Veolia Environnement SA

PAR:VIE

Earnings Call Transcript 2019-Q2

[Operator]

Ladies and gentlemen, welcome to the Half Year 2019 Results Conference Call of Veolia. I now hand over to Antoine Frérot, CEO; Claude Laruelle, CFO; and Estelle Brachlianoff, COO. Gentlemen, madame, please go ahead.

[Antoine Frérot, Chairman & CEO]

Thank you. Good morning, everyone, and welcome to this presentation of Veolia's first semester 2019 results. I'm joined this morning by Estelle Brachlianoff, our COO; and by Claude Laruelle, our CFO. I will start with the key highlights of the first half, then Claude will comment the detailed results. And finally, with Estelle and Claude, we will answer all your questions.I begin on Slide 4. First half results are very solid. After a good first quarter of 2019, sales and profit growth have accelerated in Q2. Revenue, first, plus 5.5% in the first half, it was plus 4.8% in Q1 and plus 6.3% in Q2; at the EBITDA level, plus 5.4% in the first half, it was plus 3.8% in Q1 and plus 7.3% in Q2; current EBIT, plus 5.7% over the semester; and on current net income, plus 7.2% in the first half. This good start to the year allows us to confirm our 2019 objectives. Also, we have had very good news that will boost our performance in the years ahead: first, the very favorable resolution of our U.S. tax litigation, allowing the recognition of $2 billion of tax loss carryforwards to be utilized by 2026; and yesterday, the signing of the sale of our district heating business in the U.S. for $1.25 billion.I am on Slide 5 now for a few words on the disposal of this U.S. district heating business. We have divested this mature capital-intensive asset for $1.25 billion, equivalent to a multiple of more than 14x EBITDA. This shows the very large potential value stored in Veolia's asset base. Thanks to the evaluation of the U.S. tax litigation, we will not get any federal tax on the capital gains derived from this divestment. This capital gain will therefore exceed EUR 200 million. We should close the deal during Q4, which will bring the net financial debt of the group at year-end to around EUR 11 billion. Deposits coming from this sale will be used for investing in the sector, growing new activities which we will select in our new strategic plan. This new plan will be presented early 2020.On Slide 6 now. You can see that our growth is spread across all our activities, the new activities to which we are giving priority such as toxic waste and plastic recycling as well as the traditional activities, where Waste and Water volume and prices continue to grow at a satisfactory rhythm.From a geographical standpoint, all regions are growing at a solid pace: almost plus 4% in France, we have not seen such figure for a long time; almost plus 6% in Europe, a notably example is Eastern and Southern Europe; and almost plus 8% in the Rest of the world, and notably in China, plus 17%, and in Latin America, plus 24%. This strong revenue growth in all our activities and all our geographies is proof of the pertinence and the coherence of our strategic choices and of our capacity to get the best opportunities for profitable growth. Moreover, our EBITDA growth come from this revenue growth and from our still active cost-cutting program, which is running ahead of schedule.Now let me give you a few examples of the successful rollouts of our strategy. First, on Slide 7, the new businesses addressing key environmental issues: plus 13% growth in hazardous waste in H1, and for the future, the pipeline of 6 new facilities under construction in China, in Singapore and in Germany; plus 30%, 3-0 percent growth in plastic recycling in H1, and for the future, a large number of facilities under construction, and overall, the ramp-up of the global partnerships we have signed with the largest companies using recycled plastics; but also, a large number of new contracts of industrial utilities across all geographies, industrial water treatments for the oil and gas and the mining sector and the recycling of new rare materials like lithium with a new facility in Japan.On Slide 8. Some examples concerning our traditional businesses. We have succeeded in repositioning our offers and know-how, addressing the expectations of the largest cities in the world, which all have an ambitious environmental agenda: to be greener, to be more resilient, to be more inclusive and to be more connected. Thanks to this innovative positioning, we have won many new contracts in Water, Waste and Energy from our main competitors, Nîmes and Valenton in water or, for example, Bordeaux in waste. In other cases, this strategy has even convinced cities to outsource their services to Veolia rather than operating them in-house. And finally, with rising oil prices, desalination has enjoyed a strong momentum, which has allowed us to win several contracts in the Middle East. On Page 9, as I've already mentioned, you can see that our cost-cutting program continues to deliver large savings. With EUR 121 million of savings in H1, EUR 60 million in Q1 and EUR 61 million in Q2, we are ahead of our 2019 objective of more than EUR 220 million. As expected, operational efficiency continues to provide the largest savings, and our policy of continuous improvement of the industrial performance of our facilities and equipment is a large reservoir of savings for the years ahead. To conclude, on Slide 10. These excellent H1 results allow us to fully confirm our 2019 objectives, which are recalled on this slide. And I now hand over to Claude Laruelle, our CFO, who will provide you with all the details of H1 results. Claude, the floor is yours.

[Claude Laruelle, Chief Financial Officer]

Thank you, Antoine, and good morning, ladies and gentlemen.Moving to Slide 12. As Antoine told you, we have again a strong Q2 leading to a strong H1 in terms of growth and results. We have put the main figures on the slide after IFRS 16 impact. Revenue grew 5.5% at constant ForEx, with a positive impact of ForEx in H1 of 0.3%. EBITDA after IFRS 16 grew 5.4%, keeping in mind that IFRS 16 EBITDA contribution, EUR 230 million, is less dynamic than the business one. CapEx. After the Q1 increase due to CapEx phasing, Q2 CapEx were flat. We are in line with the annual objective of EUR 1.9 billion, excluding IFRS 16. Net debt is almost flat compared to June last year, and we will see more details at the end of the presentation.Moving to Slide 13. Veolia experienced good growth in all geographies, starting by France, with good volumes in Water and Waste and better pricing, leading to a 5% increase in Q2. In Europe, weather recovery in our district heating business with a colder spring after a mild winter led us to a 7.2% growth in Q2. The Rest of the World is driven by a strong China business, plus 24%, and continuous double-digit growth in Latin America, this segment growing 9%. Global Businesses growth is due to the good hazardous waste dynamic in Europe and also a rise in the network activity. The EBITDA in Q2 was quite dynamic at 7.3%, thanks to good heating season and a better operational leverage.On Slide 14, you have the same figures on a simplified format. I'm moving to Slide 15. On the revenue bridge, you have the pretty much the same trend as Q1. First, with the revenue growing 5.5%. 4.2% is organic 3 quarters and 1 quarter is a scope effect with the different acquisitions we have made this year and last year. You can see on the slide that we have still a very strong commercial momentum at EUR 355 million in most of our geographies. The climate impact, that's been divided by Q2 compared to Q1 at minus EUR 38 million due to the very good weather that was in Q2. In May, in Central Europe, we had twice more big [ dry ] days than last year. As in the Q1, the price effect is much bigger than last year at EUR 181 million, thanks to better indexation and higher price increase in all our activities. The rise of the energy prices in Europe had a significant impact of plus EUR 122 million, partially offset by the U.S., minus EUR 26 million.I'm moving now to Slide 16. We had a strong growth in Waste in H1, plus 7.2% at constant ForEx, with a revenue above EUR 5 billion driven by good volume and prices. Volume increased by 1.9% in H1. This is a satisfactory number as Q2 last year was quite high. The continuous increase of our pricing and the selectivity in all our geographies is leading to a plus 2.5% price increase in H1, which is significant compared to last year. Overall, the growth at constant scope is plus 4.6%, and that's been quite consistent over the last quarter. A quick focus on plastic recycling. This activity is growing really fast, as Antoine told you, plus 30% over H1 last year. It is driven by Europe and Asia. This business has shifted from a pure PET recycling 4 years ago to a multi-resin recycling, where PET now represents only 50% of the tonnage.I'm moving to Slide 17. You have the bridge of EBITDA. EBITDA trend is very similar to Q1 with a very good operational leverage. EBITDA increase is still driven by cost-cutting, EUR 121 million, with operational savings representing 50% of the total. We are ahead of our -- above EUR 220 million objective for the full year. As you can see on this slide, the weather impact is in line with the revenue, and it has been divided by 4 compared to Q1. It was minus EUR 24 million in Q1. It's minus EUR 6 million in H1. The strong commercial momentum continues to fuel our EBITDA growth, plus EUR 53 million, and we are going to see more details now by geography.I'm moving to Slide 18. We start by France. France, no major changes compared to Q1. Waterfront is always dynamic on volume and prices, leading to an increase in EBITDA. This is due to new commercial gains in all regions and the continuous effect of the Osons 20/20 plan bringing significant efficiency gains in the business. Waste, with strong works linked to incinerator refurbishment in many cities and the new construction of the waste-to-energy facility in [ Toa ], is also quite dynamic in terms of revenue. The EBITDA of the waste activity is slightly decreasing due to the better prices and additional insurance and maintenance costs as we have to do more repair works in H1 compared to last year.Moving to Slide 19. In the Rest of Europe, all the geographies continue to be dynamic. Central Europe, as we said, is driven by the heat and the water with good tariff increase and good volumes. U.K, you remember last year, we had a very high level of availability because we pushed some maintenance of a couple of units to 18 months without shutdown. So with the schedule of shutdown, which is a little bit earlier this year compared to last year, we have a phasing effect. But we still have a very strong performance with 93% availability in the U.K. It's the best-in-class in that country and the best-in-class within Veolia, leading to a strong Waste volumes in the PFIs. Revenue is up 4.3%. Northern Europe and Southern Europe, same trend as Q1, with double-digit growth in the South. At EBITDA level, we have the SCVK one-off effect, the water contract evolution in Northern Bohemia with an extension of 15 years. Excluding these one-off effects, we are growing strongly, plus 4.4%, which is consistent with the previous years. So European business continue to be dynamic overall.Slide 20. In the Rest of the World, we have solid growth in all geographies. Asia continues to grow double digit with a remarkable dynamic in China, up almost 17% in H1, driven on one side by the Energy activities, and on the other side by the Waste activities. First, on hazardous waste, now we have 8 plants under operation and we have a rapid ramp-up of the new ones, leading to more than 50% of revenue increase in hazardous waste this year. And on the other side, the plastic recycling which is starting this year with a rapid ramp-up as well. Latin America growth is still at double-digit level. No major changes in the other geographies compared to Q1. EBITDA, plus 8.5%, continues to be dynamic, in line with the revenue growth.Moving to Slide 21. Same for Global Businesses as Q1. Hazardous waste and SADE growing well, and VWT under restructuring with a lower revenue and very selective choices of new projects. EBITDA is up 15.7%. It's benefiting from the restructuring of our construction activity that we have initiated a couple of years ago; and of course, from the strong hazardous waste performance, where we are experiencing more pricing power and we continue to grow above 5%.On Slide 22. You have a good conversion of EBITDA into EBIT. No major changes in renewal expenses at EUR 139 million. Depreciation is moving slightly up. With higher discretionary CapEx, we are assuming the growth of the group. Provision reversal are going down compared to last year. And the JVs, excluding the one-off effect of the [ material ] disposal in the U.S. that we had last year for EUR 16 million, is going strongly up, thanks to the good contribution of our China JVs plus 12%, at EUR 56 million.I'm moving to Slide 23. The 5.7% EBIT increase is leading to a current net income increase of 7.2% at constant ForEx. The cost of the net financial debt in Q2 is much lower than Q1 as we had the early refinancing of our debts in Q1. We expect a full year increase of around EUR 25 million in financial charges, which means that H2 will be pretty flat. On taxes, we continue to have a low level of income tax rate, thanks to our deferred tax asset in the U.S. and in France, leading to a 24% tax rate at group level.Moving to Slide 24. The net income group share increased 46% in H1. It's mostly the results of less restructuring charges than last year, and the effect of Gabon in the discontinued operation was very negative last year, EUR 45 million negative, and the big capital -- the capital gain that we had on the Transdev disposal this year for EUR 33 million.Moving to Slide 25. We have experienced a stabilization of our CapEx in Q2 as it is not growing quarter-over-quarter. We have also a stable growth of contractual CapEx. Focusing on discretionary CapEx fueling the growth of the group, we're investing in Central Europe and in Germany to follow the growth of our networks with more connections in Water and Energy. In Asia, we continue to be selective on all business lines and geographies, focusing on hazardous waste, plastic recycling, Energy in China, both industrial and municipal. As we told you in May, we expect net CapEx before IFRS 16 at EUR 1.9 billion at year-end. Net financial debt is in line with June last year at EUR 12.5 billion and higher than in December with the impact of the dividend payment and the working capital that will be reversed at year-end.Moving to Slide 26. You have the evolution of our debt compared to December 31 last year mostly impacted by the dividend we paid for EUR 620 million. We have a better phasing of the CapEx, leading to EUR 100 million more CapEx compared to last year. And for the working capital, we have a slight increase compared to Q1 due to 3 impacts: first, the top line growth; second, the seasonality of our construction business where down payments in Q1 we have closed in Q2; and the third impact, which is opportunistic fuel purchase in Central Europe. I can confirm that at year-end, the net financial debt will be around EUR 11 billion, including IFRS 16 impact. Moving to Slide 27. As Antoine told you, as this after the strong Q2, we can fully confirm our objectives for 2019. Thank you very much.

[Antoine Frérot, Chairman & CEO]

Thank you, Claude. And ladies and gentlemen, we are now, with Estelle and Claude, ready for answering your questions.

[Operator]

[Operator Instructions] We have our first question from James Brand from Deutsche Bank.

[James Brand, Research Analyst]

I had 3 questions, if that's okay. The first was a comment that was made on the district heating assets in the U.S., that these -- that intrigues me, that these are mature, capital-intensive assets. And I was just wondering if you could give a bit more -- it's either sold now, so it doesn't matter in some respects, but I was wondering whether you could give a bit of context for that. Because normally, when people think about heat assets securing very high multiples, one of the rationales for that is they're actually not that capital-intensive in terms of the existing assets that you can spend. Maintenance CapEx is quite significantly below depreciation and then that justifies a high multiple. So I was interested in whether that -- you were referring to existing assets there or growth opportunities or just some context around that. The second question is on the net debt guidance that you'd -- you're still giving guidance for EUR 11 billion. I believe it seems fairly safe in the statement that, that was post the sale of the district heating assets. You had a kind of like-for-like net debt adjusting for IFRS 16 of EUR 11.5 billion at the beginning of the year. So it's a EUR 0.5 billion drop. But alongside the Transdev proceeds that you've got at the beginning of the year, there's about EUR 1.5 billion of disposals. So I was just a bit surprised that the net debt guidance wasn't a bit lower than that, and I was wondering whether there was anything I was missing, whether it was working capital or there were kind of further acquisitions planned. Obviously, you're spending a bit more in CapEx than you are last year, but maybe some context on that.And then the third one was just on the tax losses in the U.S., the $2 billion. What's your strategy for crystallizing that if it's time-limited? Do you think you can -- I guess you crystallize some of that through this -- maybe the capital gains that you've made on this sale. But are you profitable enough in the U.S. to be utilizing that by 2026? Or is there -- maybe it might make sense for you to make acquisitions in the U.S. to be able to recover that. I'd be really interested in that as well.

[Antoine Frérot, Chairman & CEO]

Okay. I will answer your first question, and Claude will answer the 2 other. What we want to say by mature business is a business we think, with the know-how of Veolia, we cannot add value without big CapEx, meaning that we connected all the buildings, houses, industrials we think we could connect to our existing district heating network. We maximize the operational performance of these assets, and so the growth for this business will come now from buying or investing in new network. There is some opportunities, and it is the job for a financial fund to finance such new networks or to buy new networks. But you know that for Veolia, we want to develop our activities in less capital-intensive businesses. And it is why we are able to say that this capital-intensive business is mature for us and good for sale because we optimize and maximize the value we could create on that.Claude?

[Claude Laruelle, Chief Financial Officer]

For the debt and the guidance on the debt. First, we said around EUR 11 billion. Your calculation is right. You're just missing one point. We are working on, as you roll, on tuck-ins, and we have a net financial investment every year which is around EUR 300 million to EUR 400 million. So we have a few acquisitions. We had few acquisitions in Q1 and almost nothing significant in Q2. So we have a funnel for acquisition in Q3 and Q4. That explains the guidance in terms of debt.For the tax losses. So you understand that thanks to the resolution of the IFRS -- the IRS litigation, we will be able to use -- first, we will pay no federal tax, as Antoine told you, on the taxable capital gain. So it's $133 million cash savings. We will also use our deferred tax assets already booked in our balance sheet in the U.S. to offset the federal tax charges that we will have with the disposal of the district heating business. And we will be able to further activate part of the new tax loss carryforward recently granted by the IRS at year-end. So that will be the start of the benefit at year-end of the IRS litigation that we have [ resolution ]. We will see over the next strategic plan. The reinvestments in the U.S. is already -- we are still -- we are already working on it, but it's not finalized yet. It's part of the strategic plan that we will present in February next year.

[Operator]

Next question from Vincent Ayral from JP Morgan.

[Vincent Jean Michel Ayral, Analyst]

I actually am quite -- the 3 questions I had were already asked. So I will basically go back on the tax losses just to understand a bit. So is it fair estimate to say that you can by 2026, with the existing asset base you still have in the states, it's about $150 million, so that's -- so basically, it's important for me to -- in order to understand, what is the remaining tax asset that you would not be able to use? And what is your competitive positioning when you will go on auctions? Because you have an effect to tax break on acquisition.

[Antoine Frérot, Chairman & CEO]

Claude?

[Claude Laruelle, Chief Financial Officer]

So in terms of -- as a total, yes. Because we are not paying federal taxes, which is 21%, it gives us a competitive advantage when we are bidding. So as we told you, we are looking for reinvesting in the U.S. We cannot give you numbers today for 2026. It's way too early, Vincent. But I can tell you that in terms of multiple, we can go higher in the U.S., around 2x multiple, as what we -- compared to what we did in the previous years.

[Antoine Frérot, Chairman & CEO]

So you could understand that we have room for good investment in the U.S. for using this tax assets.

[Operator]

Next question from Anna Maria Scaglia from Morgan Stanley.

[Anna Maria Scaglia, Research Analyst]

I have 3 questions, if I may. The first one is regarding your working capital, which is seasonally high as usual. But I was wondering, as you're working on the new business plan, what's the room of improvement there? Is there an area that you are tackling or looking to tackle, especially because EUR 1 billion over the year is actually more financial charges? The second one is regarding Slide 45, where you showed the volumes in Waste -- the organic growth in Waste then industrial production. You clearly continued to show a decoupling there. But I was wondering if you can confirm that going forward, and as well, if you have any signal in terms of the economic environment. Clearly, all your comments are quite bullish, so just wondering if that's confirmed. And the third question is regarding some headlines that we saw this morning in Bloomberg, where you -- you were quoted say that the new plant will include asset rotation acquisition but they might be slightly bigger than recent ones. Clearly, we've seen the sale of the district heating business, which is fairly big. Are you going to stay in that range? What's the meaning of that, if you can comment?

[Antoine Frérot, Chairman & CEO]

Thank you. Claude will answer the first question. I propose Estelle to answer the second one, and I will answer the third one.

[Claude Laruelle, Chief Financial Officer]

So in terms of our working capital, so this is what I said. First of all, we had the seasonality effect of construction business, which is a little bit higher in Q2. But nothing to worry about. Nothing to worry about as we expect the recovery in Q3 and Q4. So it's EUR 900 million and it will be reversed at year-end, as you roll. So I said that we had to -- we purchased some coal. The coal will be used during the Q4 to heat into -- for the heating season in Central Europe. So nothing to worry about the working capital. We are working on it. We know that it will be reversed at year-end.

[Estelle K. Brachlianoff, Chief Operating Officer]

Regarding your second question, you're very right pointing at Page 45 to say that we've experienced really solid Waste growth in the first part of this year with 1.9%. And I would -- and that is practically satisfactory given the comparison basis last year. In Q2 last year, we had a growth of 4.9%. So it highlights rightly the solid growth we've experienced. That's really a mixture of things. And I guess, one of it is really -- the important one is the optimization of our mix. So it's a mixture of selectivity from our side and price increase. Selectivity, typically, we are, on voluntary basis, driving the price or deciding not to go for a new contract, which will be loss-making in the municipal waste collection. Just to give you a highlight, in France, we've had a minus 5% volume in waste collection of municipal waste, but that's quite, I guess, a decision. And on the opposite side, of course, we've had a good price increase in C&I waste, typically in the U.K. or in France. For various type of customers, it was an excess of 5% price increase. So really, selectivity, pricing power and making our choices is the reason why we've experienced this solid Waste portfolio in the first part of the year, despite in industrial production, in most of the geography where we are, which was a little bit weaker. So you're very right to point by Page 45.

[Antoine Frérot, Chairman & CEO]

And about your third question, I will come back a bit on the recent history of Veolia. We are finishing this year the second strategic plan, and we've prepared a third one for the next 4 years. The first one was the steering plan. The second one is a growth plan, but just using the capital the group employed before, where we wanted to bring the proof that this company is able to sustain correct growth. We had in mind at the beginning of the plan 2%, 3% on turnover and 2 points more on EBITDA of profit. And we will succeed -- for this both plan, we will have great successes and we will overpass our initial objectives for both plans. So we are preparing a new stake, and we will go a bit further with the new plan. We want to accelerate the growth. But we want to be more focused by selecting the better potential for revenue growth and for profit growth, more profitable businesses, meaning that we are ready to make some rotation between our asset base. And the district heating example today is an example of that rotation. We are ready to divest some businesses, which are mature for our capacity of value creation, to reinvest this money in a faster-growing and more profitable businesses linked to our know-hows. So for that, we want to go, of course, to organic growth opportunities but also excellent growth. And if we stayed on small acquisitions for the actual plans, we are ready to go a bit higher than -- of investments for M&A next -- for the next plan. But you know that in our businesses, there is not too many big animals. So probably, our growth will go -- will come from organic growth, and I would say, medium-sized acquisitions.

[Operator]

Next question from Emmanuel Turpin from Societe Generale.

[Emmanuel Philippe Turpin, Equity Analyst]

To follow up on your last comments, Antoine. I'm trying to understand where you place Energy Services as a business. You -- yes, in terms of whether it's core or noncore. You've just sold an asset in the U.S., the reason being that it was mature in your assessment. You still have Energy Services assets elsewhere. I think it's in Europe and China. Do you see them as core? Are they presenting growth opportunities enough for you? That would be my first question. Secondly, you just mentioned that in your next business plan, you will consider acquisitions that may be a bit larger than what you've done in the past few years. You've just mentioned medium-sized acquisitions. Not to be -- not willing to be childish, but would you mind giving us a bit of a range? What would you call medium? Up to EUR 1 billion? Could that be more than EUR 1 billion per item? That is a question intended as at preparing ourselves for what may happen.And within that kind of capital allocation strategy, could you remind us of your balance sheet ratios, or at least, the ones you are trying to maintain? Or up to what ratios would you feel comfortable going at least on a temporary basis? And lastly, coming back to your comments on the H1 results. You mentioned for a couple of businesses, I think Waste in France and Waste for the Rest of Europe, that there were temporary effects that actually prevented you from delivering either -- even stronger growth. I think in France, you said maintenance costs, insurance costs. And then in Rest of Europe, you mentioned timing of maintenance. Should we therefore potentially see a stronger growth in those 2 businesses in the second half in the absence of those temporary costs? Or is it likely going to be a year-round effect?

[Antoine Frérot, Chairman & CEO]

Thank you, Emmanuel. I will comment on your first question. I'll remind you that our next plan will be presented next year in February. So it is a bit early to detail it completely. You could observe that. But to come back on your 3 questions. About Energy Services, Energy Services is still a core business of Veolia. What we can divest is mature activities. And I explained why on the U.S. businesses, we have now difficulties to create more value because we get all -- or got all the connection -- the possible connection and the maximum efficiency of the operation of this business. But on other district heating networks, for example, in China, we still enjoy a strong connection growth. And on these district heatings, we have a lot of value to create still now. So that is not for sale because we have the possibility on our asset base to create value again. And between the U.S. and China, you have Eastern Europe where we still have some rooms for growth on these assets also. So nonmature Energy Services business are still core for us, and what we could divest by rotation is a business we brought to the maximum value creation for getting a good price, first, but also because we are not able to create more value. About the size of acquisitions. By small acquisition today, during the actual plan, you know that it is mainly some dozens of euros of investments, meaning less than EUR 100 million usually. So medium will be a bit more. So we could go perhaps until EUR 500 million -- between EUR 100 million and EUR 500 million, for example. But that is medium-sized acquisition for us, meaning it is not several billions, for example. That would tell you a room of -- the type of size we could have.About balance sheet constraints, you are right that -- of course, even if we want to accelerate our growth for the next plan, we will do it by keeping a strong financial discipline. And it is why we are ready to sell some businesses, some mature businesses, to make a rotation between our asset base, to keep under limits -- and probably too early to precise that clearly, but probably the limit will be in terms of net debt compared to our EBITDA during the next plan. And we know that we could not overpass a 3x EBITDA for the net debt. So it could be a constraint like that we will use for designing the plan. About the last question, Estelle?

[Estelle K. Brachlianoff, Chief Operating Officer]

So regarding Waste in France, I guess we have a mixed bag but would still leads us to confidence for the second part of the year. The mixed bag being on the negative, you've highlighted the insurance which are rising. I would mention as well still the paper price, which are not in the right direction, although it's not a major impact. But we have a lot of positives as well. On the positive side, you know the pricing power that we've experienced in the last few months in France, as much as in the U.K, typically in C&I, which was very clear, again, a part of our customer base where we've been able to increase volume more than 5%, which is a sign. We've seen the same in the long-standing business as well with price increase and volume as well. And altogether, I guess, in terms of competitivity, proof is in the pudding. And we have now announced recently we had won the Bordeaux contract, which means that, that's, of course, a success which proves our commercial dynamism and the fact that actually, we should feel -- experience in the next few months and years some growth in these activities.

[Antoine Frérot, Chairman & CEO]

Satisfied, Emmanuel?

[Emmanuel Philippe Turpin, Equity Analyst]

Yes. I was trying to also understand whether the higher insurance costs and other temporary effects in H1 were -- would reoccur in 2H or whether we could have actually an acceleration, for instance, in France Waste. Was basically the H1 EBITDA growth in France specifically hampered by those temporary effects? And therefore, should that deliver in 2H? Or should we -- or is not going to be the case?

[Claude Laruelle, Chief Financial Officer]

Yes. So to answer your question, in terms of insurance costs, that will be for the full year that we will have these effects. And in terms of Waste business in France, we don't expect a growth in EBITDA for the full year.

[Operator]

Next question from Olivier Van Doosselaere from Exane.

[Olivier Pascal Michel Van Doosselaere, Analyst of Utilities]

I have 2 sets of questions on Waste and also on M&A. Firstly on Waste, you flagged that Q2 was probably a more difficult quarter from a comparison base effect with regards to your volumes. I was wondering how you would see that evolve in the coming quarters with regards to base effects. And also on Waste, I wonder what your view is on the evolution of recycled material prices from here onwards. I think your competitors is quite cautious on that subject still. And then on M&A, actually 2 questions there. Firstly on the profitability of the M&A than in the last year, it looks like you have more than EUR 160 million of top line contribution from that, but only EUR 6 million at EBITDA level. So I wonder why that is and if you would expect the profitability of the assets that you acquired to improve. And then also, I was listening to your comments. I was wondering to what extent you have a very visible pipeline on potential M&A transactions when you actually explicitly say that the EUR 400 million CapEx or M&A envelope for this year hasn't really significantly been used yet and that you could actually raise the size of transactions to between EUR 100 million and EUR 500 million. It sounds like actually, there might be something quite there on the table already today. So I wonder, without obviously giving any details of what it might be, but give us any feel on the pipeline.

[Antoine Frérot, Chairman & CEO]

Thank you, Olivier. We will begin with the second question, about M&A. Because in M&A in our figures, you have acquisitions but you have also divestments. And in the figures of our M&A with us, we-- you have the consequence of the change of the contract in Czech to be concluded. We've explained to you this famous SCVK contract, which decreased a lot the EBITDA.Claude, please?

[Claude Laruelle, Chief Financial Officer]

Yes. We have the SCVK disposal, the SCVK disposal for the full year effect -- or the half year effect of it. But it's -- as I said, it's one-off effect, but as we dispose a company, it's in the scope. So you have a big negative effect on this part. Overall, in terms of new acquisition, we have no problem with the EBITDA contribution of the new acquisition. It's in line with the business plan that we have. So as you know, we buy around 5 to 7x EBITDA, and they are delivering regarding the business plan. So it's pretty much what we have. SCVK, as we said, is -- we are selling the concession company, which is also, we've had the IFRIC 12 impact because we -- there were -- it was carrying the concession fees. And the new company on which -- who are operating now has no more the concession fees. So it's a significant impact on EBITDA, but much less for the rest of the P&L.

[Antoine Frérot, Chairman & CEO]

And if you want to restate the numbers -- the profitability of our acquisitions, Claude told you during the speech that without SCVK, the EBITDA of Europe -- Rest of Europe, will be less 0.4% compared to minus 0.6%, meaning the difference is 5%. 5% on the [ ROCE ] with EUR 800 million, you have about the figure you could have for the profit of our recent acquisition. About the first question, is Estelle perhaps...

[Estelle K. Brachlianoff, Chief Operating Officer]

Yes. So your question with regard what can we anticipate for the second part of the year with regard to Waste. The first part of the answer is on the base comparison. You have it on Page 43. I've highlighted already that Q2 2018 was very high with 4.9%. You can read on this one, but Q3 was high as well with 4.1% and a normal -- I would say, normal in Q4. So you have the answer on the base comparisons on Page 43. The second thing is in terms of our anticipation ourselves, I won't comment specifically on forecasting the economy, as you might expect, of course. What I can say is on Page 45, we've had a few quarters of relative big correlation between the economy on one side and the Waste volume on the other, and it's thanks to our pricing strategy, the work we've done on the mix. If I give you one example only, on plastics, in 5 years, we've gone from EUR 50 million turnover to EUR 400 million turnover in plastics only. So it's not only a volume effect as being commonly made. It's, of course -- and the reason why we're enjoying this part of the year, 4.6% revenue increase in Waste, is really because we've worked on this strategy and this mix. So that's a testimony of our strategy being successful.

[Operator]

Next question from Tancrède Fulop from MorningStar.

[Tancrède Fulop, Equity Analyst]

I have 3 ones. In Slide 17, for Energy, you mentioned that the heat and electricity prices will progressively offset fuel and CO2 costs. So does that mean that we will have for the full year a positive contribution from this block for Energy? And also, I think this is the first time that you mentioned CO2 costs. So could you maybe elaborate on your exposure to fuel prices and CO2 costs? This is my first question. Second question, at this stage, would you be able to give us an indication as to the -- what your contract indexation in France is the next year, in 2020? And I think there is a 6 months timing for the indexation to inflation. This is my second question. And the last question, in terms of capital allocation. Share buyback, if it's something that you could contemplate. Or is it totally excluded?

[Antoine Frérot, Chairman & CEO]

I'll begin quickly with the last one. We have the chance to be a good business with strong needs and strong demands through the world. Having that chance, we have no intention to share buy -- to buy back our shares, but to use all our capital to invest and develop and get the better growth opportunities of these businesses. So no share buyback. About indexation for the contract in France, it's too early to tell you because you know that the indexation will be closely linked to the inflation during the full year. We still have half of the year. We don't know the inflation in the country during the second half. So you have just to follow the inflation rates in the country to have a good proxy of the indexation rate of next year for the Water business. About the CO2 costs...

[Claude Laruelle, Chief Financial Officer]

And the Energy. So we expect the energy -- the full year Energy as H1, so no major changes in the next sequences in Q4. And in terms of Q2, you know that we have a hedging policy. So thanks to the hedging policy, we are able to buy the CO2 in 2019 at EUR 11 per tonne. And we have already started for 2020. So we are hedged slightly above the 2/3 of what we have to buy at 16.5%. And as you know, it's a progressive platform in the heating tariff, so that will put us in a better position for the next year.

[Operator]

We don't have any more questions. [Operator Instructions] We have a new question from Juan Rodriguez from Kepler.

[Juan Camilo Rodriguez, Equity Research Analyst]

So one, on the water situation in France. We saw that volumes increased by 1% this semester, but there's a dry season and extremely low water levels we see in the country. And there has been limited usage applied by the government in some regions. How do you expect this to impact your business on H2? And what is your view on this?

[Estelle K. Brachlianoff, Chief Operating Officer]

You're right. We've, I would say -- I was about to say enjoyed a dry weather since early June, so -- which has allowed us to register good volume in Q2, the 1.1% you've just highlighted. So July so far has seen several in terms of garden watering despite the water restriction we've seen in a few departments in France. But I guess July is 1 month out of 3. So we'll have to end up -- to see how the rest of the summer goes to give you an indication, and I cannot predict what the weather is going to be like in the next few weeks. I was about to add, irrespective -- or in addition to this, I would say, very spot question on the weather in July, August in France this year. But in my opinion, the very good news is that we are starting to see some appetite for some solutions we could offer in Veolia, which is typically the water reuse, so -- where some wastewater which has been already pretreated could be reused typically in irrigation for the agriculture, which may be the type of discussions we were not, I would say, the customer we have -- we are not ready to have few years ago. So I guess, irrespective of the volume for this year, it highlights the importance of solutions that Veolia gets -- the ones you'll get an offer.

[Antoine Frérot, Chairman & CEO]

Perhaps the last question?

[Operator]

Yes. We have our last question from Philippe Ourpatian from ODDO.

[Philippe Ourpatian, Analyst]

Just 2 follow-up questions on my side. The first one is concerning the revenue in France. I was wondering, with the volumes effect of 1.1% and the tariff increase of 1.4%, how you can compute the 1.5% in terms of revenues. I mean is there something negative which is explaining the difference? That's the first question? And the second one is concerning the Global Businesses. WTA -- VWT is declining by 5%. But in the same time, you mentioned a backlog up by, let's say, more or less 5%. Is there any diary effect, means, as we have to expect this backlog being partly used in the second half? Or it will be more 2020 businesses and revenues?

[Antoine Frérot, Chairman & CEO]

Philippe, Claude will answer to you.

[Claude Laruelle, Chief Financial Officer]

So in terms of -- I will start by the construction and the VWT business. We have booked some large projects, so that will have a first effect in H2 this year. But the main effect will be in 2020 because we will be under full construction in 2020. We're buying equipments, so we will ship equipments to the sites late this year. So the biggest effect on the desalination contracts will be next year. In terms of Water, what you have here is 2 effects: you have renegotiation of our contracts, which is our usual renegotiation, so -- and with some scope effect sometimes, so we are losing a little bit of revenue; and we have less work, slightly less work this year, making waterfront roughly at 1.5%.

[Antoine Frérot, Chairman & CEO]

Thank you very much to all of you. Have a good end of the [ week ], and perhaps for some you, also a of you good summer. Thank you very much for your questions.

[Operator]

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