Good morning, ladies and gentlemen, and welcome to Veolia nine months 2026 key figures conference call and webcast with Estelle Brachlianoff, CEO, and Emmanuelle Menning, CFO. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, November 5, 2026. I would now like to turn the conference over to Ms. Estelle Brachlianoff. Please go ahead.
Good morning, everyone, and thank you for joining us today to review Veolia's nine-month performance. I am here with Emmanuelle Menning, our CFO, and I will begin with a clear highlight on our strategic progress before handing over to Emmanuelle to take you through the detailed financials. I am on slide four. Veolia continues to stand out with resilient growth quarter after quarter, and this is thanks to our unique positioning and our international footprint. Indeed, in Q3, the strengthening of our growth to 5% in the quarter, which I am very happy about, is solely driven by our 80% international activities, a testament to our strategy of geographical diversification, in particular outside Europe, the U.S.A. being now our second country. Water performance was very strong, and this summer has shed light more than ever on the value of our unique solutions to secure water supply as heat waves spread across Europe.
We have also continued to deliver on EBITDA margin progression in spite of a challenging European macro and tense geopolitical environment. This is thanks to our recurring efficiency program, enhanced by specific initiatives to compensate for diesel cost rise, for instance. This quarter was, moreover, a good illustration of the accelerated portfolio transformation with the successful first few months of Clean Earth's acquisition in the U.S. and the swift execution of our divestment program. We already have signed EUR 570 million of divestitures at an average valuation multiple of 10.4x , ahead of both our schedule and valuation expectations, making me very confident about our EUR 2 billion total objective. This transaction will continue to improving the quality of our portfolio, supporting stronger growth and returns, and reinforcing long-term value creation. Let me now turn to our key figures on slide five.
Over the nine months of 2026, revenue reached EUR 33.3 billion, up 2.6% at constant scope and forex, and 3.3% including scope. There was a marked acceleration in Q3, where revenue increased by 5% at constant scope and forex. EBITDA reached EUR 5.4 billion, up 5.1% at constant scope and forex. EBITDA margin reached 16.2%, an improvement of 50 basis points. This margin improvement quarter after quarter is fueled by two levers. On the one hand, our strategic choices and portfolio transformation toward more international footprint and technology-driven activities. On the other hand, our continuous operational efficiency, EUR 294 million accumulated in the first nine months of the year. Current EBIT increased by 6.7% to EUR 2.95 billion. The group has kept up with its strict balance sheet discipline. Our leverage ratio remains under control and exactly as planned following the acquisition closed this year.
These excellent results enable us to be confident for Q4 and fully confirm our full-year 2026 guidance and our GreenUp trajectory. I am now on slide six. Our sustained performance is all the more to be noted given the subdued European macro and the war in Iran and its consequences on diesel price or inflation. This is not by chance, but by design, and a result of key strengths we have built. Our unique positioning with proprietary solutions to critical needs such as securing water supply or sourcing local energy, key factors of strategic autonomy and competitiveness, as we see clearly those days. Our international footprint with 80% outside France and 40% outside Europe, offering diversification of risk and opportunities.
Our choice as well to be in the top three in each country by activity, which gives us pricing power, which is so useful as we see now with diesel price, for instance. As well as the unique combination of infrastructure-like activities, which is our Strongholds, and technology-driven activities, our Boosters, which offer complementary profiles as we see this year with good performance of our Strongholds and Water activities. Last but not least, a constant and disciplined execution of our operational priorities and an agility to react quick and fast when needed with specific actions. I am now on slide seven. Our world is now shaped with numerous geopolitical tensions. Extreme weather events multiply from heat waves to droughts or hurricanes. Our climate is changing, and adaptation is needed.
If you add to this rising population concern around industrial pollution and legislation to protect human health, you have what may seem like the perfect storm, but as well, the exact trend supporting Veolia over the long term. All those trends have been felt particularly vividly across the planet this year. They underline the importance of resource security, supply chain safety, and health protection. This is exactly what Veolia offers, environmental security. That is securing access to water, local energy, and strategic minerals, as well as removing pollution. Industries and countries now realize the critical nature of those services and technologies. We have built with Veolia a unique environmental security powerhouse, addressing critical needs for our clients. On slide eight, we see how our geographic footprint is contributing to our growth.
The strengthening in Q3 was largely driven by our 80% international activities, which grew by 6%, while France continued to be broadly stable. Europe grew by 2.8% and even 6.9% in Q3 standalone, which is remarkable, and mainly thanks to our Water activities, but also the excellent performance of our solid waste activities in the U.K. Outside Europe grew by 4.7% and 6.2% in Q3 alone, with particularly strong dynamics in America. Finally, Water Technologies rebounded to 6.4% excluding project in Q3, and we have enjoyed a significant increase in bookings during the quarter. France was broadly stable. As you know, France represents 20% of the group, but only 14% of our EBITs. Our exposure to political context or tax pressures is very limited. As we hold local contracts, we do not depend on from national budget nor subsidies, and we benefit from non-activated tax loss carryforwards.
Indeed, our international business are growing faster and are more profitable. This diversification is an important source of resilience and supports the quality of our growth. Let me highlight on slide nine some of the commercial momentum I have just mentioned, beginning with our Stronghold activities, which have been partly successful this year. In Spain, we won a 25-year drinking Water services contract in Catalonia worth EUR 1 billion. In Colombia, we secured a landmark EUR 2 billion contract to modernize the Water infrastructure of Cúcuta. In the U.K., we won two new waste contracts with East London and Surrey worth GBP 700 million. These successes underline the long-term nature of our business, and our teams deliver essential solutions that matter directly to communities and customers. On slide 10, we see promising awards in our Booster activities.
First, I am very happy to comment on the new desalination contract we signed in the Middle East, in Oman and the U.A.E., for a total capacity of 490,000 cubic meters per day, which follows that in the Chilean mine earlier in the year, if you remember. Veolia is a world leader in desalination technologies, with 18% of the worldwide installed base having our technology embedded, which is remarkable. Our innovation has enabled us to cut the desalinated water price to below EUR 0.50 per cubic meter, making it affordable and energy efficient, thanks to our unique proprietary technologies. This is a promising growing market fueled by climate change and innovation.
The group has also signed in Q3 several contracts with microelectronics industries in Asia as well as North America, leveraging from our highly technological Boosters and well aligned with our EUR 1 billion targeted revenue in 2030 in AI industries, which we announced last April. This is interesting to note that Veolia revenue growth with AI industries will come from all Boosters, and notably hazardous waste and Water Tech. Operational efficiency on slide 11 remains another key part of our value creation model. At Veolia, recurring efficiency is embedded in the way we run our businesses. It combines operational improvement, procurement discipline, and careful management of overheads. At the end of September, we reached EUR 294 million of gains, well on track for our annual target of EUR 350 million. How are those cost cutting composed of? It is really a bottom-up and top-down initiative combined.
In addition to specific cost cutting driven locally in each of the thousands of water, energy, and waste plants we operate across the globe, we are now driving a global initiative using AI and digital tools to enhance performance. We have already tested dozens of those operational AI tools to check their value for money, and are now scaling some up. Just to illustrate, we are now deploying a unique AI tool in our wastewater plants in France, with results ranging from 2% to 5% energy savings. Ambition is for 50% of operational gains to be generated through digital and AI by 2030. This is not a substitute for disciplined management on the ground. It is an additional lever to improve performance and sustain gains over time.
On slide 12, you will see how recurring efficiency plans are complemented by specific action plans with the aim to protect our margin when external headwinds occur. For instance, in 2026, we have proactively launched pricing campaigns in order to offset the rising diesel and chemical costs. In total, pricing and indexation represented 2.9% of our new growth in Q3 standalone. We also put in place specific cost-cutting plans in France and Germany in order to protect and even enhance margin despite the lack of top-line growth. Finally, we started a specific action plan in Water Tech, including systematic price increase in chemicals, commercial action in projects, enhanced cost cuttings, while maintaining a swift delivery in merger synergies. We saw a revenue rebound in Q3 with new contracts and a high level of bookings.
Our core focus is on converting a strong pipeline into profitable growth while maintaining pricing discipline and careful execution. Let me now turn to portfolio transformation on slide 13. Our GreenUp strategy is clear, enhance value creation through an accelerated portfolio transformation of Veolia towards more international presence and more technology-driven activities. Meanwhile, to ensure balance sheet discipline, three criterion for divestitures are as clearly defined as the investment bid. Those three criterion are, first, the activities which don't fit in our strategy and we've decided to exit, such as construction or facility management. Second, subscale business, i.e., when we're not in the top three in the country for this activity and don't expect to be anytime soon. Three, mature activities where we don't see the path for further improving the bottom lin e unless, you know, very big investments.
This portfolio transformation enhances Veolia's asset quality, growth profile, and value creation. In other words, key criteria for us are EPS accretion and overall growth increase. I'm on slide 14. After four years, we will have rotated more than EUR 8 billion of assets, which is really an accelerated portfolio transformation. The investments we've made so far have been clearly prioritized with 80% of acquisitions outside Europe, for instance, and 90% in Boosters activities. At the same time, we are progressing with disposals of non-strategic assets. The plan is to dispose of EUR 2 billion by mid-2028. And EUR 570 million have already been signed year to date, ahead of target, with an average valuation multiple of 10.4x. All other processes have been launched. I will detail the key transactions in a minute.
This active portfolio management enables us to redeploy capital towards our priorities and sharpen the group's profile. On slide 15, I would like to say a few words about Clean Earth. The acquisition, which completed in June for $3 billion, marks an important step with doubling our size in the attractive U.S. hazardous waste market. Integration is off to a successful start, and our teams are fully engaged in delivering the plan. We are targeting $100 million in cost synergies over four years. The acquisition is expected to be accretive from 2027. Beyond the cost synergies, we see significant potential to accelerate growth by combining Clean Earth's strong U.S. platform with Veolia's technologies, expertise, and broader range of services. I must say, first customer feedback is excellent. Now, Veolia generates more than $6 billion of revenue in the U.S. That is the second country for the group.
Finally, on slide 16, our disposal plan is well underway. We have already signed ahead of schedule EUR 570 million of disposals as part of our plan to divest EUR 2 billion of assets by mid-2028. Our average disposal EBITDA multiple was 10.4x, which is remarkable. The assets identified include activities that are non-strategic activities. For instance, we sold our facility management activities in France, as well as industrial cleaning in Belgium. We signed also the divestiture of our used oil recycling activities in Europe. Second criterion is outside our non-top three position, and we sold recycling activities in South Korea or the Netherlands, and a minority stake in energy from waste facility in the U.K. Or mature, and we have divested our solid waste activities in Czech Republic. This is deliberate and disciplined process designed to improve the strategic focus of our portfolio while supporting our investment priorities.
To conclude, our nine-month performance confirms the strength of Veolia's positioning and the consistency of our execution. Growth strengthened in Q3. EBITDA continued to progress, and our margin improved. Our commercial momentum remains strong, our efficiency plans are on track, and our portfolio is becoming more international and more technology-driven. Therefore, I am very confident for Q4, and I fully confirm our 2026 guidance as well as our GreenUp trajectory. Thank you for your attention, and Emmanuelle, I will now hand over to you.
Thank you, Estelle, and good morning, everyone. Let me start by highlighting the key financial achievements of these nine months. Our results are continuously progressing with the solid operational execution and positioning, combining resilience today and attractive growth for tomorrow. We delivered a new quarter of strong performance with a significant acceleration in Q3. As Estelle has just explained, our revenue in Q3 progressed by 5% at constant scope and forex, which is the highest level reached in quarters. This brings us to nine- month revenue amounting to EUR 33.3 billion, up 2.6%, excluding energy prices. And we have another improvement of our EBITDA by 5.1%, well in line with our annual guidance. EBITDA margin increased by 50 basis points up to 16.2%, and this EBITDA performance is excellent as we no longer benefit from synergies and given the temporary negative impact of diesel prices, which continued in Q3.
Meaning that our intrinsic EBITDA growth is +6%. We continue to enjoy a strong operating leverage, leading to an EBIT progression of 6.7% with a good quality of earnings. Worth noting, forex impact has become positive since Q2 and increased again in Q3. As expected, net debt landed at EUR 25.4 billion, including the closing of Clean Earth acquisition and the seasonality of working capital. Moving to slide 19, you can see the revenue and EBITDA evolution by geography. As Estelle mentioned earlier, all the geographies had a very strong Q3. Our growth intensified, driven notably by international activities. Now let us take a look at our performance by business, and I start with water, which you remember represents around 40% of our revenues.
If anything, this year had shed a light on the importance of water security in the context of recurring heat waves, desalination units becoming strategic, and data centers facing activity challenges. We delivered a very strong nine months performance in water. Total revenue was up by 2.6% and 4.5% in Q3, thanks to the excellent performance of municipal water and recovery in Water Technology. Municipal water grew by a remarkable 4.5% year to date and 5.3% in Q3. We benefit from very good water volumes in all geographies. Volumes were up 3.8% in France, 2.7% in Spain, and 1.9% in Central Europe. It is combined with positive indexation in Europe and in the U.S., except in France due to lower electricity prices. We also signed many new contracts, notably in Spain and Colombia.
Water Technology continued to be impacted by lower project booking, but rebounded in Q3 by 6.4%, excluding projects, leading to +2.6% year to date. The rebound comes from the action plan we put in place, with pricing initiatives, notably in chemical, commercial actions, which led to a significant increase in booking. Booking reached EUR 2 billion at the end of September, so it is 18% more than last year. Moving to waste. Waste activity progressed notably in Q3, and especially solid waste, while hazardous waste delivered in spite of unhelpful weather conditions in Europe during the summer. Starting with solid waste, revenue was up 1.1% year to date, but +4.3% in Q3, which is excellent, and comes notably from the U.K., up 15% in the quarter, and outside Europe, compensating France and Germany evolution.
In all BUs, we largely invoiced fuel surcharge to our industrial and commercial clients after the diesel cost increase, and we expect to recover the cost over time. Hazardous waste grew by +2.6%, so it is 6.3% including tuck-ins. Europe rebounded in Q3 by 5.2% in spite of heat wave. Growth remained solid in the U.S., +4%. Clean Earth integration started swiftly, and we expect synergies early next year. We had a good global performance of our last year tuck-ins. Finally, moving on to energy on slide 22. Energy performance was quite strong, with revenue up by 3.8%. District heating and cooling network revenue progressed by 3.3%, excluding energy prices, with a very good heating season in Central and Eastern Europe, notably in Poland and Czech Republic. We register less flexibility revenue, but benefit from good electricity volumes in Q3.
Energy prices were down to a much lesser extent than last year, but as you know, heat is regulated and our margins are protected. For 2027, we start the discussion in order for heat price to fully reflect cost of energy. Regarding electricity, for 2026, we are fully hedged in terms of gas, CO2 cost, and electricity revenue. For 2027, we start our hedging in terms of fuel costs and electricity, hedge at 70% on average. We have also enjoyed very strong activity in energy efficiency, up 4.8%, thanks to Spain, Italy, and LATAM. The revenue bridge on slide 23 explains the driver of our resilient growth in the nine months 2026. Forex impact reversed in Q2, became quite positive in Q3, so that the impact on revenue was reduced to only -0.3%.
Scope added 1.2% of growth, including hazardous waste tuck-in in the U.S., Japan, Brazil, and Australia, and four months of consolidation of Clean Earth. The impact of energy prices was, as expected, more than divided by two compared to last year. Recycled prices were nearly neutral. The weather effect on heating activity amounted to EUR 83 million due to a cold winter in Europe with no impact in Q3. The contribution of commerce volumes and pricing was 2.3%, with a marked acceleration in Q3, reflecting our pricing action and our commercial momentum. Over the nine months, pricing in Water and Waste contribute 1.7% to organic growth. Volume contribution, which was relatively low in H1, accelerate in Q3 to reach 1.8%. We delivered a new semester of strong performance with another improvement of our EBITDA. Let me walk you through the bridge which illustrates the strong operational performance.
Forex translation impact was positive in Q3 by EUR 22 million. Nine months impact represents only 0.1% of EBITDA, and it's not significant at net income level. Scope effects contribute positively to EUR 73 million, representing an EBITDA margin of 19%, which illustrate the benefit of our asset rotation strategy to boost our growth and enhance our margin. Energy and recycled material price had an impact of EUR -74 million due to higher diesel cost incurred after the crisis in the Middle East, which we progressively pass to our clients. The most impressive component is our growth and performance contribution of 6% higher than last year in spite of no more synergies. This includes first net efficiency gain with a very good retention rate of 55%.
Second, EUR 30 million from Water Tech synergies and volumes and commerce contribution thanks to strong commercial momentum and better volumes in water and hazardous waste. This brings us to an organic growth of 5%, which is good considering the adverse external impact of energy prices for - 1.4%. Let's now analyze our performance below EBITDA, and I am on slide 25. Going down to current EBIT nine-month performance illustrates again perfectly the operational leverage of our business model. 2.1% revenue growth, 5.1% EBITDA growth, and 6.7% EBIT increase. Current EBIT grew to EUR 2.95 billion at a faster pace than EBITDA, with renewal expenses comparable to last year, amortization and OFA slightly up, stable industrial capital gain and provision showing a continued strong quality of results, joint venture marginally increasing due to one-time items.
Net free cash flow generation, which is key, and net financial debt, I am on slide 26. We are satisfied with our free cash flow in the nine months, stable year-on-year despite the usual seasonality of working capital and extended collection delays in the Middle East and lesser than payment on project activities. We had a very strong CapEx discipline. Net CapEx stood at EUR -2,578 million compared to EUR -2,621 million last year. Net financial debt is well under control. It has increased in 2026, of course, due to the acquisition, but our leverage ratio only slightly above 3x at the end of 2026 will be back to 3x next year. The financing rate was stable at 3.82% at the end of September. Worth noting, our spread remains stable and is not correlated to French OAT as evidenced by our 2026 issuances.
Therefore, our cost of debt will only increase smoothly as 78% of our debt is fixed, but this increase will be offset by contract indexation. Liquidity is high at EUR 4.1 billion. Our balance sheet therefore remains very strong, and you remember, both rating agency confirmed strong investment grade rating beginning of 2026. Before concluding, this slide reminds you of our 2026 guidance, which we have improved this summer. Continuing solid organic revenue growth, EBITDA organic growth between 5% and 6%, current net income of minimum 8% at constant forex now excluding Clean Earth, leverage ratio equal or slightly above 3x with Clean Earth's acquisition, and as usual, our dividend will grow in line with our current EPS. As you see, we are very confident for 2026. We delivered a strong nine months with higher growth in Q3, robust underlying EBITDA progression well in line with our annual guidance.
Very confident for Q4 and in the delivery of our EUR 2 billion disposal plan to be delivered by mid-2028. EUR 570 million were already signed, and the rest will follow. Last, we obviously fully confirm our GreenUp trajectory. Thank you for your attention.
Thank you. With Emmanuelle , we are now ready to take your questions.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. To ask a question, you may press star followed by the number one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star followed by the number two. One moment, please, for your first question. Your first question comes from the line of Arthur Sitbon with Morgan Stanley. Please go ahead.
Hello. Yes, thank you for taking my question. The first one is, I think a few weeks ago, there was an unconfirmed press article that you could be considering opening your waste business to a financial partner. I imagine you cannot comment much on the article itself, however, I was thinking more generally speaking, how do you think currently about non-controlling interests in the business? Recently, with WTS, you attempted to try to reduce them, but I think today you announced that you sold a minority stake in an incinerator in the U.K. just now. Do you see it as a way to crystallize value, show evidence of how much value there is in some of your activities, or more as a source of inefficiency in the business? That is my first question.
The second one is, as of nine months, you are towards the bottom end of the organic EBITDA growth guidance, 5.1%, and the range is 5%-6%. I was wondering how confident you are in an acceleration, and how material could that acceleration be in 2027, given, if I am not mistaken, you should have more synergies, there should be more inflation, energy prices are higher, you were alluding to the diesel catch-up as well. With all these elements in mind, what could we imagine in terms of organic EBITDA growth trajectory for next year? Thank you.
Thank you. Two interesting questions. On the French waste business, I can give you some element on that one before moving to your question on minority interest overall. On the French water business, we are talking here about the French municipal waste business. Just to be clear, it is just part of the waste business, and it is in France. The thinking here goes as such. There is a very big potential in France to basically transform what used to be a quite old, say, energy from waste, and actually incinerators, into power plants in the next 10 years. This is a big potential for the country, as you know, being able to rely on local sources of energy with a stable price, locally sourced type of fuel is, as you can imagine, with a Strait of Hormuz situation, very much of interest for all the local authorities in France.
It can provide not only power, but heat, feed district heating, and so on and so forth. There is a big potential here. It goes with a big CapEx investment, which public authorities estimate at EUR 7 billion in the next 10 years. The question we are asking ourselves is, we are very well positioned here, very good feedback from our customers, and they are calling us to accompany them in this transformation. The question we are asking ourselves is, would it not be better to go alongside a financial partner as opposed to just Veolia alone? That is the way we are thinking about it. How do you unlock growth in the municipal waste business without putting everything on Veolia's balance sheet, basically? You can imagine, yes, it would create value for the group, plus growth in this market. That is the way you can think about it.
In terms of minority interests, there is no unique answer. Have a look at the GreenUp strategy, and you will have the answer. One is, first things first, we want to invest in priority in our Boosters and outside Europe in particular. Hence our buying back the minority of Water Tech, which is half of it in the U.S., plus in the Water Tech Booster activity. It's not the same when you would be in a Stronghold activity or in Europe, for instance. That's the first angle to it. The second angle to it is a top three. When we are in an activity, we want to be in the top three of this activity. It enables us to have pricing power, to count on the market, if you wish.
Having a minority share in something where we're subcritical is a criteria for selling, and that was exactly what was behind the sale of the minority share in the U.K. We are very happy about the energy from waste in the U.K., but a minority share in one specific plant was not exactly the sweet spot for us. That's more the way to have a look at it. We can be happy to have partners, typically to accompany us in some Stronghold activities, and we like when those minority partners are, say, local, usually. That's what we do in Eastern Europe quite a lot. We have Hungarian partners in Hungary, and partners in Czech Republic, and Polish partners in Poland, and so on and so forth. I guess that's the global idea.
When you're outside Europe and in Booster activities, we tend to try to do it full Veolia, if you wish. That's the second answer. In terms of the bottom end part of the 5%-6%, I would say something a little bit differently. One is, I'm very confident about Q4 and the overall guidance for the year to 5%-6%. And I'm very proud we've been able to achieve 5.1% so far, despite many headwinds. The headwinds in figures are what Emmanuelle presented on slide 24, which is basically the EBITDA bridge. Roughly, it's minus, depends how you count, but it's a - 0.9% of headwind. Basically, the intrinsic growth of our EBITDA, if we had not had those headwinds, would have been 6%. That's the way to have a look at it, so I'm very happy about this performance.
In terms of the and it leads to your last part of the question on 2027 and beyond. 2027 has confirmed our GreenUp trajectory. We are very confident, we're on track, and there is no reason why all those underlying trends in terms of intrinsic growth wouldn't go on for a very long time, for 2027 and beyond, because we've built a group which is stronger than ever. So no reason that this type of intrinsic growth would stop anytime soon. In terms of the diesel squeeze, if you want, so it's diesel and chemicals, I could add the two. But we, as you know, have 70% of our contracts which are indexed and 30% which are a question of pricing.
The pricing is almost, I would say, it takes a few months, and as Emmanuelle mentioned a few figures, we have a lot of pricing effect that we see in Q3, and will go on in Q4. I guess it takes a few months. In terms of the indexation, it is a bit longer to catch up, if you want, with diesel prices going up. Say, 6- 12 months would be the classical. So, my guess would be that by the spring, we have compensated, if you want, for this squeeze, which started roughly in March this year. So progressively, we should see this squeeze reducing as time goes.
Thank you very much.
Your next question comes from the line of Wanda Serwinowska with UBS. Please go ahead.
Hi, Wanda Serwinowska, UBS. Congratulations on the results, and two questions from me. The first one is on the disposal. You still have a bit to go. Should we treat 10.4x EV to EBITDA on average as a good proxy for the remaining disposal program? The second one, on the Middle East impact, are you able to basically quantify the impact year to date? If the current situation persists into next year, should it impact your growth in 2027? Thank you very much.
Thanks for your congratulations. I am very happy about the performance, as you said. So am I about the big advance we have taken in the disposal, not only in timing, but as you said, in terms of valuation. Very happy about this price, and as Emmanuelle has put it regularly, I have a lot of ambition when we sell business, so I will not stop, have a lot of ambition about the type of price we expect when we sell a business. That is what I can say about it. In terms of the second part of the question, Emmanuelle?
The second question, Wanda, if I am not mistaken, it was around diesel.
No, Middle East. It was Middle East, the Middle East situation.
Ah. Middle East. [crosstalk]
Yeah, sorry.
No, no. All good. On that—
Although the two are absolutely linked, if I may.
At the end of the day, it's the same answer. Middle East, we communicated about that. Thanks to the strength of our business model, which is multi-local, protected against indexation, we have been able to pass through energy prices in 2022, thanks to the structure of our contract, very well protected against macro. The impact of Middle East has been really limited. If I may, I just wanted to say one word onto the team, which have succeeded to protect our margin despite the situation this year. So very good performance. The only impact we see, Middle East is 60% its water, 30% its energy, and 10% its waste. The main effect we have seen is a slowdown in Water Tech project that we have communicated about it, and you have seen the rebound in Q3.
If you look at the impact we have, at the end of the day, it is only the increase of diesel prices, which is around EUR 45 million. And thanks to all the action we have announced, you know us, with pricing, commercial momentum, we have a fantastic top line in Q3 and a very strong EBITDA delivery.
In other term, you have the direct impact of the Middle East and the indirect impact in the Middle East. The direct impact, as in on the region, was very limited apart from in the Water Tech projects. But I must say I am very happy that we signed, that was another news from this morning, we signed a new desalination plant in Hamriyah, which is in the U.A.E. I said earlier on that, like it gelled, the war in Iran gelled projects, obviously. I am not saying it is the end of the gel, but it was a very promising sign of, at one point, for next year and the years to come. As far as the indirect being on diesel and chemical, Emmanuelle answered.
Thank you very much. Just to clarify on the projects, on the new projects in the Middle East, do you expect now basically no further delay, something that you faced in H1 this year, given that you accelerated—
No.
—in Q3?
No, that would be inappropriate. I guess, everything was, I mean, all new order books were stopped, if you want. Still, a lot is gelled, but there is one which was ungelled, as in signed. Does it mean that all the others will be anytime soon? I cannot promise that because the situation is very uncertain in the region, so I cannot say that. I think it was very promising still that despite the war still there, we had signed this big desalination units. So promising.
Thanks a lot.
I don't doubt the woods yet in terms of projects. I expect, and I said that last quarter, I expect when the war stops or kind of resumes, stops or is on the low ground, I expect really a big rebound. Because if anything, this crisis has shown that those assets are absolutely critical and they should have backups, and they don't have backups always. So in a way, the need for those type of desalination unit, and we have the same with industrial water in the refineries in the Middle East, will be, in my opinion, more than ever strong after the war.
Thanks a lot.
Your next question comes from the line of Olly Jeffery with Deutsche Bank. Please go ahead.
Hi, good morning. Just a couple questions from me, please. The first is on thinking about the growth areas into 2027. You have been ramping up the hazardous waste facilities this year in Germany and the U.K., and you are going to have new capacity opening in the U.S. So, should we think of hazardous waste, given that increase in average capacity, as being one of your biggest growth areas into 2027, compared to a normal year? Also, just coming on to the free cash flow, the free cash flow is quite similar to last year. Should we expect more meaningful growth in Q4? Just thinking about how should we think about free cash flow progressing in 2027, versus 2026, given there is a step-up in EBITDA? Thank you.
For 2027, Emmanuelle, I would like to answer the second part of the second question. For 2027, I would expect the Water activities in all this component to go on having a good year. That is because the foundations we have built are super strong. In terms of hazardous waste, you are right. It will be probably a good year for hazardous waste, because of the sustained demand for our services with industries and what you said, which is opening new facility. The only nuance I wanted to say on the opening of new facilities, it takes a while to get to 100% capacity, basically two years. So from the first fire until the full capacity, that would be this type of branch. Those are super sensitive assets. That is why you would not expect them to be at full capacity between somewhere in 2028-ish.
There will be a ramp-up, but the full capacity will be probably more in 2028 than anything. In terms of the growth for next year, on geographical component, I would expect, again, the outside of France and outside Europe growth to support growth of the group. Unless we have a big surprise in this country, big positive surprise, I mean. The results of this quarter, you have understood, are really the product of our strategy, which was, in particular, diversification of our geographies. I am super happy that the U.S. is number two country in the group. Honestly, had we been with the same portfolio that the group had five or 10 years ago, we would never have been able to produce such results. But now, the group is stronger and very international, and that helps. In terms of the second question on free cash, Emmanuelle?
Yes. Hi, Olly. You know, free cash flow for us and cash generation, it is very important for all the organization. You have seen our figures, so net free cash flow at the end of September is stable. What is very positive is that it is despite the increase of interest cost, meaning that our operational free cash flow has increased by close to EUR 150 million at the end of September. It is taking into account extended collection delay Middle East and less advance payments on project activities. We have been very disciplined on CapEx, you have seen that, with a EUR -2.5 billion at the end of September compared to EUR -2.6 billion last year. All the team is committed to continue to improve the free cash flow.
You may have seen that our DSO, on top of the decrease of last year, has decreased again at the end of September, minus two days. We have a lot of action launched, not only on collection, but also on reducing the time to invoice, and it will continue. We expect in Q4 the usual reversal and a very strong cash generation in Q4. You know the target we have in terms of. We have, because we will cover our dividend payment. So very confident on cash generation and fully confirming generation, covering dividends to come to debt, which will be slightly above 3x .
Thanks very much.
All right, thank you. Your next question comes from the line of Bartek Kubicki with Bernstein. Please go ahead.
Thank you very much. Good morning. Just two things from me as well, please. Firstly, I would like to come back to the disposals. I need to say the valuation, the exit multiple is very nice, so congratulations on this one. If you can maybe tell us a little bit about the two things on those. First of all, what is the ROCE, as this is one of your key KPIs, what is the ROCE of the assets you are selling? Secondly, whether you will book any capital gain from that transaction and whether this will impact recurring earnings, I guess, next year.
Secondly, if maybe you can comment a little bit on the U.S. and the new political landscape, whether in your opinion it could have any impact on your business in the near term, especially if there may be a clash between the President and Congress. Thank you very much.
On the first question, the ROCE of our disposals with Emmanuelle.
Yes. Bartek, thank you for your comment on the good valuation. You know that for us, capital allocation is strategic. We want, at the end of the day, with all the movement we do in M&A, so buying and selling, to increase our ROCE. We have an amazing track record. You know that when we did the merger with Suez, we bought to 9x- 10x , and when we did the disposal, on Titra disposal, we were able to sell to 16x . On the disposal we have now, we want to have the same discipline in terms of value creation, so in terms of valuation, and the same discipline in terms of quality of execution. So far, we have demonstrated, we have delivered ahead of schedule, and we hope ahead of your expectation in terms of valuation.
We are not communicating on the ROCE of the disposal we do. What I can tell you is that the ROCE of the element that we have sold is slightly below the average of the group. We are very happy with the valuation you mentioned, so it's 10x- 10.4x . In terms of capital gains, we have a very clear guideline, so accounting guidelines. Meaning that if it's non-significant, so below EUR 50 million or well below EUR 50 million, it's in our account. If it's above that, it's non-recurring.
Just wanted to add something on to what Emmanuelle just said. The two important KPI or KFI for us are ROCE and EPS, really. Which means that, as Emmanuelle said, ROCE improvement is part of the objective in the transformation of the portfolio of activity. I say ROCE increase. So when I say, for instance, we divest mature activities, I am not talking about activities which will be at low ROCE, because at times it happens for one or two years, but there is a big potential for increasing this ROCE in the years to come. So I guess it is more the trajectory and the dynamics than only the picture on one specific year. I just wanted to highlight that specifically. The idea is the increase and the potential or the non-potential of increasing it, rather than just the absolute value in one year.
In terms of U.S., you are right, so U.S. is now the number two country in the group, so I am happy that you ask a question about the outcome of the election and the impact on Veolia. The answer is none, roughly. Why is that so? In the same way as I answered exactly the same when Trump was elected in the White House two years ago. We are not dependent from Washington-led decision, roughly, in Veolia. We are more multi-local. So, we rely on the demand from cities and from industries, as opposed to federal contract or federal decisions. That protects us from political change in Washington. And I think that is a super important element, which goes for pretty much all big countries, by the way. So demand for our service, as I expect, is as strong now as two days ago in many different sectors.
We are talking about health protection and PFAS removal, for instance, that supports our water business in the U.S. as well as our hazardous waste business in the U.S. We are talking about reshoring of strategic industries, so for microelectronics industries. I do not expect anything like that to change, given the global context. So I am very confident that our growth in the U.S. is not at all impacted in positive or negative way, in a way, by the outcome of the election.
Thank you very much. If maybe we can clarify on this capital gain, meaning there will be a capital gain in recurring earnings next year or not really, because it will be above EUR 50 million?
No, it's not going to be very significant, Bartek.
Okay.
You know that—
Okay, very clear.
Okay.
Thank you.
It is quite classical for us. We publish it every. We have sold businesses in the last few years, and we had a few amounts like that. So it is a classical one for us.
Just for you to know, for the EUR 570 million, we will have closed at the end of the year 200, and the rest will be closed next year. So very limited impact.
Thank you.
Your next question comes from the line of Philippe Ourpatian with ODDO BHF . Please go ahead.
Yes, good morning. Congrats for the results. I have three questions. The first one is concerning your disposal, which is a hot topic of today's conference call. I was wondering if you may give us a kind of, I would say, granularity about the ones you already did, means the EUR 570 million, just to have an idea about are we discussing in all these numerous number of trade you did, what was or what is or what were the most significant one or two assets you disposed? That's the first part of the first question. The second one, regarding the remaining portion, which is EUR 1.5 billion, are we discussing about, let's say, one, two, or three big objects, or we will still be the same kind of profile with a numerous number of, let's say, mid-size disposal to reach the EUR 1.5 billion? The second question is concerning Middle East.
Could we have an idea about the size of the current order book in Veolia on this specific area? Also the timing you're estimating that we will move from book to bill in this area. I know it's difficult because its geopolitical situation is not clear, but just to have an idea about what could be the impact of all this project when they're going to be unfreeze. The last question is concerning what you say about the incinerator in France. I was wondering, through your answer, you were saying that financial partner could support Veolia in the CapEx to be done, but I was, in my mind, the fact that most of the assets were, let's say, delegated management contract or concession contract.
Your answer supposed to understand that the CapEx is primarily financed by Veolia first and then recovered through the tariff, or there is in some area only the public authorities, means municipalities or syndicates of municipalities, which are financing the assets, and your impact in terms of balance sheet is limited. Just to clarify this point. Many thanks.
First, you said the disposal was the highlight of the day. I would love to disagree on that one. I'm super happy about the 5% growth in the quarter, Q3. Honestly, this is really a super good achievement. I would debate the fact that winning new contract is as important as disposal. Although I'm going to answer your question on disposal. Disposal, the big object within the EUR 570 million, you have a few EUR 10 million, EUR 20 million, and a few which are more EUR 100 million, EUR 150 million, EUR 200 million max, this type. The larger ones would be in oil recycling activity and in Czech Republic dry waste, as well as Rookery in the U.K. Those are the larger ones, say more EUR 100+ million . The others are more a few dozen millions, roughly, just to give you what are composed of.
You have three objects which make the big numbers and a few others which are smaller numbers, which are cleaning the portfolio. In terms of what's next, the next EUR 1.5 billion or a bit less than EUR 1.5 billion to come, we've given on purpose the criteria for us, which are the non-strategic, non-top three, and mature, so that you understand the logic we're in and what is typically in the list. The answer will be, there will be small, medium, and large objects for the next EUR 1.5 billion. But the criteria will still stand, still be exactly those, because those are the value creation. It starts from a strategic decision of what should be in the portfolio of Veolia and what shouldn't be, and then we sell, as opposed to the opposite way around.
We're selling what's not as important for us to create value in the next few years as what we keep or what we invest. Strategy come first and then execution. Size of the order book, honestly, a desalination plant or a big industrial project in the Middle East is typically EUR 100 million, EUR 200 million each, EUR 300 million for the largest. But the projects are, by definition, super ups and down. They come in terms of revenue, and then they go. That's why we always said that within Water Tech, 70% was relatively recurring and 30%, sorry, was mainly projects, and therefore you would have ups and downs, and that's why we give you the idea. What do I expect? You know what? We're here to support our customer.
They appreciate the fact that we haven't left the Middle East, and I can tell you they told us that super clearly, that they know we're there. Can I anticipate the end of the war in the Middle East? I'm sorry, I cannot. It could be an end to the war. It could be a de-escalation, which would be akin to an end in the war. You can imagine various scenarios. But we're ready. We have projects under discussion, but they are not signed. Therefore, they are not yet in the bookings. They are just in the pipeline, if you want. Bookings for us is when we sign them for real, like Hamriyah this quarter. In terms of the model in France, we're only starting this strategic review. That's why I won't give you all the details of how we're going to do it.
But let me say that we have various models in the concession of the waste, municipal waste in France, and typically energy from waste. You have models where we are operators, models where we are asked to basically invest. Then we are reimbursed, a model where we invest and we amortize during the duration of the concession, and then we give back the keys to the local authorities. We have all type of models, really. The question is not only the existing model. The question is, how can we offer something like an all-in-one, financing plus capabilities and know-how to the local authorities to unlock this potential for years to come? This is more the way to see it. In a way, that would be a new way of thinking about it.
Many thanks. Very clear. Thank you very much.
Your next question comes from the line of Arnaud Palliez with CIC. Please go ahead.
Yes. Good morning. Thank you for the presentation. I have two remaining questions. The first one is on the synergies. Can you be a bit more specific about where you are in terms of the synergies being delivered in Water Tech and Clean Earth? Are you in line with what were the initial expectations? The second question is on the energy business. Can we have some ID or rough indication about the level of the coming energy price pass-through in Central Europe? Do we see an early start of the heating season in Central Europe?
Emmanuelle?
Yes. Hi, Arnaud. Regarding your synergies, you know that efficiency delivery for Veolia, it is absolutely key. We have a strong track record, and we will keep it. Starting with Water Tech that we have signed last year, mid-year, we are, I would say, even in advance. We are targeting EUR 90 million. We generate in 2025, EUR 20 million. At the end of September, we have generated for the year EUR 30 million, so it is EUR 50 million for the year, EUR 50 million over the two years, and we will be at the end of the year around EUR 60 million. The team is very committed, working very hard on the synergy delivery. Regarding Clean Earth—
Yeah, I may add something, which is, of course, Emmanuelle refers to cost synergies, which is the only thing we've given you figures and targets, but I expect revenue synergies in addition to those.
Yeah, absolutely. When we communicate, you're absolutely right, Estelle, we are communicating on the cost synergies, and you have seen the rebounding Q3 showing all the action that we have put in place also regarding the top line.
Yeah.
Now, coming to Clean Earth, we are very happy with the beginning of the integration. It's very promising, successful day one, fully merged team, organization is in place. We have started our operational integration journey, and so far, the feedback from customer are excellent. We are targeting 120 million synergies, but it's starting next year. The organization is in place, and we have everything we need to be able to deliver and to continue to confirm the very strong track record we had, as we did with the merger with Suez.
The Energy business. Energy business, in Central Europe, the heating season had a few weeks of being relatively warm in October, and now it's better. I won't tell you anything specific apart from commenting on the weather, which is not exactly fascinating. Neither can I do any prediction, of course, on the weather for the next two months. In terms of the pass-through, which is an important element, you're right, the fuel we consume, if you want, have gone up, and we've been able to pass through the tariff, so I don't expect any specific squeeze here. As opposed, though, to four years ago, in 2022, when the war in Ukraine started, when we have a positive effect, a byproduct, if you want, of the gas price going to spiking, which was electricity prices in Europe had spike at that time, at the same time.
This is not at all what we see this year. Electricity prices are really quite subdued, actually, in some way. There are many reasons why. I don't expect any specific positive effect from producing a bit more electricity as a byproduct, as you know. It protects our margin, but I don't expect a positive as we had seen in 2022.
Okay.
All right, thank you. Once again, if you would like to ask a question, simply press star one on your telephone keypad. I am showing no further questions at this time. I would like to turn it back to Ms. Estelle Brachlianoff for closing remarks.
Thank you very much. I think you've understood, we are very happy about the results. Typically, the top line growth in Q3 was very good, and a testament to the power of the decision we've made in terms of strategy, with international really leading the way in many different ways in top line and bottom line at the same time. Testament to our strategy, which is bearing fruit, which I am very happy, and I am very confident for Q4 and beyond. Thank you very much.
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.