Veolia Environnement SA

PAR:VIE

Earnings Call Analysis

Veolia's Strong Growth and Guidance for 2024 Confirmed

In the first nine months of 2024, Veolia reported solid revenue growth of 5.1%, driven by strong performances in Water Technologies and Waste segments, with a notable uplift in Q3 at 6.7%. EBITDA increased by 5.6%, aligning with the annual guidance of 5-6%. The company achieved cumulative synergies of €411 million, raising the target to over €430 million. Net income is projected to exceed €1.5 billion, a 15% increase from last year. The leverage ratio is expected to remain below 3x. The growth strategy includes a focus on environmentally sustainable projects, with Water Technologies anticipated to grow revenues by 6-10% annually.

Solid Growth Amid Challenges

In the first nine months of 2024, Veolia reported robust revenue growth of 5.1%, excluding energy prices. This growth was driven by the company's three booster activities, which rose by 6.9%, and their target geographies, which grew by 6.4%. Notably, in Q3, revenue growth accelerated to 6.7%, highlighting the strength in their business model even in a complex environment.

Operational Efficiency Reaches New Heights

The company achieved substantial operational performance, realizing efficiency gains of EUR 296 million, slightly below the annual target of EUR 350 million. However, they exceeded their synergy targets with cumulative synergies totaling EUR 411 million, allowing them to raise their full-year synergy target to over EUR 430 million. This demonstrates Veolia's continued dedication to improving its operational efficiencies following the Suez merger.

Financial Strength and Debt Management

Veolia's EBITDA rose to EUR 4.9 billion, with a year-to-date growth of 5.6%, aligning with the company's guidance of 5% to 6%. They reported a strong EBITDA margin increase of 72 basis points compared to last year. Furthermore, their net financial debt stands at EUR 18.9 billion, maintaining a leverage ratio below 3x, ensuring the company is well-positioned financially.

Strong Revenue Segmentation

Breaking down the revenue, the Water business saw a notable growth of 6.5% year-to-date, fueled by price indexations and strong contract renewals. The Waste segment also performed well, increasing by 6.4%, driven by commercial and operational efficiencies across multiple regions, including France, the U.K., and Germany. Energy revenues exhibited modest growth, reflecting increased volumes despite lower energy pricing.

Guidance and Future Outlook

Veolia expressed confidence in their full-year guidance, projecting a net income exceeding EUR 1.5 billion, which reflects a significant increment of over 15% from the previous year. The company anticipates maintaining an average net income growth of 10% per annum aligned with their goal of growing dividends in line with EPS. Overall, the firm's performance paints a positive outlook as they continue to execute on their GreenUp strategic plan.

Resilience Against External Factors

Despite facing headwinds such as unfavorable weather and currency fluctuations impacting their financials, Veolia has shown resilience. Their intrinsic growth reached 7.5%, driven by solid performances and pricing power across their business segments. This showcases the company's ability to adapt and thrive, mitigating the impacts of external challenges.

Market Position and Competitive Advantages

Veolia has established itself as a leader in sustainability and environmental services, focusing on expanding its portfolio in water technology and hazardous waste management. The company aims to leverage growth from emerging markets and new pollutant treatment solutions, including the growing concern of PFAS chemicals. Their goal is to achieve EUR 1 billion in revenue from new pollutant treatments by 2030.

Concluding Remarks

With solid first nine months results, significant progress in operational efficiency, and reaffirmed guidance for growth, Veolia remains well-equipped to tackle future challenges. The strategic focus on sustainability and operational agility positions the company favorably within the environmental services market, appealing to value-oriented investors.

Earnings Call Transcript 2024-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to the Veolia 9 months 2024 Results Conference Call with Estelle Brachlianoff, CEO; and Emmanuelle Menning, CFO.

[Operator Instructions] This call is being recorded on November 7, 2024. I would now like to turn the conference over to Ms. Estelle Brachlianoff. Please go ahead.

[Estelle Brachlianoff, executive]

Thank you very much, and good morning, everyone, and thanks for joining this conference call to present Veolia's results for the first 9 months of 2024, and I'm accompanied by Emmanuelle Menning, our CFO.

Our 9-month results are once again very good and perfectly aligned with our annual targets, which we fully confirm with confidence. In a complex environment, these results are the fruit of our operational agility and ability as well to seize new opportunities for growth, building on resilient foundations, what we call our strongholds. They are an excellent start for our GreenUp strategic plan as these figures match our vision and strategic choices with enhanced growth for booster activities and geographies.

Going through the numbers, as you know, EPS growth for Veolia comes from 3 pillars: top line growth, efficiency and synergies as well as portfolio transformation.

First, growth. In the first 9 months of -- we have enjoyed very solid growth, and our revenue has increased by plus 5.1% excluding energy price with enhanced growth in our 3 booster activities, which are up plus 6.9% as well as in our 3 booster geographies, up plus 6.4%. Please note that our Q3 revenue growth was even stronger than in H1, up plus 6.7%.

Second, operational performance with efficiency and synergies both ahead of targets. Efficiency gains reached EUR 296 million compared to an annual target of EUR 350 million.

Regarding synergies, we reached our annual target at the end of Q3 with EUR 411 million cumulative synergies already delivered since day 1 of the merger. We are, therefore, raising the 2024 target of synergies with cumulative synergies from day 1 now expected above EUR 430 million.

Third, capital allocation with continued pruning of our portfolio and accretive investments.

EBITDA increased by substantial plus 5.6% on a like-for-like basis, in line with our annual guidance of plus 5% to 6% to EUR 4.936 billion. Margin was up 72 basis points compared to last year.

Net financial debt is well under control and in line with our target of a leverage ratio below 3x at year-end, close, in fact, to last year's level.

These results allow me to fully confirm with confidence our 2024 guidance in all its components.

And now I'm on Slide 5. In the 9 months, we delivered solid revenue growth of plus 5.1% excluding energy price, thanks to very solid performance across all our businesses. On one hand, our stronghold activities have grown by 4.4%, excluding energy price. Revenue from district heating and cooling networks was impacted by lower energy price, as expected, but with protected margin, as you know, while Water operations and Solid Waste enjoyed solid revenue growth.

On the other hand, our booster activities have grown by plus 6.9% excluding energy price, driven by Water Technologies and Hazardous Waste activities.

In terms of geographies, Australia, the Middle East and the U.S. performed particularly well at plus 6.4% growth and each above plus 6%, aligned with the high ambition laid out in our GreenUp plan for those booster geographies. As you know, around 80% of our turnover now comes from outside France.

On Page 6, you have a focus on the performance of our stronghold activities, which did very well in H1 and actually at the end of Q3 with plus 4.4% revenue growth, excluding energy price, plus -- after plus 3.4% at the end of H1. So it's even better.

Water operations revenue progressed very well, plus 4.3%, with high contract renewal, in particular, the SEDIF contract worth EUR 4 billion of backlog over 12 years. Volumes were contrasted, slightly down in France and Spain due to weather conditions, but better in Central and Eastern Europe and in the U.S.

Regarding prices, we obtained a plus 15% tariff increase in Barcelona starting in April, which -- while at the same time we successfully completed most of our rate case negotiation in the Regulated Water activities in the U.S., most of them leading to double-digit water price increases.

District heating networks were up plus 0.8% excluding energy price due to mild weather in Central and Eastern Europe, but would have shown growth if we had excluded weather effects.

Solid Waste revenue progressed very well by plus 6.5% at constant scope and ForEx, driven by pricing and volumes slightly up, notably in France, Germany, U.K., Australia and LatAm. C&I volumes were good despite soft macro, thanks to a proactive commercial action, both market share gains and pricing efforts. Recycled material price picked up a bit, which is encouraging.

We continue to be very selective in municipal collection contracts, as you know.

On Page 7, a focus on the performance of our GreenUp booster activities in 9 months, which have grown by 6.9%, perfectly in line with the average mid- to high single digit aimed at in our strategic plan.

Water Technologies, to start with, grew strongly by plus 13.5% to EUR 3.6 billion revenue in the first 9 months, a very satisfactory performance in terms of sales, earnings and backlog.

Bioenergy and energy efficiency activities reached EUR 3.1 billion, up 0.8%. And I'm happy

[Technical Difficulty]

[Operator]

Excuse me, ladies and gentlemen. Please stand by, your conference will resume momentarily.

[Estelle Brachlianoff, executive]

Hello. We are back. It looks like we had a problem of connection. So I was on Slide 8, and I'm going to come back to where I was to focus on Water Technologies, which has been presented in more detail in our latest deep dive a few weeks ago. And I'm very pleased by our high level of bookings at 3.3 -- it looks like nobody can hear me. So if -- yes, that's it. I hope everybody can listen me.

So I'm very pleased by our high level of bookings in Water Technologies, I'm on Slide 8, at EUR 3.3 billion for the first 9 months, which include key successes in our 5 priority offers: micropollutants, wastewater reuse, minerals recovery, ultrapure water and desalination. As you remember, we've enjoyed a big success in desalination in Dubai at Hassyan as well as last week in Morocco. And in both cases, we're talking about super-large plants, actually in the top 3 worldwide. We have also signed several projects for ultrapure water worth EUR 350 million. And our pipeline remains very strong.

Water Technologies are expected to strongly contribute to the GreenUp plan. And if I talk about the objective of the GreenUp plan for the Water Technologies, we expect to grow revenue by 6% to 10% per year, 3x faster than the market; to grow the EBITDA around 10% per year with margin expansion and ROCE increase as well.

Our performance in the first 3 quarters fully confirm this value creation. Our investments have been prioritizing GreenUp plan to support of our boosters, as you know. By 2030, Water Tech revenues are expected to grow by plus 50% at least.

I'm now on Slide 9. Among the 5-party offers within Water Tech, we've identified pollutant removals such as endocrine disruptors or PFAS as a key growth area. As you know, Veolia is championing depollution via our Water Technologies and Hazardous Waste activities, both key to ensure protection of human health.

Our surveys show that there is a key priority population across the globe. We recently surveyed Americans, for instance, about PFAS chemicals in water and 70% of Americans said they were worried about its presence in their water.

Veolia has a unique offer as the only end-to-end solution from detection to disposal, which is BeyondPFAS, a new offer that we launched a few weeks ago. PFAS is a fast-moving market with new legislation in Europe, in the U.S. and Australia, which requires a high level of expertise. We are confident that combining waste -- water sorry, activities, water technologies as well as hazardous waste know-how and asset is a unique winning formula.

Hence, we target EUR 1 billion revenue from PFAS and new pollutant treatment by 2030 as new legislation is implemented. This compares to around EUR 200 million expected for 2024 and 0 in 2022. So this is fast-moving.

I'm now on Slide 10 and now let's dive into our second level of value creation, which is operational performance. At the end of September, we achieved EUR 296 million in savings, in line with our annual target of EUR 350 million with a high retention rate of 49%. They include specific action plan launched earlier this year in France, China and Spain following disappointing results in '23. And those action plans are bearing their first fruits.

We've developed new tools as well using AI, for instance, in e-billing and call centers. Efficiency and agility are part of our DNA, and I cannot see any end to us finding new sources of efficiency.

Slide 11. In terms of tapping into the reservoir of cost synergies derived from the SUEZ merger, we are ahead of schedule and have achieved EUR 96 million in the 9 months. In total, we reached EUR 411 million of cumulative synergies at the end of Q3 since day 1, meeting our initial 2024 target of EUR 400 million ahead of schedule.

We are, therefore, raising the 2024 target to over EUR 430 million cumulative at the end of the year.

It is worth noting that the global plan of EUR 500 million, which you remember is very ambitious as it was designed for larger parameter, including notably SUEZ waste activities in the U.K., which we finally had to divest for antitrust reasons, has remained unchanged.

After the first benefits that typically came from HQ mergers, followed by operational efficiencies, 44% of savings now come from standardization procurement in our key countries in addition to 36% that still comes from operational efficiencies, particularly within Water Tech.

I'm now on Slide 12. The strong 9-month results allow me to fully confirm our targets for 2024, and we are very much in line with our GreenUp objectives. The financial and nonfinancial objectives of our strategic plan are summarized in Slide 12. They include current net income growth of 10% per year on average with dividends growing in line with EPS.

I now hand over to Emmanuelle, who will detail the 9-month 2024 results before we take your questions.

[Emmanuelle Menning, executive]

Thank you, Estelle, and good morning, everyone. As Estelle already highlighted, Veolia continued to navigate successfully in a complex environment. With EUR 32.5 billion revenue for the 9 months, we experienced solid organic revenue growth of plus 5.1% excluding energy prices with an excellent performance in Q3, up 6.7%.

It is driven in all our businesses, first by our differentiating offer following good commercial momentum and good volume in Waste and Water. And secondly, thanks to the productivity of our teams to deliver strong pricing with increased indexation on our long-term contracts and the continued impact of price increases on nonindexed businesses.

EBITDA is significantly up at EUR 4.9 billion, a strong plus 5.6% at constant scope and ForEx. 9-month EBITDA growth is fully in line with 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 EUR 2.6 billion and is up by 6.4%.

Net financial debt amounts to EUR 18.9 billion. We expect the net debt at year-end in line with the leverage ratio of last year, fully in line with our guidance at below 3x.

We continued to demonstrate the strength of our business model, combining strongholds and boosters, seizing growth opportunities and adapting when necessary to deliver quarter after quarter.

Let's take a closer look at revenue. You can see the outstanding performance of our revenue growth in Q3 with strong Water, strong Waste and resilient Energy. If you exclude the energy price impact, the combination of our 3 businesses delivered a strong revenue growth year-to-date of plus 6.7% at constant scope and ForEx, which reflects good volumes and pricing effects.

Let's take a deeper look at each business. Water is up plus 6.5% year-to-date and plus 6.9% on Q3 with good tariff indexation in all geographies, constructed volumes and strong activities in Water Technologies.

Waste is up plus 6.4% with very encouraging commercial and industrial volumes in France, U.K. and Germany despite soft macro conditions.

And energy is up plus 0.8% year-to-date, excluding energy pricing. Q3 revenue is stronger, up plus 5.8% after minus 0.8% in H1, thanks to increased volume in Central Europe without any adverse weather impact and good energy services activity in Northern Europe and in the Middle East.

On Slide 16, you have the revenue bridge detailing the different effects and showing our top line intrinsic growth of plus 5.4%, and you will see that it is even stronger at EBITDA level.

ForEx had an impact of minus EUR 586 million due largely to lower LatAm currencies. Scope impact is minus EUR 582 million and includes 3 divestments: the nonstrategic construction business in France, SADE in March; the nonreplicable sulfuric acid regeneration business, RGS, which closed early August; and the last SUEZ antitrust remedy, Lydec, in early September. These divestments are partially offset by tuck-ins, notably, Hofmann, a waste management company in Germany, which is already generating synergies.

There was a weather impact in H1, essentially in Central Europe, for minus EUR 132 million.

The main item of the bridge is the impact of lower energy prices for almost EUR 1.2 billion, Meanwhile, recyclate prices started to pick up this year with a positive impact on revenue of EUR 56 million at the end of September.

So the plus 5.4% intrinsic growth is fueled by, first, good commercial momentum, resilient volume; and secondly, price and indexation increases.

Regarding volume, as Estelle pointed out, activity levels are quite satisfactory in the 9 months contributing to plus 1.8% to revenue growth.

C&I waste volume are encouraging, including in Europe. We benefit from several contract wins in Waste, notably in C&I business in the U.K., but also in building energy services in the Middle East.

Finally, the largest contributor for the 9 months is Water Technology in the U.S. and in Europe.

Regarding prices, we continued to benefit from favorable indexation and we maintained our capacity to increase prices faster than our cost base, which contributes to plus 3.6% to revenue growth for EUR 1.1 billion.

On Slide 17, you can see the revenue evolution by geographical segment with Water Technologies revenues growing by 13.5% with solid growth in all its business lines whose combination allowed high integration capability and cross-selling. Revenue benefited notably from the continuation of desalination projects in the Middle East as well as strong activity in services and technology, especially in the U.S.

Regarding the Rest of the World, all regions are performing well, notably Australia and the Middle East. Rest of Europe revenue is up 4.6%, excluding energy prices and climate with a strong U.K. performance and strong Water activity in Central Europe.

Finally, in France, after a challenging 2023, we continued turning the tide thanks to a specific action plan launched at the end of last year.

The combination of our 2 businesses continued to deliver value creation and let's start with Water, our largest activity, representing 40% of our revenue. Water business grew by plus 6.5%, driven by volumes and commerce, plus 2.4%; and pricing, plus 4.1%. It is thanks to good volume in Central Europe and in the U.S., around [ 3% ]. France and Spain was slightly down, minus 0.5% due to weather.

Regarding contract renewables and wind on top of the SEDIF contract mentioned by Estelle, we also extended our Sofia contract by 8 years until February 2034.

In Water Technologies, our bookings at the end of September are much higher than last year, amounting to EUR 3.3 billion.

Coming to pricing. We have continued favorable tariff indexation in France, plus 4.5% in Central Europe with double-digit price increase since the beginning of the year and in Barcelona where we were granted a hefty 15% price increase in April.

Finally, in the U.S., we successfully completed our rate case negotiation with double-digit increase in New York, New Jersey and Pennsylvania.

Slide 19, moving to Energy. You have the detail of our Energy business revenue growth.

Regarding Energy, as anticipated, lower energy prices, electricity prices to be more accurate, have impacted our top line. Excluding energy price, revenue grew by plus 0.8% and by plus 2.3% if we also exclude negative weather effects.

As you know, our Energy margin is well protected from the up and downs of energy prices as we are providing heating services, which are regulated activities, fully passed through on energy costs as proven by the significant double-digit price increase we have obtained over the past 2 years. There is only a lag effect as we obtain the price increases over a couple of years.

In 9 months, we continued to implement in price increases, notably in Czech Republic. We are also ramping up our largest existing contracts in Tashkent.

Electricity come on top as a byproduct from our cogeneration assets and also reflects the evolution of the cost of fuel and CO2. We also benefit from our hedging policy and the improved performance of our assets. As a reminder and as part of our core program, we started new high-efficiency cogeneration with higher EBITDA, such as Braunschweig in Germany and Prerov in Czech Republic. And we have more to come with Poznan in Poland in 2025.

Electricity revenue is already fully hedged for 2024 as well as our energy purchased and we have hedged approximately 3 quarters of next year. Our visibility is, therefore, very strong.

That is why we expect 2024 Energy EBITDA to remain at the high level we reached last year despite lower energy prices as shown in the first half.

Building and industrial energy services have also performed well with new contracts in the Middle East and in Spain, offset by lower energy price in Italy.

In the 9 months, we signed a significant new energy efficiency contract in Belgium, the Middle East and Hong Kong. We have, however, seen a temporary slowdown in industrial customer demand in China, notably.

Let's have a look at the Waste performance. Waste activities are growing at a faster pace since the second quarter of 2024 by plus 6.4% compared to plus 3.4% in 2023 and 5.5% in Q1 2024. This is due to continued pricing power, improved volumes in Europe and good commercial momentum in Australia and Latin America.

Let's take a few examples. Europe is resisting well despite soft macroeconomic condition. We are winning market share with good pricing. We continued to carefully select our contracts and give priority to value over volumes. France is doing better than last year in terms of volumes, for instance, landfill and also in terms of profitability.

In Germany, we have a strong commercial activity and volume slightly increased after a difficult '23 and a softening industrial environment.

The U.K. had a strong start to the year with high-performing waste-to-energy activity, good commercial and industrial performance and 100 of contract renewals in '24.

Hazardous Waste remained well oriented with a strong Q3 in Europe, which we are really proud of as the macroeconomic condition is softening, and a momentum, which is still positive in the U.S. despite the 2023 high comparison basis. The action plan implemented in China confirmed our agility.

Recyclate prices had a positive impact as the increase in carbon price compared to 2023 largely compensate the negative impact of plastic prices.

Coming now to EBITDA on Slide 21. The EBITDA bridge you see detailed the very solid 5.6% organic growth, fully in line with the annual guidance range. It is fueled by the combination of 2 factors: the solid underlying revenue growth and strong efficiency synergies ahead of schedule. We have limited scope impact amounting to minus 4% with the disposal of SADE, RGS and Lydec compensated by the integration of bolt-on assets in Germany, for instance.

ForEx impact is consistent with the trend in H1 and reached minus EUR 121 million. Assuming the exchange rates remain at today's level, the full year impact at EBITDA level would be around minus EUR 80 million and we expect a slightly positive ForEx impact in Q4.

The energy and recyclate impact was minus EUR 51 million, including energy price minus EUR 67 million, which I explained earlier and was plus EUR 60 million due to recyclate prices.

The weather impact was slightly negative at minus EUR 38 million.

Very satisfactory is the fact that our intrinsic growth, which is our organic growth, excluding external factors such as energy or recyclate prices or weather, amounted to plus 7.5%. and is fueled by volume and commerce impact for plus 2.5%, synergies coming from the merger with SUEZ that we are successfully delivering on target and faster than forecasted. We have reached the yearly target after only 9 months, which is remarkable.

In terms of efficiency, we achieved EUR 296 million in savings with an excellent retention rate on EBITDA of 49% and in line with our annual guidance of EUR 350 million. I am pleased to see the specific action plan launched in France last year deliver results.

Let's see how the EBITDA increase is fueling current EBIT, which is growing very steadily by 6.4% to EUR 2.6 billion. Renewal expenses of EUR 225 million are comparable to 2023 due to ramp-up of contracts in Europe, in the U.S. and Water Technologies.

Amortization and OFA including PPA amounts to EUR 2.3 billion, slightly above last year. Industrial capital gains, net of provision and asset impairment, of EUR 133 million are similar to last year amount EUR 129 million. As I mentioned in Q2, normally, this line should be less significant in Q4 as we are reviewing our impairment and provision as usual at the end of the year.

JVs amount to EUR 91 million versus EUR 90 million in 2023, mostly due to divestments. It is fully stable.

Page 23, CapEx remained stable and includes EUR 399 million of gross CapEx, of which EUR 45 million advance in Water Tech mobile unit and plant expansion. EUR 98 million of decarbonization CapEx with good progress on our Poznan project and EUR 131 million of new Hazardous Waste projects, particularly in the U.S., the Middle East and in Germany.

Seasonal variation of working capital was higher than last year at EUR 1.179 billion versus minus EUR 745 million due to base effect and seasonal differences, which will not impact the free cash flow delivery of the year.

We had higher payments in 2024 of CO2 quotas for EUR 100 million and received higher adverse payments in Water Technology and Energy national scale in Europe last year for around EUR 300 million.

Despite this timing effect on working capital, net free cash flow was positive in Q3, plus [ EUR 136 million ]. We expect to largely reverse our working cap in Q4 and deliver as expected a strong net free cash flow for the full year.

Net financial debt reached EUR 18.9 billion and benefited from the cash proceeds from SADE, Lydec and RGS disposal, partially offset by the impact of the hybrid debt repayment for EUR 209 million after the renewal of our EUR 600 million hybrid debt in November last year.

Taking into account the seasonal working capital reversal in Q4 and the net cash proceeds from our disposal and a few acquisitions, we expect the leverage ratio at year-end to be in the same range as last year, which was 2.74.

On Slide 24, you have the detail of the net financial debt variation where you can see the different effects I have just highlighted.

And you have on Slide 25 our 2024 guidance, which we fully confirm. EBITDA organic growth is expected, fully in line of the 5% to 6% range driven by EUR 350 million of efficiency gains. Our net target -- new target of cumulated synergies of more than EUR 430 million at the end of '24.

Current income will be above EUR 1.5 billion, which means a double-digit growth compared to last year. As usual, our dividend will grow in line with our EPS.

The leverage ratio will be at a comparable level to last year, below 3x. And given our first-class 9-month delivery, we are, of course, very confident for the full year. Thank you for your attention.

[Estelle Brachlianoff, executive]

Thank you, Emmanuelle, and we're now ready to take your questions.

[Operator]

[Operator Instructions] And your first question comes from the line of Arthur Sitbon with Morgan Stanley.

[Arthur Sitbon, analyst]

I have to -- the first one is that in your presentation, you talked, for example, about the ramp-up of the district heating assets in Tashkent. I know you purchased some assets from Uniper as well in Energy and I suspect there are a few more of this.

So I was wondering if you could provide us with a quick summary of the key large assets and contracts that are expected to come online and contribute to EBITDA in the rest of the year in 2025 and maybe even 2026? And if you're able to give a sense of the EBITDA contribution, this would actually be even more helpful.

The second question is on the EBITDA bridge, Slide 21. I see the Volume/Commerce/Works component is at EUR 118 million, which is only EUR 13 million higher than in H1. I noticed that the same component shows a good improvement at revenue level in 3Q. So I was wondering if maybe something happened in 3Q between revenues and EBITDA. Was there a negative one-off in 3Q or maybe a positive one-off in 3Q last year, leading to harder comps? Just a bit of color on that would be helpful.

[Estelle Brachlianoff, executive]

Thank you very much. So I guess on the first question, I'm not going to be able to give the full list of the contract we've won, which have an impact. On acquisition, I can give a flavor of that. But in a way, this is all bundled into our bridge of revenue and EBITDA and what we call intrinsic growth. .

Listing still the one you've mentioned, Uniper is not yet in the account. It's not closed yet. So there is nothing and we expect it has been a bit delayed by the antitrust duration to get the authorization. So we will have more probably earlier next year or something like that the result of Uniper as soon as possible, but nothing in the results so far.

In terms of Tashkent, it's really a ramp-up thing as it started last year, but the parameter is growing and so are the results every year and it will grow again next year.

But other stuff you haven't mentioned still in the Energy and district heating, this year we enjoy the positive effect of our decarbonization in Braunschweig where we invested in the last few years and which is bearing fruit in EBIT, EBITDA and everything else. Next year, we'll have probably the Poznan one -- or not probably, I don't know why I said probably, we'll have Poznan, which is the next one in the line of our decarbonization plan, which, as you know, has double-digit IRR. That's what we've presented in a deep dive related to the Energy business earlier in the year.

So the Energy business is profitable, has good return, so is our decarbonization agenda on those. And I'm very pleased to see that like, as we said, the ups and downs of the revenue of energy in the world has almost no impact on our results as we've demonstrated this year. And it will be the same next year because it's a structural choice of very specific activities we have.

In terms of the base effect comparison, Emmanuelle, maybe?

[Emmanuelle Menning, executive]

We are very proud of this Q3, which are, of course, at EBITDA level fueled by the strong revenue growth that you have seen in Waste and in Water. You have noticed that I think that it's in the bridge on Page 21, you were mentioning some effect compared to June. It's true that when you look at the bridge, we are very proud of this Q3 and very proud of our interested growth of plus 7.5%. We have been able to compensate all the negative effect coming from external factors as ForEx or weather or recyclate or commodity price by all the actions that we have taken on synergies and efficiency as well as volume and pricing.

We have slightly less volumes comparison to the percentage we had at the end of June and it's coming from less work, and as mentioned by Estelle, weather -- regarding weather, which were not super favorable.

But even with that, we are able to generate a very, very high intrinsic growth at plus 7.5%, making us comfortable for the rest of the year and allowing us to fully confirm our guidance at EBITDA and net results.

[Estelle Brachlianoff, executive]

So basically, Water volumes linked with -- and works is the answer to your question.

[Operator]

Your next question comes from the line of Olly Jeffery with Deutsche Bank.

[Olly Jeffery, analyst]

Just wanted to start by talking about the efficiencies. You've had a very strong Q3 in your retention rate. When we think about the full year efficiency program of EUR 350 million growth at an average retention rate of 40%, that would go into net efficiency of EUR 140 million, you're already ahead of that at Q3.

Can you just explain a little bit about what's happening this year? Why are you managing to secure such a higher retention rate? Does this mean that kind of going forward that perhaps 40% is a bit conservative given in every quarter you've been ahead of that?

And then just coming to the synergy, that's obviously going very well. You've listed the target of EUR 430 million. If you do the math, I think you'll be well in excess of EUR 150 million -- EUR 115 million for the full year with EUR 500 million the cumulative target, implying EUR 70 million for next year.

Is it fair to say you would consider that relatively conservative? I know it's a finite reservoir, but you talk about that in terms of what you can get from that. But at this stage, would it be fair to regard that as conservative of EUR 70 million left in the tank for next year.

[Estelle Brachlianoff, executive]

So 2 different questions. So first on efficiency, and before answering precisely to your question, you've seen on Page 21 of the bridge that basically half of our result growth comes from efficiencies and the other half from growth as in top line growth. And I think that's important to have the global picture in mind in that respect. So it's really 2 engines that we are fully on in Veolia.

Back to your question on efficiency and retention rate, you're right, it was higher than the average 30% to 50% we've enjoyed in the last few years. And the main answer to that is because we are agile and launching a specific plan when it's needed.

So we have the usual efficiency plan, but very specific one on top when it's needed. It was needed given the disappointing results of 2023 in France, in China or specifically in Spain, and that's what's bearing fruit. So in a way, that's what explained the agility, it's what explained the 49%.

In terms of synergies, you're right, it's a limited reservoir contrary to the efficiency, which is really ongoing and I was about to say forever, as far as I can see. And so the limited reservoir will have an end. We expect the end to be next year. I'd rather be on the delivery side than commenting on anything else, as you've seen.

Is it conservative? The only thing I can say is if we can do more, we will, and we'll try to drive this reservoir to the last drop next year. That's for certain.

[Operator]

And your next question comes from the line of Juan Rodriguez with Kepler.

[Juan Rodriguez, analyst]

I have two on my side, if I may. The first one is on the possible changes that we've seen in taxes in France and the U.S. probably in the U.S. coming. In France, have you included any provisions in your 2024 guidance? And at the same time, we know your international companies so France and U.S. can actually cancel out. And your 10% net income guidance as well, do you include any provisions on the tax side on that, Estelle?

And the second part is in the synergy levels. You already signaled you raised the guidance. On this part, you're already at the midpoint of your 5% to 6% range. Can you give us some clarity on what you've seen the operating performance so far in October to have a better idea of what the end of the year Q4 might look like? And can we expect something between the mid-range, the high range, the lower part of the range?

[Estelle Brachlianoff, executive]

Okay. Very clear and in a way the 2 are partially linked. The global -- short answer to all your questions is I can fully confirm that we will be above EUR 1.5 billion of net income at the end of the year in Veolia, which is a big increase compared to last year, more than 15% increase compared to last year, which I'm very happy to be able to confirm despite the global complex environment we are in.

Going to your more specific question, tax in the U.S., in France, and you're right, we could comment on taxes across the globe, we are a very international company. Less than 20% of our revenue in France and less of our funds employed, more than EUR 5 billion in the U.S. You're exactly right, one may compensate the other.

But the only thing I can say is so far, the tax -- potential new tax in France haven't been stabilized yet and being voted for the parliament, so it's difficult to comment in very much detail. But our first estimates are nonsignificant at group level irrespective even of the potential reverse on the opposite side of the Trump administration when it comes.

So I can fully confirm the both EUR 1.5 billion in a way, whatever the tax legislation in France comes in terms of conclusion.

In terms of moving parts in a way because, you're right, we've raised the synergies for the year, haven't raised the guidance in EBITDA. I can fully confirm it and I can fully confirm the net result despite a lot of adverse elements.

So in a way, there is an element of the moving part, being able to confirm the more than EUR 1.5 billion net results, which is plus 15% again despite, what, weather, which is not exactly great so far, but I have no idea what is going to be like in the next few weeks.

I guess, macroeconomically-wise, we don't see any change in trends. So nothing specific here. It's exactly the same in October as what we've seen in the rest of the year. So no change to expect for us.

As you've seen, we've had a negative ForEx as well and a little bit of scope. There probably will be a negative in the tax branch element, and a positive in everything we do in being agile, including raising our synergies for the year and all the rest of it.

I think the Slide 21, if I should say, is quite striking. The intrinsic growth of our EBITDA is plus 7.5%. But you have a lot of external elements, which haven't helped. And despite that, we can confirm our guidance, which already is relatively narrow, if I may, 5% to 6% is relatively precise.

And again, above EUR 1.5 billion despite everything I said, I think it's quite a good performance and a very positive sign of our confidence for the rest of the year. So nothing specific to expect for the rest of the year.

[Operator]

And your next question comes from the line of Ajay Patel with Goldman Sachs.

[Ajay Patel, analyst]

And firstly, congratulations on the results. You've really showed some resilience here. I wanted to ask the questions maybe -- what's been asked before maybe in a slightly different way.

If I took the synergy benefits and the cost cutting and just add them together, and clearly, this year's experience, headwinds in FX, in particular, and we're bringing -- we're increasing the target for synergies this year, but keeping the overall target unchanged. So we're bringing forward the benefits of that into this year. Is the message that we still have the same cost-cutting potential, but we're just delivering that cost-cutting earlier, and therefore, we're exchanging a bit of growth from next year into this year?

Or is the message that when we take the cost cutting we have from the synergies together, the potential we have is much stronger than we target and then we will unlock those levers as we go along. I'm just trying to get the tone of where your picture is on cost-cutting.

And then the second question, just to make things a little bit easier for me, what is a 1% movement in corporate tax impact you for French business and for the U.S. business? So just so I have an idea of scale for any corporate tax changes that may occur, I have something in my back book.

[Estelle Brachlianoff, executive]

Just a few things. In terms of cost-cutting, you've put together something which I would rather, I guess, put on different pots because they have a different category, which is cost-cutting and synergies.

Cost-cutting, it's a recurring one and it will go on. So it's EUR 350 million per year. And in '25, in '26, in '27, you will still have the EUR 350 million. And as I've said, we have -- we are able to adjust when it's needed to specific action plan and so on and so forth and it delivers good results. So that's, in a way, a very recurring engine for growing our results.

The synergies is the one which is limited. Once you've tapped into this reservoir, the EUR 500 million accumulated, it will come to an end in at the end of 2025.

But again, there is a third element of growing our result, which is growth. That's why, again, I'm insisting on the few elements -- the few engines, which you haven't mentioned. So in a way, growth, and I'm very, very pleased by the plus 5.1% organic growth in the 9 months despite very difficult macros in various geographies, despite everything we've seen and we haven't been helped in other ways.

But we are gaining market share. We have a good pricing strategy. We enjoy good positioning. So I guess, happy to answer the question on synergies and efficiency, but if I may, there is another engine you haven't touched upon, which is super important in growing our results.

And there is even a third one, which is the allocation of capital. As I said, 3 engines, top line, bottom line as in efficiency and synergies and capital allocation. So it's really these 3 together. That's more the way I see it.

And another way of answering the question I'm very, very often asked, which is how come you have so solid results, I would say, quarter-after-quarter? How come you are launching so quickly in a way a very promising GreenUp strategic choices despite the global environment, which is complex. And I really think there is a strategic positioning here, which I would like to mention in a minute in a short version, but -- which is exactly what is underlying our GreenUp strategic plan.

What is it? One, waste, water and energy activities. So we are really assembling and combining those 3 activities and seizing the opportunities when they arise and being very adaptive.

Second, we are very international. I've mentioned 80% outside France, it's more than EUR 5 billion in the U.S. We are growing fast in the Middle East and Australia. So I guess, the international footprint of the group is something which is super important as well.

And I guess, the third one is the demand of the population. So here, I would say, irrespective of the political turmoil at times, in the end, what's supporting our growth not only for this year but for the years to come is our ability to offer a solution, which protects health, which protects cost of living, which helps the industries to thrive. They just desperately need water, and we are the solution.

So I guess, this is a combination of all that, which help us to deliver results like the one I said. And I think GreenUp choices with boosters and strongholds, combined, is really a key for me.

In terms of corporate tax, Emmanuelle, you know.

[Emmanuelle Menning, executive]

Absolutely. So as you mentioned...

[Estelle Brachlianoff, executive]

Although I want to ask you to mention all the corporate tax in all the countries we operate. As I said, it's 40 countries across the globe. But in the U.S. and France, please.

[Emmanuelle Menning, executive]

Yes. So to answer your question shortly, around 1% will be a few million. So the main message is to see that when you look at our net results, the impact that we will have from ForEx and scope as well as -- will be compensated as the impact of taxes by the capital gain positive that we discussed in the last results.

And as Estelle has mentioned, what is important is thanks to the raised synergies for the year, we'll be able to face any impact of weather, which could come in Q4, even within October, which is not super favorable so far. And it's true that, as mentioned by Estelle, efficiency is our [ contractual ] model. What we can do is improve the efficiency, as you see, with what we are doing in France, in China and in Spain. And it's not the end. We are continuing and working on every part of the group where we can find value and improve the margin generation.

[Estelle Brachlianoff, executive]

So 1% of corporate tax equals a few millions in the geographies you mentioned. And altogether, growth and resilience are the 2 elements of our -- growing our results.

[Ajay Patel, analyst]

What I wanted to say, if I hear you correctly, is that despite you moving forward the EUR 30 million of synergies that you attained this year to get to the EUR 1.5 billion target, you're saying we have -- and the FX has been around EUR 100 million headwind to you, you have levers in cost-cutting synergies, balance sheet, the portfolio, i.e. the GreenUp program, to have full confidence in delivering 10% growth per annum for your plan. Is that fair? Is that the summary of...

[Emmanuelle Menning, executive]

You're just -- the effect that you are mentioning, it was EBITDA for ForEx and scope. So it's slightly lower regarding net results.

[Estelle Brachlianoff, executive]

So I guess what -- if you -- I thought you were referring to the 2024 guidance. If you're referring to the 2027 guidance, which is on average 10% per year of net result and EPS in line, I guess, we will have a few moving elements. And everything we do in terms of synergies and the efficiency and agility helps us to be able to deliver and be very confident in the delivery of this objective despite moving factors around us, in a way.

So you could see the Veolia as a resilient and solid despite the environment, the macro environment, the tax environment, the political environment. That's more the way I would say it.

[Operator]

And we do have a follow-up question coming from the line of Olly Jeffery with Deutsche Bank.

[Olly Jeffery, analyst]

Wanted to ask 2 questions. The first one is just coming to weather. So if I look at the 9 months this year and I look at '22 and '21, cumulative negative weather EBITDA effect is basically EUR 200 million. So part of the question here is when we think about Q4 last year, the weather was minus EUR 35 million at the EBITDA level in Q4. At some point -- so I know we're having a -- you said that so far this quarter, it's been -- weather hasn't been favorable. But given we've got -- we've had consistent negative comps in previous years, does that mean we should expect Q4 therefore to be in line with last year because it was negative last year as well?

And then when thinking about next year, if we were to have a normalized weather year, how much of that should bounce back to that cumulative EUR 200 million? I'm just not sure if that's just volume effects and maybe it's a combination of volume and price.

And then on internal growth, your internal growth or Volume/Commerce, I mean, that's progressed quite nicely from '21 and '21 that was 1.5% for the year, then 2% in '22 and then it was 3% or 3.3% at the half year for this year. I know that's come back a bit because of Water volumes in Q3. But when thinking about Q4, if you had normalized weather, is 3% the kind of level of Volume/Commerce you'd expect within the intrinsic growth? I'm just trying to understand if that underlying -- that improvement that we've seen in the last 2 years can be sustained.

[Estelle Brachlianoff, executive]

So what you say about the -- there is part of it, which is dependent on us and part of it, which is not. That's why we call it intrinsic growth of our revenue and EBITDA versus what's not intrinsic and weather is not something we can, I guess, have an impact on. .

You're right, we have negative weather effect in Q4 in the last few years. The Q4 is more impacted by energy weather, if I want -- if you want, as opposed to in the summer we're talking more about water weather volume effect. So I guess winter and summer are quite different in that way.

Is there an ability for me to predict what the normalized looks like? I'm not so sure I can do that. What I can say is we are getting used to weather, which are very unpredictable. But the good news is Veolia is solid enough to compensate when we have a negative weather effect. That's the way I would see it.

And to be able to deliver such good and solid results despite, again, negative weather constantly, and I hope it will reverse in Q4, but I cannot guarantee that. And even if it were not to, then everything else we do is enabling us to guarantee in a way the result for the year irrespective of the external factor. That's the way I would see it.

Talking about the normalized weather, sorry, I'm unable to do that for you as we've seen in Valencia last week, which was totally flooded following a summer, which was super dry. So the midterm, if you want, supporting element of everything I said is whether all that is a consequence directly of climate change and we have to adapt to it.

But the good news is for Veolia, adaptation to climate change is exactly the type of solution we offer to our customers. So if you look at the midterm, if you want, or a long -- over a mid-long period, this is helping our business because the customers are coming to see us to say, okay, what can I do regarding weather impact and so on and so forth.

So in a way, it has a positive link such as winning desalination contract and so on. So first, our very good Water Tech performance. I'm not comparing apples and pears, but I would say if you de-zoom from a quarter-by-quarter element, there is a very supportive trend supporting our business.

[Olly Jeffery, analyst]

And on the Volume/Commerce, I mean, would you agree with the fact that Volume/Commerce apart from the quarter we've just had, generally speaking, that underlying is showing steady improvement, keep that in mind.

[Estelle Brachlianoff, executive]

Yes, it is. I would agree with you because it's a Volume/Commerce, and in a way, pricing we can add that, if you want, which is a sort of Commerce as well. Intrinsic growth as in top line growth is plus 5.4%. Let's say, Veolia now is more in those range where a few years ago we were more in the 2% to 3% type of range.

So yes, it's steadily we are gaining market share. We are good at what we do. We have built a leader in our industry, which our offers are very supportive. An example of that would be PFAS. I've announced we will have probably more than EUR 200 million revenues in PFAS by the end of the year. It was 0 two years ago. That's really an example of, yes, the underlying growth of Veolia is improving year-on-year irrespective of the external factor, you're exactly right.

[Operator]

And your next question comes from the line of Davide Candela with Intesa Sanpaolo.

[Davide Candela, analyst]

I just have one on the Water Technologies. If I remember well, in your deep dive presentation you said that you can be selective in projects that as the demand is basically outpacing your supply and given your remarkable growth in the revenue that is in the low teens, I was wondering if demand will keep pushing you will be able to catch more and more? And -- or if there are some constraints, I don't know, related to the, I don't know, the operating machine capability or the workforce or something else. Just a way to check if you can do more, and of course, you are doing really well for today.

[Estelle Brachlianoff, executive]

Thanks for that comment. I would agree with that. So in a way, is there a bottleneck? I guess, there was a little bit in terms of the production of some membrane. That's why we've expanded our plant typically Oroszlány in Hungary and invested accordingly. There was a little bit of bottleneck in the mobile units, that's why we've invested in expanding our fleet of mobile unit, which has above 90% of utilization rate.

So we are progressively, I guess, un-bottlenecking, if you want. What I can testify is the fact that, as I said, we prioritize investment in the growth boosters, so there is no question of could we be more if we had more money. We prioritize those investments in Water Technologies, in Hazardous Waste, in bioenergy because it's good return, good growth, high demand for a long time. So -- and we don't have any bottleneck in terms of people recruitment, as you alluded to, or anything else.

The only thing was really those production plants and mobile units, which we're un-bottlenecking. And I guess, another -- I'm insisting on the fact that part of our success of the Water Tech is due to the combination with the rest of the business as in water operations or even Hazardous Waste when you think of PFAS. So don't think of it as in isolation of the rest of the group. When I said part of us delivering those very solid results comes from the combination of the various businesses as well as the various geographies.

If I go on with the various geographies in Water Tech, we used to have very high demand in part of Asia 2 years ago. We've moved to the U.S., being very agile, which is in high demand. And then we have higher demand in the Middle East, for instance. So we are constantly moving from one geography to another to follow where the demand is. And I guess, multiple businesses with Water and Energy plus multiple geographies are key to our success.

[Operator]

And your next question comes from the line of Thomas Martin with BNP.

[Thomas Martin, analyst]

Two questions, I think. Firstly, on Energy, I think you mentioned you've seen a slowdown of new customers in a particular area, I think, Energy Services, perhaps. I didn't catch the details on the segment or the geographies. So can you just clarify that for me, please?

And secondly, I had a question on hedging. You mentioned you are 3 quarters hedged for 2025, I think. So can you help us understand the magnitude of the potential impact from hedging? The delta, I guess, for '25 versus '24. Appreciate that in broad terms the strategic energy costs are largely a pass-through. But is this 3 quarter hedging weighted to, for example, energy from water and wastewater or is it district heating, is it a whole lot? Presumably hedging will be a negative at the revenue line in 2025, but is there a material delta at the EBITDA line, please?

[Estelle Brachlianoff, executive]

So I guess, first question on the slowdown. So there is no slowdown altogether. That is a very specific situation I'm going to explain. But altogether, we enjoy very strong demand in our Energy activities. Both are stronger, which is district heating and our booster, which is energy efficiency and bioenergy.

In terms of District Heating, the value is impacted by weather and the price of energy, if you want. But since it's a pass-through, you know what, I don't care so much about it. What I care about is margin. And we've maintained the margin at a very high level, which we had reached last year, which I'm very pleased to see. So we've demonstrated this year that when I said energy price is largely pass-through, that's what we see in the figures.

We've seen a very high demand in our energy efficiency and bioenergy, which is a booster of activity as well.

The only negative we've seen is some delayed project from industrial customer in Asia, so typically transforming your boiler into biomass something has shown some delay. That's exactly what I was referring to.

So very specific, industrial customer in Asia, as you would guess the reason behind, given the slow macro environment, in industry in this part of the world.

In terms of hedging, so as you said, I care more about EBITDA than revenue altogether in terms of revenue, I wouldn't say artificial, but pass-through revenue. I care about revenue as in growth, as in winning new customers and pricing. But if it's just a pass-through, you know what the important stuff is, margin.

But on hedging, Emmanuelle.

[Emmanuelle Menning, executive]

Yes. On hedging, our hedging policy when we are not in a pass-through model, we are hedging. And as you mentioned, we hedged for next year 2/3 of our production.

So we have moving parts. And at the end of the day, the message is that it's not neutral. We have negative effects from lower price for cogeneration as well as waste to energy in the U.K., but it is compensated by positive effect on electricity costs, for instance, in France as well as lower energy costs from coal and gas, for instance. So at the end of the day, what we see for 2025 is that it will be neutral.

[Operator]

And there are no further questions at this time. I would like to turn it back to Ms. Estelle Brachlianoff for closing remarks.

[Estelle Brachlianoff, executive]

Thank you very much. You've seen that you know a very good set of results, showing resilience and growth, which is really the winning formula for us. And we are very confident, and therefore, I can fully confirm our guidance for the full year. Thank you very much.

[Operator]

Thank you. And this now concludes our presentation. Thank you all for attending. You may now disconnect.