Veolia Environnement SA

PAR:VIE

Earnings Call Transcript 2022-Q1

[Operator]

Ladies and gentlemen, welcome to Veolia Conference Call on 2022 Q1 results with Antoine Frérot, CEO; Estelle Brachlianoff, COO; and Claude Laruelle, CFO.

I now hand over to Antoine Frérot, Sir, please go ahead.

[Antoine Frerot, executive]

Thank you. Good morning, ladies and gentlemen, and thank you for connecting to this conference call on Veolia's Q1 2022 results, which are once again very solid and growing strongly. As usual, I am with Estelle Brachlianoff, our COO; and Claude Laruelle, our CFO, who will detail our Q1 operational and financial performance.

Today, ladies gentlemen, is my last results presentation. As you know, after 12 years as head of Veolia, and as Veolia is opening a new chapter in its history with the acquisition of Suez, I suggested to the Board that it enters the group's senior management to Estelle Brachlianoff starting July 1, 2022. This split of the channel and CEO positions and the appointment of Estelle will be submitted to the Annual Shareholders Meeting on June 15. The Board has expressed the wish that I continue to serve Veolia as non-Executive Chairman of the Board and will propose this to the Annual Shareholders Meeting as well. So at the next presentation of results, Estelle will be one to welcome you.

I would like to take this opportunity to thank you for the interest and trust you have shown me over the years. This year were not without difficulties, especially at the beginning, but they were successful years, and Veolia has become a very strong group ideally positioned on the most essential issue of this century, the ecological transformation.

Let's now move to our Q1 publication and our main achievements since the beginning of the year, and I am on Page 4. We had a very strong start to the year despite the direct and indirect consequences of the war in Ukraine, of which an economic slowdown that is beginning to materialize in the global economy and which is reinforced by the COVID lockdown restrictions in China.

The merger with Suez is progressing very well. We had another acceleration in revenue growth in Q1, notably due to the increases in energy and recycled materials prices, but also driven by price increases for our services, which confirms our capacity to pass through cost inflation into our tariffs. EBITDA grew strongly in Q1, which allows us to confirm our annual guidance.

Let's come to the Suez integration process, and I am on Slide 5. The official acquisition of Suez on January 18 was followed by the progressive arrival of Suez employees as of January 19 in every country, except for the U.K. and Water Technology Services employees pending the greenlight from the U.K. Antitrust Authority. The first joint management committee brought together for 2 days executives coming from Veolia and Suez and demonstrated how easily the Veolia and Suez teams are already working together and the unanimous desire to make this merger a full success.

The integration process for Suez employees has been implemented at all levels, and it's progressing very well. It confirms that we have always been convinced of that both Veolia and Suez teams share the same culture and have the same concern for performance and excellence to serve a common goal, acting for the good of the planet by making our group the global champion of ecological transformation.

The U.K. antitrust process is progressing normally and should be decided during the summer. The antitrust remedies required by the EU are well underway, and the Australian divestures are already closed. We have just signed the divestment of some hazardous waste assets in France to new Suez for an EV of EUR 690 million as well as some water mobile units to Saur for an EV of EUR 190 million. In total, we accept more than EUR 900 million of proceeds from this EU antitrust process.

On the table, Page 6 now, you can see the key figures of the first quarter, both compared to the figures that we have reported a year ago on a standalone basis and compared to Q1 2021 of the combined perimeter, which is obviously more relevant. To fully understand these figures, please note that they do not include the Suez contribution for the full quarter since we have owned Suez only since January 18.

For the Suez part, they do not take into account the first 17 days of January in both Q1 2021 and Q1 2022 to make them comparable. Moreover, though the combined stress, Veolia 2021 figures still include the European and Australian assets that the competition of the requested we divest. They are no longer included in 2022 figures, and this perimeter impact is, therefore, included in the scoped column you can see on the slide.

And coming now to the Q1 results themselves. Revenue reached close to EUR 10 billion and is up 14.7% at constant scope and ForEx compared to the combined Suez-Veolia revenue in Q1 2021. Growth was fueled by strong momentum in each of our activities, water, waste and energy, and was amplified by the very strong increase in energy prices in the quarter, which corresponds to a heating period. Excluding this energy price impact, the underlying organic growth was plus 7.1%, which is above the normal growth rate of Veolia and shows our capacity to grow and increase the prices of our services. The assets taken over from Suez also progressed very well by 6.6%.

EBITDA also grew sharply by 7.6% at constant scope and ForEx compared to 2021. Reported EBITDA is EUR 1.456 billion. Restated for the 17 missing days, it would have been EUR 1.505 billion. Strong EBITDA growth is due to revenue growth, showing the efficiency of our indication model for 70% of our portfolio and our capacity to increase the prices of the remaining 30% as well as our energy hedging policy.

Meanwhile, we have, of course, maintained our discipline in terms of costs. Efficiency gains amounted to EUR 87 million in the first quarter, complemented by the first synergies resulting from the merger of EUR 21 million. Thanks to the strong progression of EBITDA, current EBIT reached EUR 692 million, a very strong increase of 18% at constant scope and ForEx.

And I now hand over to Estelle, who will detail our financial and operational performances for the first quarter. And Estelle, the floor is yours.

[Estelle Brachlianoff, executive]

Thank you, Antoine. I would like to give you a little color on this very strong result in Q1, starting with new innovation and development projects launched in the last few months, and I'm on Slide 7.

Considering the context we signed ourselves in and our vision to limit our imports of fossil fuel and materials, you will understand why I'm enthusiastic about these developments, which held very promising growth for our group in the future. In fact, this innovative development enables us to produce locally sourced sustainable energy and materials instead of importing them.

In the Greater Paris area, we have opened the largest biomethane production unit in France and one of the biggest in Europe with 120 gigawatt hour. Further East in the Lorraine region, we are replacing coal by an alternative fuel produced from nonrecyclable ways, hence helping our customers Solvay, a large chemical company, as you know, to reduce their CO2 footprint by 50%.

In Finland, we are building with Metsä Fiber, a CO2-neutral biomethanol plant from biorefining pulp mill waste. In Rochester U.S.A., our unique evapo crystallization technology helps recover metals from used electric car batteries.

Meanwhile, we have grown our revenue in Q1 across all our activities, as you can see on Slide 8, both at Veolia and in the Suez geographies that have done Veolia. I will comment on them together as we are now one company, and I manage our 8 geographical zones and 40 countries in exactly the same way, whatever they're origin. Growth in the first quarter was boosted, of course, by high energy price. But even when we exclude this impact, we have grown our business by 7.1%, thanks to our solid organic growth accelerated by price increases, strong tariff indexation and continued recycled material price increases.

Starting with Municipal Water. Indexation and tariff increases have allowed us to compensate for volumes, which have not been particularly strong in France, Eastern Europe and in Chile where drought has imposed water restriction, leading to minus 3% decline in volumes.

In Water Technologies, our order book has been very strong in technology and service. Whilst on the other hand, major desalinization projects were nearing their completion, and the number of large projects has been reduced. This is a direct translation of our strategy, which aims at focusing on margins and value-added rather than pure revenue, especially in very differentiating technologies where we are in the top-tier providers and which translated in increased EBITDA margin in Q1. Our newly acquired WTS activity grew 7% in the first quarter.

In solid waste, our 9.6% revenue growth has been supported mainly by increasing recyclate prices as well as by sustained pricing in C&I, 6% to 10% in the first quarter in France, to mention just one example, as well as by solid volumes, up 1.7% in Q1.

In hazardous waste now, again, a very good quarter, notably in Europe and in the U.S.A. with good volumes as well as price increases, typically in excess of 10% in North America or 5% in Europe since the beginning of the year alone, whilst China was slowing down, as you would expect, due to lockdowns.

In our local energy activities, we've had an outstanding quarter with very high energy prices and good tariff increases, boosting our revenue whilst our hedging policy has secured our close base. In addition, the quarter has been very good in co-generated electricity production.

Last but not least, our energy efficiency services to buildings, typically in Southern Europe and in the Middle East, has shown a very good quarter, thanks to very high pass-through energy prices as well as a very good appetite for energy service -- saving services.

Moving on to our results now. Our efficiency program -- and I'm now on Slide 9. Our efficiency program and synergies plan have played a very important part in our EBITDA progression of 7.6% in the first quarter, as Claude will detail later on. Although we've had Suez employees joining the group progressively from the 19th of January and we are just starting to deep dive into all sales operations worldwide, we had prepared a lot and had embarked in advance more than 400 managers in the journey. This is how we've been able to ensure a smooth transition as well as to quickly announce a detailed organization in each country. Each manager knows exactly what their objectives are for the year. Preparation and anticipation were key to meet the EUR 87 million of cost cutting and EUR 21 million of synergies in the first quarter.

As far as synergies are concerned, we've already started to implement action plans put at HQ level and in the various business units. And our first delivery has started with real estate optimization and a drastic reduction in external costs, which will, in turn, be gradually topped up by operational cost-cutting and asset yield optimization. Of course, I intend to maintain the pace for the rest of the year and can confirm our annual target of EUR 350 million efficiency plan as well as EUR 100 million of synergies, which support our annual guidance.

So let me share with you now, and I'm on Slide 10, how Veolia is able to confirm this guidance despite the economical, general and geopolitical context. I will therefore try to answer beforehand the various question you may have in this regard and to run you through the various reasons for our confidence linked primarily to Veolia's positioning and actions. Starting with the war in Ukraine, my thoughts go first to supporting our employees on the Ukraine population. Economically speaking, our operation in Ukraine and Russia are minimal and accounts for less than 0.3% of our capitals employed. The consequences of the war go well beyond these 2 countries, of course, and in particular, impacts Central and Eastern Europe, which is welcoming millions of refugees as we speak.

In Central and Eastern Europe, our EUR 4.2 billion annual turnover is derived very largely from essential services such as water distribution and district heating, which means Brazilian volumes and index price. 95% of our energy purchases are secured for 2022, and price increases have already been granted based on past inflation, mainly 2021 inflation effects. In fact, we've been -- we have even benefited from a net positive impact in the first quarter in our results, thanks to good price increases and energy purchase earlier on as well as exceptional power generated through cogeneration.

Our energy mix in district heating is composed of 50% coal, 20% biomass and 30% gas. Our gas is sourced from national producers and all distributors, not directly. As far as coal is concerned, we have no exposure to Russian coal and are pursuing our decarbonization project in line with our goal to exit coal by 2030. This enables us to enhance the share of renewables, which is typically the case in Braunschweig, Germany with a brand new biomass plant due to open at the end of the year.

Moving to Slide 11 and inflation. Our results in the first quarter show that inflation is neutral or slightly positive for Veolia, as stated earlier. This is thanks to 70% of contract portfolio being indexed, although with some lagging effects, typically municipal contracts. The other 30% relying on proactive price increases typically in hazardous waste or C&I, so commercial and industrial collection.

Since the beginning of the year, we've seen a 6% to 10% increase in France C&I. 10% to 13% in hazardous waste in the U.S., and this is in addition, of course, to 2021 increases. This shows our ability to protect our margin in those activities as well as municipal services.

Finally, a few words about the slowdown of GDP growth, which is now predicted in most countries this year. Our portfolio of activities is very resilient and even more, thanks to the Municipal Water activities of Suez. And the impact of an economic slowdown is probably limited largely to nonmunicipal waste activities, which accounts for less than EUR 7 billion annual turnover in Europe in the new group.

As importantly, we've demonstrated our ability to react quickly and strongly recently with the COVID crisis. Just a reminder, thanks to our recovering adapt plan, we were able to erase the full impact of what had been a major drop in GDP into negative territory as much as minus 10% to minus 15% in most European countries in the spring 2020, as you may remember, as early as the autumn of 2020. So less than 6 months.

Starting now and covering 2022 as well as 2023, we are rolling out a specific plan, focusing on optimizing our energy consumption as well as our energy production throughout Veolia. We have reallocated CapEx with Claude to allow this project to be prioritized. The context we are experiencing is the confirmation of the need to find alternative sustainable sources of energy instead of importing fossil fuel. This is precisely something Veolia can offer, and we certainly can and will do more and quicker.

Thank you.

[Antoine Frerot, executive]

Thank you, Estelle. And on Slide 12 now, you can see the key figures of our 2022 guidance, which we confirm, thanks to our very strong first quarter delivery despite the current difficult international context.

Let me recall them quickly. We target solid organic revenue growth. Organic growth of EBITDA of between plus 4% and plus 6% versus combined 2021, including more than EUR 350 million of efficiency gains complemented by EUR 100 million of synergies from the merger with Suez. We target current net income of around EUR 1.1 billion, an increase of more than 20%, confirming an EPS accretion of around 10%. The leverage ratio is expected at around 3x, and our dividend policy will remain the same with dividend growth in line with current EPS growth.

I now hand over to Claude, who will detail our Q1 results, and then we will answer your questions. Claude, the floor is yours.

[Claude Laruelle, executive]

Thank you, Antoine, and good morning, ladies and gentlemen. I'm on Slide 14. And I'm very pleased this morning to report the combined Q1 numbers, and we will focus on the combined variation, showing a very strong revenue growth, plus 14.7% at constant scope and ForEx with a significant boost from the energy prices. And EBITDA, plus 7.6% at constant scope and ForEx. Again, we will focus on constant scope and ForEx in the whole presentation, as Antoine explained, because we have an antitrust disposal that will go along the year.

As energy is passed through in a vast majority of our contracts in this unusual environment for energy prices, it's normal to have revenue growing much faster than EBITDA. Combined group current EBIT is growing very strongly by 18%, and we will see the details later. The net debt is EUR 21.3 billion. And we'll see also later in the presentation that after the antitrust disposal and few asset rotations, we will achieve a leverage of around 3% at the end of the year.

Moving to Slide 15. And it's important that we share with you the seasonality of the Suez scope that we have just acquired. As you know, majority of assets that we are integrating, as they still said, our Municipal Water operations in Spain, U.S. and Chile. The main driver for the revenue is a seasonal effect and the high consumption of water in the U.S. and Spain during the summer in Q3 and, to a lesser extent, in Chile during Q1 and Q4. You can see the seasonal effect on revenue on the left-hand side of the slide.

The second topic is purely an accounting one. We have significant property taxes to pay in our regulated business in the U.S. around EUR 50 million every year. And under IFRIC '21 accounting rules, we have to take the full yearly expense in the P&L in January. That's the reason why you have a more seasonal EBITDA than revenue on the right-hand side with a lower Q1 and stronger Q3 and Q4. As the rest of the old Suez business was much less seasonal, those variations were never highlighted by Suez management in the past.

I'm moving now to Slide 16, where you have our revenue variation by geographical segment. After the integration of Suez, we have adapted our organization with a new geographical segmentation to align financial reporting with management reporting lines, with the main change being France segment includes now hazardous waste in Europe and industrial services in France, which means that our global business is now limited to Water Technology combining -- including WTS and Veolia Water Technology. So we changed the segment to Water Technology.

The 2 other segments, Rest of Europe and Rest of the World, have not changed in terms of geography. We will go later in more detail segment by segment, but you can see on the slide that the rest of Europe is driving the growth, especially our district heating business, as Estelle explained, in Central Europe and Germany, growing by 36% in Q1, which is why Rest of Europe segment is growing by 26.8%. France is growing by 5.4%, thanks to good indexation and price increases, like the Rest of the World, 7.8%. So -- and Water Technology is plus 2.6%, but with very good bookings in Q1.

Let's move to Slide 17, and you have more detail than usual in the revenue bridge with solid organic growth, plus 7.1%, excluding energy prices. On the left-hand side, you have the Q1 pro forma revenue for 2021, EUR 8.6 billion without the first 17 days of Suez in Q1. And you have the detail of the 14.7% organic growth of the revenue, better volume, especially in waste in the U.K. and in Australia, in energy in Europe, complemented by strong works activity. Significant positive impact of energy prices for EUR 657 million in Europe; positive impact of recyclate, EUR 135 million, with even better prices in Q1 than in Q4 last year; and a EUR 200 million positive price increase in water and waste activities.

We have also shown in the bridge the full Q1 number for the combined group on the right-hand side of the slide, as we had bought Suez on January 1, giving an additional EUR 400 million of revenue to EUR 10.3 billion.

I'm now moving to Page 18 for the EBITDA bridge. And we have the same presentation with the bridge starting by the pro forma 2021, EUR 1.356 billion on the left-hand side and showing plus 7.6% organic growth, which shows a very good start to the year.

What are the main drivers? The main one is still efficiency gains for EUR 87 million in line with our objective of EUR 350 million for the year. And on top of it, the EUR 21 million synergy coming from the Suez acquisition, fully fueling our EBITDA. As integration, as Antoine explained, it's well advanced in all our countries except, of course, in the U.K. I confirm that both Veolia and Suez group have fully contributed to this cost saving and synergy in Q1 and will contribute for the full year. And I also confirm our EUR 100 million objective of synergies for 2021 -- 2022, sorry.

Our EUR 87 million cost cutting is partially offset by EUR 49 million of price cost squeeze as escalation formula reflecting the inflation step-by-step. And there can be a lag between some input cost increase, such as fuel, for example, for waste collection, and they are being taken into account in the tariff.

Recyclate had a positive impact for EUR 36 million as we recyclate prices started to strongly increase last year more in Q2. Whether it's negative for EUR 27 million, as we lost 12% of degree days in Poland, Czech Republic and Germany in the heating season compared to last year with mid-February and March compared to last year as well. Energy is contributing for plus EUR 13 million or 2% margin with a lot of pass-through costs.

On the right-hand side, you have the full Q1 EBITDA for the combined group, EUR 1.505 billion as the Suez Group was consolidated from January 1.

Moving to Slide 19. We have the details of the waste revenue variation with good volumes and prices and continued increase in recyclate prices leading to organic growth of plus 11.5% for the quarter. Volumes are up 1.7%, mostly in the U.K. and in Australia. C&I volumes were very well oriented. Notably, in Australia, where we had in Q1 2021, the impact of the COVID lockdown. Price increases are good at plus 3.4% and are able to cover the inflation of our waste activities. Recyclate prices had a positive impact of 4%, while higher electricity prices had a positive 0.5% impact due to our hedging policy.

I'm now on Slide 20, and we are now reviewing our business by geographical segment. And we start, as you know, by France, which includes just as a reminder, hazardous waste Europe and Industrial Services. Water France revenue variation is only due to internal asset transfer and disposal. Other than that, indexation are well oriented with 2.5% and volume slightly lower than last year, minus 1%. Waste France had a very good start to the year, plus 7%, due to price increase and recyclates. Volumes are slightly down as we continue to be selective on contract renewal. Results are well oriented. Hazardous waste continue to perform very well with good volumes and good prices. With a very good operating leverage, EBITDA grew at double-digit pace in France in Q1.

I'm moving to Slide 21. On Rest of Europe, you can see a very strong growth of 26.8% at constant scope and ForEx, enhanced by energy prices. It is obvious in Central and Eastern Europe, plus 44.2%, with a strong performance of combined heat and power generation. We also had a good tariff indexation in Water in Central Europe and solid volumes of waste in Germany.

Northern Europe, plus 12.5%, is always driven by a very strong U.K. waste business performing again very well. And Southern Europe, plus 30.5%, which includes Agbar, and our energy businesses in Spain, Italy and Portugal is boosted by energy prices. Agbar revenue are up 6.8% with volumes plus 1.2% compared to last year while not yet at the 2019 level, but we are making progress. EBITDA of the rest of Europe is growing at double-digit pace.

I'm now on Slide 22, showing the good start of the Rest of the World segment, growing by plus 7.8% at constant scope and ForEx. Asia grew by 4.4%, driven by new contracts in Taiwan, Japan, and the start-up of significant projects in Singapore, Malaysia and Indonesia for hazardous waste, plastic recycling and bioconversion. China is slightly up with lockdown impacts, reducing the growth in Q1.

Latin America is growing again at double-digit pace with solid commercial momentum and price increases, notably in Chile water activities, where we had plus 4% in November and plus 4% in February.

North America is growing by 9% with a high tariff increase in hazardous waste, more than 10%. The EBITDA of the segment is impacted by lower growth in China and temporary items.

I'm moving now to Slide 23, and let's talk about Water Technologies with 2 BUs, Veolia Water technology on one side and WTS from -- that we got from Suez on the other side. WTS, as Antoine explained, is still under whole separate management until the CMA gives us the green line. which is a reason why we cannot give you more details than the reported numbers for WTS.

So let's focus on Veolia Water Technology. It had a good start to the year with good bookings and good services and technologies activities. The revenue decrease is coming from the end of a large contract and especially large desalination contract in the Middle East, as Estelle explained. And the VWT margin continues to grow in line with the transformation plan and the decision to focus on the higher-margin technology business. EBITDA for Water Technology is growing, thanks to a shift to more profitable technologies and efficiency.

I'm on Slide 24, and let's see how the EBITDA increase is feeding the current EBIT. First, renewal expense are slightly up to EUR 73 million. Depreciation and amortization, including of reimbursement are slightly up from EUR 696 million to EUR 734 million. And on the provision line, the difference with last year is mostly due to the capital gain coming from the antitrust disposal in Australia that we made in January on the Veolia side. JVs are stable. All of this leading to a very strong current EBIT growth of 18% at constant scope and ForEx.

On Slide 25, you have the details of the free cash flow in Q1. The net industrial CapEx is well under control with EUR 475 million for the year with a few asset disposals. As usual, due to the seasonality, the working capital variation is negative by EUR 874 million. It's a higher amount in Q1 compared to 2021 for 2 main reasons. The first one is a significant increase in revenue in Q1. And the second one is integration of Suez activities on which we are implementing the same tools and methods in our new perimeter in order to be able to completely reverse the working capital at year-end. The increase of the net financial debt to EUR 21.3 billion is a result of Suez integration for EUR 10.2 billion and the impact of the Suez hybrid repayment at the end of Q1. As a reminder, we issued EUR 500 million of hybrid debt in November at 2% coupon to take advantage of favorable interest rates. Today, to issue such a hybrid, it would cost us more than 5%.

Taking into account the proceeds from the antitrust disposal, EUR 1 billion that are already signed or closed in April in Australia and additional asset rotation expected in the second part of the year complemented by the working capital reversal, I confirm our objective of a leverage ratio of around 3x at year-end.

On Slide 26, you have the main debt variation items, and you can see the strong impact of the Suez transaction for EUR 10.2 billion. After this good start to the year on Page 27, I can confirm the guidance for 2022 and especially the current net income increase of more than 20% to around EUR 1.1 billion.

Thank you for your attention.

[Antoine Frerot, executive]

Thank you, Claude. And we are now all 3 ready to answer your questions, ladies and gentlemen.

[Operator]

[Operator Instructions] And we have our first question from Ajay Patel from Goldman Sachs.

[Ajay Patel, analyst]

Can I just ask one question around inflation? So I'm more referring to Slide 18, where you have the price net of cost inflation. I'm just thinking in terms of looking at your business model and how inflation works through it, would we expect this number to be a smaller negative and possibly even be positive as we work through the quarters as the lagged effect inflation runs through your model and you start to see revenue increases, which may not necessarily be fully matched by cost increases? Your guidance there would be really helpful.

[Antoine Frerot, executive]

Thank you, Mr. Patel. Claude will answer your question.

[Claude Laruelle, executive]

So we will always have some price cost squeeze. But what we have seen in Q1, to explain the situation, is slightly lag between the inflation in tariffs and the costs reflected in our cost base. We are well protected. But because we have this lag, we still have the price of cost inflation. And as you know, we are indexing the tariff once a year. And depending on the anniversary of the contract, it's gradual inflation. So what we expect, we expect this price of net of inflation to continue to exist, but not to that extent as if we see inflation stabilizing.

[Ajay Patel, analyst]

Do you mind if I just follow up with one thing? The tariffs, the main month for the tariff increases, is it the beginning of the year? Or is it more like April? Or -- just to get a sense for that.

[Antoine Frerot, executive]

Estelle?

[Estelle Brachlianoff, executive]

That's very much like throughout the whole year, and it usually depends on the initial debt where the contracts were tendered. So it could be January. It could be April. It could be September. It really throughout the year. So we have mainly in the first part of the year, if I was to balance it out, but it's really throughout the year. So a lot from January to April, May, but we still have indexation, which will be delivered in the rest of the year.

[Operator]

So we have another question from Juan Rodriguez from Kepler Cheuvreux.

[Juan Rodriguez, analyst]

I have 3 on my side, if I may. The first one is on the EUR 21 billion net debt, which is slightly higher than expected. Can you give us more color on the working capital effect, especially if we can separate the Suez impact on the Central and Eastern Europe impact and how you expect to reverse that by the end of the year? That would be the first one.

The second one is that you started with a 7.6% EBITDA growth on the quarter, which is actually ahead of your 4% to 6% guidance. Given you headroom for the rest of the year, where is the additional prudence on your side? Is this China or other segments that you see some possible slowdown? That will be the second one.

And the third one is on the -- can you please give us an update on the calendar from the CMA discussions in the U.K. and where are the discussions are advancing in that sense?

[Antoine Frerot, executive]

Thank you, Mr. Rodriguez. I will answer your second question. Claude about the debt will answer to you precisely. And Estelle for the U.K. calendar.

About the guidance, yes, you are right. We are a bit better with 7.6% compared to our plus 4% to plus 6% for the year. But the year is not finished, and we don't know completely all the consequences of the war. And it will also depend on the end of the lockdown in China. So we are not moving our guidance, plus 4% to plus 6%. You remember certainly that this plus 4%, plus 6% was linked to the uncertainty about the consequences of the war also. So we are staying there, and we are comfortable with that.

Claude, please, about precise explanations about...

[Claude Laruelle, executive]

Yes. So first of all, in terms of additional working capital, if you take Central Europe with the energy price increase, we are talking about around EUR 100 million of additional working capital. And for Suez Group, around EUR 200 million of additional working capital. So when you add that to the previous year numbers, you are pretty much very close to the EUR 874 million I was talking about.

Second, if you look at Q4 last year, because we have a large working capital, because we had a significant increase in energy prices, we had already some of the energy price increase in Q4 last year. So what we will see, we will see less price -- less cost increase and price increase in energy prices, and it's a smaller Q4 in terms of energy in Q4. So this is, first of all, a positive effect on the working capital.

Second, we are working well on cash collection, and we have no issue on DSO. So DSO Are normal. So what we see in terms of cash collection is normal. So this working capital effect will be gradually reduced until the end of the year. So we expect to fully reverse the working capital at the end of the year. And you have EUR 21.3 billion of debt if you reduce EUR 1.5 billion of disposal, EUR 1 billion -- EUR 0.9 billion of working capital reversal. And also proceeds that we expect from the Suez -- the new Suez disposal, you know that we are still expecting from few assets, plus EUR 0.3 billion of earnout in November. All of this leads you to a ratio of 3x -- around 3x at the end of the year.

[Antoine Frerot, executive]

Thank you, Claude. It is clear. So I repeat, EUR 1.5 billion from disposal, EUR 0.9 billion from reversal of the working cap and EUR 0.3 billion of complementary price paying 4 new Suez that is 2.7% in total, explaining that we -- how we will reverse the debt level at the end of the year.

About the calendar for the U.K. antitrust process, Estelle?

[Estelle Brachlianoff, executive]

Yes. On this calendar, we are exactly as we planned, which means that we should have a finalized version of the CMS position by the end of July. And then, of course, as you know, we have roughly probably 6 months to sell any remedies we would have to sell. And in between now and the end of July, we'll probably have various exchanges with the CMA. They will, later in the month, express their position. And of course, we have an ability to react and say we think -- we are in a better position than the express and so on and so forth. So I guess an interactive process and negotiation from now until the end of July. So exactly as planned.

[Operator]

Yes, we have a question from Arthur Sitbon from Morgan Stanley.

[Arthur Sitbon, analyst]

I have 2. The first one, I was wondering if you could quantify the Australian capital gains that you are talking about in Q1 2022. And I was wondering for the full year, if you were expecting over capital gains to come, thanks to the antitrust remedy disposals, and if they are included in your EUR 1.1 billion definition of current net income for the year. So that's my first question.

The second one is on the macro, the current macro conditions. You were talking in your presentation about EUR 7 billion of revenue exposure to C&I waste. We know you have quite a late cycle exposure. So I was wondering if ever there is a macro slowdown, when do you think at the earliest this could be felt by your activities?

[Antoine Frerot, executive]

Estelle perhaps for the second question and Claude to the first one.

[Estelle Brachlianoff, executive]

Yes. So I will start with your second question. So just to make more precise, our statement. So we have roughly EUR 7 billion of annual turnover, we think, may be exposed to a slowdown, which is not only C&I, but they have the waste part of it. So everything which is in nonmunicipal and therefore more directly linked with GDP growth or slowdown. It's annual, of course. If I make a basic division, we're talking about 17% basically of a group turnover. The other 85%, therefore, being very, very much more resilient to GDP slowdown.

And in terms of your statement that we would have a little bit of lagging effect, I would debate that. Actually, we're quite instantly seeing the volume of waste going down or up depending on GDP growth. It's relatively simultaneous. And we haven't seen any specific trend in the last few weeks. It's exactly in the same trend as what we had seen in the first quarter so far.

[Antoine Frerot, executive]

And Claude, about the Australian capital gain?

[Claude Laruelle, executive]

Yes. So the net capital gain for Australia is around EUR 30 million, to give you a number. And the main driver for the guidance in terms of net -- current net income is really the business performance. The capital gain are marginal in the equation. But the strong driver is EBITDA and EBIT increase fueled by synergy cost cutting, as we have explained, and that will be really the main driver for the current net income performance for the full year.

[Operator]

There is another question from Philippe Ourpatian from ODDO BHF.

[Philippe Ourpatian, analyst]

Just 2 questions from my side. The first one is a little come back about the CMA discussion. Thanks for giving us a clear time frame and diary. I was wondering if your current discussion with CMA are, let's say, in line with your previous expectation? Or is there some deviation between what you were thinking about the final perimeter and the CMA potential proposal? That's the first question. It's more qualitative, I would say, than quantitative.

And the second one is concerning your revenue growth for commerce volumes and works. Could we have the part or the portion of the works in the plus EUR 326 million of increase?

[Antoine Frerot, executive]

Okay. About the first question, Mr. Ourpatian, the CMA is trading our case. So the discussion we have with them is about what -- how can be the market described, what is our market share, how are -- propose the contracts and the processes of the total processes and so forth. So we are discussing to make them well understand our market. We are not discussing at all today about what they are thinking about that and which sort of remedies that will ask from us. So I would say that, today, the discussion with them are going exactly what we wait for them at the beginning, meaning to explain deeply strongly what is our business and our market.

[Claude Laruelle, executive]

And to answer your question, Philippe. Regarding the EUR 326 million of volume commerce and works, 1/3 is coming from works roughly.

[Philippe Ourpatian, analyst]

Okay. May I just have one question, a technical one in terms of accounting. U.K. is still outside the scope currently. Are you going to consolidate it at the final stage when you're going to have the CMA decision from, let's say, starting from the year or you will take only the part that [indiscernible] timing due to the integration? How are you going to manage that on the accounting point of view?

[Antoine Frerot, executive]

Perhaps Estelle for this question.

[Estelle Brachlianoff, executive]

So the question was referring to the...

[Antoine Frerot, executive]

To the U.K. integration and the U.K. consolidation. So we can say that in Q1, and you can confirm, U.K. is fully consolidated because we don't know the scope of remedies with the CMA.

[Estelle Brachlianoff, executive]

At the moment, we have put in place a process to ensure the control on the activity. So it's helping us to be part of the decision regarding the main or the most significant decision in terms of CapEx, in terms of renewal of contracts. And after the decision regarding the scope, which will be decided maybe at the end of July or later, we will finalize the discussion and be able to consolidate it U.K. until the closing of the deal.

[Operator]

So there are no further questions. [Operator Instructions]

So we have another question, sorry. Yes, we have a question from Olly Jeffery from Deutsche Bank.

[Olly Jeffery, analyst]

Two questions from me, please. The first one is on the resource plan that you mentioned during the presentation. It's a real plan. It's a new plan. Could you comment on, is there some reaction to an expectation of potentially a slowdown later in the year and wanting to get ahead of that, that measures in place to maintain the growth that you've seen in this quarter? Question.

And the second one is just coming back to inflation again, please. And apologies if you answered this, I didn't quite understand, the 70% of tariffs that are indexed. To better to understand that the other 30%, you can pass through price increases quite quickly. Index tariffs, the 70% that are often lagged with inflation, reflecting inflation from the prior year. Do you expect to see this year a squeeze on those contracts because costs will be increasing more in line with a higher figure than from last year? Or are you expecting margin expansion on the index tariffs as the non-index tariffs this year?

[Antoine Frerot, executive]

Okay. Estelle will you answer the two questions?

[Estelle Brachlianoff, executive]

Yes. On the resource plan, no, it's not in reaction of any potential for whatever later in the year. It's more the opposite around. As in Veolia, we would like to seize any opportunity we have. And we think with super high energy price as we season now and probably for quite a while, not only it's a good support to our hedging policy, which is a historical one and a very good one. But actually, we can do more. Hence, the resource plan. More energy production and less energy consumption in Veolia. And I guess when the megawatt hour in some cases is at EUR 200 per megawatt hour instead of 45, it changes the whole dynamic of some operational aspect of everything we do. And it's the same for our customers. So we see that as an opportunity. And when we see an opportunity, we tend to try to crystallize it into opportunity for the group as soon as we can. So I guess, it is more the way to say it.

In terms of inflation, so if I put the 2 elements of the pixel, on one hand, you have the 30%, which, you're right, is not naturally indexed because we have to have a positive pricing approach. And on that one, we used to have a yearly price increase in [ Sienna ] in hazardous waste. But given the situation of inflation in the world, now we are going into once a year, twice a year, 3x a year type of price increase because we try to avoid the lagging effect as much as we can and to have a parallelism between the price and the cost so that we maintain our margin. And we've been able to do that in the last 2 or 3 quarters, and we intend to go on this way.

In terms of the other part, the other 70%, which is directly indexed, there is some lagging effect, as you mentioned and it's exactly what Claude mentioned when he commented on the bridge. We have a little bit small price squeeze, but it will go down again progressively as we see the indexation coming up because they tend to follow the increase in our cost base and, I guess, up to a year, no more than a year and usually less than that.

[Antoine Frerot, executive]

Thank you, Estelle. Do you have any other questions?

[Operator]

Yes, we have another question from Verity Mitchell from HSBC.

[Verity Mitchell, analyst]

This is a much broader question about the integration process and the businesses. Can you just tell us which geographies or businesses have really exceeded your expectations in Q1? There's been some very strong performances in various struggles and businesses. So what are you surprised about in terms of very good progress?

[Antoine Frerot, executive]

I presume you are speaking about the turnover, which has surprised us. And I can say that turnover was so up in Eastern Europe because of the price of energy that we were surprised by this strong progress in Eastern Europe. But perhaps you have, Claude or Estelle, another idea?

[Estelle Brachlianoff, executive]

I guess, yes, two other comments in addition to what Antoine said. One is we were super, super impressed by our renewal performance in the U.K. And after years of super good performance, they keep on managing to even do better, which is great, both in the revenue side and margin side and so on and so forth.

And in terms of the newly acquired part of the business, and I won't mention only the quarter 1 results, but the potential for growth, I guess the water activity in the U.S. and the -- in particular the regulated water activities in the U.S. The more we visit them, the more we talk about the potential, the future, the next few years, and I'm not talking about the quarter only, the more we see the potential for this business as well.

[Claude Laruelle, executive]

And one more thing to comment in Chile. We are able also to increase tariffs, as I mentioned, twice in -- so every quarter, 4% in November and 4% in February, which is, again, also a very good performance.

[Antoine Frerot, executive]

A good decision last week also in Chile.

[Claude Laruelle, executive]

Yes. So decision in Chile last week, in the draft of constitution, there is no threat at all regarding public sector being any takeover of our Chilean assets. So the new constitution has taken this away, any threat on our regulated business in Chile.

[Operator]

So there are no further questions, sir.

[Antoine Frerot, executive]

That was the question. So thank you very much, ladies and gentlemen, for your presence. Have a good day for the rest of the day, and thank you for your confidence. And the next time, it will be Estelle with Claude together, but with Estelle welcoming you. Thank you very much, and goodbye.

[Operator]

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