Veolia Environnement SA

PAR:VIE

Earnings Call Transcript 2023-Q2

[Estelle Brachlianoff, CEO & Director]

Thank you very much, and good morning to all of you. Thanks for joining for this conference call to present Veolia's first semester's results, and I'm accompanied by Claude Laruelle, Chief Financial Officer. I'm on Slide 3. Following the record results in 2022, the performance achieved during the first semester is once again very strong and a new all-time high. At constant total ForEx, our revenue increased by 14.2% to €22.7 billion, EBITDA grew by 8.2%, current EBIT by 13.3% and current net income by 18.7% to €662 million. Our free cash flow has significantly improved, and our net financial debt is well under control. These very good results in a complex environment, our testimony to Veolia's powerful business model of value creation.

The group is built on a diversified geographical footprint, 40% outside Europe as well as on the portfolio of complementary activities in wastewater and energy and a balanced customer portfolio of industrial and municipal customers. Over the years, we've demonstrated a strong track record of delivering efficiency plans that enhance our results. They are again sustained in the first half of 2023, where we've achieved €187 million of savings, ahead of our annual target of €350 million. Merger with Suez is already a success and is bearing fruit at a fast pace with €230 million of synergies already achieved since day 1, barely 18 months ago, ahead of our console objective of over €280 million at the end of 2023 and €500 million in total.

Above all, our unique positioning as the leader of ecological transformation, offering solutions to cities and industries to decarbonize, to depollute and regenerate resources is a powerful engine for growth. This was illustrated in H1 with many new contracts, notably in Water scarcity solutions. This should continue over the long term as our growth potential has been strengthened with the acquisition of Suez. Given those strong foundations, I expect those good results to continue in H2 and beyond. This allows me to fully confirm our annual guidance and even target now the upper range of the 5% to 7% EBITDA guidance.

To give you some additional color on our first half results, I'm on Page 4. The main feature of H1 is essentially that all the very strong operational levers in Q1 continued in Q2. A top line, driven by strong pricing, margin protection against inflation, a strong commercial momentum and vigilance volume as well as operational excellence and the positive effect of the merger with Suez. Our revenue grew by 14.2% as content open exchange rate to €22.7 billion, and we registered very strong growth in all our activities. Water grew by 8.4%, driven by tariffs, volume and a good commercial momentum, notably in Water Technologies, where our order book has increased again significantly. Waste activities continued to grow by plus 3.3% or even plus 6.4%, if exclude recycled price, thanks to price increase on indexation.

Finally, energy activities grew verified by plus 41%, without by energy prices, which is essentially pass-through. The operating leverage was fully effective, thanks to savings and synergies, leading to an EBITDA growth of plus 8.2% at the same pace as we in Q1 and above the annual guidance range. EBIT grew by 13.3%. Net income increased by 18.7% at constant ForEx to €66 million, well in line with the annual target of €1.3 billion. And as you've seen, we've improved as well the free cash flow generation with the debt well under control. These outstanding results were delivered despite softening economic conditions and continued flat rate poses. This is thanks to our strong foundations and powerful growth engine.

First, a balanced geographical mix with 40% outside Europe. Our performance in H1 was very strong in the U.S., in Latam and Eastern Europe, which has more than offset softer delivery costs. Second, our strong position in key activities and countries. As you know, we are now #1 in Hazardous Waste, #1 in Water Technologies worldwide as well as in the top 3 water, waste energy services in all the main countries where we operate. Our complementary portfolio of great water and energy and of public and private customers provides unique know-how we can combine to offer solutions for the ecological transformation. In this well balanced and resilient set of business means we are 85% macro immune and projected event inflation.

We enjoy a strong commercial momentum in all our activities as well, thanks to project positioning in fast-growing markets. And finally, we sustained a strong delivery track record, notably of efficiency gains quarter after quarter, which are now complemented by the benefits of the merger sale ahead of schedule and with a positive momentum. When I refer to our balance geographical portfolio, I think it's useful to focus on the performance of our U.S. operations, and I'm on Slide 6. In the U.S., we've changed dimensions, thanks to the merger with Suez. And our business there now has an annual turnover of $5 billion, in part with the Water Technologies segment, in part within our North American services activity, which are very strong in multiple water, in particular, regulated water and in Hazardous Waste. In those 2 businesses, we are amongst the top 3 players in the U.S.

Excluding Water Technologies, which, as you know, is reported separately, our revenue in the U.S. in H1 has grown by 10% at constant [Indiscernible]. And More at the EBITDA level, fueled by the outstanding performance of our Hazardous Waste operations. As a result, revenue increased by 13% and EBITDA by 75% and to a strong improvement of our base mix. Regulated Water continued to deliver strong revenue and EBITDA growth as well, driven by good volume and price escalation mechanisms. This solid growth is here to stay. Thanks to our strong position in Hazardous Waste, which is key to creating new items such as PFAS as well as water scarcity solutions, including, for instance, water use projects.

Moving on to our strength and leading position in key activities, and I'm now on Slide 7. I will take the example of Water Technology, where we ranked #1 worldwide. Thanks to a unique portfolio of patented technologies in reversals modes, intra-filtration membranes, evapocitization technologies and dissemination just to mention a few. Water Technologies is another very good example of our growth capacity revenues up 9% and EBITDA of 13% in H1. We registered very strong bookings, €2.7 billion at the end of June, with, in particular, a strong pipeline in dissemination and lien projects.

As I said in my introduction, and I'm now on Page 8. This semester is another demonstration of the strength of our business model. All our businesses have been growing in H1. And as you can see on this slide, they are all well very protected against inflation. We've been monitoring inflation and price increases as early as the spring 2021 and demonstrated quarter after quarter our ability to pass on cost increases. And this was again the case in Q2. We do protect our margins via pricing either through indexation formulas for 70% of our business or through specific price increases for the remaining 30%. The results for H1 are shown on Slide 8. They should be read, of course, in addition to the 2022 price increases already granted.

Let's now turn to the commercial success of the [Indiscernible] on Page 9. I've chosen to illustrate those with a few examples of the older solutions we offer to our customers to tackle water scarcity and water quality issues, where we've enjoyed many new contracts in H1. There is certainly a growing demand from our clients for resource preservation or to reuse and water quality. At Water France, we were awarded a €700 million potable water distribution contract in Perpignan for the next 12 years, in which we committed, in particular, to significantly reduce leakage from 20 down to 12% in this very scarce water platforms.

In Abu Dhabi, we won another big desalination contract worth €300 million, in which we will implement innovative technologies, allowing us to significantly reduce energy consumption. In terms of water reuse in France, Veolia is a pioneer. In less than a year, we've secured more than 50 of our compact water reuse units, and we are targeting 200 by 2024. In the Ivory Coast, we are now operating the largest drinking water treatment plant in Abidjan with a total backlog of €390 million over 15 years. Regarding Water Technologies, Veolia has recorded many success since the beginning of the year, and I will give you a few examples. We will provide Samsung with Waste Water Treatment equipment for the semiconductor facility in Austin, axes for $158 million. In the lithium recovery market, we've won 3 new contracts in Canada, South Korea and the U.S. for a total of €181 million.

I'm now on Slide 13 to talk about synergies. And finally, our delivery track record in terms of efficiency and synergies, I guess, has continued. In terms of synergies, which come in addition to efficiency gains, as you know, we've delivered €84 million in H1, leading already to a cumulative amount of €230 million since the start of the sales merger, ahead of our annual target of more than €280 million in cumulative synergies by the end of 2023. And I could soon confirm our target of €500 million. We achieved €187 million of efficiency gain in the first semester, and I'm on Slide 14, which is ahead of our annual target of €350 million, with 53% already delivered in H1. Efficiency gain on our part of D&A and I. I'm sure this remains so.

Slide 15 now. ESG is completely at the heart of our business models and our offerings as Veolia's business is about offering solutions to abate, to gen pouch and to regenerate resources. Regarding sustainable management of water resources, we've set a net 0 water commitment to activities in France by 2033. It's a little bit like a net zero carbon, but with the water in line. And of course, the new deal contract is a good illustration of that. Remember that in 2022, Veolia helped save 320 million cubic meters of water through our services, which is the equivalent of Singapore consumption. This is huge.

In terms of carbon, we accelerate our core phasing out program in H1, and we've already achieved 1/3 of the decarbonization CapEx plan. We completed Germany. We are about to commission new facilities in the Czech Republic in Prerov and Karvina. And next will be Poland. In addition, we've helped reduce our customers' footprint by 14 million tons of carbon in 2022 alone, which is an amazing achievement. This is what I call Scope 4. As for our employees, I'm very proud of our 89% engagement rate, measured by an external firm within our 220,000 employees base. which corresponds to answering questions and of course, answering positively to questions such as would you recommend working for Veolia or do you feel your deliver contributes to the ecological transformation or gain? Do you feel the working atmosphere is positive?

I'm on Page 16. Veolia has capacity to deliver strong earnings growth. And I guess to sum up, I would like to remind the main characteristic of Veolia's business model. A solid, agile group with sustained results. We are now the world leader in the pollution in decarbonation and so economy services with a unique range of offering on a fast growing more than 2 trillion markets. Our business portfolio is very resilient with 85% not exposed to the economic cycle due to the key position we have in very resilient infrastructure-like assets where we are in the top players. The indexation of 70% of our contracts as well as the disciplined pricing for our offers allow us to be protected even translation. We've been able to deliver significant saving picture, which are now supplemented by the synergies from the merger with Suez. Our balance sheet is very solid. All these elements allow us to forecast solid growth in our results and our dividend with accelerated growth from 23% to 25%, thanks to synergies.

And now on Page 17, you have our 2023 guidance. I fully confirm our annual guidance, and I even improved the organic EBITDA growth target now expected at the top end of the range. You understood that I'm very confident for the rest of the year. We will continue to benefit from our strong foundations, pricing power and indexation, operational efficiency, a very well balanced and resilient set of business, 85% macro immune and fully protected against inflation and a very balanced geographical mix with fits outside Europe. The operational trends we've seen in H1 have continued in July. Therefore, we have great visibility for the rest of the year, including in terms of energy, thanks to our hedging policy. And of course, we will maintain our balance sheet discipline. I will now hand over to Claude Laruelle who will comment on our results in more detail, and then we will be able to -- available, sorry to answer to your questions. Claude?

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

Thank you, Estelle, and good morning, ladies and gentlemen. I'm on Slide 19. And as Estelle already highlighted, following our 2022 record delivery or H1 2023 results are remarkable. In H1, with €22.7 billion revenue, we experienced a very strong organic revenue growth of 14.2%, 5.2%, excluding energy prices, driven in all our businesses by first, increasing election on our long-term contracts and continued price increases on nonindexed businesses; and second, good commercial momentum and resilient volumes. EBITDA is significantly up at €3.62 billion, an outstanding plus 8.2% at constant scope and ForEx, which is about the organic growth of revenue, excluding energy prices. H1 EBITDA growth is above the annual guidance range, which makes us very confident for the rest of the year. Thanks to the operating leverage, current EBIT is growing faster at €1.674 billion and is up 13.3%. 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 €19.2 billion, thanks to a significant improvement in free cash flow generation from minus €300 million last year to minus €78 million this year, due notably to strict discipline on working capital and lower integration and restructuring charges. We expect a net debt below €19 billion at year end, including the positive free cash flow in H2 and bolt-on acquisition that should be closed by year end. You can also see on the slide the detailed ForEx impact in H1, which were slightly negative and more significant in Q2 than in Q1. The negative impact trend from the U.K., Latam, Australia and China. For the full year, we now expect a continuation of these strengths.

I'm moving to Slide 20. And you can see the quarterly growth of our main geographies. Obviously, revenue growth in Q2, 8.8% was lower than in Q1 due to the end of the heating season. All the strong operational trends of Q1 continued in Q2. Our revenue grew by 8.8% at constant scope and exchange rates to €10.7 billion, and we registered very strong growth in all our activities. Water grew by 7.1%, driven by good pricing and well-oriented volumes and works. Waste activities continued to grow by 3.3% and plus 7.1%, excluding recycled prices, thanks to resilient volume and commerce impact, price increases and indexation. Finally, energy activities grew very fast by 23.8%, driven mostly by energy prices.

Adjusted for the energy price effects, organic growth was 5.2% in H1, which is a very good performance, and it's fueled by a continued good commercial momentum. This number is slightly lower than in Q1 due to 2 main effects. First, project completion in Water Technologies with little impact on EBITDA. It is just a timing effect. And as Estella, the backlog of Water Tech increased sharply in 2023. Second, lower water volumes in France coming from adverse weather with colder April and May and more rain in June. All in all, there is no change in trend in Q2 compared to Q1. EBITDA growth in Q2 stood at 8.4%, in line with Q1, thanks notably to continued strong synergy delivery, €41 million in Q2, leading to a cumulated €230 million ahead of our annual rating. Q2 EBIT increased by 13%.

I'm on Slide 21. Revenue increased strongly in H1 by 14.2% to €22.7 billion. Most of this growth came from outside France. Water Technologies were up 9%, which is very good with a very solid pipeline of new projects. In the rest of the world, double-digit growth continued in Q2 coming from all geographies. For example, the U.S. grew by 10.6%, driven by Hazardous Waste and Latin America by 28%. In the rest of the world, all our operations were very well oriented and experienced high revenue growth, 23.2%, with strong energy prices in Central and Eastern Europe. The U.K. continued to perform well with resident volumes, good commerce and price increases, leading to 6.1% revenue growth. Iberia grew by 10.6%. France and Hazardous Waste Europe is at 1.5%, slightly lower than in Q1 with lower water volumes due to adverse weather, as I said. Waste volumes remained flat like in Q1, while we cycled suffered from a very high comparison basis.

On the next 3 slides, we detail our performance by activity, water, waste and energy, and we start by water, our largest activity. I'm on Page 22. Our Water business experienced a very solid organic growth of 8.4% to €8.8 billion. Growth was driven by increased indexation and prices for 4.4% and volume commerce work accounting for 4.3%. In France, higher indexation of plus 6% were partly offset by the end of the Lyon contract and lower volumes, down by 2.8% due to adverse weather. Commercial momentum remained very strong. In particular, I'm very proud to announce after Lyon in Q1, as I still said, the new Perfin water and West water contract with a backlog of €700 million, on which we will implement our newly patented WTS driven technology. In Central Europe, revenue was up 19.2%, driven by increased tariff indexation and strong water activity.

In Spain, revenue increased by 11.3%, driven by good water volumes, tariff increase and strong water activity.

Regulated water progressed strongly, thanks to good volumes in the U.S. plus 5.2% in Chile plus 1.4% and indexations. Our Water Technology business performed very well, growing by 9%. Roger Water Technology, its revenue increased by 4.6%, thanks to service and technology business. Bookings are sharply up €500 million plus €500 million, with significantly in desalination and lithium extraction. WTS revenue grew by 11.4%, driven by good commercial momentum and continued price increases in chemicals. On projects, WTS has booked a very large contract for Samsung in the U.S. that will fuel the activity in the next month. Engineering backlog increased by $200 million to $2.6 billion.

I'm now on Slide 23, and we are the main trends of the Waste activities. Our Waste activities performed well despite flat volume and low recycled prices. We have delivered a strong performance, thanks to our price discipline, indexation in municipal business, contract selectivity, operational excellence and a very high availability rate of our incinerators in France and in the U.K. and also an improved mix in Hazardous Waste in the U.S. Revenue grew by 3.3% like-for-like to €7.3 billion. Excluding recycled price impact, revenue grew by a solid 6.4%. The scope effect of minus 7.2% is significant. It is due, if you remember, to the antitrust disposal that has been made in 2022. It includes, of course, Suez U.K. sold in November last year, but also assets in Australia. The growth came mainly from pricing, complemented by resident volumes and partially offset by the negative impact of lower recycled prices.

Volume was stable, minus 0.3%. Commerce plus 0.8% was solid, notably in the U.K. The main driver of revenue growth was pricing with plus 4.7%, partly compensated by lower recycled prices. Recycled prices have decreased since August 2022 from record high level. In H1, higher electricity prices contributed to 1.1% to revenue growth. The impact at revenue level was mitigated by taxation and profit sharing at EBITDA level. As a dose remain well oriented, with plus 4.4% revenue growth, notably in North America as they described earlier.

I'm now on Slide 24, and you have the details of our Energy business. As you know, energy for Veolia is local decarbonizing energy and its key business priority at the heart of our ecological transformation strategy. We delivered strong results in the Energy business in H1, of course, thanks to the favorable pricing environment but also to the value and efficiency of our offerings, is reciting providing local, affordable and renewable energies and energy efficiency services. Energy revenue in H1 was €6.6 billion. Revenue growth achieved 41.3% like-for-like due to the sharp increase of energy prices for 37%. Our business model allow us to pass the cost of energy increase to our clients, which protects our results.

Weather was unfavorable with an impact of minus 0.7%. In H1, we continued to implement the heat price increases, notably in Poland, in line with our fuel cost increase. I'm also proud to highlight the very good performance of our newly opened brand-lab biomass facility in Germany, which is a very good example of how we are transforming our energy business in Central Europe. Electricity revenue is largely hedged for 2023 as well as our energy purchase and we have secured heat prices for the next heating season. Our visibility is therefore very strong. Building and Industrial Energy Services have also performed very well with new contracts in the Middle East and in Spain.

I'm now on Slide 25, and you have our usual revenue bridge depending the different effects. Organic revenue growth in H1 of 14.2% was lower than in Q1 due to the end of the heating season in Q2. Price has a small negative impact of 1.5% due to lower GDP, Argentinian peso, Australian dollar and Chinese Yuan. Scope impact was not significant. And the 14.2% organic growth is fueled by good commercial momentum, energy price increase and price and indexation increases. It's solid commercial momentum, as Estelle highlighted at the beginning of this presentation, is contributing to 2.8% to revenue growth. The weather impact was slightly unfavorable. The contribution of price increases in water and waste was plus 3.9%, and it is partly offset by lower recycled prices for minus 1.2%.

Moving to Page 26. Let's have a look at the EBITDA bridge, detailing the remarkable 8.2% organic growth in line with Q1 and above the annual guidance range. Scope and Forex impact were not more significant than in Q1. Scope amounted for minus €12 million, mainly to the divestment of Tres U.K. Forex negative impact reached minus €21 million after minus €7 million in Q1. Due to the depreciation of the U.S. dollar, the lower GBP, of Argentinian peso and Australian dollars. Volume and commerce impact was plus €56 million or plus 1.9%. Weather impact was slightly negative of minus €22 million. And as usual, the main contributor to our EBITDA increase is the net efficiency and synergies.

The gross efficiency gain reached €187 million, ahead of our €350 million target for the year. Net of shared efficiencies with clients and contract renegotiation, net efficiencies amounted to €73 million. The synergy delivery was also very good, reaching €84 million in advance of our annual target. In total, synergies and net efficiencies contributed to €157 million in Q1, which is 5.3% EBITDA growth. Energy and recyclate impact was €52 million with energy more than contemplating the decline in recycled prices. The favorable energy impact at EBITDA level mainly comes from the benefit of the New biomass in Germany, generating higher EBITDA, higher electricity prices for incinerators in France and in the U.K. The positive impact of the catch up of prices in Central Europe, China and Italy and a few opportunity gains in electricity in Central Europe. Our Energy business will remain a strong contributor to our results in 2024, thanks to our secure IP tariff for the next heating season, which represents 75% of our cogeneration revenue. The negative impact of recycled prices almost offset the exceptional positive impact that we had in 2022. So we are back to a normal level of profit in recycling.

And moving to Slide 27. Let's see how the EBITDA increase is fueling the current EBIT, which is growing very strongly by 13.3% at €1.674 billion. Renewal expense at €153 million is comparable with 2022. Amortization and offer amounted to €1.4 billion -- 1.4 -- sorry, €1.479 billion, slightly above last year. Industrial capital gains, net of provision and asset impairment is €93 million. This amount is significantly down compared to H1 last year, due in particular to lower industrial capital gains. In 2022, we recorded higher capital gains from Suez and antitrust disposals. In H1 2023, this €93 million includes €29 million of industrial capital gains coming from the last Suez antitrust divestment and patient scheme alignment between Veolia and Suez combined with the implementation of the new pension law in France. JVs are slightly down to €53 million, mostly due to divestment.

I'm now on Page 28, and you have the current net income, which is sharply up by 18.7% to €662 million, thanks to current EBIT growth. Cost of net financial debt is slightly down to €312 million, thanks notably to the early reimbursement of the sterling bond in September 2022. Net cost of financing is stable at 3.66% in H1. Other financial income and expense were significantly down to €120 million compared to €199 million. It is due to the lower fair value adjustment of the Aguas Andinas inflation linked loan and unfavorable rail-related one-offs in H1 2022, which was reversed in H2 2022. I expect total current financial charges for the full year around €950 million. Current tax rate stood at 28%, slightly lower than last year, and we expect a 26% tax rate for the full year. Minority interest increased in H1 due to Chile and Central Europe. For the full year, we expect around €400 million.

I'm now on Page 29, and you have the bridge from current net income to net income group share. Net income more than doubled to €523 million compared to €236 million in H1 last year. Nonrecurring items were very high in 2022 due to the Suez acquisition and integration costs. They decreased sharply to €123 million in H1 this year, thanks to lower restructuring and integration charges, and they are now back to normal levels.

I'm on Page 30. And you have the detailed free cash flow of H1. Free cash flow improved significantly from minus €304 million in June last year to minus €78 million. First, H1 CapEx reached €1.8 billion compared to €1.6 billion due to increased discretionary CapEx from €150 million last year to €280 million this year, mostly decarbonization in Central and Eastern Europe that reached €104 million in H1. So we are accelerating the decarbonization in Central Europe and a total of almost €500 million since January 2020, well above our initial commitment in the Impact 2023 plan that was €400 million by the end of 2023.

Ongoing Hazardous Waste projects in the U.S., in Germany and in the Middle East, the phasing of work on contract and IFRS 16 impact with the renewal of the HQ lease. Second, we improved our working capital variation by €50 million compared to H1 last year, despite strong revenue increase, thanks to our numerous cash initiative across the group. Group DSO, for example, decreased by 4 days. Net financial debt reached €19.2 billion, including almost €200 million of negative Forex. And we expect net debt to be below €19 billion at year-end, thanks to our free cash flow and the likely closing of bolt-on acquisition. On Slide 31, we have the details of the net financial debt variation where you can see the different effects I have just mentioned.

I'm now on Slide 32. And you have your 2023 improved guidance. EBITDA organic growth is now expected at the high end of the plus 5% to plus 7% range, 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. As usual, our dividend will grow in line with our current EPS. Given our remarkable H1 delivery, we are, of course, very confident for the full year. Thank you for your attention.

[Estelle Brachlianoff, CEO & Director]

Thank you, Claude. And now I let to the floor for questions you may have.

[Operator]

Thank you, madam. Ladies and gentlemen, we will now begin the question and answer session. [Operator Instructions] The first question comes from Ajay Patel with Goldman Sachs.

[Ajay Patel, Goldman Sachs]

I've got two questions, please. Firstly, one is around the guidance. You clearly are in the presentation and the press release highlighting optimism for your performance and for the full year. And you can reflect that in the tilt in the guidance on EBITDA, but could you maybe explain, one, what the assumptions that you're assuming for the second half of the year are? So we have a way to follow the journey.

And secondly, that optimism doesn't seem to translate them to the net income level. Is that conservatism? Or is there any other adjustments between the lines I need to think of? And then the second question, please, would be on synergies. Clearly, a fantastic performance. You have the €500 million target. You're running ahead of that at the moment. And I just wonder, given that you're halfway through the journey of towards halfway through the journey. What have you learned? Is the -- is there other opportunities to take advantage of? Should we think about that $500 million target being just delivered earlier? Or are there opportunities emerging as you've had time to look at the portfolio.

[Estelle Brachlianoff, CEO & Director]

I guess, you're very right. As, you know, you've heard from the results plus the tone that I am very confident for the rest of the year and for the years to come for Veolia. This is why we've given you a very positive color about the guidance for the year because we now aim at the upper end of the range from 5% to 7% EBITDA. So I guess, what are the underlying assumptions? I guess as usual, when we give a guidance, I won't give you assumption about the economy in the world of protract or whatever because I'm here to drive the company not to make assumptions about things I cannot anticipate. But the reason why whatever happens, we are very confident for the rest of the year is many folks. Basically very strong foundations for Veolia. I've said it now like a very good geographical mix with -- just to give you an example, 40% outside Europe, and an outstanding performance in the U.S., just to mention one example.

The second is the very good mix of wastewater and energy, which, of course, is another very strong foundation. And the third, of course, is a very good ability to derive cost cutting and efficiency to be very agile. And that's our very strong fundamentals. The third element is probably as well that we don't see any change in trend in the beginning of the summer, July is very much alike the first semester. If anything, slightly positive when you look at, say, the Germany volumes, for instance, a little bit of negative in terms of weather in France because it has been raining basically most part of July. But all in all, no change in the trend here. And as Claude highlighted, we've hedged basically the vast majority of energy for the rest of the year and even for 2024. I shall recall you on the energy one that you remember that what we call the heating season is always a very positive driver for the growth of our results and is basically 50% more in terms of volume for the January to April compared to the November and December heating season for obvious reasons, which are just a number of days here. So all in all, very confident for the rest of the year, which is why we've raised our assumption to the upper range of the guidance in terms of EBITDA. And I would say, very comfortable with the consensus as well, the yearly consensus for Veolia.

In terms of synergies, I guess I asked the question every quarter now because, as I said, we have a very good track record of delivery. I intended to go on this way. And as you mentioned, we are ahead. So I fully confirm the €500 million target. We are delivering it quicker than anticipated. This is not by chance. It's by a lot of preparation and a lot of attention to details in -- so if it can deliver more, of course, we will. But so far, my priority is to deliver according to our commitments to you and to the investors. I guess what have we learned? It's an interesting question. We've learned that we have a very good potential of revenue synergies because, of course, when I talk about €500 million, we're talking about cost synergies only. And we've seen a lot of examples in the last few months as you know how cross-fertilization of offers and teams could help fill the growth of the company. Just to mention 2 examples, which comes from online, the Istanbul contract that we've won a few months ago. which is a very big like green energy, if you want, on greening the energy mix of Turkey, wouldn't have been won with only the [Indiscernible].I guess it's the combination of the 2 teams in this country, which has helped us with this contract.

Another example is what I said about the renews. We have many, many opportunities in a country like France or 3 years of wastewater and actually in the U.S. as well, which has helped a lot by the many references, particularly in Spain, we've gathered by acquiring sales. So if anything, I guess, we've learned that the attention to detail and delivery is always paramount that we we've delivered that. But that we may have more to come in terms of growth for the company.

[Ajay Patel, Goldman Sachs]

I just maybe one bit I didn't get clarity, if you may. Is there that optimism on the other side team like you said, look, you're pretty much prepared for most macro outcomes in regards to the full year and your confidence in your guidance at the EBITDA level, how come that doesn't translate to your net income?

[Estelle Brachlianoff, CEO & Director]

So I will start by the first part of the economical part and let Claude answer to the net income, specific question. Sorry, I didn't answer first to this one. Just I'm very happy. I just want to rephrase what I said about the 85% macro immune of the year at the first semester, just to give you one example, you've seen that volumes of waste was flat. And with flat rate volumes, we've enjoyed -- we've delivered 8.2% growth in our EBITDA. So that's another testimony of the decorrelation if you want, of the 2 indicators. That was more an additional comment. And on next results, Claude maybe?

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

Current net income, as Estelle said, we are comfortable with the consensus not only on EBITDA but also on net income. And if you understand the consensus correctly, it’s €1.345 billion. So we can confirm that we are comfortable with this number.

[Operator]

Your next question comes from Arthur Sitbon with Morgan Stanley.

[Arthur Sitbon, Morgan Stanley]

I have two. The first one is on the EBITDA bridge that you presented, you show €52 million net positive on recycled and energy items. I was wondering -- well, I suspect the positive comes mainly from the energy activities. I was wondering exactly which part of the energy activities and you seem to say that you're quite confident that this will remain more quite solid at least in 2024. I was wondering if at some point, you should -- we should expect some NIM reversion here as energy prices come down?

The second question is on the €93 million of capital gains in the first half of the year. I think you mentioned part of that was linked to the pension reform in translate. I'm not sure I've understood that correctly. So if you could provide a bit more detail that we think that could be helpful. And mainly, I was wondering if you expect that budget to remain roughly stable by the end of the year? Or if you should expect more capital gain or actually some negative items.

[Estelle Brachlianoff, CEO & Director]

I hope we heard well your question because the line was a little bit blurred. Claude, maybe starting with the capital gain, the pension one was not exactly that easy to understand. Maybe if you could elaborate.

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

Sorry. So we have 2 main topics in the -- in this time of €93 million. It's on the Page 29. The first one is industrial capital gains. It's a disposal of the water U.K. business that has been sold in February this year. That was the last remedy that we had to sell, and it was part of WTS business. And so we got from this disposal, as I said, €29 million of capital gain.

And the second topic is the combination of -- in France of the Suez and the Veolia pension scheme. So the combination of the pension scheme because we are now one company and the people that joined us, they joined with what they had from Suez and we wanted to have one single patient scheme. We were able to record around say, provision reversal of around €20 million. And the second topic is the pension reform because now we have to work on to €64 million in France. And so the pension reform was a very small effect last year. It was only €4 million at the provision reversal because now we have the pension provision a little bit streamlined. That's the first topic.

[Estelle Brachlianoff, CEO & Director]

Also on capital gain. And on the bridge plus energy minus recyclates equals 52.

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

Yes. So the main positive impact on this bridge is a brand track new biomass facility. It's a significant impact. You know that we have invested €250 million and from -- and we started this facility in November last year. And so it's really a significant impact around more than around €50 million just for this facility. The second topic is the rest of it is energy that we have got, as I mentioned, the energy business that is compensating the recycled prices pretty much for the same amount.

[Estelle Brachlianoff, CEO & Director]

So all in all, to -- if your question was should we anticipate all of it to be neutralized down in a way when the energy price goes down, the answer is a lot of it is more like recurring and based on the fundamentals such as the BVG a branded one Claude just mentioned.

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

And as we said also that the heat is secured for the next setting season with a very good time, which is, as I said, again, 75% of the volume of energy that we sell is a main topic for us.

[Operator]

Your next question comes from Olly Jeffery with Deutsche Bank.

[Olly Jeffery, Deutsche Bank]

Three questions for me, please. The first one is, can you just give your view on your outlook for waste volume growth and maybe what you've seen in July and what you expect for the remainder of this year, just in the context of a lot of companies in the chemical sector and construction sector profit warning this year. You -- what is your outlook on that? And what do you incorporate for the second half?

Second question is on -- you mentioned the strong growth in Hazardous Waste pricing in the U.S. and a very strong increase in pricing. Do you think that's sustainable into 2024? And then the last question I have is, if you repeat the amount of synergies, which have been intact, you managed to do that many in the first half, doing 60% of the full year target. If you manage to repeat that number in the second half, do you think you might be able to get up to $1.4 billion in current net income?

[Estelle Brachlianoff, CEO & Director]

So you understand we are very confident in many, many ways, top line, bottom line and for the rest of the year and the years to come. So in terms of volumes of way to answer your question, we've seen flat volume in basically H1 exactly like we have seen flat volumes in H2 2022. So far, we don't see any change in trend. If anything, a bit of a positive in Germany, as I mentioned. But again, like we've demonstrated in a way, plus 8% in the first semester despite stable volumes of weight. So I guess happy to answer your question. But in a way, it's less and less relevant to discuss the economy and the way volumes versus the year's results has been proven for the last quarter and again in this quarter. And by the way, we barely do any construction waste because your question was more on construction. And in terms of chemical volumes, it's not what we've seen in Hazardous Waste. And again, we haven't seen any changing trends in the Hazardous Waste volumes, neither in Europe nor in the U.S. So nothing specific to say here.

In terms of the Hazardous Waste price in the U.S., how long does it take? We've been able to deliver strong price increase since basically the spring of 2021, and we've given you the figures quarter after quarter. Our objective here is basically to follow at least inflation of cost. And so I guess I don't see any reason why they should go on. We don't have any sign of like anything that are various treatment facilities are basically 4 and they still are. So I don't see any reason why this should change. In terms of synergies, I was smiling because you're right, we've been very confidently early setting this result this morning with raising our objective for the year to the upper end of the guidance in terms of EBITDA, which we are very confident, again, and hopefully, it's a sign of the smile you can hear maybe from the phone this morning. And in terms of how does it translate to net results. As Claude mentioned, we are comfortable with the consensus for the year. And there is a little bit of the specific H1, H2 on the financing costs as well, which you cannot just do times 2, if you want, for specific one-off in H1. But maybe, Claude, do you want to elaborate on the second part?

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

What I said, if you look at the total financial cost that was very good in H1. And as I said, the total for the year is expected at €950 million, but again, on net income, we can confirm that we are very comfortable with the consensus.

[Estelle Brachlianoff, CEO & Director]

Of course if we can raise more synergies we will.

[Operator]

Your next question comes from Michael Harleaux with Societe Generale.

[Michael Harleaux, Societe Generale]

Just one, can you please share with us your views on the read-across for Veolia, if any, from the government's plan to tax toll-road operators? And then according to declarations of Punalomer hydroelectric concession operators as well as airport operators.

[Estelle Brachlianoff, CEO & Director]

Well, I said well, because not a lot of people have read those speeches from the minister. I guess the answer is there is no read-across for Veolia. We're neither legally nor operationally in the same type of concessions as the ones which are potentially under scrutiny from the tax -- sorry, toll or the game in France. So no read-across. We don't have any risk here.

[Operator]

Your next question comes from Arnaud Palliez with CIC Market.

[Arnaud Palliez, CIC Market]

Yes. The first one is regarding the amount of shared efficiencies. Can you give us some indication about this amount. You no longer make a split between the efficiencies and what is returned to the customers. So can we have some indications? Are we in business as usual, let's say, or is there any change at this level? That's the first question. And the second question is a more general one about waste water reuse. There are a lot of talks now in France about pushing the industrial companies to recycle the water. I just would like to know what's your view on this emerging market, let's say? And are you currently in discussions with some big industrials for moving to the reuse of their water?

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

To answer your question is very simple. It's really business as usual and to give you figures. If you come back to the EBITDA bridge, we have delivered €187 million of efficiencies, cost efficiencies in H1, and we have retained €73 million, which is 40% of what we have delivered. And we have always said that the range is 30% to 50%. So the 40% is really business as usual.

[Estelle Brachlianoff, CEO & Director]

And in terms of the second question you've had, you're right, it's a big series of opportunities for Veolia. We are very #1 in terms of both references and technologies to help interest customer to do better reuse in France like in many other countries. So many more opportunities to come in Veolia. And actually, some of the customers are already [Indiscernible] France, as you can imagine, where we have a good footprint already. And just to give you an example, which is outside France, we signed a contract with a big lithium mine in Australia called the Talisman Mine. It's a lithium mine. They had to double the capacity that they wanted to double the capacity of the mine. The limiting factor was the water, as you can imagine in Australia. And we've been able to deliver, thanks to a combination of Actiflo and Montpellier, which are 2 patent technology of Veolia, to have them double the capacity without taking one single drop of water more from nature. And this is an example of waste water reuse but industrial waste water reuse, thanks to the technology of Veolia. And we have many examples in France now and many more to come. So good opportunity for us. And we're -- that's why I was very pleased to announce not only a very strong result, very good confidence for the rest of the year, but as well a lot of new contracts, which are fueling the growth -- will fuel the growth of the years to come.

[Operator]

Your next question comes from Jenny Ping with Citi.

[Jenny Ping, Citi]

Two questions from me. Just firstly, on inflation. Can you just remind us what is the lag in the inflation contracts in both of the water and waste businesses, please? So as inflation start to come down, when are we expecting to see some of that to flow through? And then secondly, just an earlier comment around waste volumes to Olly's question saying that some of the construction waste exposure is very minimal. Can you just run us through in terms of which are the most -- which sectors are the most exposed to in terms of your waste and obviously, a big chunk of that will be Municipal as well. But just of the industrial, what are the most exposed sectors?

[Estelle Brachlianoff, CEO & Director]

Okay. Maybe Claude the first one?

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

So yes, in terms of inflation. So you know that the lag is 6 to 12 months on inflation. This is what you can see on the Water France. For example, we had close to 4% last year. We are at 6% this year. So you have this lag effect that is -- and we will see the inflation going slightly down in the second part of the year to answer your question, Jenny. So the lag effect, 6 to 12 months that will translate to the next coming months if inflation goes down.

[Estelle Brachlianoff, CEO & Director]

And on the second question, so again, we haven’t seen any growth in the volume of waste in the semester and last semesters in S2 2022. Despite that, we’ve been delivering a very strong growth of our results. If you want to understand why in a way we are immune to 85%, as we said, immune to economic growth and with volume. This is because a lot of it, as you mentioned, is Municipal. The other half, it’s spread through various types of sectors, barely in construction. A lot of it will be retail. Typically, if I had to mention one which is a lot of where the volume of waste comes from. And again, like our adaptation reaction, cross-cutting delivery track record helps us to, in a way disconnect from this type of indicators from the results of Veolia.

[Operator]

Olly Jeffery has a follow-up question.

[Olly Jeffery, Deutsche Bank]

So on the bookings within WTS, I think you said that increased €200 million. Could you just clarify how much that's increased in the bookings that have increased in the full year results? Second question is on normally at the half year, working capital is quite negative only unwind by the end of the year. And you spoke about that being below $19 billion. I might expect a bit lower than that. So could you just explain, are you still expecting the normal largely to working capital online over the second half of the year? And then my last follow-up is the Lyon contract. Can you please just confirm is that now -- is that included within the guidance or not? And my understanding if it would be it might be it'll be a scope effect that wouldn't be at the EBITDA line, but obviously it could be in the net income line. So clarification on those points would be great.

[Estelle Brachlianoff, CEO & Director]

I guess on the first one, the booking. We've mentioned a few figures. So maybe we were not clear enough. The €200 million was just a single segment within the Water Tech. So it's not the overall booking. The overall bookings secured on the H1 only is €2.7 billion in 6 months. So that's the figure of which €200 million was in part of the business and $500 million was another part of the business. But the overall is 2.7% extra in just the first half of the year. And I've given you a few illustration of what's within those 2.7 and a bit in the contract for one and a lot of good results related to the lithium factories. And you might wonder why lithium in particular.

The first is, of course, lithium mine or factories need a lot of water. So there is a lot of water reuse and what we call ZLD. But the other part is we have as well a wonderful piece of technology which helps us recut the little, little it was it still having the affluence of this water to concentrate it. That's what we call Everpocrystallization, and that's a unique one. And as you can imagine, given the price of lithium and the scarcity of it, it is a technology where we have a lot of incoming calls to apply to recruit any single gram of lithium, you can think of. So that's why -- so the real figure is €2.7 billion, of which we've given a little bit of detail, but the headline is 2.7%.

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

On the working capital, Olly you're right, if you take into account just the working capital because the working capital reversal that we do every year will contribute significantly to the free cash flow of H2. And you know that we continue to have a very strict discipline on free cash flow, on cash generation, on invoicing and collection in order to continue to deliver strong free cash flow generation at Veolia. But as I said, we may close some bolt-on acquisitions by year-end. And so you have to take into account a couple of acquisitions that could come by year-end. And so if you combine the 2, we know that we will be below €19 billion at year-end.

[Estelle Brachlianoff, CEO & Director]

And as far as the Lille question is concerned, so CASA Banca Water and Power, it's counting scope but in terms of effect, to give you an idea, it's around the 30 something type of million euros of EBITDA in the first half of the year. So it's limited compared to the size of the group, very, very limited.

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

And in terms of net income is not significant at all.

[Operator]

Your next question comes from Philippe Ourpatian with ODDO BHF.

[Philippe Ourpatian, ODDO BHF]

Could you just give us your hedging prices because you mentioned that you are fully hedged in terms of '23 and 50% '24, just to have an idea about the trend in terms of prices, you can deliver the exact figure. That's the first thing. And the second thing is you mentioned that the weather impact was not so significant. It was not so good, I would say, in the first half. Looking at the weather in France in July, the impact could be even worse. What do you have in terms of, let's say, statistics and mainly main figure in your management control for the month of July, just to have an idea about the volume impact in the French business?

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

Hedging policy for 2023 is done. And that's the reason why we are explaining. As you know, Philippe, we are hedging a fraction of the year to come in the year that we have and a little bit of the next year. But the policy of the group is to hedge the full year pretty much at the beginning of the year. So it's done for 2023. And so we are confident, very confident with 2023 good, solid delivery. And we have a progressive, as I said, for next year. If you look at the progress that we have, we are pretty good today on electricity prices for the incinerator. We have a good hedging today. So we know that we should deliver better 2024 energy prices for the waste incinerator in 2024, but that could be slightly mitigated, but we are well progressing on this one. That's for the hedging policy.

[Estelle Brachlianoff, CEO & Director]

In terms of the weather impact, if you ask, do we have a magic wand in Veolia and the specific KPI to anticipate the weather? We don’t. So what we can say is just having a look through the window and of course, measuring. July was not great in France, you’re right. But in other geographies, it was very good. Just to give you an idea, we’ve mentioned the weather impact in France for the first semester. But overall, the volumes of water worldwide for Veolia was plus 4% in the first half. So we are present, as you know, in Spain, in Chile, in Czech Republic and in the U.S. a lot. So I guess I’m inclined to be zoom a little bit compared to the weather, I see in my own window – through my own window, sorry. And I guess, I said particularly that I’m very confident for the rest of the year, I would say, despite the rain in July in front to say it in other words, and which has enabled us to raise our guidance to upper range of the 5% to 7% EBITDA.

[Operator]

Your next question comes from Juan Rodriguez with Kepler.

[Juan Rodriguez, Kepler]

I have a follow-up on the net debt, if I may, and especially on the M&A that you signaled that is included already on your below €19 billion target. Can you please tell us what size of the envelope will be targeting this bold M&A acquisitions, something around €0.5 billion will be good to have in mind. And then are you including any contribution of this on your embedded net income? That would be the first one. And the second one, if you can update us on where the compensation renewal process of this important static concession in the water business in response is currently today.

[Estelle Brachlianoff, CEO & Director]

Maybe on the first question, although I would discrete my CFO to give you the names of the target because we have in mind because, of course, we are in discussion, and this is very confidential, but you can give a bit of color on the size of the bolt-ons.

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

So we are talking about a couple of hundred million euros. So nothing very significant, but that will fuel the growth for next year and the earnings for 2024, and we expect to close in Q4. And that's the reason why it will have a limited impact on our accounts in terms of EBITDA, revenue and net income. But that will help also to have a strong 2024. And as we said, we are very confident as well for 2024 at Veolia.

[Estelle Brachlianoff, CEO & Director]

And in terms of the SEBI contract, we are in the middle of the tender we’ve already put 2 offers together in succession, which is the typical one. Just to give you an idea, the end of the contract is meant to be at the end of 2024. So until basically 1.5 years. And we’ve put a very, very good offer together with all the technologies and the know-how of the group in terms of technology to give you an idea, there is a state of the art of everything you can treat, which could end up being in the water as well as state of the art of – in terms of leakage rates, which is already very low, but could be even lower, thanks to all our technologies and AI and digital. So I’m very proud of the offers we put together. And again, there will still be a little bit of a few months to wait for because the end of the contract is at the end of 2024.

[Operator]

There are no further questions at this time. I will turn the conference back to Madam Brachlianoff for some closing remarks.

[Estelle Brachlianoff, CEO & Director]

Thank you very much. You’ve understood that we are very happy about the results for this first half of the year, which are again an all-time high for Veolia, very confident for the rest of the year as well, which has helped us to raise our guidance to target now the upper range of the 5% to 7% EBITDA. That’s well under control with a very big improvement in the working cap and a good ambition for the rest of the year as well. So Veolia is in a very positive trajectory.