Good morning, ladies and gentlemen, and welcome to the Veolia publication of Q1 financial information conference call with Estelle Brachlianoff, CEO of Veolia. [audio distortion] Following the presentation, we will conduct question and end the session. If at any time during this call you require immediate assistance, please press star [audio distortion] operator. May 6, 2026.
Thank you very much and good morning, everyone. Thank you for joining this conference call to present the Veolia. No, because, you know, the line is a little bit blurred, so I thought you had finished your introduction. No. Anyway, I will go on. I'm accompanied by Emmanuelle Menning, our CFO, to present Veolia's Q1 key figures. I will start on slide four by highlighting the key achievements of the first quarter. We delivered a strong Q1, resilient growth and solid EBITDA progression, fully in line with our annual guidance in spite of a difficult environment. Our unique multi-local model has proven its value, again, combining resilience with growth potential based on the sustained demand for essential services, which has led to limited impact from the Middle East conflict and even future opportunities. I will come back to that in a minute.
We are continuing our strategic transformation towards international markets and technology-driven solutions with new tech gains in Q1. I will also come back to innovation after our dedicated day, recently held in London, as it is core to our strategy, fueling growth and efficiency target for years to come beyond the GreenUp plan. I, of course, will fully confirm our 2026 guidance as well as our greener trajectory. These results demonstrate that Veolia's business model and strategy is robust, diversified, and well-positioned to navigate uncertainty while capturing growth opportunities in essential environmental services. Now let's look at the specific numbers for Q1 2026, and I'm on slide five. Revenue reached EUR 11.4 billion, up 2.1% at constant scope and Forex and excluding energy prices.
This represents resilient growth in a geopolitical wait-and-see environment and very comparable to the second half of 2025. Our EBITDA came in at EUR 1.766 billion, up 5.1% at constant scope and Forex, and up 5.8% when including tech and acquisition. I recall, without any contribution of Suez synergies as we enjoy during the previous quarters. This performance is therefore excellent, especially in a complex macro and geopolitical environment. Particularly noteworthy is our EBITDA margin expansion of 73 basis points year on year, reaching 15.5%. This margin improvement is steered by our strategic choices and operational efficiency. Current EBIT reached EUR 971 million, up 7.2% at constant scope and Forex, demonstrating strong operational leverage.
Our net free cash flow improved significantly by EUR 144 million compared to Q1 2025, driven by strict management of good capital expenditure and working cap requirements. Net financial debt stood at EUR 20.8 billion, which is fully under control, and this result gives me strong confidence for the full year 2026. I'm now on slide six and wanted to recall what makes Veolia truly unique, which is our positioning that combines both resilience and growth. We are an international environmental services leader operating in 44 countries across five continents, which gives us the firepower to lead in technology and innovation, thanks in particular to our 14 R&D centers and over 5,000 patents. We rank in the top three in Europe, the Americas, Asia, and the Middle East, which gives us pricing power.
No capital employed in a single country exceed 10% outside the U.S. in order to de-risk the group. This is a choice. Our customer base is diversified, roughly 50/50 between municipal and tertiary and industrial clients. Our multi-local delivery model is anchored in local communities. That means we have no impact from tariffs, no impact on margin rates for Forex volatility, only translation effects, and no dependency on subsidies or government contracts. Our long-term contract, an average of 11 years in duration, with 70% being inflation indexed. We estimate that 85% of our business is macro immune and commodities are essentially passed through in our contract. By the way, and in addition to what I already said, we offer a unique way of integrating solutions combining waste, water, and energy services. This combination of growth potential and resilience is rare in today's markets.
Slide seven. Given the current headlines, I want to address the Middle East situation directly. I believe it is a perfect illustration of the multiple strengths of our business model. We can see this first with the sustained demand for social services. In the region, we maintain constant and direct daily connection with local authorities and clients to ensure the continuity of critical services. This includes operating desalination units, for instance, which can account for up to 95% of the water supply. These direct contacts confirm that our partners are already preparing for the post-crisis phase and require partners like Veolia to be by their side.
Furthermore, our multi-local model ensures our direct financial exposure remains very limited with EUR 1.3 billion revenue in 2025 and capital employed around EUR 300 million in the region, which is less than 1% of the group's total. Consequently, the local impact on Veolia has been largely neutral. Only limited operational disruption, like a little bit lower hazardous waste volumes and a slowdown, or I'm gonna say more, a delay in water technology projects being signed. Regarding consequences on other geographies, we are well protected against rising costs. Our long-term index contract covers 70% of our contracts and covers all our cost base with some lag effects. For the remaining 30%, we have proactively already put in place specific fuel surcharges where needed, particularly in the waste business and with secured key supply.
I'm on slide eight. In a way, this crisis in the Middle East highlights the power of our unique Veolia offer and explains why it may even lead to a few opportunities. Our proprietary solutions help secure access to water supply, which is as critical as oil, if not more, as we see now. Our solution give access to an untapped reservoir of local energy at fixed price instead of import. You can imagine how important it is, and lots of people realize it. In addition to that, our solution can contribute to securing supply chain, thanks to the circular economy. Those solutions can as well depollute industrial sites and protect human health. You will understand, I'm sure, why I'm very confident about our future performance, as we have built with Veolia a unique positioning as the environmental security powerhouse, addressing critical needs for our clients. Slide nine.
Our international footprint has largely contributed to our good result in Q1. I would like to highlight the continuous standout performance in our region outside of Europe, which grew by strong 3.1% and even 5.3% at constant Forex. I will insist on the performance of the U.S., which grew by 7.5% at constant Forex, in spite of extreme cold weather condition which impacted hazardous waste volumes in January and February. The demand for our services is very strong. We also passed the main steps in the Clean Earth acquisition process, which ensures the closing at midyear as announced.
The water technology segment performed quite well, up 4.3%, excluding the project business line, which was penalized or even more like delayed in signing by the crisis in the Middle East, and continued to deliver a remarkable EBITDA growth in this segment. In Europe, we grew by a solid 3%, anchored by strong performance of Central and Eastern Europe, the U.K., as well as Spain, all enjoying strong commercial momentum and positive weather. Finally, front end hazardous waste Europe was resilient in spite of other adverse weather conditions which have penalized a bit waste activities. I expect hazardous waste Europe to grow faster in the coming quarters without the Q1 disturbances. Looking out at our performance by business line on slide 10, we see resilient growth and solid EBITDA progression across all our activities.
Our strong hold activities, municipal water, solid waste, and district heating, generated EUR 8.4 billion in revenue, up 2.5% at constant scope and Forex and excluding energy price. Our booster activities, water tech, hazardous waste, and bioenergy, generated a little bit more than EUR 3 billion in revenue, up 2.2% including tuck-ins. You have to remember again that Q1 was quite specific with negative impact from the Ukraine war on the delay of signing specific projects with water tech, added to extreme weather events and timing effect in hazardous waste. The demand for our booster activities keeps being very strong. If we're to exclude water technology project delay, our boosters would have grown by 4.6%.
The combination of stronghold and booster now represents already 30% of our revenue, demonstrating our strategic evolution towards high growth, higher margin activities, while maintaining the stability of our core business. Emmanuelle Menning will give you all the details by activity in a moment. I'm now on slide 11. Veolia continues its transformation as set up in GreenUp towards more international, more technology-driven activities, which is our boosters. We are very active, sorry, in strategic portfolio management with EUR 8.5 billion of assets which will have rotated over four years. You remember that 2025 was a pivotal year as we successfully achieved the Suez integration, which would also crystallize strategic moves with two major acquisitions signed or closed. First, EUR 1.5 billion invested in water tech to enhance our combined technology portfolio capabilities.
We have already extracted one third of the planned 90 million synergies, which is 30 million, including EUR 10 million in Q1. Of course, $3 billion with the acquisition of Clean Earth in the U.S. We have obtained both the antitrust clearance and Enviri shareholders approval on Monday, which means we are fully on track to close the deal mid-year. Those acquisitions will already create value, also will enhance the group's profile going forward. Lastly, we announced EUR 2 billion of non-strategic asset divestitures in the two years following the Clean Earth closing. Process has started with clear list and various scenarios. We have already achieved several small and medium divestments of mature asset or not in the top three, which you know are some of our criterias, we will continue pruning our portfolio.
On slide 12, I would also like to say a few words about exciting growth ambition related to innovative offers through 2030, which we have explained in a dedicated session last April. I will start with our new offer dedicated to AI industries, covering data centers and chips manufacturing. Those industries are in high demand to secure steady water supply for cooling systems, continuity of supply of ultrapure water. They use large amount of high quality solvent and acids. Data centers are starting to see resistance from local communities to be granted permits given the intensity in resource consumption. Our Data Center Resource 360 new offers help secure local acceptance and license to operate with recycled water technologies and heat recovery, as seen in our recent contract with AWS in Mississippi.
We already grew very quickly in those AI industries from EUR 150 million in 2019 to EUR 560 million in 2025. We're now targeting approximately EUR 1 billion by 2030. We have a unique set of assets and technologies to support this growth. Patented technologies such as electrodeionization for ultrapure water, ZeeWeed membrane for water recovery, without mentioning a new Taiwan-based electronic-grade sulfuric acid recovery, which is really promising. Also a worldwide install base of hazardous waste treatment facilities. In addition, we'll soon have a presence in all 50 states of the U.S. with the Clean Earth acquisition. I'll remind you that the offer we launched in 2024 on PFAS is already very successful. I'm very confident we'll reach our ambitious EUR 1 billion revenue by 2030.
We had zero revenue in 2022, EUR 259 in 2025, which is up 25%. Our recent acquisition of soil remediation specialist in Australia at a very reasonable multiple will complement nicely our comprehensive solution portfolio and offer duplication opportunities. This innovation-driven growth are testimony of the Group transformation towards more value-added offered services as an environmental security powerhouse. On slide 13, we will also derive from digital AI innovative tools and an increasing contribution to our efficiency plan. In 2025, 23% of our operational efficiencies were already derived from AI and digital, and we aim at 50% by 2030. This is by scaling up AI-based tool we've already tested to maximize plant productivity, to reduce energy or chemical consumption, or to help detect leaks. Our Talk to My Plant tool, dedicated to plants maintenance operator, is particular very promising.
It is a very exciting journey, and we are only on the very beginning here. Slide 14, I just want finally to fully confirm our 2026 guidance, which is reminded fully on this slide. In particular, with EBITDA to grow 5%-6% organically and current net income by 8% at constant Forex and before PPA. This is, of course, excluding Clean Earth. Additionally, assuming a mid-2026 closing, the Clean Earth acquisition will be accretive to current net income from 2027 before PPA. Confirm as well our GreenUp trajectory. This reflects our confidence in our business model and strategic execution. Emmanuelle, the floor is yours to elaborate on Q1 results.
Thank you, Estelle, and good morning, everyone. Revenue in Q1 amounted to EUR 11.4 billion at 2.1%, excluding energy prices. Organic growth of EBITDA was 5.1%, in line with our annual guidance, which is an excellent performance as we no longer benefit from the synergies. Our EBITDA margin continued to increase by 73 basis points to 15.5%. We continue to enjoy a strong operating leverage, leading to a 7.2% progression of current EBITDA. Net free cash flow increased by EUR 144 million, thanks to tight CapEx control. Net debt landed at EUR 20.8 billion, including the seasonal reversal of working capital.
Forex impact on EBITDA was EUR 33 million, as forecasted, due to a lower US dollar, British pound and Latin currencies. Forex is moving, notably this due to the crisis in the Middle East, and the final impact on 2026 EBITDA is hard to predict. It will be lower than initially expected with the current exchange rate. We will see, but remember that as a multi-local group with limited international trade, Forex does not impact our businesses or margin rates, and Forex has a very limited impact at net income level. Moving to slide 17, you can see the revenue and EBITDA evolution by geographies. As Estelle mentioned earlier, growth outside Europe was quite satisfactory at +3.1% and even +5.3%, including tuck-ins. Most regions registered mid-single digit growth.
U.S.A. grew by +5.2% and 7.5% including tuck-ins, in spite of adverse weather conditions, which impacted hazardous waste volumes in January and February. Hazardous waste in the U.S. still grew by 5.7%. Pacific grew by +8.1%, including the successful acquisition in Australia, which extends our leadership in hazardous waste and PFAS treatment. Africa and Middle East revenue increased by +4.4%. By the way, Middle East succeeds to be up +2% in a complex geopolitical context. Water technologies was quite resilient, excluding projects, progressed by 4.2% like last year. As I remember, 70% of our activities are recurring, corresponding to products, services, and chemicals. While 30% is more volatile by nature, what we call projects.
In Q1, projects were impacted by several booking and milestone delays due to the Middle East crisis, and we forecast this to continue in Q2. Above all, water technologies continue to deliver a strong EBITDA growth, fueled by our business refocusing and efficiencies and synergies. Europe grew by 6%, excluding energy prices, fueled by favorable weather in home heating and by good water activity. Finally, France and hazardous waste Europe were resilient. Now let's take a look at our performance by business. I will start with water. It represents 40% of our revenues and 50% of the group EBITDA. Water revenue was up by 2%. Water operation benefited from good indexation in Europe and in the U.S., except in France, due to the lower electricity prices.
Volumes were on a very good trend, up 1.1% in France, 2.4% in Central Europe, 2.9% in U.S. regulated. As I just explained, the underlying growth of water technologies, excluding the timing of project delivery, remained quite strong at 4.2%. Moving to waste, representing 35% of our revenues. Waste activities succeeded to stay flat despite unhelpful macro and are very comparable to previous quarters. Indeed, excluding external factors as weather, recyclate or electricity prices, waste revenue was up +1% at constant scope and Forex. Starting with solid waste, we did not experience in Q1 any significant impact of the higher diesel cost. In terms of diesel price increase, I remind you that it's pass-through.
The group diesel purchases for the waste activity amounted last year to EUR 280 million, half for multiple contracts with automatic passthrough and indexation formula with three to six months lag, and half for C&I clients with immediate fuel surcharge. In term of volumes and commercial developments, performance was mixed in Europe. Slight volume decrease impacted by bad weather, I&C route, and frozen waste. Good incinerator availability rates and activity continued to progress in the rest of the world. Hazardous waste grew by +1.7% and +6% including tuck-ins. Europe was slow due to the combination of adverse weather and maintenance outage timing, with rebound planned in Q2. Growth remains strong in the U.S., +5.4% with average price increase of 3.6% and volume up despite unfavorable weather conditions.
For Q2, we expect further price increases alongside fuel surcharge and better volumes. The performance of last year's tuck-in in the U.S., Brazil, and Japan was very good. Finally, moving on to energy, I'm on slide 20. Regarding the evolution of gas and fuel prices, I remind you that our energy business model is very strong. As we demonstrated in 2022 and 2023, it is regulated and our margins are protected. We can also marginally take advantage of higher electricity prices and of volatility over midterm. For 2026, we are largely hedged in term of gas, CO2 cost, and electricity revenue. Energy prices were down as expected, but to a much lesser extent than last year.
Excluding the energy price impact, Q1 growth was quite good, +4.1%, thanks to good volumes helped by a colder winter and with a resilient activity for the booster. The revenue bridge on slide 21 explain the driver of our resilient growth in Q1. Forex impact amounted to -2.6% due to U.S. dollar, GBP, Argentine peso, and yen. Scope was positive by EUR 69 million, including hazardous waste tuck-in. We expect the consolidation of Clean Earth in the second semester of 2026, and we are pleased to have now obtained both antitrust clearance and Enviri shareholder approval. The impact of energy prices was, as expected, more than divided by two compared to Q1 last year.
Recycled prices were almost neutral. The weather effect amounted to EUR +66 million due to a colder winter in Europe, partially offset by adverse weather impact for waste activities. The contribution of commerce volumes and pricing was +1.6%. Pricing in water and waste remains sustained, contributing to +1.4%. Let me walk you through the EBITDA bridge, which illustrates our strong operational performance. We experienced Forex translation impact of EUR 33 million. It's important to remember that Forex has no impact on our margin rates. It's purely translation effects since our revenues and costs are in the same currency in each of our countries. Scope effect from tuck-ins contribute positively +1% EBITDA increase, showing good revenue to EBITDA conversion and fueling future EBITDA growth. Energy and recycled material prices had an impact of EUR -60 million.
Weather effect contributed positively to 1% EBITDA growth. The most impressive component is our growth and performance contribution of 5.1%. This breakdown into EUR 62 million from net efficiency gain, with a very good retention rate, thanks to action plan implemented across Europe. We have also EUR 10 million from water technology synergies. The volumes and commerce contribution was limited and in line with revenue. This represents organic growth of 5.1% at constant scope as Forex, which is quite good. As mentioned, we do not benefit anymore from the 1.5 contribution of the synergies. A few highlights on the efficiency gain. I am on slide 23. We delivered EUR 96 million of efficiency gain in Q1, in line with our annual target. Two important characteristics you need to consider regarding efficiency.
Efficiency was indeed a permanent lever for value creation. It's embedded into our operation. Efficiency gain at Veolia are not discretionary cost-cutting program, they come from a very diversified series of initiatives in our thousands of plants. In case of headwinds, we can and we know how to boost efficiency program, as we demonstrated in the past, by specific plan like the one we have conducted in China, in Spain, and in France. Digital and AI gain, which already accounted for 23% of our recurring operational efficiency in 2025, will continue to increase, we have set an objective of 50% of digital gain in 2030. Let's now analyze our performance below EBITDA. I am on slide 24. Going down to current EBIT, this slide illustrates perfectly the operational leverage of our business model.
2.1% revenue growth, 5.1% EBITDA growth, 7.2% EBIT increase. Current EBIT grew to EUR 971 million at a faster pace than EBITDA. Let me highlight amortization and other, which were slightly up at constant scope and Forex and industrial capital gain provision were stable, showing a continued strong quality of results. Now, free cash flow generation, which is key, and net financial debt. I am on slide 25. I am satisfied with the progression of the net free cash flow of EUR 144 million, which we achieved despite the seasonality of working capital. Thanks to a tight CapEx control, you see a strong discipline on industrial investment at EUR -860 million compared to more than EUR 1 billion last year.
Limited increase of taxes and financial charges linked to last year water technology acquisition. Working capital reversal was close to last year. Net financial debt is therefore well under control, reaching EUR 20.8 billion. This increase of EUR 1.1 billion is due to the seasonality of working cap and financial investment for EUR -172 million. Our net debt is 85% fixed. Our net group liquidity is very solid, EUR 6.7 billion, and our balance sheets, therefore, remain very strong. Both rating agency confirmed strong investment-grade rating beginning of 2026. Before concluding, this slide remind you of our 2026 guidance, which Estelle fully confirmed earlier. Continued solid organic revenue growth, excluding energy prices. For EBITDA, organic growth between 5% and 6%.
Current net income of minimum 8% at constant Forex, excluding Clean Earth, which we will close mid-2026. Leverage ratio equal or slightly above 3x with Clean Earth acquisition. As usual, our dividend will grow in line with our accretive year. As you see, we are very confident for 2026. We deliver a strong Q1, resilient growth, and solid EBITDA increase, fully in line with our annual guidance. Thank you for your attention.
Thank you, Emmanuelle. Now we are ready, Emmanuelle and myself, to take the question you may have.
Ladies and gentlemen, we will now begin the question-and-answer session. If you wish to ask a question, just press star one on your telephone keypad. First question comes from Ajay Patel from Goldman Sachs. Please go ahead.
Good morning, and thank you very much for the presentation. I have two areas I wanted to dig a little deeper. Firstly, on cost-cutting and the retention rate. Over this quarter was quite a bit higher than you normally guide. I just wondered, how should we think about that in the context of the full year? I guess maybe alongside that, you talk of AI increasingly becoming a proportion of the overall cost-cutting efforts increasing in size. I just wondered, is the retention rate on the cost savings that you make on the AI side higher than that of maybe the non-AI side? Just to understand if there's any dynamic there that we should understand. The last one is just referring to the bridge on slide 22.
If you could help us with the volumes and commerce element being a limited contribution, just what headwinds Maybe break out a little bit more of the headwinds that you experienced over Q1 and how should we think about that variable over the course of the year? Thank you very much.
Thank you for your question. First, on the cost-cutting, you're right. It's EUR 62 million out of EUR 96 million basically that we've retained, which is higher than the usual, don't translate it into four times for the entirety of the year. Our good target is usually between 30% and 50%, but it's fair to say in the recent quarters, we've been more around the 40%-50% than the lower part of the range. That's a good proxy for me. With regard to your second half part of the first question on AI, you're not wrong, as in, our AI cost-cutting is mainly on operational things, like that's why I mentioned the example of AI helps us to reduce energy consumption, to help us increase the plant efficiency, and so on and so forth.
These type of gains are typically more retained than what would be, say, SG&A type of cost-cutting. You're right. The more we can retain of the cost-cutting gain or efficiency plan, the happier we will be. There always will be some leakage, let's call it that way, because it's part of our business model with our customer. When we renew contracts, we give some productivity back to the customer, then we find other ways of gaining productivities in the years following the renewal of the contract. That's why there will always be some type of leakage and, of course, we try to retain the maximum possible.
In terms of the second part of your question, I would, I would not highlight anything which would look like I mean, there is no slowdown in revenue. When you look at H2 2025 and Q1 2026, we're exactly in the similar type of range of two-point-something, you know, revenue, excluding energy price. In the pluses and minus of this quarter, in terms of commerce is very good. No question about that. Retention of our contract or renewal of our contract is very good. On the plus side, we had a little bit of weather effects in Eastern Europe. On the minus side, we had a little bit of weather effects, but on the negative side.
In the U.S. and in Europe, on haz and waste, you may have noted that there was two times a week or a week and a half of the eastern part of the U.S. being totally blocked by -15, -20 degrees Celsius, you know, type of temperature, with everything being closed. Of course, that means there's volume, you know, in the end. The trucks were not even allowed to be driven into any type of roads. That's why pluses and minuses, but nothing which looks like a slowdown. April is good. The demand of our services is sustained. Again, the same type of pace in the revenue as we had enjoyed in the second part of last year.
May I add one more question?
Please.
It was the other thing, just on the opening comments. I think that when we're talking about the conflict at the moment, just wondering how does disruption work in your business model in terms of if a certain component doesn't turn up on time or there are some restrictions on how you operate in terms of some form of rationing? I know that we're not at this level yet, if these types of impact happen, are they pass-through or is there some exposure on that side? I didn't quite necessarily get that from when I was listening to the presentation.
When it comes to the Middle East activity, we have not seen disruption in supply chain. The thing we've seen is, you know, like, a few days on and off in the refineries which were nearby our sites. You know, a little bit less activity from one day to the next. We don't depend on very sensitive component which- Or chemicals which only go through all A lot of it goes through the Strait of Hormuz, if it's your question. We are very, very decentralized in our supply chain. We have, of course, you know, some centralized procurements, but we usually are more on a regional basis anyway.
Honestly, we have not seen any disruption, and I don't anticipate any disruption in the supply of everything Veolia needs to operate.
Thank you. Very clear.
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I think, Arthur, it is your turn. Please go ahead.
Yes. Hello. Can you hear me well?
Yes, perfectly. Please.
Yeah. Okay, great. Thank you very much.
Apparently, the only line which doesn't work well is that of the operator, which is not exactly helpful, but we'll try to go ahead anyway. Please go ahead.
Okay. Thank you very much. Thanks for taking my question. The first one would be just on the headwind to waste organic growth that you mentioned related to bad weather in Europe in January, February and plant outage. I was wondering if you could quantify that negative effect on EBITDA in Q1. I was also wondering, more generally speaking, how should we expect waste volumes to look later in the year? In particular, you're mentioning a bit of a slow start in January, February. How was it looking in March and April? I suspect you already have some indications of trends for those two months.
The second question is just on what's happening in the world at the moment, which is, well, higher inflation due to the geopolitical uncertainty. I was wondering about the sequence of events for Veolia. Is it possible that basically you have a slightly weaker end to 2026 because of the slower volumes and higher cost, and then a recovery or a more positive effect in 2027 with your inflation clauses that you flagged that have a little bit of a lag? Thank you.
Thank you. I guess, you know, I would like to highlight, by the way, some opportunities, you know, and I will start with that. What we discover, rediscover, or the general public realizes when it comes to the water release is be dependent on imports is never a good idea. We rely on supply of water, otherwise nothing happens. Everybody is super concerned by their health and that of their kids. That's exactly what Veolia offers solutions to. In a way, in my opinion, the crisis reveals anything but the strength of the business model of Veolia and its positioning.
To answer specifically your question, there is no slow start to the year in terms of volume when it comes to, say, economy, underlying this, even in waste in the first part of the year. We haven't seen that. The only negative, again, was weather-related. There's a number of days where we cannot even circulate it. Our customer could not, so they haven't generated waste, and that was it. Don't take it as a start, as a slowdown in or slow start to the year in terms of underlying trend, because I think that would be a mistake. The underlying trend is exactly the same as the end of last year. That's exactly what we've seen, to answer your second part of your question, in March and April, which were exactly good.
When you exclude the weather effects element, which were a few days here and there, and even two weeks in the U.S., that's the only component. Again, the demand is sustained. The volumes are there, and they are coming back once once you can transport them, if I may. In terms of the impacts beyond the Middle East itself of the Middle East crisis on costs, if I understand your second question. As we've demonstrated through the war in Ukraine, in a way, the we have the ability to pass on the costs to protect our margin. We've demonstrated it. There is a little bit of lag effect, but we have a little bit of positive as well in terms of commodities and things like that. That's why I can confirm fully our guidance for the year.
You know, we will maintain our 5%-6%, you know, EBITDA margin growth for the year.
Thank you very much.
Thank you. I'm going to play the operator. I think the next question is coming from Philippe Ourpatian from ODDO. Operator, if you can please open Philippe's line. Thank you. No. Let's move to Olly from Deutsche Bank.
Thanks. Morning. Two questions from me, please. One is just on the free cash flow. There's a bit of improvement versus Q1 last year. Does this put you on track, do you think, to see, you know, a similar improvement for the full year for net free cash flow versus 2025, so we can see a bit more meaningful growth there? Just coming back to the inflation point, I mean, presumably with inflation expectations where they are currently and, you know, we can see those continue to increase, perhaps. If there's any benefit from that with your tariff indexation, presumably the bulk of that would start to come through in 2027. If you could just confirm the mechanics of that again for That'd be very helpful. Thank you.
Emmanuelle, on free cash flow.
Yes. good morning, Olly. As mentioned, we are very satisfied with the progression of free cash flow beginning of the year. As you have seen, it has increased by EUR +144 million, and part of it come from the very strong discipline we had on CapEx. I mentioned it.
We spent, EUR 860 million when it was more than EUR 1 billion last year. You know that we are very committed to have a strong free cash flow generation to be able to cover our dividend. We are fully committed, and we have a lot of action regarding that, working on the time to invoice, putting control on our CapEx, improving the collection. Our target remain for the year to have a strong free cash flow to be able to cover our dividends. And as you may see, we have a very strong liquidity, EUR 6.7 billion, and a very strong balance sheet for 2026.
Our aim is always to grow free cash flow on a yearly basis. We don't give guidance because there is seasonality in this, in Veolia. Of course, we always try to do our best to improve the free cash flow generation of the group, which allow us then to decide where to invest on. I remind you that it's free cash flow after gross investments, by the way, which is, you know, in our hands. In terms of inflation, maybe I was not clear enough. Emmanuelle, do you wanna get to have a go at that and fuel surcharge maybe?
Yes. Your question only was on the impact of inflation and fuel surcharge. As mentioned by Estelle, you know that our model is well protected against cost increase. We have 70% of our portfolio which benefit from indexation formula, and we have 30% which where we have strong pricing power and where we can do price surcharge. Coming to the specific element on inflation, we showed in the past that our model was very strong and able to pass the cost to our clients in 2022, 2023. What we have done since the beginning of the year is to be very agile and very reactive on the 30%, specifically on the fuel surcharge. We start beginning of March.
It has been put in place. We can have a small timeline, but it's very efficient. We demonstrate. You may remember that in 2020 to 2022, we are able sometimes to do three to four times increase when it was necessary. It's fully put in place. The element to have in mind is that for our municipal clients, which is 50%, we may have a timeline of three to six months. We have put in place all our action plan, as mentioned before, to have really strong discipline on cost, to not accept automatically the increase of our supplier, to have restricted move or displacement if it's not necessary, of course, to increase our strategic inventory when necessary.
For the 70%, which is indexed, if there is a little bit of lag effect on the revenue, there could be a lag effect on our supplier in a way and our cost base, in other terms, to protect our margin. For the fuel surcharge, it's already in place, and if you have to do two, three this year or one will be enough, we'll see. It's already in place now as we speak.
Thank you.
I would like to highlight again, if I may. I said it in my speech, but, you know, the type of discussion we have with customers is not only about cost protection. Actually, it's quite the opposite. I just wanted to share this with you. It's incoming calls on, can you help us with energy efficiency? Of course, energy is higher in price. Can you help me with that? It's, can you help me with securing local sources of energy? It looks like you do that, Veolia. Can you help me with that? It helps. Same with circular economy. When you recycle, it avoids importing from far away and be dependent therefore on the ups and downs of commodity prices.
All that means, you know, we have a lot of incoming calls of customer where for them, the war means I want more of Veolia type of services. Starting in the Middle East, by the way, where they already are preparing for the post-war and discussing about, you know, how can we be even more resilient going forward in terms of the infrastructure reconstruction or depollution of sites.
Thank you.
Next question.
The next question comes from the line of Philippe Oddo. Please go ahead.
Yes. Good morning. Not Philippe Oddo. I will be more rich than I am.
Not Philippe Oddo.
Philippe Ourpatian from ODDO, even if we have the same letters as Philippe and Oddo, versus my first and last name. Just one question. Most of my question have been already answered. Concerning the divestments, you mentioned in your slide that three operation, means the top three programs, have been already signed or being closed in the coming months, I would say. Could you just give us, as you have also mentioned that there is your plan and several scenario are prepared. Could we have the idea of what's the amount of divestment already under bracket secure versus the EUR 2 billion targeted?
Without mentioning any specific operation, but just to give us where you are exactly, 2026 and 2027, because I do suppose that it already started and you have some discussion and some assets which have been already determined to be divested. Many thanks.
A few things. Thanks for your question. A few things. We said we'll divest EUR 2 billion in the two years following the closing. We're talking about from now till mid-2028. We have plenty of time and, you know, during our balance sheet is compatible with the timescale I just gave. In terms of what we've already done of the criteria, I said non-top three, things which we are number five, number six on the market, and we don't see any possibility to be, you know, up very, very quickly.
Mature as in, as in we don't see how we can grow the EBITDA or the EBIT, you know, even with our best effort, going forward, or non-strategic, like we've done with SADE-CGTH, which was an activity in construction we didn't want to go on with. That's the typical criteria. That's typically in the criteria of what we've already, like, signed and closed, secured. We're talking about, you know, you know, smaller and medium objects, which are listed there, plastic in Korea, industrial cleaning in Belgium. All together, it will be a bit in excess of EUR 100 million, EUR 200 million, this type of order of magnitude, if I remember well.
In terms of the larger object, I will consider them secured when they're signed. When they will be signed, they will be announced. You will have to wait till that date to have them secured. I'm very confident. I'm very confident because we've done a few market testing, and we have alternatives in case for whatever reason, one doesn't go ahead in the type of price range we were expecting. We have plan A and plan B if you want. We will secure this EUR 2 billion in good condition in two years following the closing.
May I have an additional comment because it's very interesting what you said concerning your capacity to choose some assets. In order to do EUR 2 billion, what's gonna be your, let's say, global potential of divestment? Are we discussing about EUR 3 billion, EUR 4 billion, EUR 5 billion, means the bucket of, or the basket of potential disposal, regarding the size of your group and the numbers of subsidiary you have around the world? Just to have an idea about where we are exactly when you mention two, you can base your calculation on how much more than that.
We have enough headroom to be able to be very confident. That's the only thing I can say. Those businesses, you know, it's always a choice. The businesses which are plan B are businesses we like. They earn their money. They're a little bit less interesting than others, so I have no problem in selling them. They still are good businesses, so we don't have any problematic one in the list. Therefore, you know, like, I guess, you know, like, we have sufficient security on the achievement of this program, I can tell you.
Many thanks. Very clear.
Philippe, if I may.
Yes. Please.
Just one element I wanted to share with you. We told you already, very clear plan. We know what we want to do. We have different scenarios allowing us to be agile. There is no pressure on timing because our balance sheet is very strong. We don't need to do this divestment to be able to finance Clean Earth. That's not the issue. And you may have seen that in terms of transactions, delivery, and execution, we have been showing an amazing track record, so not under pressure of time. We also share with you before that, we will divest part of the EUR 2 billion will be business which will be divested.
The other one will be 1/4 to 1/3 will be linked to the portfolio cleaning that we have also launched before and that we will continue. We don't need to do everything everywhere. We have a very clear picture on where we want to do and where we want to go, and a very good track record in terms of execution.
Just, you know, to illustrate what we said by portfolio pruning. We said plastic in Korea. It doesn't mean that we don't like plastic or we don't like Korea, but it looks like plastic in Korea, we are not in the top three and not being able to get in the top three. That's why we've sold it. In terms of our industrial cleaning activities in Belgium, it was more the non-strategic criteria here.
You know, industrial cleaning is not a priority for the group. Therefore, you know, had no ability to be duplicated any time soon in nearby geography, so we decided to sell it, each time with, you know, value-added sell. It was a good sell for us. That's I think it gives you an idea of what I've what Emmanuelle said by the smaller ones, which are more portfolio pruning type of activities, of selling, of disposal.
Many thanks. Very clear.
Thank you. I think next question is coming from Bernstein, Thibault Dujardin.
Yes. Hello. Thank you very much. Can you hear me?
Yes, we can hear you very well.
Yes. Yes. May I ask what is the impact of the delays in term of project in the Middle East in term of, EBITDA impact or the order of magnitude?
Basically, you know, Water Tech EBITDA has progressed very well in the first quarter like it had been in the quarters before. The answer, the short answer to your question is none. As we always said, projects, you know, are a lower margin type of activities within Water Tech. It's only 25% of the business. We like it because it fuels potential buy of, you know, membranes and stuff like that in the end. It's a positive margin still, but lower than the average. The answer is, no, roughly. Very nice improving of the EBITDA in the first quarter in Water Tech. Again, Water Tech excluding project was +4.2% revenue increase, which is very nice.
EBITDA increased by even more than that, thanks to again, the usual cost efficiency and so on and so forth, added to the EUR 10 million synergies we've delivered in the first quarter, in addition to the EUR 20 million we already had delivered for the second half of last year. No impact is the answer.
Thank you very much.
Next question comes from Alex [audio distortion]
I'm very confident again that it's only delays in signing, and we still have discussion with the customers about not only signing, whenever they will be a bit able because the work is, you know, like, a bit more under control. We even have specific orders like of mobile units and stuff like that in emergency type of situation in the Middle East in Water Tech. You know, it has created even some opportunities.
Next question comes from Alex.
Next question is from Alex from Bank of America.
Hi. Good morning.
Please.
Hi. Good morning. Thanks for taking my question. Two follow-ups and one question on guidance, please. The first follow-up on the weather headwinds for waste. I don't think that was a specific item that was disclosed in the revenue bridge before, and maybe because the impact was just always, you know, much smaller than this quarter. Is that something we need to consider on a more recurring basis given climate change around the world? Similarly, on phasing, just to expand on some of the other question, should we not see good volumes in Q2 to catch up on the missed rounds you've had in Q1, which would then normalize in Q3? Second follow-up on disposals. Why not perhaps rotate capital more rapidly?
I think you mentioned that you had a lot of headroom beyond the EUR 2 billion of asset disposal target. If these assets are not number three Well, I'm sorry, top three mature, and you know, are non-strategic, why not also increase the pace of disposals and perhaps get money back to shareholder or even create plenty of headroom for yourself to do some more strategic acquisition? Question and last question on guidance. Given the operating leverage of the business, you know, revenue up 2%, EBITDA +5%, EBIT +7%, is the +8% net income guidance not too competitive for the year, or are there any below-the-line items we need to be mindful of? Thank you.
Okay. weather on the bridge. Emmanuelle?
Yes. Good morning, Alex. Regarding the bridge, on the column weather, We have the same methodology than before. It's just that in the past, we are not facing this type of weather condition. You had in the past, mainly in the weather column, the energy impact almost all time, and you had one or twice some effect from waste when it was the case, but it was more an exception than the rules. You were mentioning the impact of volume. You're right, we benefit in Q1 in term of weather from good impact on energy. We'll not have that in Q2.
We'll not have this positive effect, but we will benefit from a form of rebound as we'll not have, as we had in Q1, the weather impacting, having impact on I&C routes , I&C waste, no project on soil remediation. We'll have a form of rebound in Q2, that's for sure, and we are starting to see that in April, which is positive. As we are speaking a bit on the month of April, what we could see is that we have plus and minus. On the waste as mentioned, we had more outage in Q1, and we'll not have that in Q2, Q3, Q4. We'll not have the negative impact of the meteo.
We may have a slight fuel surcharge or delay, but between three and six months like we have mentioned. On the energy side, we had the positive effect of weather that we had in Q1 are not going to be in Q2, we may have a small impact on energy prices, as I mentioned, a link to fuel surcharge. We have opportunities for the non-sparked which has been hedged. You know that we have full visibility on the energy margin. On the waste business, we have part of the electricity, we are hedging 85%, so for the 15% we can have a positive impact.
Positive impact, as mentioned before by Estelle, potentially on the recyclate, notably on the plastic side. It's marginal because you know that we have put in place back-to-back contract. On water, we spoke already about the water technology timing effect on project top line. We see the good trend we have seen on water, especially in terms of pricing and in terms of volumes. We don't see any change of trend in April. Altogether, April has been good. We haven't seen any change in underlying trends. You have the ups and downs of weather, apart from that, nothing specific. No, it was really exceptional in waste. It never happens. It happens every once every, I don't know, like five to 10 years, this type of circumstances.
It was really, really exceptional. I don't anticipate that it will come again, very much.
In terms of the capital allocation, yes, we have headroom. That's a question you always ask. What about, we sell this and that, and then we give money back to the shareholders.
I'm really keen on one, we still create value with those assets by increasing thanks to our operational efficiency, thanks to you know, like, thanks to everything we're doing, we are creating value. Shall I remind that, you know, we've increased the dividends quite a lot in the last few years, and the net result by basically 12% year-on-year in the last two years and double the net result in the last five years. This creates value. We already are giving to the shareholders, you know, like, some element via dividends. We have topped up that starting last year by a first in the history of the group, which was a share buyback to avoid the dilution program.
You know, so I guess, I guess, you know, I'm very, very focusing on delivering shareholder value, but I think we do create shareholder value with the business model we have. In terms of the will we stop there, irrespective of the I mean, irrespective of the buying, opportunity, we are doing the pruning of portfolio anyway. you know, the non-top three is a strategy which was in the GreenUp plan. You may remember that. We've tried in, typically in the plastic in Korea, I just mentioned, we've tried for two years to try to see if we could be in the top three. We didn't manage to be successful, therefore, we decided to sell it. That's more the way to see it. There is an up or out strategy here, which we are implementing.
Yes, I can confirm, we are very confident about the 8%, you know, net income. Emmanuelle, do you want to elaborate on that?
Yes, with pleasure. you know that when you look at our performance this year, very strong performance with the increase of EBITDA of 5.1%, as mentioned before, without the synergies, meaning that we are cruising at the same pace, showing that our strategic decision to go for faster growing and higher margin activity is delivering results. Down the line, we will of course, continue to benefit from our operating leverage. We have shown that before, + 2.1% revenue increase, plus 5.1% EBITDA increase, and + 7.2% EBIT increase. as you see, we keep a tight control on CapEx so that our D&A will not increase significantly.
Our total cost of financing, which decreased slightly in 2025, will only grow in 2026 a bit, linked to the financing, for instance, of the water technology acquisition we did last year in June. We believe we can sustain a tax rate between 25% and 26%, meaning that we are fully confident to confirm our target in term of current net income for the year. Thank you.
I think the next question is coming from Kepler, from Juan.
Hi. Thank you. Good morning. Can you hear me?
Yes, we can hear you very well.
Excellent. Perfect. Thank you. It's just a follow-up, as most of the questions have been already answered. I want to have more clarity on the, on the net income guidance because you signaled that the closing for Clean Earth is expected on June after the two major steps in the AGM and the antitrust clearance. Can you help us quantify the expected net income effect from the integration for 2026, as you signaled the 8% growth is ex Clean Earth with a positive contribution from 2027. What is the expected net income effect that you expect to have from the integration of Clean Earth for 2026? Thank you.
I will refresh what we've said in a way which we can confirm on when we've announced the acquisition of Clean Earth, which will be assuming it's mid-year. Therefore, since we publish, so we can have If we were to do accounts at midyear with everything and dividend and so on and so forth, which is not the case, it would be a different story. Basically, given the fact that it's likely to be mid-year, it means it will be accretive before PPA, the Clean Earth acquisition from 2027, and accretive even after PPA from 2028.
The PPA, we don't know yet what it's gonna be. We have a few uncertainties on dates, on things like PPA. We cannot give you numbers, but it will be accretive very soon in a way, you know, before PPA from year one and even after PPA from year two. That's what we've announced, and we're confident we will deliver. In terms of integration, you remember we planned over four years of synergies. We have not included any synergies in 2026. It will start in 2027. Again, all that depends on the date and the detail of it. Of course, if we are able to manage some synergies this year, we will be very happy with it.
It is not what we've included in our, you know, business plan or what we've announced so far. [audio distortion] Again, when we talk about, you know, access to local sources of energy, when we talk about securing supply chains, this is exactly what Veolia offers to its customer. If anything, the crisis in the Middle East is reinforces the importance of our services and the demand for our services. I'm very confident not only in confirming the guidance for this year, but in the years to come. The last point is, of course, we'll have various opportunities, myself, Emmanuelle, and the investor relation team to see some of you in the roadshows to come. I'm sure you will have plenty of opportunities to ask detailed questions.
See you otherwise in July for H1 results. Thank you very much.