Veolia Environnement SA

PAR:VIE

Earnings Call Transcript 2018-Q1

[Operator]

Ladies and gentlemen, welcome to the First Quarter 2018 Results Conference Call of Veolia Environnement.I now hand over to Antoine Frérot, CEO and Philippe Capron, CFO. Gentlemen, the floor is yours .

[Antoine Frérot, Chairman & CEO]

Thank you. Good morning, ladies and gentlemen, and welcome to the presentation of our first quarter 2018 financial results. I'm on the Slide 4 of the slide show. First quarter results are on the same good track as those of the previous 6 quarters, very strong revenue growth, strong and solid increase in results, controlled net financial debt and full confirmation of our guidance for 2018 and 2019.On Slide 5 now. First, revenue growth, it is up by 3.7% at current ForEx, by 7% at constant ForEx, if we exclude Gabon and by 5.6% at constant ForEx, if we include Gabon. This is the 6th consecutive quarter of very strong revenue growth. The main growth drivers are robust commercial momentum over the past year, especially outside Europe, higher waste volumes and higher energy prices.The impact of recycled material prices remains limited as sales of recycled paper only represent 2% of Veolia's turnover and even an lower percentage of EBITDA. And now EBITDA, it was up by 3.4% at current ForEx but by 5.3% at constant ForEx, if we exclude Gabon, and by 3.3% if we include Gabon. This strong performance of EBITDA was driven by revenue growth and cost savings. Accordingly, current EBIT increased by 6.9% at constant ForEx and current net income also increased sharply, before capital gains, 5.7% at current ForEx, plus 8% at constant ForEx, and if we include capital gains, up by more than 30%. Lastly, net financial debt remains under control at EUR 8.2 billion, excluding the hybrid to be repaid. It was EUR 8.4 billion a year ago.On Slide 6 now. This strong growth over 6 quarters is driven mainly by the new services that we have developed over the past few years, alongside our traditional offers. These new frontiers of our business include the most difficult types of pollution such as hazardous waste, industrial wastewater of illegal dumps in emerging countries. They include also the circular economy with recycling of plastics, chemical products in the refineries or recycled wastewater for irrigation of fish farms that also involves turning waste into energy through incineration, [ methagenation ], biogas, RDF and biomass, as well as new services to cities that are seeking to become more resilient, more frugal, more inclusive and more smart. Taken together, these new offers already account for 30% of our turnover and for more than 50% of our growth. The competencies required to provide these services are of a more technical nature and more rare, so they face less competition in the market while averaging volume needs especially in the most dynamic sectors and geographies. They, therefore, represent the main engine of our growth today and in the years later.Slide 7 about cost savings, cost savings continued in the first quarter, EUR 70 million in savings were achieved as of March 2018 in line with our annual objective of EUR 300 million. The main sources of this cost savings and the geographies in which they were implemented are the same as last year.So in conclusion, Slide 8, these very strong Q1 results enable us to easily confirm all our 2018 and 2019 targets, and I now hand over to our CFO, Philippe Capron who will give you more details. Philippe, all yours.

[Philippe Gaston Henri Capron, Chief Financial Officer]

Thank you, Antoine. Good morning, ladies and gentlemen.Moving on to Slide 10, I'm going to give you indeed some more color on the figures of what has been a very satisfactory and very strong quarter for Veolia, starting, of course, with revenue. As you know under IFRS 5, we have to treat Gabon as a discontinued operation, we mentioned on the top of the slide the figures for Gabon in Q1, 2017 was revenues close to EUR 80 million, EBITDA EUR 16 million and current EBIT EUR 2 million, current net income was only EUR 0.5 million.Of course, for Q1, as we did [ now ] we were expropriated in February, but we do not have any figures for January. So all the corresponding figures for Q1, 2018 are 0.When you look at the revenue figures at the top line, you see that it has increased at constant currency by 7%. Now if we had not discontinued Gabon, the growth would have been only 5.6%, and with Gabon discontinued and at constant perimeter, which makes sense in the case of Gabon then, organic growth has been 5.4%, which is a record in Veolia's recent history.EBITDA has grown by 5.3% at constant currency, and without the Gabon [ re-treatment ], growth would still be at 3.3%. EBIT has grown by 6.9% at constant currency. Current net income without capital gains has grown by 8% but including capital gains, because we did realize some especially on the sale of our industrial cleaning business in the U.S. in January, we are at 32% increase of the current net income at constant currency.Gross industrial CapEx is slightly up, I'll come back on this. Net free cash is in line with the previous year. Net financial debt has come down year-on-year if you do not take into account the announced reimbursement of the hybrid financing, which has taken place in April.All in all, very satisfactory figures in spite of a significant FX impact as you can see in the table on the bottom right of Slide 10. You see the impact has been especially significant for revenue, a bit less so for EBITDA. This impact of currencies will in all likelihood continue into Q2, but it will be much less severe in the second half of the year provided currencies remain stable at the present level.Moving on to Slide 11, as you can see since actually Q4 2016, just before this table begins, we've had strong growth momentum now for 6 quarters in a row. Even France is now slightly growing though the bulk of our growth, of course, keeps coming from emerging markets, but also especially this quarter from the U.S. and Australia.In Q1, growth has been supplemented by energy prices and construction activities, [ ex zone 10%]. So that our underlying growth is actually in line with previous quarters at 4.6%.On Page 4, you have some detail on the geographical spread -- on Slide 12, we have some detail on the geographical spread of the growth in French Water, we've enjoyed better indexation and positive commercial effect, which have offset volumes decline. In French Waste, revenue is slightly down due to lower prices of recycling, especially paper but volumes have remained very good. In Europe, if you look at the U.K., growth has been very strong 4% due to both a record availability of the PFI on higher electricity prices and this has offset, so lower paper prices. Germany has done equally well, plus 4%, actually plus 9% for the waste activity, and the rest of the activity has been flat due to energy prices.Eastern Europe has enjoyed a slightly colder climate than the previous year and good water volumes as well as price indexation, which translated into 6.3% growth. Climate has helped in the U.S. as well, more so than in Eastern Europe and it has been supported by strong industrial activity especially contract wins in various areas and good haz waste volumes. So that at the end of the day, we have 19% organic growth in the U.S. and 10% growth in spite of the disposal of the Industrial Cleaning business.Asia and Latin America continue to enjoy above 20% growth and Australia is doing -- has done very well as well with 13% growth due in part to construction activities, but also to good underlying waste volumes. Global businesses have grown thanks to haz waste, which has done especially well, and thanks to multi-utility industrial services as well. VWT and Sade have been flat, that with an improving backlog, which makes us very confident that the figures for those construction activities will start growing probably as early as Q2.On Page 13, you have the usual bridge explaining our revenue increase, apart from the FX impact and scope, commercial activity and volumes have had the most impact on growth. It's interesting to note that energy prices have had a stronger impact plus EUR 70 million than recycling prices, which is a minus EUR 20 million of which minus EUR 26 million is actually due to paper.On Page 14, you can see that we've had an exceptional level of growth at constant FX in waste activities, plus 9.6% and in spite of recyclates, growth at constant scope and currency have remained very strong plus 4.3% and especially with 3% growth in volumes. The scope effect has been important as well, 5.3%, because that's where most of the tuck-ins we realized during the past 12 months have been concentrated.On page 15, we make a small zoom on the paper situation, as I'm sure you are well aware, the impact of the Chinese ban on paper prices have been very significant, a 37% decline in prices in France and Germany, a bit less so for Veolia, thanks to the average higher quality than we sell. We're not exactly sure when the market will re-stabilize, but obviously it will, the situation will create new recycling activities in Europe, and therefore, we are very confident the market will end up re-stabilizing.For Veolia anyway, the impact is limited, paper weighs less than 2% of our global sales and even less so for EBITDA as there is a lot of pass-through activity in this field. We buy and sell paper and therefore we are not impacted by price movements except maybe marginally on our inventory if the situation varies from country to country. In Q1, we estimate that the negative impact of paper has been around EUR 5 million. Moving on to Page 16, we look at EBITDA country-by-country or zone-by-zone; in France, the EBITDA was up for water driven by good revenue evolution as we've seen, and further efficiency gains. In waste, EBITDA has been down, we've not been able to fully absorb the impact of the paper prices decrease, but we are working on it for the balance of the year, obviously.In the rest of Europe, Central and Eastern Europe have seen the EBITDA go down in spite of the increase in sales due to the announced squeeze we are facing with higher fuel cost, which we cannot immediately pass-on to our customers with heating prices, but that will reverse, of course, next year, and next year, we'll be able to pass-on those fuel cost increases.U.K. EBITDA has been sharply up, thanks to new contracts and thanks, of course, to the excellent operational efficiency we mentioned earlier with 98% PFI availability, which is a record. Latin America, we've seen good commercial activity and continued cost cutting, which has translated into EBITDA growth. The Pacific region improved significantly as well, with very good volumes in waste, new industrial contracts and investments.In North America, EBITDA is strongly up as well, we've been helped by weather in the heating business, but also we've seen good volumes and that has helped, we've been helped by better spark spreads, but we've seen good volumes in our waste activities and sulfuric acid [ re-gen ] activity, for example. Global businesses, we've been helped -- supported by a strong hazardous waste activity, which has offset the slow start of the year at VWT.On Page 17, as usual our EBITDA growth is driven by our efficiency gains and by our cost cuttings with EUR 70 million realized in Q1, which by the way is a bit below what we expect for the average quarter this year, so we are on the acceleration trend, we are doing better than in the previous quarters, not as well as we expect to do for the average quarter of this year. So we are pushing our business operations so that they do not forget this very important objective, but also, of course, EBITDA growth has been fueled by the top line, by revenue growth. Our price cost squeeze situation continues here or there, especially for this quarter in Eastern Europe as already mentioned, but in spite of this, as you see, we are able to post a 5.3% EBITDA increase, which is a satisfactory performance.On Page 18, you see that this EBITDA growth, of course, translates into EBIT growth, not much to report there.Page 19, the current net income increases by 32% if we take into account the capital gain, which has been derived mostly from the sale of our industrial cleaning business, which generated a very significant net gain, EUR 29 million after-tax for a business, which was EBITDA negative. So we are pleased with that outcome. Financial expenses are down due to continued active debt management, and our tax rate is 28%, which is slightly above the one we had last year for the first quarter.On Page 20, you see that CapEx is up, it's not -- I mean, Q1 is not a big quarter traditionally for CapEx, so we might not see this increase multiply for the whole year, but still we see this as good news, it reflects the large number of new projects we're presently working on, and that means we can expect the continuation of growth over the next quarters. Free cash is negative, exactly in line with the previous year, that's the seasonal working cap requirements variation and that is down, thanks in part to FX but also thanks to a better EBITDA.Given the reimbursement of the hybrid for EUR 1.45 billion in April, our debt will reach EUR 9.7 billion. That was anticipated, it's part of our policy, I remind you that we will save EUR 68 million of coupon, even though it's treated as a dividend accounting wise, and that will significantly reduce the actual cash cost of our debt. With that level of debt, we retain very strong financial flexibility with a leverage, which is below 3x EBITDA.On Page 21, we go back to the 2018/2019 outlook. Given the very strong start we've taken in Q1, we have no doubt that we'll be able to reach this year's target, i.e. continuation of sustained revenue growth, EBITDA growth greater than that of the previous year, i.e. 2.7%, meaning we are absorbing the Gabon impact, more than EUR 300 million in cost savings. And there is, of course, no reason at this stage to change our 2019 outlook with the continuation of revenue growth, full impact of the cost savings and an EBITDA between EUR 3.3 billion and EUR 3.5 billion, excluding IFRIC 12. This is all, of course, at constant currency end of 2016. This will enable us to fuel further dividend growth in line with that of the current net income. Thank you.

[Antoine Frérot, Chairman & CEO]

Thank you, Philippe, and now, ladies and gentlemen, the floor is yours for the questions.

[Operator]

[Operator Instructions] And we have our first question from Mr. Guy MacKenzie from Credit Suisse.

[Guy MacKenzie, Equity Analyst]

I have 4, if that's okay. Firstly just on commodity prices, clearly a bit of a mix, you had weaker paper prices, higher fuel prices offset by better energy prices. I was just wondering if you could give a view as to how this might carry through to the full year. It seems some of those positive moves were weather driven and perhaps less likely to be sustained, whereas the negatives specifically on recycling, the outlook is perhaps a little bit less clear. I realize you mentioned the fuel cost brouhaha, but I was just hoping you could clarify a little bit further there. And secondly, you've been highlighting revenue growth clearly over 5% like-for-like, EBITDA growth is clearly about 2%, lower than that, including or excluding Gabon. I was just wondering what's driving the lower incremental margins, I noticed the EUR 212 million in increased revenue on commerce volumes and works led to an increase of EUR 19 million in EBITDA, which is a margin of just under 9%. And I believe you've been targeting 15%. So I was just looking for a little bit more clarity on the margin trajectory. Thirdly, inevitable question on the outlook, of course, guidance is at 2016 FX for the 2019 objectives, just given the relative euro strength, are you still confident that you can hit that range at current FX? And fourthly, at the balance sheet, the capital position, you've repurchased your hybrids as promised. I was just wondering what your focus is now with your balance sheet, specifically whether you want to focus on deleveraging further, given your new businesses are increasingly capital-light or where -- if you're able to give us any kind of guidance of where you're comfortable with your net debt-to-EBITDA, that would be very helpful, and thanks very much.

[Antoine Frérot, Chairman & CEO]

Thank you. I will take your second question, leave the first one to Philippe and the fourth one, and we will see for the third one. About the second question, I'll just remind you that in 2016 it was a [ contrary ], with strong increase of EBITDA and no increase of turnover. But for this first quarter, you should have in mind that the growth of the turnover, we have first the price of energy, which is partly [ impactful ], so no impact on EBITDA and also for Eastern Europe, we will reverse that next year when we will increase the prices of the heat of our heating services. That is the main reason of the difference of growth between turnover and EBITDA. We have also EBIT growth of some works with a small margin as you know. That is explaining the 2% of difference on the growth of the turnover and growth of EBITDA. Philippe, about the first one.

[Philippe Gaston Henri Capron, Chief Financial Officer]

About the first one. I mean it's obviously an excellent question, but I am at a loss to answer it, I mean, if I knew the answer, I would be a commodity trader, and I would be making a fortune on the market. So, I mean, it's probable that commodity prices especially plastics and paper will not immediately recover, even though we have some signals that for high-quality materials, the Chinese ban is being relaxed. So we have some hope that the situation will at least stabilize and, therefore, we won't have the inventory effect on the paper we buy and sell any more. So that we probably should not see the situation deteriorate further. On fuel, it's even more difficult to answer, but what is true is that the main impact is felt in Q1, especially the squeeze we mentioned for Eastern Europe. Regarding our outlook, the outlook has always been at constant currency at the time we issued it, meaning at the end of 2016, you can't ask us to speculate what the currencies will be like, and therefore as a guidance is what it is, we are not going to change it at this stage. In terms of balance sheet, I mean below 3x EBITDA, we are comfortable with the leverage, we were at 2.4 at the end of last year but that was ahead of the reimbursement of the hybrid and you will all agree with me that the hybrid is really debt, I mean it's not -- it's a bit artificial even though under IFRS, it's treated as equity. What is more important is that the rating agencies are also comfortable with that level. So we do not plan to further deleverage. As we will generate more cash, we will invest this cash in reasonable dividend growth on one hand and in further commercial and industrial developments on the other, with either small acquisitions or investments in new project and you're right to underline that we get more mileage for the same number from the gallons of fuel, as we are moving towards more asset-light activities.

[Guy MacKenzie, Equity Analyst]

I just wanted to ask a very quick follow-up on that first question, or to ask in a slightly different way. With other weather driven benefits you mentioned, which obviously helped energy prices, I'm not sure if you're able to roughly quantify the EBITDA benefit in H1 or not but if possible that would be really helpful too?

[Philippe Gaston Henri Capron, Chief Financial Officer]

I mean, there is a positive impact, of course, especially in the U.S. because in Eastern Europe, actually the climate was slightly better than last year, but not that great. I mean, January was very bad and then we had a cold February. The net -- my team is handing me a paper, which I'm reading for you, the net impact for climate, we estimate is plus EUR 3 million. It's mostly located in the U.S., but we had a negative impact in China because to matters more complicated in China, it works the other way. We had an extremely cold winter, was minus 40 degree temperatures at times in Harbin. And that as we are selling a target temperature there, if we have to use more fuel in order to achieve it, it's our problem. So it works the other way than it does in the U.S. or Eastern Europe. So in that case, very cold temperatures have not helped. So, overall, we estimate that we had a plus EUR 3 million tailwind thanks to this.

[Operator]

So we have another question from Mr. Michel Debs from Citigroup.

[Michel K. Debs, Vice President]

My first question relates to the 50 target published by the French government 2 weeks ago to make the French economy more sustainable. There is a lot in there that has to do with the waste management and the promotion of more recycling and the greater use of recycled materials into French industry. Looking at that, it seems that they will help recycling a lot, but they are ready to increase taxes and take volumes away from landfilling and incineration. So my question is two-fold on this, first, generally speaking, what do you think will come out of this government announcement and that 50 measure plan announced to change the way waste is managed in France? And secondly for your businesses given the balance that you have between recycling incineration and landfilling, do you see this as a net positive or a net negative as they transfer volumes from incineration and landfilling into recycling? And my second question has to do about the overall picture for the company, the board has renewed you Mr. Frérot for another 4 years. So there is now lot of visibility in terms of governance and leadership, do you plan to give the market a target that go beyond 2019 at some point? Thank you very much.

[Antoine Frérot, Chairman & CEO]

Yes, Michel, thank you for your questions. The first one first, it is good news for Veolia that [ could happen ] especially the French one, but you know that the European one also will move on that way to push some decisions for circular economy. We as the provision, we propose this decision to take volume away for landfilling from landfilling rather than to increase the tax on landfilling because unfortunately taxing landfilling is not moving waste volume to recycling, it will just push the waste producer to better tax, so the good decision to increase the volume for recycling is to reduce the volume in landfilling, and recycling is more complex, much more technology call than landfilling and then there is very fewer companies able to deal with that, not only for sorting and treating the waste and transforming then in [ new resources ] but also to sell the recycled materials and we have global footprint for Veolia and that is helping us to be able to find some buyers for our recycled materials better than the smaller companies. So it is building an advantage and a competitive advantage for the company like Veolia in front of the smaller player in this game. So on the medium and long term, it is very good news. Now about your second question, we have guidance until next year and as usual, you know that we are not giving guidance when we publish the annual results and moving then in the quarter, of course. So we'll keep them until this date of 2019, of course, for the new strategic [ phase ] after this actual one, this actual one is between 2016 to 2019, we will have the new strategic plan and as I already explained, we will go further and stronger for this new phase. But I wanted to really prove to the financial market that Veolia now after having a [ strong period ] and re-positioned is in a position to propose sustainable growth in turnover and sustainable growth in EBITDA with its own resources without including the capital employed and including the [ debt reward ]. And we are in this phase, we are now proving that we are able to bring this proof and we will move in a new phase, it will be next year.

[Operator]

So next question comes from Emmanuel Turpin from Societe Generale.

[Emmanuel Philippe Turpin, Equity Analyst]

My first question would be regarding a trading update, we've seen a few economic indicators in Europe maybe pointing to a slowdown. Your Q1 numbers in terms of your personal KPIs are quite strong, including for waste volumes, I was wondering if you could tell us if you had noticed any slowdown in your recent trading reporting internally? My second question is to come back on capital allocation. On the CapEx for this year, I heard your answer to a previous question on this call and you had mentioned that [ 2018 ] would be a continuation of the past 2 years as we complete this 3-year plan and you demonstrated that in Q1. I was wondering if there was any reason for you to actually turn more aggressive either on M&A or on CapEx for the rest of this year, have you identified any appealing opportunities, for instance, or should we just expect stable or contained net debt for this year? Lastly, a question on mid-term incentive for top management; listening to the AGM, I noticed the new mid-term incentive for top management. Using ordinary net earnings as a KPI, would you mind explaining to us what objective you have to reach in order to get rewarded and on what base number that you would be using? Thank you very much.

[Antoine Frérot, Chairman & CEO]

Yes, Emmanuel, about your last question, I thought it was published, but I could give you that the EPS should grow more than 10% in average yearly, for allowing us to get after 3 years of more than 10% in average yearly to get the [ proven shares ]. About the first question...

[Philippe Gaston Henri Capron, Chief Financial Officer]

Actually to be totally complete, there is a scale between 5% average growth rate, where we would get nothing and 10% where the beneficiaries, there are 700 beneficiaries, would get the full complement.

[Antoine Frérot, Chairman & CEO]

And in a year between by 5% and 10%. About the first question, Philippe?

[Philippe Gaston Henri Capron, Chief Financial Officer]

It's always an embarrassing question. We were supposed with hindsight to witness some slowdown in waste volumes especially in Western Europe for the first quarter. Looking at the figures, which are now being published for growth during this period, we've not witnessed that, actually it's been probably a bit better than the average for the previous year. And in the recent months, we've not been made aware of any significant change in that trend, so we're still relatively bullish in terms of waste volumes coming our way. It's always difficult to distinguish what's due to the general economy and what's due to local situations or contractual gains.

[Antoine Frérot, Chairman & CEO]

And our commercial force is, however, confident in that. About your second question, Emmanuel, I always say that we want to manage this company during this phase with about a certain level of capital employed and I told that before the repayment of the hybrid, we have to manage the debt level between EUR 8 billion and EUR 9 billion. We are still there, you know that we have also some divestment to perform a little bit during the first quarter, but we still have a lot to do. And with these proceeds and the increase of EBITDA and our cash flow, we have also some M&A targets, of course, small sized, medium sized, perhaps a bit more than medium sized, so several hundred million euros possibility of M&A targets during the rest of the year, we will see. But all in all, we are staying in the global strategy less than EUR 9 billion before repayment of hybrid for [ fueling the growth]. You know that Veolia is standing today at a level of between 6x and 7x EBITDA, so we are cautious when we are buying some new companies. We don't want that they will be diluting our profit, but we could find as we did in the past. So last year, some good opportunities without synergies to make this acquisition or [ using it ].

[Operator]

So we have another question from Pinaki Das from Bank of America Merrill Lynch.

[Pinaki Das, Vice President and Analyst]

So the first question I have is on your Slide #17, where you showed the EBITDA drivers for Q1, and one particular item I was interested in was the other item there, which is minus EUR 20 million. Could you give us some clarity on what this is, and how do you expect this to evolve during the rest of the year. And the second question I wanted to ask you was about the provision reversals and fair value adjustment, which is on the next slide, on Slide #18, you've got EUR 38 million in this quarter versus EUR 50 million in the last quarter, and in the press release, you've said that the provision reversals are much lower and the JV income was higher. So if you give us some color on that, that will be really helpful. Thank you.

[Antoine Frérot, Chairman & CEO]

Okay, I will answer your second question and Philippe will think to the answer to the first one. About the JV, we had during the Q1 better performance than last year in Asia and North America. So a bit better performance of the JV, and we have less provision reversal than last year, especially for what is written on this slide. The net reversals for self-insurance of EUR 12 million, last year we didn't have at all, this year -- so we have a bit less provision reversal and more better performance of the JVs.

[Philippe Gaston Henri Capron, Chief Financial Officer]

On Slide 17, the EUR 20 million figure relates to a variety of impacts, which are mostly calendar impacts, positives of last year, negatives of this year. They should not be recurring, I mean, we should not multiply this figure by 4.

[Operator]

So we have another question from James Brand from Deutsche Bank.

[James Brand, Research Analyst]

2 questions, the first is on the cost cutting. It's a bit hard to see that coming through, the EUR 70 million, because the overall costs have increased by EUR 200 million year-on-year. Obviously, you've made some acquisitions there, there were some fuel cost pass-throughs and things like that, but I was wondering whether you could help us at all understand what that EUR 70 million actually means, maybe in reference to controllable costs, how much controllable costs have gone up year-on-year and what the assumption would have been without the cost cutting, that's the first question. And the second is on the CapEx, again, I was just wondering, as you do step-up your CapEx envelope in the next few years, are there any particular areas that you had identified where you wanted to spend more, maybe it's too early for that, but if there are, I would be very interested to hear be it business types or countries where you might be interested in stepping up investment. Thanks.

[Philippe Gaston Henri Capron, Chief Financial Officer]

Okay. On cost cutting, the way we measure it is through a series of programs for [ each BU ], they come up at the time of the budget with a series of initiatives, with a timing, somebody in charge, expected results, which relates either to purchasing, to efficiency, especially based on benchmarking of various facilities one against another and SG&A, especially redundancy plans for short. And that's what we measure. Then, of course, we may have, for example, fuel cost increases but that's completely something else. I mean, we do not -- we cannot -- if we monitored cost cutting just based on the amount of cost, it might mean that in a given year because fuel costs go down, for example, or the price of chemicals go down, we would immediately record a cost saving, which is, of course, completely relevant. So we are trying to do this process in a thorough way as we can, we're actually not inventing anything, I mean, we're doing exactly with the ISO being done, when I was in steel, I was -- [ we did one in Arcelor ], so it's just a standard practice to do it this way. And it actually makes sense, because when we put this bridge, we find this as an actual driver of the valuation of our costs.

[James Brand, Research Analyst]

Can I just ask a clarification on that? So when you're assessing the cost cutting that you've delivered, are you just going back to those specific projects that you identified for cost savings and seeing whether they've been achieved or are you looking at the broader envelope of your controllable costs, including those programs and having a target for that and seeing where the overall amount, is it just narrow on this specific project or is it broader?

[Philippe Gaston Henri Capron, Chief Financial Officer]

It's the former not the latter. But this is not -- I mean, this is a thorough process, this is being audited by our internal audit function, this is being reviewed by our external auditors. So it's a very serious process.

[Antoine Frérot, Chairman & CEO]

About the CapEx increasing, of course, this CapEx are fueling our organic growth and because this growth is mainly driven today by new services, the CapEx are of these new services, especially to build new facilities for hazardous waste treatment for waste recycling, quite often on a merchant-based business model and then it is normal to fuel this growth by building new facilities, but it is -- of course, this decision are made only when we are quite certain to have good commercial capacity behind them to sell all our projects on a merchant-based business model.

[Operator]

So we have another question from Anna Maria Scaglia from Morgan Stanley.

[Anna Maria Scaglia, Research Analyst]

The first question is regarding the Valenton contract, we read that this is being suspended by the Paris Appeal Court. Can you just give us an update there what's the timing, when do you expect to start a [ consulting ] if there was any update there? The second question is regarding Germany, you mentioned that the waste business was up 9% in terms of revenues, can you help us understand a little bit [ at least ] what's the volume driver there, how is the competition going in the region and how this growth continues? And the last question is regarding your EBITDA. When you comment in the Slide 17, you actually mentioned that this was not as well as you would have expected for the quarter, is that just related to the full impact in Eastern Europe or there was something else there? Thank you.

[Antoine Frérot, Chairman & CEO]

Madam, about the Valenton contract, we won this contract against the competition and we won it on the quality of the offer, especially the quality of governance we proposed for this contract. This contract has been freezed by the Court because of Molière clause in the contract, meaning that the client asked in the tender process, that the people working on the Valenton plan should speak French to be able to work with the contract part of the client. And the Court decided that it was not legal, we contest this Court decision to the Higher Court and we will see if this Molière clause is really illegal or if it really it is Molière clause, we contest that and we will see in the next month with the Higher Court, the Conseil d'Etat. what will be the final decision.

[Anna Maria Scaglia, Research Analyst]

So, do you have a timeline for that or not?

[Antoine Frérot, Chairman & CEO]

You know that the justice is on its own merit. So we think that it will take some months, before the end of the year I hope.

[Philippe Gaston Henri Capron, Chief Financial Officer]

Meanwhile, the facility has been lost by [ SIAAP ], that's a certainty. And is now being exploited directly by the municipality with our support. On Germany, the 9% growth is a reflection of 2 or 3 things, one of the things is that, as a result of a scope impact, we made an acquisition, which has helped and contributes about 4% out of 9% in the figure. So the rest has been driven in spite of lower paper prices by [ generally ] good positioning of our activity and a good environment for volumes. No specific reason I could point to. Back to Slide 17, what I said was that on this bridge, there are 2 elements which should improve first, we should do more than EUR 70 million cost cutting in the next quarter. So this element should improve and we hope that at least on the Eastern European price-cost squeeze, we should, of course, see a much better situation in the following quarters, at least Q2 and Q3, if only because that's not the heating season. It may come back in Q4, but probably to a lesser extent than Q1.

[Antoine Frérot, Chairman & CEO]

And reverse..

[Philippe Gaston Henri Capron, Chief Financial Officer]

And reverse next year.

[Operator]

So we have another question from Mr. Michel Debs from Citigroup.

[Michel K. Debs, Vice President]

I'm coming back with a question about your shareholding. I have noticed that at the end of last week, BlackRock has published a notice that they have gone above 5% ownership and voting rights in Veolia. So you have a new large shareholder. Is there any plans for them to get to sit on the board or are they a strategic shareholder now or is it just an aggregation of [ funds ]. Thank you.

[Antoine Frérot, Chairman & CEO]

Okay, Michel, you should note that we have now 2 financial shareholders, at [ 5% ] BlackRock but also Franklin Templeton, which is more than 7%. They don't ask for any presence on the board as they do usually. So they will not join the board. And our financial investor with a strong stake in our company and some others have had in the past, if you remember, Capital was at a level of around 10% 15 years ago, so they replaced -- they are now the 2 major shareholders of Veolia, Franklin Templeton and BlackRock with different [ firms ] and they replaced [indiscernible] from the board.

[Philippe Gaston Henri Capron, Chief Financial Officer]

And clearly we see this as a very good signal, the fact that very serious, respected, long-only investors are finding interest in Veolia again is a very good signal. The share of American shareholdership in Veolia has almost doubled over the last 4 years and again we see this as a very good sign. As you know those firms, because they don't want to be made insiders, they want to continue to buy and sell shares in their various firms. Because when we say BlackRock or Franklin Templeton, we actually mean companies of their group in a dozen countries investing through literally hundreds of firms. So they want to be able to continue to buy and sell shares on a daily basis, which would not be possible if they were on a board and subject to blackout periods.

[Operator]

So we have no further question. [Operator Instructions] So we have another question from Mr. Jean Farah from Mediobanca.

[Jean Farah]

I've got 3 questions. Going back to Pinaki's question earlier, I was just wondering if you could give us maybe the number of the JV income in Q1 '18 and whether you could tell us if there was any positive non-recurring items in there. Also following up on this, could you give us maybe an estimate of the JV income for the full year. And finally, also an estimate of the tax rate we should expect in 2018.

[Antoine Frérot, Chairman & CEO]

Yes, Mr. Farah, I already answered the question, I told that we have better performance of the JVs. We don't know if it will be the same until the end of the year, probably not so -- we'll not have to multiply by 4, but in the contrary the net reversal of EUR 20 million we had last year, [ that ] also has to be multiplied by 4. So all in all, this level of performance, globally we are confident that we will able to maintain it during the year.

[Philippe Gaston Henri Capron, Chief Financial Officer]

Regarding the tax rate, it's difficult to predict, as you've seen we've had a slight increase quarter-on-quarter of the tax rate up to 28%, which is actually I'd say par for the course, that's probably where we feel comfortable to stay. We're always trying to improve it, of course, we were not helped in Q1 by the fact that we had less profit in Eastern Europe than the previous quarter and, of course, in Eastern Europe we have the lower tax rate. But all in all, I think that we have clearly stayed below 30%, probably around or below 28% for this year. Now one of the benefits of the reimbursement of the hybrid is, it brings us nearer to a situation where the French tax group should be profitable, it's difficult to -- nothing is more difficult to predict than taxes because it has little to do with traditional accounting, but still it makes us hopeful that soon enough, we'll be able to start tapping into deferred -- unrecognized and unbooked tax assets in France.

[Antoine Frérot, Chairman & CEO]

And for the comparison about the Q1, I remind you that last year through the Q1, we were at 26.6% tax rate around 27% [ with DSO ], there's not a big change. But globally on the full year of 2017, we had at the end of the year, the reimbursement of the dividend tax in France, you remember that? So the global tax rate for 2017 was low because of that, but there is not a big difference between the 2 Q1s, if I can say that, between 2017 and 2018, 27% in one, 28% in another one. So if there is no more question, I thank a lot all of you for your presence on this conference call. Thank you and have a good day.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation, you may now disconnect.