Veolia Environnement SA

PAR:VIE

Earnings Call Transcript 2019-Q1

[Operator]

2019 Results Conference Call of Veolia Environnement. I now hand over to Antoine Frérot, CEO; and Claude Laruelle, CFO. Gentlemen, the floor is yours.

[Antoine Frérot, Chairman & CEO]

Thank you. Good morning, everyone, and welcome to this presentation of Veolia's first quarter 2019 results. I'm joined this morning by Estelle Brachlianoff, our COO; and Claude Laruelle, our CFO. The first quarter 2019 results presentation is a bit special as accounts have been established for the first time according to the new IFRS 16 for lease accounting. Claude will give you all the details on the impacts. As for me, when I present the highlights of the quarter, I will give you the variation excluding the IFRS 16 impacts in order to show the underlying quarter-on-quarter performance. And I start now with the highlights and I am on Slide 4. The first quarter 2019 is a good start to the year for Veolia in line with the performance of previous quarters. The continued strong top line growth, plus 4.8% at constant ForEx and even more at current rates as ForEx has been positive since the beginning of the year, and very strong profits growth also. EBITDA, plus 4.2%; current EBIT, plus 4.8%; current net income, plus 7.8% and even plus around 14% excluding net financial capital gains. This good start allows us to fully confirm our 2019 objectives.The context of our operation has not been entirely favorable as shown on Slide 5. On the one hand, Veolia's new activities such as hazardous waste, plastic recycling or industrial contracts have grown significantly. Also, total Waste volumes continued their upward trend, plus 2.6% this quarter. And finally, we have enjoyed better price indexation on our water contracts than last year. But on the other hand, weather has been very unfavorable to our district heating businesses, particularly in Central and Eastern Europe but also in the U.S. This weather impact has weighed negatively on the group's revenue for minus 1.2% and on its EBITDA for minus 2.7%. This is a significant impact, but we have been able to offset it with higher-than-planned cost savings. Moreover, recycled paper prices have continued to decrease since the beginning of the year.On Slide 6 now. You can see that 70% of our top line growth is organic, and 30% is due to tuck-ins as in previous years. Activities outside Europe remained the key driver of this growth, notably China and Latin America with double-digit growth rates. But Europe excluding France, Europe has continued to progress well at plus 4.7% despite adverse weather in Central Europe. Growth has been particularly strong in the U.K. and in Southern Europe. And finally, France. France with plus 2.8% has had its best quarter in a long time mainly due to good Waste volumes and stronger price increases for our services than last year. Therefore, EBITDA has grown at about the same rate due to revenue growth, of course, but also to cost savings, which have more than offset the weather impact on heating activities.The net debt includes the impact of IFRS 16 for the first time that in the net present value of all our leases amounting to EUR 1.7 billion. But in return, we will get just over EUR 400 million of additional EBITDA for the full year. Net debt also includes, as always at this time of year, the seasonal reversal of the working capital for an amount close to last year's just under EUR 800 million partly offset by the sale of Transdev, so a bit more than EUR 300 million. So a net addition of EUR 500 million to this number, 2018's net financial debt at end March 2019. Of course, like every year, the working capital will reverse at the end of the year. You can see on Slide 7 the most significant commercial wins of the quarter as well as the main tuck-ins that are presented in 2 columns: on one side, commercial wins relating to Veolia's traditional historic businesses; and on the other side, the commercial successes involving the new priority sector that we have been growing over the past few years because they hold more potential. You can see that our traditional activities are continuing to grow and are more and more complemented by the new businesses. This is one of the reasons of Veolia's strength: strong historical know-how which continues to be useful everywhere in the world, coupled with innovations that are more and more needed and wanted by our industrial clients.On Slide 8, together with growth, the efficiency improvements and cost savings plan is the second pillar of Veolia strategy. The annual objectives is EUR 220 million of cost savings. We have already reached EUR 60 million of savings in the first quarter, slightly ahead of our annual target. As expected, operational efficiency is now the biggest source of savings even though purchasing and G&A continue to deliver. All geographies have contributed to this permanent effort, which is now completely embedded in Veolia's DNA.To conclude these highlights on Slide 9, the very strong results of Q1 allow us to fully confirm our 2019 objectives, which are recalled on this slide. And I now hand over to Claude Laruelle, our CFO, who will provide you with all the details of the Q1 results. And then with Estelle and Claude, we will take all your questions. Claude, the floor is yours.

[Claude Laruelle, Chief Financial Officer]

Thank you, Antoine, and good morning, ladies and gentlemen. I will give you more details on the figure, I'm moving to Slide 11. As Antoine told you, it has been a strong quarter in terms of growth and results. You have the main figures on the slide where we have put the numbers after IFRS 16 impact. Revenue grew by 5.4% at current ForEx and 4.8% at constant, meaning that the ForEx had a positive impact on the revenue side. After IFRS 16, EBITDA grew 4% because IFRS 16 contribution is flat year-on-year. At constant ForEx and before IFRS 16, EBITDA is up 4.2%. Gross CapEx at EUR 516 million includes EUR 96 million of IFRS 16 CapEx new lease as we will see later in the presentation. Regarding the net financial debt that includes EUR 1.7 billion of IFRS 16 effect, we will maintain our financial discipline and it will be significantly below EUR 12 billion, including IFRS 16 impact at year-end.Moving to Slide 12, a very satisfactory point. Veolia experienced significant growth in all geographies during Q1. France had good volumes both in Water and Waste leading to a strong quarter. Europe was affected by a mild climate in Q1, and without climate effects, had a very solid growth of 7.7%. The Rest of the World is a mix of very strong growth in Latin America and China and lower growth in the U.S. where we had, last year, a very strong Energy volume and price effect in January. Global Businesses are always driven by the strong dynamic of toxic waste and more activity in the SADE networks business.Moving to Slide 13, you have the same figures in a simplified format by geographies. So we can move to Slide 14. You have on the slide the usual revenue bridge with some similarities with last year and some differences. First, similarities, 2/3 of the growth are coming from the organic growth and it's due to a strong commercial momentum driving most of the growth in all geographies and 1/3 of the growth is coming from small acquisitions. Second, the difference. The price effect has doubled at EUR 90 million compared to Q1 last year due to better indexation and price increases in Waste. Third, by contrast, 2018 winter was particularly cold and 2019 has been mild leading to a strong negative effect of minus EUR 77 million in Q1 as weather impact. Finally, the ForEx, which is different this year, had a positive impact mostly due to the U.S. dollar and the British pound.Moving to Slide 15. As we told you, EBITDA is the most impacted indicator by IFRS 16 with an additional EUR 111 million, flat year-on-year as you can see on the slide. We had also a good conversion of revenue into EBITDA with EBITDA growing like revenue 2/3 organic and 1/3 coming from the scope effect. EBITDA performance is mostly driven by the cost-cutting at EUR 60 million, well ahead of the objectives set for 2019. EBITDA is also benefiting from the good conversion of new contracts and better volumes for EUR 20 million. You can notice the strong effect of the climates at minus EUR 24 million coming mostly from Central Europe. And also, you can see a lower negative price cost squeeze compared to Q1 2018, minus EUR 21 million, due to better indexation and price increases.Moving to Slide 16. As we told you during Q4 presentation, we are experiencing the same trend of volume in Waste as Q4 last year, plus 2.6% due to a continuous commercial momentum. But what is remarkable is a price increase at 2.7%, which is much bigger than last year where rate was 1.1% for Q1. We're regaining some pricing program in some activities like hazardous waste treatment. Regarding the geographies, I will touch on a few highlights. France, revenue is up 5.4% due to strong volumes in commercial and industrial, but also incineration and landfill. U.K., performance is still outstanding with very good PFI performance but also with strong volumes in landfill. We don't see any effects of Brexit on our activities. Asia continued to be strong as well, especially China, both in toxic waste and plastic recycling that we have launched this year with the Huafei project.Moving to Slide 17. I will give you now more details by geography starting by France. France had a good start to the year with Water activities, benefiting from Water indexation at 1.2% and also good volumes due to the dry Q1 in France especially in Northern France. Waste had a strong start in Q1 with limited paper price impact, minus EUR 4 million, due to the renegotiation of our contracts at the end of last year. EBITDA is up driven by the impact of the transformation plan in Water, Osons 20/20, and efficiency gains.Moving to Slide 18. The Rest of Europe had a good performance despite the bad climate in Q1. Central Europe was impacted by the mild weather with a minus EUR 47 million impact in terms of revenue compared to last year, but had a very strong momentum on the Water side both in price and volume in all countries. U.K. is driven by the strong PFI performance, and EBITDA continues to grow strongly. Northern Europe is benefiting from tuck-ins in Scandinavia and also good Waste volumes in Germany. Sales in Europe continued to be very dynamic with top line growth in the high single digits.Moving to Slide 19. Asia continued to experience strong growth in China, thanks to Waste activities and the expansion of the Harbin project where we continued to expand our operations. We continued to connect new buildings as the city is also growing. Latin America has a strong growth with new contracts in Argentina, Colombia, Chile. And we have also, the last quarter of the integration of Grupo Sala in Colombia. North America is contrasted with our district energy down due to the mild weather in Q1 and the disposal of our industrial cleaning business in February 2018. But on the other side, strong Waste volumes in our waste recycling business. Pacific and Middle East are boosted by new contracts and good volumes.Moving to Slide 20. You have the main performance of the Global Businesses. Same trend in construction as last year with refocus of VWT on technology with the revenues a slightly lower than last year but a strong backlog in desalination projects. SADE is up, mostly in France, where the performance is good and we see good growth opportunities. Hazardous waste continued to be very strong both on volume and prices with a high single digit in our -- in all our geographies, including the lubricant recycling business that we have in Le Havre. And multi-utility industrial contracts continued to perform very well.Moving to Slide 21. On the slide, we are giving you a clear and detailed vision of the EBITDA conversion into EBIT. You can see that EBITDA growth generates EBIT growth of 4.7%. Renewal expenses are flat compared to last year. Depreciation and amortization is very much impacted by IFRS 16 with an additional EUR 100 million, which is roughly stable year-on-year. On top of this effect, we have a slight increase of D&A due to the increase of discretionary CapEx. The share of current net income included last year one-off effects of EUR 16 million due to a disposal of a district heating network in the U.S., which is not, of course, included in 2019. You can see the strong contribution of our China JVs with a very good start of the year, up 23% at EUR 12 million.Moving to Slide 22. You have the EBIT translation into net income. The cost of net financial debt is up due to the early refinancing of the 2019 bonds and a higher investment on emerging countries. This is not completely representative of the full year as the term of the bond we have refinanced is in April 2019 for a one-off effect in Q1 of EUR 5.5 million.On the net financial capital gains, 2018 was mostly impacted by the capital gains on industrial cleaning business in the U.S. And in 2019, we have mostly the effect of the Foshan divestment in China. Current tax rate is lower than Q1 last year at 24%. In terms of tax rate, we had very good news yesterday from the U.S. As you know, we have been in a very long dispute with the IRS regarding the deductibility of the loss we registered in 2006. The outcome is very favorable as the IRS approved 100% of the $4.5 billion tax loss arising from USFilter. It means that on top of the $764 million tax savings already recognized, we are benefiting from an additional $460 million potential tax savings until 2026. It will help maintain our tax rate at a low level for a long period of time.Moving to Slide 23. I will give you more details on the CapEx. As you can see on the slide, increase of maintenance CapEx is mostly due to the rephasing of our maintenance shutdown with different seasonality linked to a longer stay-in operation of some major PFIs in the U.K. The contractual CapEx are stable year-on-year, and the discretionary CapEx continued to grow sharply, especially in Asia where we continue to build new facilities to fuel the growth of tomorrow. As you know, we continue our discipline on CapEx management and we expect EUR 1.9 billion of CapEx excluding IFRS 16 at year-end. On top of which, we will have EUR 350 million, which is an estimate today of IFRS 16 CapEx. Regarding the net financial debt, it's also including some seasonality. First, the usual working capital effects, but also the net financial investments of EUR 137 million compared to March 2018 and also the ForEx impact of EUR 200 million, those 2 effects impacting the comparison with March 2018. I confirm that our objective is to be well below EUR 12 billion at year-end, including IFRS 16 effect.Moving to Slide 24. You have the detailed evolution of the net debt between Q4 2018 and Q1 2019 where you can see the main effects of the CapEx and the working capital. You can also notice that the lease debt is almost flat compared to December 2018 at around EUR 1.7 billion.Moving to Slide 25. As Antoine told you, after the strong Q1 and a good commercial momentum that we've experienced, I can fully confirm the 2019 objectives. Thank you very much for your attention.

[Antoine Frérot, Chairman & CEO]

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

[Operator]

[Operator Instructions] We have our first question from Anna Maria Scaglia from Morgan Stanley.

[Anna Maria Scaglia, Research Analyst]

I've got three of them. The first one is regarding Waste and the volumes in Waste. Is anything changing in the mix of Waste volumes that you're treating, I mean, of course, you have the hazardous waste growth. But I was wondering if you're taking actions in terms of the changes in prices of commodities? The second question is regarding the working capital impact. I do understand this is a common reversal you have. But aren't you concerned that this swing between Q4 and Q1 is actually too high? Are you taking actions for that and what you plan to do? And last, I was wondering because something came up in another call. Do you see any impact on full pricing? Because you seem to have quite a good commercial momentum in terms of top line, but as well when we look at EBITDA, the net impact of prices and cost is still negative, so I'm wondering what's your view there, what are your hesitations going forward? Do you see a risk this is actually going to deteriorate in coming quarters or not?

[Antoine Frérot, Chairman & CEO]

Okay, Estelle will answer your question 1 and 3, and Claude, the second one. Please, Estelle.

[Estelle K. Brachlianoff, Chief Operating Officer]

Yes. Hello, everyone. With regards Waste volume, you have seen in the presentation that actually it was enjoying the first quarter the same type of momentum that we had enjoyed in the quarter 4 last year. It used to be 2.5% volume growth last year at the end of the year, we are enjoying 2.6% for the first quarter. So it's the same type of momentum. We haven't seen a slowdown at all. If I was to have a look at how it's composed. As you know, we have a very strong geographies in Waste, which are the following: France, Germany and the U.K. for dry waste. And for those three, we are between 1.9% for France in terms of growth and 2.9% for Germany. So it's very consistent in Europe. And with regard hazardous waste as well, which we have a big chunk in the U.S. and a big chunk in Europe, we are between 4% and 5% growth. So my point here is like in any of our geographies, we've seen a very constant, very consistent growth in our Waste volume and activities. As we've said at the end of the year as well, 2% to 3% volume growth in Waste is typically what we've seen and what we anticipate for the rest of the year.

[Antoine Frérot, Chairman & CEO]

Claude, about the working capital?

[Claude Laruelle, Chief Financial Officer]

About the working capital. So as you know, we have some mechanical effects of the working capital. I will give you some examples. In Water France, we're collecting a lot in November and December and we are repaying the municipalities in Q1. In Harbin for the district heating, we are paid also in November and December and we are spending most of the expense in January and March. Construction, same. So we have typical Q4 payments from the customer and Q1 is always slow. But we are taking some additional actions by strengthening the monitoring of the working capital, and we should be able to reduce these effects during the course of the year.

[Estelle K. Brachlianoff, Chief Operating Officer]

With regard your third question. In terms of pricing power, if I understand well what your question was about, as you know, we have an effect of pricing power on one side and one price-cost squeeze, negative effect, on the other, which we are compensating by some cost-cutting and efficiency plan. So we've seen exactly the same logic in Q1 2019. I would say it was even more favorable than Q1 2018. If you had to look at the price cost squeeze that we had shown in Q1 2018, that was higher than the one we've seen. I'm on Page 15 here, which is a bridge in EBITDA. So basically, price cost squeeze does go on, but with a little bit of slowing down effect. It's going down a little bit. Because of the indexation, it's slightly better than it used to be. On the other hand, we are going on, of course, with cost-cutting. And if I end up with, I would say, the commerce effect and what we do about that as well, our pricing power is really, really remaining very strong. If you have a look at what we're able to do in, say, hazardous waste, it's a typical effect where our strategy over the last few years and our positioning helps us to have a very strong pricing power.

[Antoine Frérot, Chairman & CEO]

Another question? Yes, please come in.

[Anna Maria Scaglia, Research Analyst]

No, I was wondering, so you don't expect to -- I mean do you think that given the commodity environment going forward, would you need that additional price increases to meet the guidance? Or you are quite happy?

[Estelle K. Brachlianoff, Chief Operating Officer]

I guess in terms of the commodities effect, the first quarter was not a great one neither was it a very catastrophic one. We've seen negative in paper, but a little bit positive in plastics. So altogether, it's very small negative. The point is, well, not only I would say selling commodities, it's our strategic positioning which counts here. When we are going up the value chain as in selling not only recycled plastics, but a compounds of very more upstream materials, it helps us to disconnect us with those purely commodity price. So I guess it's a testimony to the success of our strategy in positioning ourselves not only in trading those materials, but actually in reprocessing them and being up the value chain.

[Operator]

We have the next question from Mr. Olivier Van Doosselaere from Exane.

[Olivier Pascal Michel Van Doosselaere, Analyst of Utilities]

I have 3 big, if I could. The first one was just to come back on the tax litigation. Will that be taken into the P&L in your second quarter? And if so, I guess that will be treated as nonrecurring. Would you please give us some details on that one? Second one, there were some press indications and confirming actually something that you had already written before that the district heating assets in the U.S. could be sold. I was wondering if you could just give us a detail on the progress of those negotiations and maybe also if you could give us an indication on the EBITDA contribution of that activity. And then, finally, maybe if you could give us a detail on the tax rate that we expect for the full year, that would be very helpful as well.

[Antoine Frérot, Chairman & CEO]

Okay. Claude, for the first question.

[Claude Laruelle, Chief Financial Officer]

So for the first question, the tax litigation in the U.S., we -- Olivier, we've got the news yesterday, so it's too early to say today what we will do in Q2. So we will come back to you for the Q2 closing in July, but it will not be a not-recurring effect. It will be in the current net income.

[Antoine Frérot, Chairman & CEO]

To answer your question. Olivier, about your second question on heating activities is the U.S., the [ bottom ] full divestiture of our district heating network activity in the U.S. has been initiated and this is typically an example of our assets reduction strategy in order to maximize our growth and our ROCE. We will see what we will get them [ overall ] through this process. Too early to tell you if we will be very active or not with that. And we will detail basing the results of this process. You should notice that even if we accept the offer we will get, we will not have tax effects on the capital gains on that asset. And we will see also what we will do with the proceed of this divestiture. This proceed could be progressively reinvested in some acquisitions. But of course, you know that we are preparing our new strategic plan for next year. Then we will, through this preparation, see where -- in which potential activities we'll be able to reinvest part or the total of this amount.

[Claude Laruelle, Chief Financial Officer]

In terms of current and tax rate, to answer the third question from Olivier. The tax, we had a good start of the year at the tax rate level at 24%. And for the cost of the year, what we expect for the full year is the tax rate still below 25%.

[Olivier Pascal Michel Van Doosselaere, Analyst of Utilities]

Can I -- as I'm still on the mic, but if I can just ask a follow-up question. When you mentioned that the U.S. tax litigation impact will be taken as current net income, I would understand that in the coming years, if it helps to lower your effective tax rate, that would indeed be in the current net income. But would you take the full $460 million through your P&L in current net income in 2019 as a recognition of the assets. Yes?

[Claude Laruelle, Chief Financial Officer]

Answer is no to your point. What we -- we will not take this as a one-off effect. To recognize a decrease, to activate the tax loss going forward, you need tax planning. So we will look at the tax planning and we will see what we will do in the next couple of quarters. And also, regarding the strategic plan, we will take this into account because it's a new data that we will have to take into account in the strategic plan as Antoine said. So we will not recognize the data impact in Q2 this year.

[Operator]

The next question comes from Mr. Ayral from JPMorgan.

[Vincent Jean Michel Ayral, Analyst]

Following up again on this tax litigation. Actually, the question I had was related to your strategic plan. We see you got a fair amount of tax asset to use by 2026. If you're selling the district heating, I would have 2 type of questions there is can you somehow, if you decide, I don't think it's the base case, but to reduce your activity in the U.S. overall, could you sell these tax assets together with the disposal you're contemplating on district heating? Or otherwise, isn't it like just another reason, actually, to reallocate CapEx in the U.S. heating business. Could you explain us how this works, that would be very helpful for us.

[Antoine Frérot, Chairman & CEO]

Claude, will answer your question, but I see that I missed the part of the question of Olivier, the previous question about the EBITDA level of our heating activities in the U.S. Olivier, the EBITDA forecasted for 2019 is $86 million. Claude, for the...

[Claude Laruelle, Chief Financial Officer]

So Vincent, to answer your question, first of all, it's too early to answer your question both because it has been early in terms of the news. We've got the news yesterday again, and we have not finished our strategic plan. So we will take this back into account in new strategic plan that will be presented early next year. So of course, it's an impact on tax that we will take into account to allocate our CapEx in the next couple of years.

[Vincent Jean Michel Ayral, Analyst]

Then I would ask a follow-up on that just to be sure I understand. So you have $460 million a year of tax impact to use over the coming years. From a P&L point of view, I come back to the question before. So you will have to spread that over a number of quarters. Is there anything else we should account for, for example, provision reversal regarding the tax case, the litigation? And then should we expect this specific one in Q2 and for the specific element, should it be nonrec?

[Claude Laruelle, Chief Financial Officer]

At this stage, there is no specific impact to expect in Q2 as I said before. And nothing in nonrec regarding the tax litigation. Okay?

[Operator]

The next question comes from Emmanuel Turpin from Societe Generale.

[Emmanuel Philippe Turpin, Equity Analyst]

My first question is to understand the scope effect at the EBIT level. I think you mentioned EUR 10 million at the EBITDA level. I'd Like to have the same figure for EBIT, please. And number two, regarding weather, you gave us the absolute weather impact compared to last year noting that it was bad this year versus a good year last year. Would you be able to give us the impact for Q1 '19 versus long-term average, i.e., by how much we need to adjust our model for next year if we assume normalized weather? My third question is about Waste volumes. You gave us the aggregate year-on-year increase in volumes. Would you be able to give us a comment or some numbers by different type of treatment, maybe sorting, recycling on one hand, landfill and incineration on the other?And would you be able to help us understand the growth that you've already embarked for this -- for the capacity of -- treatment capacity for Waste. In your slides and in your comments, you mentioned some projects in hazardous waste I think elsewhere as well. What sort of visibility do you have on capacity increase that will allow you to actually increase your waste treatment volumes in the next, I don't know, I guess a couple of years? And one small question on the U.S. for the district heating business. You gave us contribution at the EBITDA level. I expect there would be fair amount of depreciation. Could you give us a 2019 EBIT contribution, please?

[Antoine Frérot, Chairman & CEO]

Okay. Emmanuel, Estelle will begin to answer your question about the Waste volumes and our Waste treatment capacity. During this time, we will get the answer to the last questions. Estelle, please.

[Estelle K. Brachlianoff, Chief Operating Officer]

With regard Waste volumes, our whole project is to build new capacity in order to increase volume not only by gaining market share, but having new treatment facilities to operate. In this respect, we have many projects pretty much everywhere starting with hazardous waste, not only in increasing our capacity in existing countries where we do already have waste. So namely, it's in Europe where we have 2 important projects. In China, where we have already 4 hazardous waste facilities under construction as well as in the U.S. where we have an increase in capacities around our existing sites, which could be quite significant as well. So that's increasing capacities in our existing geographies, if you want, plus we've got new geographies we are aiming to open or we are about to open. One is the Middle East. We've announced at the yearly results a few weeks ago that we were about to open a new facility in Sadara in the Middle East, that will be a new geography. And we're having many projects in South America as well, typically in medical waste, where we will open a new facility. So basically, not only increase capacities in existing geographies but opening new geographies. I was about to say there is almost no geography in Veolia as well where we don't have projects in hazardous waste capacity. So that's the question about this one. And Claude?

[Claude Laruelle, Chief Financial Officer]

Talking about EBIT and the impact of EBIT, first question of Emmanuel. The EBIT is coming mostly from the organic side and it's also due to the early acquisition that was made this year, much earlier than last year. And then we produced EBIT during the course of the year. So EBIT for Q1, but it's a small number. The EBIT increase is mostly driven by the organic growth of Veolia.

[Antoine Frérot, Chairman & CEO]

About weather compared to a normal year, last year, we had a normal year in Eastern Europe and was a good year for the first quarter in U.S. But also last year, we had a bad weather -- I mean mild weather in April in Eastern Europe. It is a bit colder this year. So you could consider that in 2018 in Eastern Europe, it has been a normal year. So you have with the difference of this year, the difference between this year and a normal one.

[Claude Laruelle, Chief Financial Officer]

And in terms of the U.S. district heating network in terms of the contribution that we expect for this year. A full year impact, of course. We expect a little bit less than $40 million as a full year effect. So of course, it's not quarter -- I mean, it's a strong quarter in Q1 and also in Q4.

[Antoine Frérot, Chairman & CEO]

To summarize these numbers of the district heating in the U.S.: $400 million of turnover, $86 million in our budgets in terms of EBITDA, a bit less than $40 million in terms of EBIT under full year basis. Did we answer all your questions, Emmanuel? Yes?

[Emmanuel Philippe Turpin, Equity Analyst]

I guess so except maybe for the trend in Waste volumes in Q1. We have an aggregate number for the growth in Waste volumes. I was wondering if you had any comment to make between the different types of treatments, waste sorting, recycling versus landfill versus incineration?

[Estelle K. Brachlianoff, Chief Operating Officer]

I guess, Emmanuel, it's a mixture as you have alluded to. If you look at Slide 36 -- Page 36, you had the mix of varying type of treatments and our positioning in Waste. So altogether, what we can say is dry waste is typically around 2% to 3% growth whereas hazardous waste is more around 5-ish in pretty much all our geographies. And with regard to recylates and recycling, we've seen plus and minus as I've alluded to earlier on: minus in the paper, plus in the plastics, minus although we're not very much exposed in scrap and metal. So it gives you an idea in terms of the mix of those activities on Page 36. And as far as the geographies are concerned, I think I have answered to that one earlier on.

[Operator]

[Operator Instructions] Your next question comes from Philippe Ourpatian from ODDO BHF.

[Philippe Ourpatian, Analyst]

Just one additional question concerning the Water volumes. You and your main competitor have recorded this quarter quite volumes increase in France, which is a little bit abnormal looking the long-term trend. Could you just explain -- I know that it's a small figure because it's not the best quarter, but where this increase is deriving from? Is it better management, reducing the volumes of leakage, just to understand. And could you just confirm that the trend of the full year will be as you are expecting means normally somewhere around minus 1%?

[Estelle K. Brachlianoff, Chief Operating Officer]

Yes. A few details in this one. First things first, it doesn't go from leakage. It does come from consumption and better consumption. The reason being that in France, the leakage rate is relatively low compared to any other geographies in the world anyway from the start. And in terms of geography, you know it mainly comes from the north of France for a lot of reasons. You can take a look at the weather specifically day by day. I guess you know, as you alluded to yourself, Q1 is not that significant anyway in Water volumes, so we should have a look at spring and even more so the summer to have a look at the global year. So we don't see any major difference compared to our observations thus far. And of course, the weather this summer is going to be an important data to take into account later on.

[Operator]

The next question comes from [ John Freeson ] from Bank of America Merrill Lynch.

[Fraser Andrew McLaren, Director]

It's Fraser McLaren here from Bank of America. Just one question from me, please? You mentioned that in the U.K., the PFI sector is very strong. Given that some authorities have been under pressure to renegotiate in recent years, I wonder how confident you feel about the contracts being secure.

[Estelle K. Brachlianoff, Chief Operating Officer]

So thank you for your question. You know it's a very good one. But I think we can be very confident we secured or we have secured contracts. Just to give you an idea, we had up for renewal in January our contract with Tyseley, which is Birmingham, the second largest city in the country. And we've been able to renew it for another 5 years. That's the testimony of this. And all our other PFI contracts are up for renewal in a very, very long time so we have many, many years ahead of us before having to renew them. We were able as well to extend the duration of our contract with Sheffield last year. So I guess the proof is in the pudding as in we've not only renewed but at times expanded our contract with those PFI customers, which is probably good news in terms of the quality of the service we offer to them together with the price. So it's a price quality discussion, and they are very happy with the service we offer.

[Operator]

[Operator Instructions] We haven't any question for the moment. [Operator Instructions] We haven't any question for the moment.

[Antoine Frérot, Chairman & CEO]

So thank you very much. We will end our conference call. Thank you to all of you and have a good day. Goodbye.

[Operator]

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