Veolia Environnement SA

PAR:VIE

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, welcome to the Veolia conference call on the First Quarter 2023 results with Estelle Brachlianoff, CEO; and Claude Laruelle, CFO. I now hand over to Brachlianoff.

[Estelle Brachlianoff, CEO & Director]

Thank you very much, and good morning to all of you, and thank you for joining us for this conference call to present Veolia's first quarter key figures. I'm accompanied by Claude Laruelle, our Chief Financial Officer. Following the record result in 2022, the performance achieved during the first quarter is once again very strong. with our revenue up by of 20% and our EBITDA up by 8%, giving us confidence for the rest of the year. I can fully confirm our annual guidance. The integration of sales is continuing under the best possible conditions with, in particular, the implementation of synergies at a sustained pace. €189 million have already been achieved since day 1. Efficiency gains were sustained as well at €87 million in Q1, in line with the annual target.

This very good performance once again demonstrates the strength of our business model, able to protect margin when inflation is high and very largely immune to iconic cycles. Veolia is delivering earnings growth quarter after quarter, and this should continue over the long term as our growth potential has been strengthened by the acquisition of Suez, and we are now ideally positioned as a worldwide leader in key countries and growing markets of decarbonation, decontamination and circular economy. I'm now on 7 -- Page 4, sorry, to give you some additional color on this quarter's results. Our revenue grew by 19.9% at constant scope and exchange rates to €12 billion. Excluding the effect of the rise in energy prices, growth was still plus 6.3%, driven both by good tariff indexation and the pursuit of strict pricing discipline for our service offerings plus 3.7% as well as volume and commerce effect of plus 3.8%.

The operating leverage was fully effective, thanks to savings and synergies leading to an EBITDA growth of plus 8%, faster than the turnover growth. EBIT grew by plus 14%. Net financial debt was well under control at €18.7 billion. We've been able to improve our working capital seasonality compared to the first quarter of 2022 despite the strong increase in sales in Q1, which has compensated for planned investment increases in decarbonization and household waste.

On Page 5, you will find the detailed revenues for the first quarter, which Claude will comment on in a moment. I would like to emphasize the good performance of all our business lines, which each recorded solid growth. Water grew by plus 9.9%, thanks to good indexation as well as double-digit growth in Water Technologies, where our order book has increased again. waste grew by 3.2% and even plus 5.7%, excluding the price of recycled materials. Energy grew by 54%, driven by the very sharp rise in energy prices. Adjusted for this price effect, growth was still up plus 6% despite slightly unfavorable weather conditions.

On Slide 6, as I said in my introduction, this quarter is now the demonstration of the strength of our business model. As I just mentioned, all our businesses have been growing in Q1, as you can see on this slide. And on this slide, you can see that they all were very protected against inflation. We have been monitoring inflation and price increases as early as the spring 2021. And demonstrated quarter-after-quarter, our ability to pass on cost increases through our pricing, either through indexation formulas for 70% of our businesses, or through specific price increase for the remaining 30%. The results for Q1 are shown on Slide 6, and they should be read, of course, in addition to the 2022 price increases already granted.

Let's now turn to the commercial successes of the first quarter. Page 7 and 8 illustrate our commercial division in bouyant markets with a number of innovative contracts won this quarter in decarbonization, decontamination and resource regeneration. In decarbonization we've just formed the management of the first waste-to-energy plant in Turkey, the largest in Europe located in Istanbul with a treatment capacity of 1.1 million metric tons of nonrecyclable household waste per year, the plant will save nearly 1.5 million metric tons of CO2 emissions per year. and produce 560 gigawatt hour of electricity, equivalent of the consumption of 1.4 million people in the city. So it's renewable energy we produce there now in Turkey.

We've also accelerated our investments in methane capture from landfills in Latin America and now ramping up our new biomass plant in Braunschweig, which is replacing a coal fire plant and allows enhanced green certificate for the power generated. In terms of decontamination, we won the contract for Global Waste Management for the City of Gold Coast in Australia, metropolitan area of more than 700,000 inhabitants, representing a backlog of €500 million. In terms of resource protection and particularly water protection, I'm very proud that we've been able to renew the water distribution contracts for , which not only represents a €700 million backlog but is very innovative in its approach. This is an effect of first of its kind contract, where we helped the city to save 65 million cubic meters of water on terms of contract equivalent of 1 year's consumption.

And we do that through the deployment of 5,000 smart sensors, smart metering and awareness raising campaigns on water savings among the local population. On Slide 9, we achieved €87 million efficiency gains in the first quarter, which is in line with our annual target of €350 million. Efficiency gains are now part of the SD&A, and I will ensure it remains so. Slide 10. In terms of synergies, which come in addition to efficiency gains, as you know, we delivered €43 million in Q1, leading to a cumulative amount of €189 million since the start of the phase integration. We are, therefore, in line with our target of more than €280 million in cumulative synergies by the end of 2023. And of course, in line with our total target of €500 million.

To sum up, and I'm on Page 11. I'd like to remind you of the main characteristics of Veolia's business model, a solid agile group with sustained growth of our results. We are now world leader in the depollution, decarbonization and circular economy services with a unique range of offerings on the €2,500 billion fast-growing market. Our business portfolio is very resilient with 85% not exposed to the economic cycle, which gives us a lot of visibility. And this is, in particular, down to the key positions. Actually, we are on the top 3 in a few countries where we operate in the countries, sorry, where we operate.

And just to give you a color about that. Those key positions are really like infrastructure resilient assets. For municipal water, this is France, U.S.A., Chile, Spain and the Czech Republic. And we have worldwide undisputed leadership on 5 continents in household waste or in Water Technology. So very strong stronghold across the globe. The indexation of 70% of our contracts as well as the disciplined pricing of our offers allow us to be protected against inflation. We have been able to deliver significant savings each year, which are now supplemented by the synergies from the merger with Suez. Our balance sheet is very solid with a strong commitment to maintaining our leverage ratio at around 3x.

As our operating model allows us to structurally lower the leverage ratio, excluding this leaves us with capacity to seize good opportunities when they arise. All these elements allow us to forecast solid growth in our results and our dividend with accelerating growth from 2023 to 2025, thanks to synergies. On Page 12, you have our 2023 guidance, which I can fully confirm. In terms of revenue, we expect solid organic growth. We are targeting organic EBITDA growth of plus 5% to 7% and current net income of around €1.3 billion, i.e., double-digit growth compared to 2022. With a dividend that will grow at the same pace of our earnings per share. We will maintain our balance sheet discipline with a leverage ratio that will remain around 3x.

I will now hand over to Claude Laruelle, who will comment on our results in more detail, and then we will be available to us to answer your questions.

[Claude Laruelle, Deputy CEO, Finance, Digital & Purchasing]

Thank you, Estelle, and good morning, ladies and gentlemen. I'm on Slide 14 and as Estelle already told you, following our 2022 record delivery of Q1 2023 results are remarkable. In Q1, with €12 billion revenue, we experienced a very strong organic revenue growth, 6.3% excluding energy prices, driven in all our businesses by first, increased indexation on our long-term contracts and continued price increases on nonindexed businesses; second, resilient volumes and good commercial momentum.

EBITDA is significantly up €1.574 billion, an outstanding 8% at constant scope and ForEx, which is above the organic growth of the revenue, excluding energy prices. That makes us very confident for the rest of the year. Thanks to the operating leverage. Current EBIT is growing faster at €788 million and is up by 14%. This shows the strength of our business models, highly resilient on delivering results quarter after quarter and fully protected against inflation. Net financial debt is well under control at €18.7 billion, including, as usual, the seasonal reversal of working capital, which was reduced compared to Q1 2022 thanks to our numerous cash initiative and a good cash collection.

I'm moving to Slide 15, and you can see the quarterly growth on our main geographies. In Q1, all our regions experienced a higher growth than in 2022. The acceleration of our revenue growth at 19.9% is due to the impact of high energy prices, but also the increased indexations and voluntary price increases in our waste activities. The main trends are France and Hazardous Waste Europe up 3%. Water revenue in Q1 is up 1.5%, and hazardous waste was up 5.8%. In the rest of Europe, all our operations were very well oriented and experienced high revenue growth at 32.6%, boosted by very strong energy prices in Central Europe. In the Rest of the World, revenue growth accelerated in Q1 thanks to the very strong U.S. business and recovery in Asia. China, for example, is up 6.7% after the end of the lockdowns in December. Japan is also up strongly, and we have just opened a new plastic recycling facility there.

Water Technologies were up 14.7%, which is very good, with a double-digit growth for both VWT and WTS and a very solid pipeline of new projects. On the next 3 slides, we detailed our performance by activity, water, waste and energy. And we start by water, our largest activity on Page 16. Our Water business experienced a very solid organic growth of 9.9% to €4.3 billion. Growth was driven mostly by increased indexation with resilient volumes. In France, revenue was up 1.5% despite the end of the Lyon contract with volumes almost stable and much higher indexation with a plus 6% on price. Commercial momentum remains very strong. And as Estelle just told you, we are very proud to announce the renewal for 10 years of the Lille water distribution contract with a backlog of €700 million.

In Central Europe, revenue was up by 20%, driven by increased tariff indexation, strong works activity and good volumes. In Spain, water volumes were up by 0.5% and tariff increased by 2% in Barcelona. In the U.S., revenue was up 5%, and in Chile, volume increased by 1%. On Water Technology business, it performed very well, growing by 14.7%. Veolia Water Technology revenue increased by 11.6%, thanks to good service and technology business. WTS revenue grew by 16.4% driven by good commercial momentum and continued price increase in Chemicals.

On projects, WTS has booked a very large contract for Samsung in the U.S. in February that will fuel the activity in the next months. In total, water revenue growth was driven equally by volume, commerce and works 5.1% and by pricing 4.5%. On Slide 17, you have the main trends of the waste activities. Revenue grew by 3.2% like-for-like at €3.6 billion, excluding recyclate price impact, revenue grew by a solid 5.7%. The growth came mainly from pricing, complemented by resilient volumes and partially offset by the impact of lower recyclate prices. Volume was stable 0.1% with a strong rest of the world and hazardous waste business. commerce was solid, notably in the U.K. and in the U.S.

The main driver of revenue growth was pricing with a plus 4.1% impact, partly compensated by lower recyclate prices. Recyclate prices have decreased since August 2022 from record level and start picking up in April. In Q1, higher electricity prices contributed to 1.1% revenue growth. This impact at revenue level was mitigated by taxation and profit sharing at the EBITDA level. Hazardous waste remained well oriented with an 8.6% revenue growth 6.4% in Europe and 15.9% in North America. The scope effect, minus 6.7% seems significant. It is due to the antitrust disposal made in 2022. It includes, of course, Suez U.K. sold in November last year and assets in Australia.

On Slide 18, you have the details of our energy business. Energy revenue in Q1 was €4 billion. Growth achieved an outstanding 54% like-for-like due to the sharp increase of energy prices for 48%. Our business model allows us to pass the cost of energy increase to our clients, which protects our results. Weather was unfavorable due to the mild winter in Central and Eastern Europe, with an impact of minus 1.3%. In Q1, we continued to implement heat price increases, notably in Poland, in line with our fuel cost increase. And our heat prices are secured for the rest of the year.

I'm also proud to highlight the very good performance of our newly opened Braunschweig facility which is a very good example of how we are transforming our energy business in Central Europe. Electricity revenue is largely hedged for 2022 -- 2023 sorry, as well our fuel and CO2 purchase. Our visibility is, therefore, very strong. Building and Energy Services has performed very well with new contracts in the Middle East and in Spain. On Slide 19, you have our usual revenue bridge detailing the different effects. ForEx has a small negative impact of 1.1% due to lower GBP, Polish zloty and Argentinian peso. Partially offset by a stronger U.S. dollar. Scope impact was positive by €204 million, plus 2.1%. The divestment of trades waste assets in the U.K. was more than offset by the extra 17 days of consolidation of Suez assets.

The 99.9% organic growth is fueled at 70% by energy price increases. But on top of that, we benefited from good commercial momentum complemented by price and indexation increases. This solid commercial momentum, as Estelle highlighted, is contributing 3.8% to revenue growth. The weather impact was slightly unfavorable, only minus 0.3%. And the contribution of price increases in water and waste was plus 3.7% -- it was partly offset by lower recyclate prices from minus 0.9%. Moving to Slide 20. Let's have a look at the EBITDA bridge detailing the remarkable 8% organic growth. Scope and ForEx impact were non-significant in Q1.

As usual, the main contributor to our EBITDA increase is the efficiency and synergies for €130 million, with the efficiency plan delivering €87 million in line with our €350 million target for the year. The synergy delivery was also very good, reaching €43 million, fully in line with our target. It is partially offset by €43 million price cost squeeze impact that also includes contract renegotiations. As we anticipated, energy and recyclate prices impact is not very significant at €16 million, with energy more than compensating the decline in recyclate prices. and recyclate prices stabilized in Q1 and started to rebound in April. Volumes and commerce impact was €23 million or plus 1.6%. Weather impact was small, minus €10 million, with mild January and February and a colder March.

I'm moving to Slide 21. Let's see how the EBITDA increase is fueling the current EBIT, which is growing very strongly by 14% at €788 million. Renewal expense at €68 million is slightly lower than in 2022. Amortization is up 2.9% at €736 million, which is much lower than the EBITDA increase. Compared to Q1 2022, in which we booked industrial capital gains due to antitrust asset disposal, we are back to a normal level in Q1 2023 at minus €3 million. JVs are slightly up to €28 million, mostly due to a €9 million one-off in Q1.

And now I'm on Page 22, where you have the detailed free cash flow for Q1. First, Q1 CapEx is fully in line with the full year objective of €3.5 billion of net CapEx. That reached €942 million, and it is due to higher decarbonization in Central Europe for €86 million in Poland and Czech Republic, our ongoing hazardous waste project in the U.S., in Germany and in the Middle East. The phasing of work on contractual CapEx and IFRS 16 impact due to the renewal of the HQ lease here. We improved our working capital variation by €95 million compared to Q1 2022, despite strong revenue increase, thanks to our numerous cash initiatives across the group.

Net financial debt is, therefore, well under control at €18.7 billion, only up by €400 million, excluding ForEx, compared to December 2022. And Standard & Poor have just confirmed our BBB rating in April. As you understand, our self-financed business model allows us to increase our balance sheet headroom as we are progressing in the integration with Suez and delivering the synergies. That will allow us to be able to make additional tuck-ins if they rise, keeping the strict discipline that we have on investment criteria with an internal rate of return above what plus 4%.

I'm now on Slide 23, where you have the details of the net financial debt variation where you can see the different effects I have just highlighted. Moving to Slide 24. Let me remind you our 2023 guidance, which I fully confirm. We're expecting another year of solid organic growth with an EBITDA increase that will be between 5% and 7%, driven by €350 million of efficiency gains, more than €280 million cumulated synergies at the end of 2023. Current net income around €1.3 billion, which means a double-digit growth compared to 2022. Our leverage ratio will remain around 3x. And as usual, our dividend will grow in line with our current EPS.

Given our remarkable Q1 delivery, we are, of course, very confident for the full year. Thank you for your attention.

[Estelle Brachlianoff, CEO & Director]

Thank you, Claude. We are now available to answer your questions.

[Operator]

[Operator Instructions]. We have a first question from Ajay Patel from Goldman Sachs.

[Ajay Patel, Goldman Sachs Group]

There's two areas that I'd like to focus on this morning. Firstly, on the price net of cost inflation and impact of contract negotiations, the €43 million that was delivered over the quarter. Could you just maybe unpack this a little bit for us? How much for the full year is expected to be the impact of contract renegotiations at the EBITDA line?

And secondly, how would you expect that line to evolve over the course of the year. Inflation has moved around a lot, timing of how inflation feeds through your business model, it clearly will be an importance. And we just want to understand if that €43 million negative should be coming sizably less negative as we go through the year? Or should it be fairly static?

And then the second question is more sort of bigger, more thematic. Very much you mentioned in the presentation that there's large opportunity in infrastructure style investments as part of your business model. And I wanted to first give some more on the capital-intensive part of your model rather than CapEx light. And I was thinking, could you give a qualitative sense, highlight what the real buckets of growth here are? Is it -- have you made clear that hazardous waste is of them, plastic reprocessing to some extent, energy from waste. But what are the buckets are evolving or you see coming up, there could be sizable amounts of infrastructure style investment?

[Estelle Brachlianoff, CEO & Director]

Thank you for your questions. Maybe, Claude, you can take the first one.

[Claude Laruelle, Deputy CEO, Finance, Digital & Purchasing]

Okay. So on the first one, thank you for your question. If you look at what we showed you last year, I mean when we presented our results in March, the price cost squeeze for the full year 2022 was €220 million. So, as an average, €55 million per quarter. So what you have seen here is a reduction at €43 million for the Q1.

So we are in line with our objective, and it will remain something that we'll continue to have because a portion of it, of course, is contract renegotiation. And as you know, the business model of Veolia as we renew the contract, the long-term contract, we give back productivity to our clients. So we will expect to have -- to continue to have something in the same kind of range as we have in Q1 for the rest of the year.

[Estelle Brachlianoff, CEO & Director]

So to complement on what Claude said, there is nothing new here. So it's not linked to inflation being higher than it used to be. It's the usual -- what we used to call the price cost squeeze which is when we do efficiency, we give back some of it to our customers when we renew the contracts. That's more the way to see than the word inflation, which is not the right one to talk about this trend, which we've been seeing for years because it's part of the business model, as Claude highlighted.

In terms of the second question, you've partly answered it. As in like where do we invest the CapEx of Veolia is where we can create the most value and in particular, where we create an infrastructure like series of assets. That's what we presented in our strategic plan, which is the last year this year, impact 2023. So has hazardous waste is one. Plastic is another one. And I would say what's new with or newer with the merger with Suez is probably the regulated water, notably in the U.S. where we've developed our activities very strongly with the merger, and we are very happy about the results this business is giving us back.

So to give you an idea, hazardous waste. The reason why I say it's an infrastructure type of assets. We have now a network which is quite unique across the globe, present on 5 continents. We've presented you over the quarters, some new contracts, for instance, in the Gulf. And of course, our strong historical basis in Europe on one side and in the U.S. on the other, but we have activities as well in South America or in Asia and Japan. And the reason why I mention it is -- it looks like an infrastructure is really -- it's really super difficult to replicate for competitors. Once you are stabilized with an efficient treatment facility somewhere, you capture the market there. And of course, like this gives us a lot of visibility over the years of this activity delivering good results. And we've seen that during COVID where it's maintained a very good performance despite everything which happened in 2020. So hazardous waste plastic and the newer one would be the regulated water in the U.S.

[Operator]

We have another question from Arthur Sitbon from Morgan Stanley.

[Arthur Sitbon, Morgan Stanley]

The first one is on the recent -- well, S&P has recently reaffirmed your credit rating. But as part of the report, they lowered the FFO to debt requirements by 2 percentage points for the BBB rating. So I was wondering what the new requirement at 18% on FFO to debt implies on your definition of net debt to EBITDA. And -- I was wondering how this lower requirement could impact the way you think about capital allocation? And if you could push you to accelerate investment? So that's the first question. And the -- the second one, we are 1 month into the second quarter. I was wondering if the trends that you're seeing so far are materially different from Q1? Any indication? Any comment on that would be helpful.

[Estelle Brachlianoff, CEO & Director]

I will start with like the global answer to your question, and Claude will give you a little bit more color on that. So on the credit rating thing, Claude will give you some detail and highlights, but the long story of it is the fact that all that is anticipated and well under what we had in mind where we guided around 3x. So there is nothing new here. So if there are opportunities which arise, we have the ability in the balance sheet to season.

And as Claude highlighted were very rigorous in what we call an opportunity, which is above what plus 4%. If they don't arise, the model of Veolia is, I would say, naturally deleveraging. So nothing new here, but Claude will commence probably in a minute. In terms of the trends, again, the summary is we don't see any difference in the trend going into April and out early May that we saw the same trend as what we've seen in the first quarter. Claude?

[Claude Laruelle, Deputy CEO, Finance, Digital & Purchasing]

Yes. To get back to your question on S&P. First of all, it's a very good news. It's very good news because S&P is looking at Veolia now after the integration of Suez and is looking at Veolia as more resilient than in the past. That's the reason why they have lowered their requirements on FFO to net debt. So for me, first, it's a very good thing. -- that will not change our discipline on capital allocation. That will not change our guidance. That will not change that a way that Veolia will conduct its business. because, as you know, we want to keep the debt well under control, and we will continue to keep the debt well under control as we go.

So nothing will change. It's just for me, a very strong sign that Veolia has a better business model now after the integration with Suez.

[Operator]

The next question comes from Michael Harleaux from Societe Generale.

[Michael Harleaux, Societe Generale]

So a follow up just 1 on the guidance. Obviously, the results that you reported this morning are excellent. And we have some people asking if you will be able to beat your own guidance for the year, not [indiscernible] the EBITDA. I don't expect you to give us an answer on the points, but if you could highlight the different moving parts that we should have in mind for the rest of the year. So whether it is the macro, if it is commodities, recyclate prices or energy prices and so on. that would be very useful. And then on M&A, we saw some issues in the press a couple of weeks ago. about you selling your pipes business in France, €300 million. So if you could give us some color on that and anything else that we should keep in mind for the rest of the year. in terms of disposals or kick ins.

[Estelle Brachlianoff, CEO & Director]

Thank you for your question. You haven't seen, obviously, my face where you were talking, but I was smiling when you asked the question on the guidance because it looks like it's time we have good results. I get the question about do we raise our guidance. So the answer is no. I can confirm today that we are really confident about achieving our guidance for the year.

And I would add in answering your question, irrespective of the energy, recyclate price or macroeconomic like context. And I think we've been able to deliver quarter after quarter good results irrespective of what's happening around us in a way. And this is not by a magical month. This is because the company is well driven to seize the opportunities when they arrive and to adapt to new elements. One example is the resource plan, which have launched as early as spring in 2022 to seize all the opportunities we can have in having higher energy price in Europe and protecting us against the potential negative, and you can see that in our results. So in a way, Veolia is wealthier in the right direction and have been tensions that we go on delivering good growth results for a long time.

In terms of M&A, yes, you've seen we are considering selling what's called SADE, which is our pipe business in France. -- which is really an exact translation of our strategic vision, which is basically to put our efforts in where we can differentiate the most and to move away from where we can differentiate the list. And to exit progressively, the construction part of our business, which is something we've been telling for a few years, this is the exact translation of that.

So that's what I can say about that with a smile because, thank you for your comment, but it's excellent today, I'm very happy about them as well.

[Operator]

The next question comes from Olly Jeffery, Deutsche Bank.

[Olly Jeffery, Deutsche Bank]

I've three, please. And they're all relative to when you had your event earlier in the year when you set your guidance, the rule relative to how things have changed since then. So the 3 different questions are: first, the price cost squeeze in the €40 million this year, run rate indicating €170 million for the full year, plus €220 million last year. obviously, that does happen that GBP 50 million better. Is that better than when you envisaged at the start of the year? Or is that in line? And so can you just clarify that part of that improvement, presumably is because of the tariff indexation coming from last year because of inflation. If you could just clarify that, please? That's the first one.

The second one on recyclate so the recyclate prices in April were up €20-watt on cardboard I think you have around 4 million tonnes, 20% margin. So is that potentially a €15 million to €20 million improvement from recyclates for the full year versus what you expected at the beginning of the year if prices stay where they are. And then lastly, just on synergies, the run rate for what you've done in Q1 would imply, if you kept that up, you could do €320 million for the full year. are you expecting a slowdown in the level of synergies that you achieved over the next 3 quarters? Or would you hope to maintain that? Those are my questions.

[Estelle Brachlianoff, CEO & Director]

Thank you. So generally, everything we've announced is really in line with our expectations. You, of course, have pluses and minuses in the various businesses. But in a way, there is no news for us in anything we published this morning. This is well under control. In terms of price cost squeeze, as I said, it's a classical 1 with pluses and minuses every quarter depending on the anniversary date of that contract being renewed and things like that. On the commodities, we're happy that it goes up and there is a little bit which ends up with us. But of course, the quarter 2 and 3 have a little bit less energy because it's the summer as opposed to the winter.

And on synergies, the global picture is we're moving from originally what was synergies, mainly at HQs type of level, and I put an S to it. So it's not necessarily [indiscernible], but across the globe and savings on, I don't know, leases by putting people in the same building and things like that. Progressively to more operational type of synergies such as rebooking trucks and merging depots in Australia to give you an idea. This trend is probative moving from 1 to the other, which again was fully expected. Claude, maybe you want to...

[Claude Laruelle, Deputy CEO, Finance, Digital & Purchasing]

Yes. On prices 1 good example is the water in France. I think, to answer your question, Andre. You take the example of France last year, the escalation formula was below 4%. So we had a little bit of price cost squeeze last year. And this year, we are 6% so yes, you're right. Because of the delay in passing in escalation formula like in Water France, we are reducing the price cost squeeze in 2023.

And when you look at the delivery, the set of results that we have, everything is aligned on the right way. If you look at the commercial momentum, if you look at energy prices and so on, I mean volumes, commerce and works is -- everything is aligned so that makes us again very confident for the delivery of 2023.

[Estelle Brachlianoff, CEO & Director]

And I guess all those elements are confirmation again, of the strength of our business model at Veolia, which is not only very resilient but growing and growing the results quarter-after-quarter.

[Olly Jeffery, Deutsche Bank]

And if I may, on the synergies, do you think you can maintain that run rate you achieved in Q1? Or do you expect that to slow down as you shift from focusing on synergies at HQ to focusing on operational synergies?

[Estelle Brachlianoff, CEO & Director]

I'm confident we should achieve the target we have for the year, which will be qualitatively very different from last quarter to the next, as I said, buying -- moving to more operational elements.

[Claude Laruelle, Deputy CEO, Finance, Digital & Purchasing]

And after the end of the year, we will have achieved almost 60% of the total synergies of the Suez.

[Estelle Brachlianoff, CEO & Director]

In less than 2 years.

[Claude Laruelle, Deputy CEO, Finance, Digital & Purchasing]

In less than 2 years which is outstanding.

[Operator]

The next question comes from Andrew Fisher from Berenberg.

[Andrew Fisher, Berenberg]

I just have one question actually on the U.S. Water business, please, and the emergence of the PFAS regulations in the U.S. Just hoping if you could maybe update us on your current thoughts on where that policy is going and what it might mean for both the regulated water business also, indeed, the Water Tech business in terms of Veolia's ability to potentially help some of those smaller municipal utilities achieve whatever goals are finalized by the regulatory authorities, please?

[Estelle Brachlianoff, CEO & Director]

Thanks for your question. And actually, it's a question which could apply to Europe as well. As you may have read that some measurement of PFAS have been released in the last few weeks in a few European countries as well. I guess, the answer goes both ways as in -- and the good news is the fact that Veolia has a series of solutions to treat PFAS.

And I would like to highlight that to start with. From -- and you mentioned water technologies and membrane and all type of technologies and patented one, where we are uniquely placed as well as has hazardous waste because there is some element of the PFAS, which a high temperature incinerator is very well placed to actually destroy. I could go from treating to destroy. So we have a unique set of assets, which are able to help to treat this type of pollutants. And when I said it relates to what I said in the last Capital Market Day, which is the business of Veolia is about pickup on decarbonizing and about decontaminating.

And this is exactly what we're talking about, not only decontaminating of the pollutant of the past, but in a way, let's call them the pollutant of the future as in the newly discovered one. thanks to our unique portfolio of technologies and assets. In terms of our water municipal activities in the U.S. yes of course, we will have to discuss plans with the regulators over the years to invest, to treat the PFAS and that's exactly how it should be and the program in the investment plans, sorry, over the next few years. But again, I expect that this ability to treat PFAS will be very, very demanded over the next few years, not only in the U.S. but elsewhere.

[Operator]

The next question comes from Arnaud Palliez from CIC Market Solutions.

[Arnaud Palliez, CIC Market Solutions]

I have just one about the energy business. I'm a bit surprised to see that excluding price increases, the organic growth increase was 6% because we could have expected some lower energy consumption following the price increases. So can you give us more details about what are the sources of growth in this business? Is it a development of waste to energy or more energy efficiency services to your industrial clients?

[Estelle Brachlianoff, CEO & Director]

That's a good question. So yes, you're right, plus 6% of volume in energy and energy consumption is a very good achievement. And it's really despite, you're right, the slight reduction in the consumption of all our customers who are trying to save energy, which is quite logical. That's why we always said that energy was a pass-through in Veolia's business.

So how do we have this 6%? So it's typically 3 examples, connection or extra connection to district heating, energy efficiency services and the same for industrial customers. So connection to district heating, we are seeing connection -- new connection and development of connection to the existing district heating schemes in Eastern Europe. The reason is simple, it's way more efficient energy-wise to be heating your home, thanks to a district heating rather than an individual heating. In a way you need less calories in the system overall to end up with the same degrees in your flat or in your house.

Hence, the higher the energy price is the more people are naturally, I would say, incentivized to connect to the scheme. So that's a testimony of the fact that district heating is really an efficient way of distributing energy in a city.

The second example is energy efficiency. So typically in Spain or the Middle East, which Claude mentioned in his introduction, we are -- our customers are mall or large hospitals. And the higher the energy prices, the more they are incentivized to ask for our service, which are exactly to help them save energy. So typically, thanks to digital and our know-how, we help them save 15%, 20% of energy without changing the whole building. So of course, we are paid to have people saving energy, if you want. Under other energy, the higher the service growth -- or the fastest service growth.

And the third example is exactly the same with industrial customers which are looking for not only cheap energy, but green decarbonized energy which is typically the case of -- and when I say energy, I'm talking here typically about electricity and power. And they are looking for, I don't know, to replace coal by energy produced out of waste. That's what we do with Solvay in Lorraine, where coal was replaced by nonrecyclable waste. And you have this type of appetite for this type of solution, the higher the energy prices because our solutions are decarbonizing but local as well are not dependent on commodity price, which is super incentivizing.

So a lot of examples of why we are able to grow our business. Again, a pass-through short term for us, which is good. We are protecting our margin. But over the mid, long term, the trend is to push for our energy services.

[Operator]

We have no further questions at this time. [Operator Instructions]. We have another question from Olly Jeffery from Deutsche Bank.

[Olly Jeffery, Deutsche Bank]

Just a question on the outlook for the U.S. potentially a more recessionary environment going forward. Have you guys had a long enough look at WTS yet to take your view on how well you think that business would hold up within a more recessionary environment? Any thoughts you have on that would be interesting to hear.

[Claude Laruelle, Deputy CEO, Finance, Digital & Purchasing]

So first of all, if you talk about the U.S. in the U.S., not only talking about WTS, but we can start by hazardous waste as an amazing delivery in Q1 with a very strong April. So we are super, super strong in the U.S. The regulated water also is performing very well. So if you look first at the U.S.-based business, is performing super well. If you talk about WTS, it's also growing fast, and we continue to growing fast for a couple of reasons.

First, we have booked -- we are booking and we have booked, as I said, a very large contract with Samsung, and we have a pipeline of very significant contract. So we will continue to book a new project. And in the new projects, the technology content is very high. So it allows us, first of all, to increase the installed base of our technologies and renew main brands and so on. And also to increase the revenue on the project side.

So looking at WTS, very resilient, a lot of projects ongoing and the chemical business, as I said, we have been able to increase the prices. It's really, again, a super strong business and really continue to grow fast. So all of that in WTS, including the U.S., everywhere is delivering very strong results in Q1, we'll continue to perform very well for 2023.

[Estelle Brachlianoff, CEO & Director]

Overall, I understand from this question that in a way, we only have green flags everywhere geographically, everywhere in terms of every single of our business is growing. This is a super strong quarter -- we are starting the year at full speed. We don't expect the rest of the year to be anything but confirming our ability to grow our results. I'm very, very confident about our objective. And all the questions you've asked this morning, hopefully, have confirmed you that we don't see any reasons but from a very, very satisfactory start to the year, and it should go on this way for the rest of the year and for the years to come. Thank you very much.

[Operator]

We have no more questions Okay. Thank you. Ladies and gentlemen, thank you all for your participation. You may now disconnect.