one, so the 68 out of the 92. And as far as the 24, which is the recover net debt plan, it's not meant to be necessarily recurring. But given what I know what's underlying in Q1, I would say the vast majority of it is. So we still have a little bit of, say, travel, freeze and stuff like that in it. But the vast majority is more recurring measures even in the recovery of that plan. About the price effect. So the price effect that you see on the revenue side is coming from the price increases that we have in all our businesses. And on the other side, what we put in the EBITDA bridge with minus €52,000,000 It's the usual price per squeeze. It's the cost inflation that we're not passing to our customers plus the renewal impact of our contract. This is the reason why that we have, as usual, a price net of cost inflation, which It's negative and that we have to offset by more savings than this price of cost inflation. This is an explanation The difference between the two boxes. There is not excuse me, Philippe, it is very usual in our presentation. If we enjoyed an increasing of our prices, we will leave it discussed with. We will not Completely, but we will limit it largely. So first of all, by example, you have a cost Of oil and gasoline, so it's part of the price of it's part of the negative EBITDA above, But it's also slightly because we're increasing slightly the prices, but not fully regarding the level Of oil price, which is the level of Q1 today. And in fact, just my question was also there is no other, let's say, non recurring or exceptional Because I know this mechanism, but it was just to know also if there is some specificities mainly in Q1. No, no, no. And you have this effect on all our publication regularly. You will see Price increase for now some several semester, pre lesson And negative impact of the price cost squeeze on the EBITDA level. It is very classic for us. About the tax Charlie, for Ward, Claude again. In terms of tax, if you look at the tax level of Q1, It is a bit higher than the full year because we have less contribution from France and the U. S. You have seen what happened in the U. S. And in U. S. We were further impacted by the very cold weather in Texas. With the very cold weather in Texas, we had to shut down our hazardous waste facility there for a couple of weeks. So What we are seeing with less contribution from those 2 tax groups, The tax rate is slightly higher in Q1, but the expectation is still the same, 25% for the full year. Meaning less than the 27, we have the Excluding the Q1. Okay. About the freshwater business, I will take the question. Is there good news that at least we hear some municipalities And some public people saying that we need more investment in the water activity in France, Meaning that the prices which decreased a lot for 10 years now, It's tough to decrease and probably perhaps increase a bit. It's too early to see the consequences On that fact today for SAD, for example, for the worse, but It will be more interesting also for our water services, meaning that we can invest On the water infrastructure, not only for pipes, but also from treatment equipment, New pollutants and so on. So it is benefiting for all our services with subcontracting to SAD or to BWT for us, but also predicting for all the services. We hope to see that in the coming Months of semester, the money will come probably from the water agency. And you know, Philippe, that In France between some political enhancement and the facts on the field, We need to be tight, tight. About the capital increase? Capital increase, yes. What we have always said is that the capital increase will be capped at around 20% of the operation. So today, with the price The share price increase that we have targeted and that we have announced €20,500,000 This is the reason why that we have This window and we will fine tune the amount when we have a clearer view of the proceeds from the disposal. So we will give you later in the year the precise number of the capital increase. What we said in the past was maximum 20%. I thought you remember it was maximum 2. So it was around 2. So it will be around between 2 and 2.5. Very clear. Many thanks. Another question? Yes. We have another question from Mr. Olivier Van Dusseldar from Exane. Sir, please go ahead. Thank you very much, and good morning, everyone. Thank you for taking my questions also for me. I had a few as well. Firstly, maybe on the EBITDA guidance. So you mentioned above €4,000,000,000 for this year, The €4,000,000,000 is actually what you did in 2019. And with the Q1 EBITDA already up 4.5% Versus Q1 2019, when as you mentioned, in fact, activity levels are still a bit subdued because of COVID and that might get better later in the year. I wonder what you're thinking is about the possibility to actually do substantially better than €4,000,000,000 in terms of EBITDA this year. And the second question, which is actually maybe related to the first one. Your net debt is targeted, as you mentioned previously, to be below €12,000,000,000 by year end. That will probably include disposals. I wonder if you could give us an indication of the sort of the amount of disposal that you expect to make This year, again, on a standalone basis, so I'm not including the Suez transaction. The third question would be on working capital. So you did well in Q1. How much of that do you expect to be retained structurally? And so do you expect Working capital to be a positive driver for your cash flow also at year end? And if so, if you could give us an indication of the amount, that would be very useful. And then a final question for me also coming back to the capital increase. Could you I don't know exactly states you can already give an indication in terms of how much of the capital increase You expect to be financed by giving part of the U. S. Buyout in Veolia shares? And how much of the capital increase will then be financed by a straight Okay. I take the first question, Olivier. For sure, we are in advance on our guidance at the end of Q1. And we did not recover all the consequences of the crisis, For example, our best volumes, meaning that for the rest of the year, we hope to accelerate again our performance. But and so likely there is room to do better Clearly better than the 2019 EMEA performance. But we've announced the guidance About the debt of €12,000,000,000 before the combination of Suez and Veolia closes? So yes, to give you a little bit of Color regarding the net debt level. It's including some disposal, yes, to reduce the debt that was At €13,200,000,000 So what we expect in terms of disposals is slightly higher than €1,000,000,000 So between €1,000,000,000 €1,300,000,000 for the full year. This is for the net debt combination. Working capital at your end. So as you have seen, we have made a lot of progress on the working capital side Even last year, so it's really a continuous improvement. And what I can say, if you look at the previous year In 2019, we made a positive contribution from working capital by €200,000,000 pretty much the same in 2020. So what we expect from 2021 with what we have done since the beginning of the year is a positive impact at year end, Which will be, I would say, maybe in the range of the previous years. So we will see later in the year what we will contribute. But With the effort done by all the countries, we will have a slight positive impact on the debt reduction coming from the working capital. But about working capital, the trees are not going to the sky also. Today, the working capital is for Veolia clearly, there are 2. So it can increase a bit. Every year, we forecast to be stable. Every year, we do better. That's a small increase perhaps at the end of the year. Capital increase? So capital increase, so for the capital increase, we said we have 2 options, but we want to do it in 1 or the other option, but not half and half. So it will be clearly right issue as a normal right That way that I can be done or it could be a share branch, a GAAP share branch in the tender offer. Yes, but we accept Through the deal reached with the Suez Board to increase our price for Suez share. So we take a good price, not in excess, but a very good price for this year. And I think It will be fair also to leave to the Verilya shareholders a part, the normal part Of the retroactive of our deal. So probably, we today, We will go probably to the share the graphical share increase, especially for our actual shareholders. Thank you very much. That's clear. Thank you, sir. Next question is from Mr. Juan Rodriguez from Kepler Cheuvreux. Sir, please go ahead. Thank you. Good morning, everyone. Thank you for taking our questions. On the operational level, most of my questions have been answered, but I still 2 on the financing of the Suez deal, if I may. The first is on the capital increase on the new terms that you provided. And in terms of Timing, can you please confirm that it will be done at the same time at this closing? And then the second is on the financing or through disposal of the assets. It has been said that the multiples will be similar to those of the transactions. So should we expect something around 9 times EBITDA? And any color on the what has been the leverage or what would be the leverage of the new Suez will be useful as well? Thank you. Okay. I begin with the second question. We did with Sales Board to have a Price for the new SUEZ in current with the global price For the whole slate. So we will get that because it is already Discuss and forecast with the press board, so not very far from What were you, Mike? The timing of the capital increase, what we will do, we will look at the appropriate timing To see when to do the capital the share capital increase. So it could be slightly moved From the formal takeover of U. S? But likely before the closing of the offer. Thank you. And as a follow-up, any color on the what could be the leverage of the It is a question for the new shareholders of the new slate That we will agree that these shareholders are discussing today in themselves, first to propose to Veolia, The true seller is Russia. And Frerot also the best price they can Proposed in co announced with the global price we offer for the global ship SUEZ. And they discuss also about their governance, The governance of the Duisse and on that they will propose certainly the leverage. We decided in the agreement of April 11th That the new sales should be how we say that There should be a level balance in terms of debt and liquidity. And also they have to be rated as investment grade. Exactly. Investment grade. So this is the goal is to have an investment grade rating. Thank you, sir. We have another question. We have one Another question from Mr. Philippe Auplacian from ODDO BHF. Sir, go ahead. Yes. Just one additional question regarding a detail. In the Slide 19 about the revenues, you were mentioning a commercial volumes and work negative impact of €30 EUR 8,000,000 And in terms of EBITDA, you were mentioning only minus EUR 4,000,000 and you were saying as comments, thanks to operational efficiencies. Could you just A little bit illustrate which kind of or what kind of operational efficiency you are discussing about, which are not in the 92% of cost cutting, I do suppose. It's really operational efficiencies. Just a minute, Philippe, who we have a look at your question more precisely. So, Pierre, so what we are saying about Operational efficiency is also commercial efficiency and what we are talking about here is about The contribution of hazardous waste contribution in China, this is one of the drivers. So one big item which is contributing to this box, Philippe. So it's a combination, as you know, of a lot of things, Including that effect. And also in for the waste activity, we got a little bit A boost in our incineration activity because we were also able to increase the efficiencies in that It is by a better way, me. All the cost efficiency are on the In the cost cutting plan. When we are talking about efficiency, it is not in the cost cutting plan. It is other efficiency for the full commercial business. Very clear. Many thanks. Thank you, sir. We have one last question from Mr. Andrew Thatcher from Berenberg. Please go ahead. Thank you. Good morning, everyone. Just two quick questions from me. Thanks for taking the questions. 1 on hazardous waste. Please could you just remind us of the timing of new capacities or any new capacities That you already have in planning under construction and what that means in terms of the total Size of the treatment capacity you have going forward, so how much growth will the new capacities bring? And just maybe just expand on any further opportunities that you see to continue to grow in hazardous waste. And then just on Industrial Water Services and Technologies, I was just wondering if you could maybe Give us a bit more color on any differences that you're seeing across industries, so power, oil and gas, mining, pharma, food and bed, Whether or not you're seeing sort of any particular differences between the new inquiries that you're getting from the Industrial Water segment, please. Okay. About as well new capacity this term? As well new capacity is Basically, we're opening new capacity, say, a few times in the year every year. So I would have to go through the whole list of the 7, which are under construction. Some of them will be this year, some of them will be next year and it will be up to 2023 for those under construction now to be open. So it's really spread over the time. For instance, we have started the construction of 1 in Germany, which is going to be more opening in 2023. We have some which are a large one. We have a large one as well in the U. S, which will be in 2023. But in China, typically, we have 3 which are meant to open this year or beginning of the next, which are shorter term, if you wish, and I could go on like that. So And we have as well one in the Middle East, Saint Laurent, which is under construction and it's going to open in 2022. So it's really like a few every year for the next few years. If you have a look at the overall increase in the capacity, If I put this into another terms, we've announced in our impact 2023 plan that we'll have a revenue higher than EUR 3,000,000,000 altogether in the hazardous waste business at the end of the plan. And we are really on our way to Sorry, euros 4,000,000,000. So another €1,000,000,000 because we are more around €3,000,000,000 So another an extra €1,000,000,000 for other compared to what we have now. So it's really it gives you an idea of the pace of those opening of new capacities. The new facility of Singapore is The new CEO of Sogastor is starting. As you know, we have basically half of the volume in, which is a normal ramp up. So that's why I was not mentioning it, but you're right, Antoine. That's one of the 7 as well. Just to have some figures in mind, The turnover of CAS West was €1,600,000,000 in 2016, €2,500,000,000 in 2019 and we target €4,000,000,000 in 2023. About Industrial Water, to well understand your question, could you please say it, please? Yes, sure. I just was looking to see if you're seeing any differences between the segments of industrial clients in terms of As economies open up, whether you're seeing any particular pockets of demand from, say, the food and beverages sector relative to oil and gas, Just to see if there's any differences in trends between the industries, please. Yes. That's a very good question. We're seeing a very different trend of reopening For the ferrous industry, either from our industrial worker, but it's the same for our industrial energy typically or even has its way. To keep a long story short, we are seeing, and that won't be a surprise to you, super big boom in everything to do with pharmaceutical industry, Where we do a lot typically in the hazardous business. We have seen quite a down in 2020, but Speaking back up in the oil and gas, typically in the U. S, where the refineries are back up to, say, 85 capacity, they were down to around 70% last year. So it's getting back up, but not there, not yet recovered fully. Food and bed has always been super resilient. So we haven't seen a big drop and neither is there a big rebound. It's been relatively stable. And on the other hand of the spectrum, the automotive sector, in particular in Europe, is still a bit weak and hasn't come back to pre COVID level. So altogether, since we are covering all the industries I've just mentioned, we have a great portfolio because it's super Super diversified. Of course, it depends on the various geographies. We obviously have more oil and gas in the U. S. Than we have in Europe. But nonetheless, a very different vision from the various industries and a big boost in pharma. On CapEx industrial water needs, perhaps some 2 words on the year about The rise of needs of water reuse for agriculture, which will grow Quickly in my mind in the coming years. Yes. As you know, what is stress is a growing For not only the industry, society and cash, but also agriculture, you will remember that last year, some of the crops in France reduced by 20%, As a consequence, The agricultural sector is talking to us with a certain sense of urgency in order to find Water delivery guarantee, which would come from the reuse I mean, from our water treatment plants. You don't see it in our review lines for now, but it already represents 50% of the water provided to the agriculture Etel Bratplanoff. In Spain, 80% in Israel, 0% 0 in France. We wouldn't be surprised if in the coming years, This was a new source of revenue for us in Europe, but also in all the regions that are affected by water For agriculture. So reuse of water for the agriculture should be for new business time in the coming years. And that will also bring some new needs of pipes, infrastructure treatment, but also pipes. So It will increase the order book base, not only for cities, not only for industry, but also for Thank you. Another question? The last one, perhaps? Yes, we have one last question from Mr. Emmanuel Girard from L'Etijeniere. Sir, please go ahead. Thanks. Question on your slide 27 on the quite impressive performance in Cost of net financial debt improving from €112,000,000 to €86,000,000 And I was wondering if we could Basically, gross this Q1 figure up to get to the right level for full year? Or is there any Either cost or further savings we should take into account. And same question for the next line on that table, the other financial income and expenses. Back on business development, would you mind updating us on your ambitious business plan for plastics recycling? That was one big area of growth pre COVID. And how is this shaping up in coming years? Are you sticking to your ambitions on targets? Should we expect a bit of delays for the delivery of those targets or not? Thank you. Yes. It's about the third question, Emmanuel. Perhaps it is more your business than ours To forecast the short term interest rate, but Claude will try to answer your question. So what I can tell you, Emmanuel, When you look at the lower number in 1, 2021, a large part of it is coming from the low interest rate in foreign currency, So which is a very good news. So it's about 1 quarter or 1 quarter coming from the interest rate in the euro debt And 3 quarters coming from the low level of interest rates in foreign countries. Short term. Short term rates. So What we can say, what we're expecting from the full year is something which could be Slightly below €400,000,000 as the cost of net financial debt, so well below last year number. And in terms of other financial income and expense, this is a line where you will see The dividend that we will receive from Ques in Q2 because the dividend, which are Expected to be around €120,000,000 So what you will have to do is to add The usual level of other financial income and expense and put this on the put the stress dividend on top of it. Very clear. Thanks. About our plastic recycling business. And about our plastic recycling business, the short answer is we are really sticking to our plan. Meaning, as you know, we have targeted to reach €800,000,000 by 2023, and we are really building the The FX is exactly as we had planned. Just a specific comment on last year's COVID prices with regards to plastics, it has really confirmed that our positioning this industry was really the right one because even in the midst of That's your worst part of the crisis. The de correlation of our plastic recycled prices Against the virgin prices and the oil has been kept by our customers because they're really working on buying recycled Plastics because the trend is there and demand from the consumer is there. So that was really a confirmation that we are in the right niche Of like high end quality of plastics and we are really on plan. So it was the last question. Thank you very much To all of you, so let's say, F and M, you can see that earlier and his strong team is able to be together Of course, to prepare it creates the big center of ecological transformation With the project is SUEZ and to manage our actual businesses Briefly in the line of our impact 2023 strategy plan, and we will perform This plan as we forecasted from the beginning, you see that after 1 year of the crisis, We are doing better than just to recover or to have lost 1 year. EBITDA plus 7.5 percent Between 2021 2019 is meaning that we already get the 2 years progression, We think that we are doing better than just to recover. We will come progressively on the initial term Before the crisis, and that is very good news. So we are able to do both things together During morning, evening, weekend and so on, so we are in a good position to welcome all our new colleagues in some months from now. Have a good day. Thank you very much. Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.