Veolia Environnement SA

PAR:VIE

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, welcome to the Veolia Conference Call on Q1 2021 Results Publication with Antoine Frérot, CEO; Estelle Brachlianoff, COO; Claude Laruelle, CFO; Olivier Brousse, Head of Strategy and Innovation.I'll now hand over to Mr. Antoine Frérot. Sir, please go ahead.

[Antoine Frérot, Chairman & CEO]

Thank you. Good morning, ladies and gentlemen, and thank you for attending this conference call on Veolia first quarter 2021 results. This morning, I am with Estelle Brachlianoff, our COO; Claude Laruelle, our CFO; and Olivier Brousse, Head of Strategy.Before presenting you our Q1 highlights with Estelle, I will say a few words about the agreement signed on April dividends with the Board of Suez to acquire the majority of Suez assets outside France and thus to become the undisputed leader in the ecological transformation. Claude will give you details on Q1 key figures, and we will then answer your questions.So I will begin on Page 5. On the 11th of April, we signed a landmark agreement with the Board of Suez to buy Suez shares at EUR 20.5 per share dividend included. This project has been considered several times in the past but had never been accomplished. It is now finally happening, and it opens up great opportunities for the combined entity. With this agreement, Veolia is adding nearly EUR 10 billion of international revenues to its existing perimeter. The Suez Group will remain, including, on the one hand, all its French activities, which we would have been obliged to sell for antitrust purpose; and on the other hand, some international assets, totaling revenue of about EUR 7 billion.This offer, which will be recommended by the Board of Suez, includes strong social commitments for a period of 4 years after the closing of the offer. Both sides have agreed to drop all legal actions.I now move to Slide 6. The purchase of Suez by Veolia will create a growth with EUR 37 billion of revenues with reinforced geographical presence, a unique service and technologies offering and a large client base, thus making it the undisputed leader of the ecological transformation.From a geographical standpoint, we will strengthen our footprint in the U.S., in Latin America, in Australia, in the Middle East, in Spain and in the U.K. In terms of offering, the combination of our expertise will give us a unique positioning in technologies and know-how in water, waste and energy. The combination of our 2 groups will also be significantly value creating. The EUR 500 million expected synergies are confirmed. We expect double-digit EPS accretion as of 2022 and of nearly 40% in 2024.The financing of the transaction is designed to maintain our financial robustness with a net debt-to-EBITDA ratio below 3x from the first year of the consolidation of the combined entity. The purchase of the 70% stake in Suez that we do not already own will be largely financed by the asset divestures, which will constitute the new Suez, and will be complemented by a capital increase of between EUR 2 billion to EUR 2.5 billion. After the announcement of the agreement, the rating agencies, Standard & Poors and Moody's, have both confirmed our ratings with a stable outlook.On Slide 7, you can see the expected profile of the new group based on 2019 pro forma figures. The new Veolia will receive net revenue of about EUR 37 billion and an EBITDA of EUR 6 billion before synergies. In terms of businesses, Water will represent 47% of the group versus 41% for the year-to-date. Waste will account for 37%, and Energy for the remaining 16%.On Slide 8, you have the details of geographical footprint of Veolia and Suez on a stand-alone basis and after the combination. I have already mentioned the geographies where the combination will have the most impact: North America, where Suez will increase Veolia revenue by 50%; Latin America, where revenue will double; Australia, where it will increase by 60%; and global businesses by 60% as well. Revenue growth is more moderate in Europe taken as a whole, but it is very significant in the U.K. and in Spain.On Page 9, you have an indicative timetable of the next steps of the transaction. When we signed the agreement on April 11, we gave ourselves until May 14 to finalize the agreement in detail. We will then have the valuation of the main assets, which will be contributed to the new Suez, as well as the details of its new shareholding structure. We will then be in a position to file a revised tender offer document to the French stock market regulatory body, AMF. In parallel, the antitrust process will be processing. We have already obtained the clearance in 5 countries, and we expect the EU clearance in the third quarter. The tender offer on Suez will be opened during the third quarter and be closed before year-end. 2022 will, of course, be the first year of the full combination of the new book.Our new world champion of ecological transformation will then be ready to take advantage of the various seamless plans underway in Europe, in the U.S., in the U.K. and in all the other countries that see ecological transformation as both interactive and as one of the ways out of the crisis. This is what I wanted to share with you regarding the purchase of Suez.Let us now move to our first quarter results. And for that, I am on Slide 11. 2021 is off to a very good start for Veolia. Despite the third wave of COVID in Europe, we have enjoyed a strong rebound in revenue and results, thanks to the resilience of our business model and continued strong efficiency actions. We have continued to apply strict pricing discipline while maintaining a vigorous commercial dynamic. We are ahead of our annual objective in terms of efficiency gain, with EUR 92 million achieved in Q1 compared to EUR 350 million annual target and then largely above Q1 2020 achievement.We have also benefited from the sharp rebound of recycled material prices, and in total, Q1 revenue reached EUR 6.807 billion, a 4% increase at constant ForEx versus Q1 2020. And EBITDA totaled EUR 1.078 billion, strongly up by 13.6%, thanks to the operating leverage and record efficiency gains.If we now compare Q1 2021 to Q1 2019, before the pandemic crisis, you see that here again, we have enjoyed a sustained growth, plus 2.8% at constant ForEx for revenue and plus 7.5% at constant ForEx for EBITDA. Our activity level and profit delivery is well above Q1 2019, which clearly shows that we have managed to wipe out all the impacts of the crisis and to recover our normal growth trajectory in a short period of time. This very strong first quarter is very encouraging for the rest of the year.I now hand over to Estelle, who will give you details on the operational trends of the first quarter. Estelle, the floor is yours.

[Estelle K. Brachlianoff, Chief Operating Officer]

Thank you, Antoine. I am very satisfied with Q1 results in many respects, strong revenue growth and an even stronger growth in our results, both a testament to our focus on continued delivery.Digging now into the various components of this really strong quarter revenue growth, you will see on Slide 12 how it splits between our various business segments. Municipal water, first, has been super resilient, and so has our energy business helped by cold winter. Our solid waste business has adapted very well to quite volatile C&I volumes, still down in the first quarter with lockdown measures in place in most geographies. But we have driven massive efficiency measures as well as continued price increases in most geographies as well. It has also benefited from higher levels of recycled prices.Hazardous waste continues to be a success story of sustainable performance and growth, with volumes up, sustained prices and no less than 7 new facilities under construction in Asia, Europe, Middle East and America. On-site services for industry are not completely back yet, with our services to the automotive industry a little behind in Europe and our services to oil and gas not yet back to full capacity, although they have rebounded very strongly.I'm pleased to mention on Slide 13 a few very important wins of new contracts, which have materialized in the first quarter of 2021, as it could have been difficult to win new customers when you cannot even travel or meet them in person given COVID restrictions. I would highlight, in particular, a very good series in our municipal water activities. Starting in France with the gain of Cholet, Cholet being the incumbents; and Colmar, which was previously run mainly by the city.Further East, it was a great achievement to win the first PPP tax contract with the municipality of Miyagi in Japan, which represents EUR 800 million backlog. It follows exactly the same model as our successful Hamamatsu concession in the same country.Many interesting wins as well with our industrial customers. For example, with PETROPERU, where we have managed to leverage the experience in sulfuric acid recovery of our U.S. team. Our EUR 200 million contract with BASF new factory dedicated to electric car batteries in Finland is another source of satisfaction.Now on Slide 14. Our strong results in Q1 have obviously been driven not only by our revenue growth but also by our continued efficiency measures, as you can see from the operational level. After second half of 2020 where we managed to get EBITDA back to pre-COVID level, we are really accelerating the rate of recovery with a 14% EBITDA progression against 2020 but also a 7.5% increase compared to 2019.We are on target with EUR 92 million cost-cutting in the first quarter. As you know, our annual target is EUR 350 million as we've kept an additional EUR 100 million recover and adapt plan on top of our annual EUR 250 million efficiency plan as COVID consequences are still visible.We have sustained our effort in G&A squeezing, key asset efficiency and digital. Just to mention a few examples, our Hubgrade live monitoring of water meters has helped us to chase after nonbilled customers in France and Ecuador. When our American team has managed to reduce the cost of reactives in our hazardous waste units by recycling some byproducts, so that's a typical example of what's underlying those efficiency measures.In summary, this gives me a lot of confidence in our team to keep the focus on delivering very good results quarter after quarter, and it shows we are ready for the merger with Suez later in the year.I hand over back to you.

[Antoine Frérot, Chairman & CEO]

Thank you, Estelle, and I am on Page 15, where you can see how we sustained 2021 objectives before the combination with Suez. As I said earlier, this excellent start to the year makes us particularly confident that we will reach our targets. Our objective for 2021 is clear: we want our level of activity and profit to be above 2019 performance. More specifically, revenue is expected above 2019; EBITDA is expected above EUR 4 billion, a growth of more than 10% versus 2020; we are targeting EUR 350 million of savings. Regarding our balance sheet, we are targeting a net financial debt below EUR 12 billion, with leverage ratio below 3x before the combination with Suez. And in terms of dividends, we clearly intend to recover our pre-crisis dividend policy in 2021.I now hand over to Claude, who will give you details on these first quarter results. Claude, the floor is yours.

[Claude Laruelle, Chief Financial Officer]

Thank you, Antoine, and good morning, ladies and gentlemen. I'm very pleased to detail the sharp Q1 rebound with a solid growth momentum and a record profitability. As you can see on Slide 17, revenue grew by 4% in Q1 at constant ForEx. And thanks to a very strong operating leverage, EBITDA jumped by 13.6% with a recovery in almost all our activities, as Estelle described earlier. Current EBIT is also well oriented at EUR 469 million, plus 22.7% compared to last year. And current net income is up 59.8%.Thanks to a strong and continuous focus on cash management and lower CapEx spending, our free cash flow generation is excellent in Q1 and has improved by EUR 468 million compared to last year, leading to a net financial debt almost flat compared to December 31.Moving to Slide 18. Let's have a look at the Q1 performance by geography. You can first notice the group revenue acceleration over the last quarters, minus 0.6% in Q3, plus 0.9% in Q4 and plus 4% in Q1. Where does it come from? First, from France, plus 5.7% in Q1 with a resilient Water France with good volume and tariff increases; and a sharp recovery of Waste France, plus 11.2% despite wave 3 of COVID due to solid volumes, price increases and sharp rebound of recycled prices.Second, with the outstanding growth in the Rest of Europe, plus 9%, with very strong growth in Energy and -- in Central Europe and a good resilience of our waste activities in Germany. Third, from the Rest of the World, which is still more contracted with a very dynamic China, plus 12%, and North America and Morocco still behind last year activity level. And fourth, from global businesses that continue to perform in line with previous quarters, with continued recovery in hazardous waste and construction, in line with the industrial recovery in many countries.On Slide 19, you have our usual revenue bridge where you can see the details of the 4% growth. The like-for-like growth is plus 3%, and the scope effect is 1% mostly due to our recent acquisitions in energy in Central Europe. What is noticeable is the volume box, minus 0.5%, showing that our C&I waste business has not yet fully recovered in Europe with a lockdown that happened in the U.K., Germany and France, which will lead to a further rebound as lockdown measures are lifted.As you can see, the colder weather that we all experienced in February and March helped our revenue by 1%. And energy and recyclate prices are benefiting from the strong commodity prices and the high demand for cardboard. Finally, our prices are well oriented, thanks to a strong price discipline that is one of the strong marker of this crisis in both Water and Waste, which is boosting further the revenue by 0.9%.Let's have a look at our waste activities on Slide 20. The sharp increase of recyclate prices has a strong impact on our Waste revenue, plus 3.2%. Prices continue to be very well oriented at plus 1.7%, thanks to continuous pricing discipline and price increases in some segments where treatment demand is high like hazardous waste, for example. On the volume side, as I told you, Q1 2021 is below Q1 2020 by 0.9%, which was itself 1.8% below Q1 2019. We're clearly being impacted by the lower C&I volumes in Europe and recycling activities in the U.S.By geography, volumes are back in France, plus 1.6%; Asia, plus 15%; and LatAm plus 0.8%, but still down in the U.K., minus 7.6%; Northern Europe, minus 1.4%; North America, minus 1.8%; and Australia, minus 4%.Regarding the geographies, one country to mention is the U.K., which came less last year in the lockdown and early this year. Waste revenue is down by 6.5%, but thanks to its resilient PFI model, the financial performance is almost flat, which is remarkable.Let's move to Slide 21 with our Q1 EBITDA bridge and focus on the 3 main points. First, the contribution of the recent acquisitions in Central Europe, which are performing well in Q1 and boosting EBITDA by almost 5%. Second, the impact of the colder weather, plus EUR 23 million; and the recyclate prices, plus EUR 24 million, in line with the revenue trend. And third, the cost-cutting of EUR 92 million that includes EUR 68 million of usual cost-cutting and EUR 24 million of recovery and adapt plan that is strongly contributing to EBITDA growth. And I can confirm that we are fully on track to achieve our EUR 250 million target for 2021.Moving to Slide 22. Let's review now our activities by geography, and we start, as usual, by France. Water France in Q1, as you can see, is slightly up 0.8%, with tariff increase of 0.7%, works recovery, more than offsetting the end of the Toulouse wastewater contract in 2020. Waste in France experienced a very sharp rebound in Q1, plus 11.2% compared to last year and even plus 7.2% compared to Q1 2019, with 3 main causes: first, volumes still impacted by lockdown measures but overall up 1.6% compared to last year; continuous price increase in C&I collection and treatment; and sharp increase of recycled prices, especially in nonferrous metals and cardboard.EBITDA upfront is sharply up, in line with the resilience in the Water activities and the jump in the Waste business.Moving to Slide 23. Let's have a look of our activities in the Rest of Europe, starting by Central Europe. Revenue increase is 23.5% compared to last year, mainly driven by a very strong contribution of our energy district heating business linked with energy price increase, heat tariff, up between 5% to 10%, and the integration of the assets we bought last year in Prague and Budapest.U.K. revenue decreased by 6% compared to a strong Q1 2020 as lockdown started later in 2020 due to lower C&I waste volumes with a strict lockdown in Q1 2021. Thanks to the very solid PFI business model and good cost control, U.K. financial performance is very steady.Germany also experienced excellent results despite lockdown measures, thanks to the restructuring and recyclate prices. EBITDA performance of Rest of Europe is very, very strong with a good operating leverage.Moving to Slide 24. We have seen a recovery in all regions in our Rest of the World segment and a good operating leverage. Let's start by Asia and especially China.Chinese activities are up 12% and EBITDA 30%, with all activities strongly recovering after a low Q1 2020. And a special mention to our hazardous waste business boosted by the new sites on the operation, like Jining, are ramping up and overall significantly increased volume in all our facilities. We expect 2 other hazardous waste sites to start up this year, Dongfeng and Dalian.Latin America continues to grow at a strong pace with little COVID impact in Q1 due to the warm weather. As we told you, North America refineries are still running at 85%, impacting our sulfuric acid recycling activities. U.S. municipal water, on the other side, had a strong Q1 with good financial performance. Australia, despite good weather conditions, experienced some remaining COVID impact and has not yet fully recovered its nominal C&I waste volumes. EBITDA of the segment is sharply up with a strong contribution of the high-margin businesses.On Slide 25, you have the details of our global business activities. VWT continues to perform well with revenue up 2.1%, benefiting from the transformation initiated a couple of years ago focusing on technology and higher-margin business. We have, as we speak, a large pipeline of desalination projects as the demand in the Middle East remains very high for municipal and industrial end users.Network activities of SADE are stable at constant scope after the disposal of our telecom activities in November last year, and we have seen a recovery in the tender activity in Q1. Hazardous waste is recovering well, with price increases offsetting a little bit of volume that are still missing. EBITDA of the segment is also strongly up, in line with better revenue and efficiency measures.On Slide 26, you have the detailed EBITDA to current EBIT bridge with a very strong current EBIT increase, up 22.7% at constant ForEx. Renewal expenses are slightly up in France and back to a normalized level in Q1. Depreciation is almost flat and is helped by less OFA repayment in 2021. But the main variance is coming from the provision line, coming from various items, including litigation, employee share plans, insurance and [ CO2 ]. And finally, you can notice the impact of the Shenzhen disposal in the contribution of our Chinese JVs, down to EUR 11 million in Q1. As a result, the level of current EBIT for Q1 2020 is EUR 469 million.Let's move to Slide 27 to the current net income calculation for Q1, which is up 60% at constant ForEx. What is remarkable is the cost of the net financial debt, down by EUR 26 million to EUR 86 million with 2 main reasons. First, the lower cost of our euro-denominated debt with a continuous refinancing of corporate midterm notes, which is now, as an average, below 2%. Second, the benefit from low short-term interest rates in most countries where we operate, helping the cost of the swaps of euro debt into foreign currencies to go sharply down.Regarding tax, current tax rate is at 27%, and we are still projecting a tax rate of around 25% for the full year 2021.Moving to Slide 28. Let's have a look at our free cash flow generation in Q1 with a EUR 468 million improvement compared to last year. Where does this come from? First, from a very good level of working capital, improved by EUR 314 million, thanks to continuous focus on cash collection and cash management in all our BUs, where we monitor cash on a daily basis and have already set a cash awareness since the beginning of the COVID crisis. Second, from a good CapEx management in Q1 at EUR 426 million, down by EUR 32 million. As a result, the net financial debt is only slightly up compared to December 2020 by less than EUR 300 million, and almost half of it is coming from ForEx impact for EUR 131 million.On Slide 29, you can see the details of the debt variation since the beginning of the year with a net CapEx box at EUR 426 million and the working capital variation sharply reduced at EUR 480 million, thanks to strong collection in most of our geographies, including LatAm and Africa, Middle East.On Slide 30, after this very good Q1 and its outstanding financial performance, I can fully confirm our strong confidence in 2021, and I can fully confirm our guidance for the year.Thank you for your attention.

[Antoine Frérot, Chairman & CEO]

Thank you, Claude, and we are now ready for your questions.

[Operator]

[Operator Instructions] We have one first question from Mr. Emmanuel Turpin from Societe Generale.

[Emmanuel Philippe Turpin, Equity Analyst]

I'd love to ask one financial question and then a couple of questions on business development. On the financial side, on -- starting with CapEx, you basically spent a little bit less than last year, about EUR 30 million. Could you give us an update on your plans for the full year? It's going to be a very special year with the merger with Suez, but if we focus on Veolia on its own, how do you see the rest of the year as the economy is restarting and your business seem to be going well?The second financial question is actually a cross between business and financial. You mentioned that thanks to the nature of your PFI contracts in the U.K., you ensured -- I understood it as a flattish EBITDA despite lower volumes and lower revenues. Would you mind explaining to us how this contract -- this type of PFI contracts work on essentially protecting your EBITDA even if volumes are down? And what would be the implications when volumes are up? Would your EBITDA kind of lag this volume rebound as they were protected as volumes were down?And then a couple of questions on business development. You announced your second concession in Water in Japan. Japan is a large economy, one which had been historically difficult to penetrate for foreign operators. If you look out 5 years or more, how big could Japan become in terms of potential market for Veolia, especially new Veolia as the 2 companies will combine their forces there?And the second business development question is about your service offer around air quality. I remember, a couple of years ago, you launched this business and explained to us was you had a couple of pilot projects and you strongly believed there was a great future for this type of business. Now the COVID crisis is putting air quality at the center of discussions. And I was wondering to what extent you felt public authorities were becoming more aware of the need for service here.

[Antoine Frérot, Chairman & CEO]

Thank you very much, Emmanuel. You have questions for all of us. For the CapEx of the full year, Claude. For the EBITDA U.K. and the good resilience of our business will be Estelle. I will take your Japanese question. And Olivier, about air quality.

[Claude Laruelle, Chief Financial Officer]

So I will start with the CapEx.

[Antoine Frérot, Chairman & CEO]

Yes, please.

[Claude Laruelle, Chief Financial Officer]

So regarding the CapEx, if you look at what we spent over the last couple of years, 2019 was EUR 2.2 billion; last year, a little bit more than EUR 2.1 billion. And you know that we managed the CapEx quite well last year. So this year, because we have a lot of discretionary CapEx to spend both on hazardous waste and also on the conversion of energy transition in Germany and in Central Europe, we expect CapEx of around EUR 2.3 billion for the full year.

[Antoine Frérot, Chairman & CEO]

About the U.K. business, Estelle.

[Estelle K. Brachlianoff, Chief Operating Officer]

About the U.K. business, various components into it, again, C&I and PFI, just to state 2 large components. C&I-wise, volumes were down, as Claude explained, because there was a big lockdown in the first quarter of '21 and there had been no lockdown last year. It happened later on. So we have a very large decrease in volume compared to last year in C&I, but cost-cutting managed to keep our results where they should be basically stable, something like that.With regard to PFI, which is another type of business, it's relatively resilient to volume level short term. Basically, we share the volume and price effect with the customer with a type of color and floor type of arrangement. Each contract is different, but on majority, that's the case. So at one point, we benefit from a little bit more volume but not 100%. And on the other hand, when volumes are down, we are not down to 100% of the volumes on our sites. So we really are sharing with the customer.So all in all, in the PFI business, volume is not a big thing as long as we manage to keep the energy from waste full, which we have throughout the crisis. We've prioritized them against landfills or other type of activities. So what's really important is more the prices, so price of recyclate, as much as our performance industrial-wise, as in energy from waste level of availability. So basically resilient to volume to a large extent.

[Antoine Frérot, Chairman & CEO]

Thank you, Estelle. About Japan now, you remember that we were the first foreign company to enter in the water market in Japan about 20 years ago. It is, of course, a difficult market, and we need time to be Japanese in Japan and to progress into this market. Now we enjoyed a turnover of about more than EUR 600 million in this country, mainly in Water business. And we take profit year after year about the fact that we were the first one into this market, and we are still the first one amongst the foreign companies.We introduced the PPP model in this country where the major parts of water services are performed by a public business. And regularly, we make progress. Our water presence allowed us also to enter progressively in the Waste business, especially recycling, but also in Energy business. And with EUR 600 million of turnover, we are far from what we can expect in the next years. So Japan is, for sure, an extension zone, an extension territory for Veolia. And now I can say that in Japan, we are seen as also a Japanese company.Air quality, Olivier.

[Olivier Brousse]

As you know, Emmanuel, we've been talking in work on air quality for several years now, mostly indoor air quality. And what we can say in the last month is that the trend from especially public authorities to deal or to improve or maintain the air quality in buildings, especially public spaces, is accelerating. We're seeing more and more tenders, for instance, in schools, from regions, from departments, in order to ensure a good air quality in [indiscernible].What is interesting, though, in the last weeks, and I'm sure you've heard that, is that air quality, it's an important risk to health care, and public authorities are aware of that. But now with COVID, it could be an element of being open for business or not. Public authorities are talking, for instance, about how to ensure class -- sorry, school class availability, thanks to air cleaning between sessions.The leisure industry like cinemas are talking about how to negotiating with government and public authorities about how to stay open or reopen for business by cleaning the air between cinema sessions. So all the experience we've -- that was accumulated by Veolia in the last 2 years on this matter could become essential for some services, public services or business services, to remain open in the case of a long COVID economy. So we are seeing a steady growth in that, and we're well positioned to take advantage of that.

[Operator]

We have another question from Philippe Ourpatian from ODDO BHF.

[Philippe Ourpatian, Analyst]

I have several questions, let's say, 3 or 4. The first one is concerning the combined impact. You mentioned that your economies were EUR 92 million and you break down between the normal plan and the recovery plan. And out of this EUR 24 million, what are the level of economies which might be seen as recurrent one? I do think that the travel are still limited, and you will use more, for example, some digital meetings versus traveling. Is there some millions which could be, let's say, permanent or resilient in this figure? That's the first question.The second one is concerning the deviation in terms of price effect between revenues and EBITDA. You have plus EUR 61 million and minus EUR 52 million. Could you just elaborate a little bit more about this deviation, I would say?The third question is concerning tax carryforward. Is there some additional use in the French fiscal perimeter and U.S. perimeter of the tax carryforward inventories you have had due to the better results you extract in Q1?And 2 last questions, first concerning the French pipe request of improvement. There were some article in French press that there is clear need of investments. What could be your thought and the impact on the Veolia's activities in the coming years?And the last one is concerning the capital increase for the Suez merger. You were mentioning previously max EUR 2 billion, now you are putting the range between EUR 2 billion and EUR 2.5 billion. Why this has changed and why on higher figures?

[Antoine Frérot, Chairman & CEO]

Okay. I'm not sure I completely understood well to your question about the French water business. Could you repeat it, please, Philippe?

[Philippe Ourpatian, Analyst]

Yes. I mean I was saying that French press was mentioning during the last day that there is clear need of investments for water pipes in the French municipal business. I do think that with the SADE, you are working in this area. Is there some sign or, let's say, expectation of better businesses, level of businesses in this way as most of these investments are going to be done by the municipalities?

[Antoine Frérot, Chairman & CEO]

Okay. Thank you. So we will begin with Estelle about the cost-cutting.

[Estelle K. Brachlianoff, Chief Operating Officer]

So thanks for your questions. So if I refer to Page 14 of the presentation on our efficiency plan. The part which is the efficiency plan as in the traditional one is fully a recurring one, so the EUR 68 million out of the EUR 92 million. And as far as the EUR 24 million, which is the recover and adapt plan, it's not meant to be necessarily recurring. But given what I know what's underlying in Q1, I would say the vast majority of it is. So we still have a little bit of, say, travel freeze and stuff like that in it, but the vast majority is more recurring measures, even in the recover and adapt plan.

[Antoine Frérot, Chairman & CEO]

About the price effects, Claude.

[Claude Laruelle, Chief Financial Officer]

So the price effect that you see on the revenue side is coming from the price increases that we have in all our businesses. And on the other side, what we put in the EBITDA bridge with minus EUR 52 million is the usual price/cost squeeze, is the cost inflation that we are not passing to our customers plus the renewal impact of our contract. This is the reason why that we have, as usual, a price net of cost inflation which is negative and that we have to offset by more savings than this price of cost inflation. This is the explanation of the difference between the 2 boxes. And there is not...

[Antoine Frérot, Chairman & CEO]

It is very usual in our presentation. If we enjoyed an increasing of our prices, we will limit this cost squeeze. We'll not take it completely, but we will limit it largely.

[Claude Laruelle, Chief Financial Officer]

So first of all, by example, you have a cost of oil and gasoline. So it's part of the price of -- despite of the negative EBITDA box, but it's also slightly because we are increasing slightly the prices but not fully regarding the level of oil price, which is the level of Q1 today.

[Philippe Ourpatian, Analyst]

And in fact, just my question was also, there is no other, let's say, nonrecurring or exceptional item because I know this mechanism, but it was just to know also if there is some specificities mainly in Q1.

[Antoine Frérot, Chairman & CEO]

No, no, no. And we have this effect on all our publication. Regularly, you will see a price increase for now some several semester and trimester and a negative impact on the price/cost squeeze on the EBITDA level. It is very classic for us.About the tax carryforward, Claude?

[Claude Laruelle, Chief Financial Officer]

In terms of tax, if you look at the tax level of Q1, a little bit higher than the full year because we have less contribution from France and the U.S. You have seen what happened in the U.S. And in U.S., we were further impacted by the very cold weather in Texas. With the very cold weather in Texas, we had to shut down our hazardous waste facility there for a couple of weeks. So what we are seeing with less contribution from those 2 tax group, the tax rate is slightly higher in Q1, but the expectation is still the same, 25% for the full year.

[Antoine Frérot, Chairman & CEO]

Meaning less than the 27% we have on Q1.

[Claude Laruelle, Chief Financial Officer]

On Q1.

[Antoine Frérot, Chairman & CEO]

Okay. About the French water business, I will take the question. It's very good news that at least, we hear some municipalities and some public people saying that we need more investment in the water activity in France. Meaning that the prices, which decreased a lot for 10 years now, stopped to decrease and probably perhaps increased a bit.It's too early to see the consequences on that fact today for fab, for example, for the works. But it will be more interesting also for our water services, meaning that we can invest on the water facility, not only for pipes but also from treatment equipment, new pollutants and so on. So it is benefiting for all our services with some subcontracting to SADE or to BWT [ office ], but also profiting for all of the services.We hope to see that in the coming months or semester, the money will come probably from the water agency. And you know, Philippe, that in France, between some political enhancement and the fact on the field, we need a bit tight capacity.About the capital increase.

[Claude Laruelle, Chief Financial Officer]

Capital increase, yes. What we have always said is that the capital increase will be capped at around 20% of the operation. So today, with the price -- the share price increase that we have targeted and that we have announced, EUR 20.5, this is the reason why that we have put this window, and we will fine-tune the amount when we have a clearer view of the proceeds from the disposal. So we will give you later in the year the precise number of the capital increase.

[Antoine Frérot, Chairman & CEO]

What we said in the past was maximum 20%. I don't remember if it was maximum EUR 2 billion. So it is around EUR 2 billion. So it will be around or between EUR 2 billion and EUR 2.5 billion.

[Operator]

We have another question from Mr. Olivier Van Doosselaere from Exane.

[Olivier Pascal Michel Van Doosselaere, Analyst of Utilities]

I had a few as well. Firstly, maybe on the EBITDA guidance. So you mentioned above EUR 4 billion for this year. The EUR 4 billion is actually what you did in 2019. And with the Q1 EBITDA already up 4.5% versus Q1 2019, when, as you mentioned, in fact, activity levels are still a bit subdued because of COVID and that might get better later in the year, I wonder what your thinking is about the possibility to actually do substantially better than EUR 4 billion in terms of EBITDA this year.And the second question, which is actually maybe related to the first one, your net debt is targeted, as you mentioned previously, to be below EUR 12 billion by year-end. That will probably include disposals. I wonder if you could give us an indication of the sort of the amount of disposal that you expect to make this year, again, on a stand-alone basis, so not including the Suez transaction.The third question would be on working capital. So you did well in Q1. How much of that do you expect to be retained structurally? And so do you expect working capital to be a positive driver for your cash flow also at year-end? And if so, if you could give us an indication of the amount, that would be very useful.And then a final question for me also, coming back to the capital increase. Could you -- I don't know if at this stage, you can already give an indication in terms of how much of the capital increase you expect to be financed by giving part of the Suez buyout in Veolia shares and how much of the capital increase will then be financed by a straight capital increase on your end.

[Antoine Frérot, Chairman & CEO]

Okay. I take the first question, Olivier. For sure, we are in advance on our guidance at the end of Q1. And we did not recover all the consequences of the crisis, for example, our waste volumes. Meaning that for the rest of the year, we hope to accelerate again our performance. But -- and so likely, there is a room to do better than -- clearly better than the 2019 EBITDA performance. But we've announced the guidance just 2 months ago. It is today a bit too early to change it.About the debt of EUR 12 billion before the combination of Suez and Veolia, Claude.

[Claude Laruelle, Chief Financial Officer]

So yes, to give you a little bit of color regarding the net debt level, it's including some disposal, yes, to reduce the debt that was at EUR 13.2 billion. So what we expect in terms of disposals is slightly higher than EUR 1 billion, so between EUR 1 billion and EUR 1.3 billion for the full year. This is for the net debt combination.

[Antoine Frérot, Chairman & CEO]

Working capital at year-end.

[Claude Laruelle, Chief Financial Officer]

So as you have seen, we have made a lot of progress on the working capital side, even last year. So it's really a continuous improvement. And what I can say, if you look at the previous year, in 2019, we made a positive contribution from working capital by EUR 200 million, pretty much the same in 2020. So what we expect from 2021 with what we have done since the beginning of the year is a positive impact at year-end, which will be, I would say, maybe in the range of the previous years. So we will see later on in the year what we will contribute. But with the effort done by all the countries, we will have a slight positive impact on the debt reduction coming from the working capital.

[Antoine Frérot, Chairman & CEO]

About working capital, the trees are not growing to the sky also. But today, the working capital is, for Veolia, clearly [indiscernible]. So it has increased a bit. Every year, we forecast to be stable. Every year, we do better. But a small increase perhaps at the end of the year.Capital increase, Claude.

[Claude Laruelle, Chief Financial Officer]

So capital increase -- so for the capital increase, we said we have to have trends. But we want to do it in one or the other options, but not half and half. So it will be clearly a rights issue, as a normal right issue that we -- that can be done, or it could be a share range, a cap share range in the tender offer.

[Antoine Frérot, Chairman & CEO]

Yes, but we accept through the deal with the Suez Board to increase our price for Suez share. So we pay a good price, not in excess, but a very good price for this year. And I think it will be fair also to leave to the Veolia shareholders part -- the normal part of the value accretion of our deal. So probably, we -- today, we will go probably to the share -- the classical share increase, especially for our actual shareholders.

[Operator]

Next question is from Mr. Juan Rodriguez from Kepler Cheuvreux.

[Juan Camilo Rodriguez, Equity Research Analyst]

On the operational level, most of my questions have been answered, but I still have 2 on the financing of the Suez deal, if I may. The first is on the capital increase and the new terms that you provided. And in terms of timing, can you please confirm that it will be done at the same time as the Suez closing?And then the second is on the financing through disposal of the assets. It has been said that the multiples will be similar to those of the transaction. So should we expect something around 9x the EBITDA? And any color on what has been the leverage or what would be the leverage of the new Suez would be useful as well.

[Antoine Frérot, Chairman & CEO]

Okay. I begin with the second question. We did with Suez Board to have a price for the new Suez in current with the global price for the whole Suez. So we will get that because it is already discussed and forecast with the Suez Board, so not very far from what we have in mind.The timing of the capital increase, Claude.

[Claude Laruelle, Chief Financial Officer]

What we will do, we will look at the appropriate timing to see when to do the capital -- the share capital increase. So it could be slightly moved from the formal takeover of Suez.

[Antoine Frérot, Chairman & CEO]

But likely before the closing of the offer.

[Juan Camilo Rodriguez, Equity Research Analyst]

And as a follow-up, any color on what could be the leverage of the new Suez on the asset disposals?

[Antoine Frérot, Chairman & CEO]

It is a question for the new shareholders of the new Suez. Let me repeat that these shareholders are discussing today between themselves, first, to propose to Veolia, the true seller is Veolia. And Suez also, the best price you can propose in [ 2 ] accounts is the global price we offer for the global Suez. And they discussed also about their governance, the governance of the new Suez. And on that, they will propose certainly the leverage. We decided in the agreement of April 11 that the new Suez should be, how we say that, the debt...

[Claude Laruelle, Chief Financial Officer]

Should be balanced in terms of debt and equity. And also, they have to be rated as investment-grade.

[Antoine Frérot, Chairman & CEO]

Exactly. Investment-grade.

[Claude Laruelle, Chief Financial Officer]

So this is -- the goal is to have an investment-grade rating.

[Operator]

[Operator Instructions] We have another question from Mr. Philippe Ourpatian from ODDO BHF.

[Philippe Ourpatian, Analyst]

Yes. Just one last question regarding detail. In the Slide 19 about the revenues, you were mentioning a commercial volumes and work negative impact of EUR 38 million. And in terms of EBITDA, you were mentioning on the minus EUR 4 million, and you were saying as comments, thanks to operational efficiencies. Could you just a little bit illustrate which kind of -- or what kind of operational efficiency you are discussing about which are not in the EUR 92 million of cost-cutting? I do suppose it is really operational efficiencies.

[Antoine Frérot, Chairman & CEO]

Just a minute, Philippe. We have a look on your question more precisely.

[Claude Laruelle, Chief Financial Officer]

So yes. So what we are saying about operational efficiency is also commercial efficiency. And what we are talking about here is about the contribution of hazardous waste -- the hazardous waste contribution in China. It is one of the drivers. So one big item, which is contributing to this box, Philippe. So it's a combination, as you know, of a lot of things but including that effect. And also in -- for the waste activity, we got a little bit of boost in our incineration activity because we were also able to increase the efficiencies in that activities by better availability.

[Antoine Frérot, Chairman & CEO]

All the cost efficiency are on the -- in the cost-cutting plan. When we are talking about efficiency which are not in the cost-cutting plan, it is further efficiency for the full commercial efficiency.

[Operator]

We have one last question from Mr. Andrew Fisher from Berenberg.

[Andrew Fisher, Analyst]

Just 2 quick questions for me, one on hazardous waste. Please, could you just remind us of the timing of new capacities or any new capacities that you already have in planning under construction and what that means in terms of the total size of the treatment capacity you have going forward? So how much growth will the new capacities bring? And just -- maybe just expand on any further opportunities that you see to continue to grow in hazardous waste.And then just on industrial water services and technologies, I was just wondering if you could maybe give us a bit more color on any differences that you're seeing across industries, so power, oil and gas, mining, pharma, food and bev, whether or not you're seeing sort of any particular differences between the new inquiries that you're getting from the industrial water segment, please.

[Antoine Frérot, Chairman & CEO]

Okay, about hazardous waste new capacity, Estelle.

[Estelle K. Brachlianoff, Chief Operating Officer]

About hazardous waste capacity, basically, we're opening new capacity, say, a few times in the year and every year. So I would have to go through the whole list of the 7, which are the construction. Some of them will be this year, some of them will be next year, and it will be up to 2023 for those under construction now to be open. So it's really spread over the time. For instance, we have started the construction of one in Germany, which is going to be more -- opening in 2023. We have some which are -- a large one. We have a large one as well in the U.S., which will be in 2023. But in China, typically, we have 3, which are meant to open this year or beginning of the next with our shorter term, if you wish, and I could go on like that. So -- and we have as well one in the Middle East, Sadara, which is under construction, and it's going to open in 2022. So it's really like a few every year for the next few years.If you have a look at the overall increase in the capacity, if I put this into another terms, we've announced in our Impact 2023 plan that we'll have a revenue higher than EUR 3 billion altogether in the hazardous waste business at the end of the plan. And we are really on our way to -- sorry, EUR 4 billion. So another EUR 1 billion because we are more around EUR 3 billion. So another -- an extra EUR 1 billion turnover compared to what we have now. So it's really -- it gives you an idea of the pace of those opening of new capacities.

[Antoine Frérot, Chairman & CEO]

The new facility of Singapore is...

[Estelle K. Brachlianoff, Chief Operating Officer]

The new facility of Singapore is starting. I mean we have basically half of the volume in, which is a normal ramp-up. So that's why I was not mentioning it, but you're right, Antoine, that's one of the 7 as well.

[Antoine Frérot, Chairman & CEO]

Just to have some figures in mind. The turnover of hazardous waste was EUR 1.6 billion in 2016, EUR 2.5 billion in 2019, and we target EUR 4 billion in 2023.About industrial water, to well understand your question, could you precise it, please?

[Andrew Fisher, Analyst]

Yes, sure. I just was looking to see if you're seeing any differences between the segments of industrial clients in terms of as economies open up, whether you're seeing any particular pockets of demand from, say, the food and beverages sector relative to oil and gas, just to see if there's any differences in trends between the industries, please.

[Estelle K. Brachlianoff, Chief Operating Officer]

Yes, that's a very good question. We're seeing very different trends of reopening from the various industries, either from our industrial water, but it's the same for our industrial energy typically or even hazardous waste. To keep the long story short, we are seeing, and that won't be a surprise to you, a super big boom in everything to do with pharmaceutical industry where we do a lot typically in the hazardous waste business.We have seen quite a down in 2020, but it's picking back up in the oil and gas, typically in the U.S. where the refineries are back up to, say, 85% capacity. That was down to around 70% last year. So it's getting back up, but it's not there, not yet recovered fully. Food and bev has always been super resilient. So we haven't seen a big drop and neither is there a big rebound. It's been relatively stable. And on the other hand of the spectrum, the automotive sector, in particular in Europe, is still a bit weak and hasn't come back to pre-COVID levels.So altogether, since we're covering all the industries I've just mentioned, we have a great portfolio because it's super diversified. Of course, it depends on the various geographies. We obviously have more oil and gas in the U.S. than we have in Europe, but nonetheless, a very different vision from the various industries and a big boost in pharma.

[Antoine Frérot, Chairman & CEO]

Industrial water needs, perhaps some few words, Olivier, about the rise of needs of water we use for agriculture, which will grow quickly, in my mind, in the coming years.

[Olivier Brousse]

Yes. As you know, water stress is a growing concern for not only the industry, society and [indiscernible] but also agriculture. You will remember that last year, some of the crops in France reduced by 20%, 25% just because of water stress during the summer, then again, unfortunately, again this year. As a consequence, the agriculture sector is talking to us with a certain sense of urgency in order to find water guarantee -- water delivery guarantee, which would come from the reuse -- I mean from our water treatment plants.You don't see it in our revenue line for now, but it already represents 60% of the water provided to the agriculture sector in Spain, 80% in Israel, 0%, 0, in France. We wouldn't be surprised if in the coming years, this was a new source of revenue for us in Europe but also in all the regions that are affected by water stress for agriculture. So reuse of water for the agriculture should be a new business line in the coming years.

[Antoine Frérot, Chairman & CEO]

And that will also bring some new needs of pipes, infrastructure, treatment, but also pipes. So it will increase the Water business, not only for cities, not only for industries, but also for agriculture.

[Olivier Brousse]

Absolutely. The waste water treatment plants will become a new source of water, and therefore, they won't have to be afraid.

[Antoine Frérot, Chairman & CEO]

Do we have any other questions? Another question?

[Olivier Brousse]

The last one perhaps?

[Operator]

We have one last question from Mr. Emmanuel Turpin from Societe Generale.

[Emmanuel Philippe Turpin, Equity Analyst]

A question on your Slide 27 on the quite impressive performance in cost of net financial debt improving from EUR 112 million to EUR 86 million. And I was wondering if we could basically gross this Q1 figure up to get to the right level for full year. Or is there any either cost or further savings we should take into account? And same question for the next line on that table, the other financial income and expenses.Back on business development, would you mind updating us on your ambitious business plan for plastics recycling? That was one big area of growth pre-COVID. And how is this shaping up in coming years? Are you sticking to your ambitions and targets? Should we expect a bit of delay for the delivery of those targets or not?

[Antoine Frérot, Chairman & CEO]

Yes. About the third question, Emmanuel, perhaps it is more your business than ours to forecast the short-term interest rate. But Claude will try to answer your question.

[Claude Laruelle, Chief Financial Officer]

So what I can tell you, Emmanuel, is when you look at the low number in Q1 2021, a large part of it is coming from the low interest rate in foreign currency, so which is really good news. So it's about 1 quarter -- or 1/4 coming from the interest rates in the euro debt and 3/4 coming from the low level of interest rates in foreign countries -- short-term rates.So what we can say, what we are expecting from the full year is something which would be slightly below EUR 400 million as the cost of net financial debt, so well below last year's number. And in terms of other financial income and expense, this is a line where you will see the dividend that we will receive from Suez in Q2 because this is the dividend, which are expected to be around EUR 120 million. So what you will have to do is to add the usual level of other financial income and expense and put this on -- put the Suez dividend on top of it.

[Antoine Frérot, Chairman & CEO]

About our plastic recycling business.

[Estelle K. Brachlianoff, Chief Operating Officer]

And about our plastic recycling business, the short answer is we are really sticking to our plans. Meaning, as you know, we have targeted to reach EUR 800 million by 2023. And we are really building the new facilities exactly as we had planned.Just a specific comment on last year's COVID prices with regards to plastics, it has really confirmed that our positioning in this industry was really the right one because even in the midst of -- worst part of the crisis, the decorrelation of our plastic recycled prices against the virgin prices and the oil has been kept by our customers because they really were keen on buying recycled plastic because the trend is there and the demand from the consumer is there. So that was really a confirmation that we are on the right niche of like a high-end quality of plastic, and we are really on plan.

[Antoine Frérot, Chairman & CEO]

So this was the last question. Thank you very much to all of you. So ladies and gentlemen, you can see that Veolia and its strong team is able to do together 2 big things: of course, to prepare and create the big champion of ecological transformation with the project with Suez; and to manage our actual businesses strictly in the line of our Impact 2023 strategic plan. And we will perform this plan as we forecasted from the beginning. You see that after 1 year of the crisis, we are doing better than just to recover or to have last 1 year.EBITDA, plus 7.5% between 2021 and 2019, meaning that we already get the 2 years progression, meaning that we are doing better than just to recover. We will come progressively on the curve -- on the initial curve before the crisis. And that is very good news. So we are able to do both things together during the morning, evening, weekend and so on. So we are in a good position to welcome all our new colleagues in some months from now.Have a good day. Thank you very much.

[Operator]

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