Veolia Environnement SA

PAR:VIE

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, welcome to the Veolia Conference Call on Full Year 2022 Result with Estelle Brachlianoff, CEO; Claude Laruelle, CFO.

I now hand over to Estelle Brachlianoff. Madam, please go ahead.

[Estelle Brachlianoff, CEO]

Thank you. Good morning, ladies and gentlemen, and thank you for joining us for this conference call to present Veolia's 2022 results. I'm accompanied by Claude Laruelle, our CFO. This conference will last one hour, until 9, and we will focus on the analysis of our 2022 results. Followed that, 9:30, by a broader presentation of the group one year after the acquisition of SUEZ. You can follow this Capital Market Day live on our website.

So, back to the 2022 results, and I'm on Page 4. I am very pleased to present record results in a historical year for Veolia. First of all, our results have never been as high and are significantly above the targets set at the beginning of the year. This, despite the challenges of 2022 starting with war in Ukraine, energy prices and the return of inflation. We have once again been agile and responsive in adapting to the new geopolitical environment as well as in seizing opportunities, particularly in energy with the resource plan, a further demonstration of the strength of our business model.

It was also a historical year, because we are celebrating the first anniversary of the acquisition of SUEZ and the merger of our teams. 40,000 employees joined us at the beginning of 2022 and are contributing fully to the group's performance. This merger has already been a success in human, financial and operational terms, which allows us to be well ahead of the synergy plan that we communicated to you.

Finally, this is a historical year, because with this merger we have created the champion of ecological transformation. Our customers value our new profile, and we have one major contracts in decarbonation, depollution and resource regeneration in Europe, in the Middle East and in Australia, notably. We are on a very successful trajectory of profitable growth at full speed, which allow us to have ambitious objective for 2023 of 5% to 7% growth in EBITDA and around EUR1.3 billion net income, while confirming the EPS accretion of around 40% in 2024.

Page 5 now. Our excellent results in 2022 demonstrates the strength and agility of our business model even in a challenging environment. We have often been questioned this year about our ability to cope with the volatility of the economy or the inflation. We've had the opportunity to share confidence in the group's profitable growth trajectory and to repeat that our business was 85% immune to industrial growth and that inflation was neutral for us or even slightly positive, thanks to price indexation formulas and our pricing power. These realities are directly reflected in the figures we are publishing today.

First of all, our revenue grew very strongly and reached EUR42.9 billion, an increase of 14.1% at constant scope and exchange rates. These very strong growth reflects a good level of activity with volumes up by 2.4%, which remained strong throughout the year, and the price increase impact of 3.7%. This price increase accelerated during the year under the gradual effect of the indexation of our contracts with a small lag effect. In 2023, this effect will continue to strengthen to take into account the full impact of the cost increase in 2022.

In addition to these two factors, there is, of course, a sharp rise in energy price for heating and electricity production activities. This increase in energy is reflected in our tariffs, hence protecting our margins, but also offers a number of opportunities that we have been able to seize, in particular by increasing the production of cogenerated electricity. I would add that our revenue growth was maintained throughout the year, despite the sharp drop in recycled material prices in the second half, which almost wiped out the increase in the first part of the year. Altogether, excluding energy price effect, our revenue has grown 6.5%.

EBITDA now. EBITDA has also increased strongly reaching almost EUR6.2 billion. Organic growth in EBITDA was 7.2%, above our guidance of 4% to 6%, thanks to synergies generated more quickly than expected. After 6.5% increase in the first half, EBITDA growth accelerated in the second half. In addition to the sustained growth in revenue, synergies from the merger with SUEZ amounted to EUR146 million compared with a target of EUR100 million. After EUR52 million in the first half, synergies achieved in the second half EUR94 million. Cost savings were also above our target at EUR372 million against the target of EUR350 million.

Current EBIT benefited from the strong EBITDA growth to reach EUR3.062 billion with a remarkable increase of 16.3%. At EUR1,162 million, our current net income group share is also higher than our target of EUR1.1 billion and is up 29.7%. These very good results allowed us to propose a dividend of EUR1.12 per share to the Annual General Meeting of Shareholders, up 12%. Another source of great satisfaction is that we've already returned to the leverage ratio of 2.9 times by the end of 2022 with a net financial debt of EUR18.1 billion, thanks to the perfect execution of antitrust divestitures carried out at very good price and in less than 12 months.

Alongside our financial indicators, you know that we were also -- we are also measuring 15 non-financial indicators, which are also very well-oriented. Let me mention two of them. In 2022, thanks to Veolia, 14 million tons of CO2 of our clients' emissions were eliminated, thanks to our services. And we saved 320 million cubic meter of water yearly, thanks to the improved efficiency of our water distribution networks since 2019, which means an equivalent of 6 million inhabitants' city saved every year.

Page 6, and few words on the fourth quarter, which was particularly good. While our revenue continues to grow at a rate comparable to that of the first nine months, EBITDA growth accelerated to 13.1% in the fourth quarter alone and 9.8% excluding the positive one-off related to the 2021 comparison base. These very good quarter is explained in particular by the record amount of synergies as well as the very good performance of our energy activities.

Page 7. You will find details of the excellent figures for the whole of last year, which I have already commented on. We benefited from the full operating leverage effects with organic growth in revenue of 6.5% excluding the effect of energy price, EBITDA up by 7.2%, current EBIT up sharply by 16.3%, and current net income by 29.7%.

In our 2022 figures, they are very good and that's also thanks to the perfect implementation of our merger with SUEZ, prepared well in advance in 2021, as well as the perfect execution of the disposal program. All those efforts have paid off in a very, very good 2022 figures and they have enabled us to deliver an integration process, which is undoubtedly exemplary.

I'm on to Page 8. Thanks to this merger, Veolia has taken on a new dimension, not only by becoming the world champion but also by strengthening our presence in many countries. We are in the top three in almost all geographies we operate, including for example regulated water and hazardous waste services in the United States.

Our antitrust divestments were completed in less than 12 months and at a record price, a sign of the quality of the assets that make about -- our business portfolio, which are often infrastructure related. We received in total more -- sorry, we've received in total in all these divestitures more than EUR3 billion. I will take just one example, the sale of Suez UK waste business, which was sold for 16.9 times the 2021 EBITDA, even though we remain the number one waste company in the UK.

From an HR perspective, all the company's employees have very quickly learned to work together with the same ambition, to make Veolia the undisputed world leader in ecological solutions for cities and industries. Our annual commitment survey, Voice of Resourcers, translate this into a single figure. 89% of the 114,000 employees who responded to the survey said they were fully committed to helping Veolia achieve its objectives with no difference between new and old Veolia employees, which is a record rate.

Another example. 75,000 employees subscribed to the employee shareholding plan offered to them at the end of 2022, demonstrating their confidence in the company's future. And for the first time, the group's employee has become the group's largest shareholder with 6.5% of the capital.

The operational level, the putting of our activities has been completed from day one and we are well ahead in positioning of cost synergies, EUR146 million have been achieved in less than a year, which is nearly 30% of the total target of accumulated EUR500 million, whereas our initial objective was around EUR100 million in the first year. The first year of this merger has, therefore, been a complete success. Veolia is on track and well on its way to meeting the challenges of ecological transformation by helping our clients to decarbonize, depollute or regenerate resource.

On Page 9 and 10, I would like to illustrate our ability to adapt to the current economic and geopolitical environments, which was clearly reflected in our excellent results for 2022. On Page 9, some figures on inflation. As you know, 70% of our revenues are automatically indexed according to formula that follow the evolution of our costs and thus protect our results, sometimes with a slight delay due to the anniversary dates. These are typically municipal activities in water, waste or district heating, and some of our treasury contracts, such as hospitals, for example.

Whether in municipal water with plus 3.8% in France, in the United States with 9% in regulated water, in Chile with double-digit increases, or in the United Kingdom in PFI's with plus 7.3% indexation acquired coupled with our productivity efforts have enabled us to absorb the increases in operating costs. For the remaining 30% of our revenue, the pricing discipline we've implemented at Veolia for the past several years is a strength that has enabled us to pass on significant price increases in 2022, which cover our cost increases.

In hazardous waste, double-digit price increases have been passed in Europe and in the US and industrial and commercial waste, the increase range from 3% to 14% increase, depending on the geography with no loss of clients. Trends in early 2023 remain well-oriented with, for example, 6% to 8% in hazardous waste in the US or plus 6.7% in the chemical products or WTS.

On Page 10, you will find some details of our energy activities, which represents approximately EUR10 billion in revenue. As you know, Veolia's business is that of decarbonated or decarbonizing local energy. We are neither involved in B2C nor in centralized energy production. In the context of very sharp price increases and supply difficulties in Europe, Veolia is not only protecting, but also ideally positioned to develop its energy efficiency activities and the production of local renewable energy from waste or wastewater. As a reminder, 60% of our energy revenue is generated in district heating and 40% in energy efficiency services.

District heating is a much more energy efficient model than individual heating. High energy prices are, therefore, encouraging new customers to connect to the network, which we are actually experiencing in Central and Eastern Europe. Our tariff increases for the cost increases for fuel purchases. The energy crisis is also an opportunity to accelerate development of our energy efficiency activities, where we enable our customers to save typically 15% of energy without major works on buildings. And this is thanks to the optimization of installation controlled remotely by using digital technology.

On top of that, we've launched a specific plan, the resource plan, to increase our energy production by 5% and to reduce our consumption by 5% as well over the next two years by seeking out all sources of local renewable energy that are not yet sufficiently exploited. I'm thinking of non-recyclable waste or wastewater typically. For example, we've aimed at being energy self-sufficient in our daily activities in France within five years and this will be achieved by optimizing our biogas production from landfill waste by digesting sludge from wastewater treatment plants or by installing photovoltaic panels on all closed outfields. And as you can imagine what we do for Veolia, we can do for our customers.

Let's move on commercial success of 2022. On Pages 11 to 14, you will find several examples of significant contracts in our priority areas of developments, decarbonization, depollution, resource regeneration as well as in innovation technologies.

On Page 11, you will find several examples of decarbonization project with our industrial and municipal clients. At the end of 2022, we commissioned the Braunschweig biomass power plant, which replaces the old coal fired plants and avoids the consumption of almost 90,000 tons of coal every year and provides heating for almost 70,000 homes. It reduces the CO2 footprint by 50%.

In Saclay, near Paris, Veolia won the contract to manage a new generation heating and cooling network. This EUR100 million six-year contract will significantly reduce energy consumption and avoid 11,000 metric tons of CO2 emissions per year. In Germany, Veolia founded this operation in collection treatment of biowaste and utilization of biogas in three plants in Berlin, Dresden and Stuttgart. In Belgium, the commissioning of a waste wood recovery plant to produce steam from industry and green electricity will avoid 100,000 tons of CO2 per year.

On Page 12, you will find the most relevant development in resource generation on circular economy. In Germany, we are strengthening our recycling activities with integration of the Hozmann (ph) asset, notably in Bavaria.

On Page 13, you have the latest example of contract won in depollution with the management of new hazardous waste treatment sites in Japan, which follows the massive contract we've signed with a revised refinery in November with ADNOC.

I'm now on Page 14. For several years now, our business has been evolving to include even greater innovation and technology content and the merger with SUEZ has further increased our competitive advantage by doubling our number of patents and broadening our range of expertise and offerings.

In Montpellier, in the water sector, Veolia won EUR160 million contract to expand and improve the efficiency of the Maera wastewater treatment plant. But the challenge is twofold; to reuse wastewater that France discovered last summer that water is too precious, a commodity to be used only once, as well as to produce biogas from the treatment sludge.

In Turkey, in Izmir, we won the management contracts for the wastewater treatment plant of Pinar Sut, the major project -- producer of dairy products, in order to help it adapt the site to new water discharge standards, but also to optimize biogas production, again, to reduce the site CO2 emission by 17%

In Texas, we won recently the design, equipment and procurement of the water treatment plants for Samsung semiconductor plant. Our contract amounts to USD177 million. As you can see, Veolia is particularly well positioned to seize the opportunities in today's and tomorrow's high growth markets and the train has already left the station.

Page 15. The example that I've just mentioned show it clearly, Veolia, as a global champion of ecological transformation, is a key player in ESG in action, what I call the ecology of solutions. This unique positioning is already recognized by organization that rate companies and sustainable development enables us to obtain very good ranking in most rating agencies. But you've understood that I'm not satisfied with this position, as Veolia should be the ESG company.

Our business is very specific indeed, as we help cities and industries to decarbonize, depollute and save resources, but our impact on our customers' trajectory reduction is very rarely taken into account in ESG criteria. It can even be worse. When we take over our customer's asset to depollute them before giving them back as we are penalized for it.

In terms of taxonomy, Veolia is very well positioned compared to many companies. Our activities are already at 48% eligible, even before all activities have been reviewed by the taxonomy and 33% are aligned.

On Pages 16 and 17, I wanted to provide an update on our progress in terms of multifaceted performance. As you know, we measure success at Veolia not only based on financial criteria, but on 15 non-financial audited KPIs as well and I think it's important to publish both simultaneously. Just an illustration of this. Nearly 16,000 employees are part of the competition based on the achievement of environmental and social targets. We have the opportunity to talk about this again in the CMD that follows. As you can see, almost all the objectives we set for 2023 have already been achieved in 2022, a year ahead of schedule.

Back on to Page 19 (ph) to operational performance. You have the details of the efficiency gains we have achieved in 2022. At EUR370 million, we are above our initial target of EUR350 million, which was, nevertheless, an increase to take into account the integration of SUEZ into the new group matter. We are maintaining the pace and this will continue in 2023 with a new ambitious target of EUR350 million in efficiency gains.

And in addition to the EUR371 million in savings, bulk of the synergies from the merger that I've already mentioned, and we are well ahead of schedule with EUR146 million delivered in the first year, which allows me to confirm once again our target of EUR500 million cumulated in synergies, despite the disposal of the Suez UK waste assets. Our objective is to reach more than EUR280 million of cumulated cost synergies by the end of 2023.

Page 20, the 2022 figures show Veolia is solid, agile and piloted group and we are set to continue strongly growing our results. Our growth will come from our priority development areas; depollution, decarbonization and resource regeneration. Our unique range of offerings and geographical footprint gives us confidence in the growth of the group. In addition, our position in the top three in all key countries where we're present is a clear advantage.

Our business portfolio is very resilient with 85% not exposed to the economic cycle, which gives us great visibility. We continued to generate a significant amount of cost cutting each year, of which we keep between a-third and half, depending on the year, to fuel our earnings growth, plus the EUR500 million in synergies from the merger with SUEZ, which will ensure solid earnings growth for years to come. Our balance sheet has already returned to a leverage ratio of less than 3 times by the end of 2022, which gives us the capacity to seize opportunities as they arise. All these elements allow us to forecast solid growth in our results and our dividends in the coming years.

For 2023, our objective is also ambitious and fully in line with our goals of an earning per share accretion of around 40% by 2024. In terms of revenues, we expect a solid organic growth. We target organic EBITDA growth of 5% to 7% compared to 2022, driven by revenue growth plus the target of EUR350 million of cost savings and around EUR280 million of cumulative synergies by the end of 2023. We are targeting net income before non-recurring items of around EUR1.3 billion, which means double-digit growth compared to 2022 with a dividend that will grow at the same pace of our earnings per share. We will maintain our balance sheet discipline with a leverage ratio that will remain around 3 times.

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

[Claude Laruelle, CFO]

Thank you, Estelle. And good morning, ladies and gentlemen. I'm on Slide 23. And before starting the review of the full-year results, I wanted to inform you that we are now using an adjusted definition of our current EBIT, current net income and net debt in order to be in line with our previous guidelines that excluded the price purchase allocation -- the purchase price allocation impact of the SUEZ acquisition. The numbers you have on the slide are therefore before PPA allocation and, of course, there is no impact at the EBITDA level. And if you look at the PPA impact at the current net income level, it's limited to EUR52 million.

As Estelle already highlighted, our 2022 results are outstanding and we delivered record high numbers for all the KPIs of our P&L, despite all the uncertainties we faced in 2022. This is clear evidence of our ability to adapt quickly to a rapidly changing economic environment. As you can see, we experienced a very strong organic revenue growth in 2022, plus 14.1%, driven by continued solid volumes in all our activities, good indexation mechanism on our long-term contracts and a strict pricing discipline on non-indexed businesses and, of course, the favorable impact of energy price increases, which is passed through.

EBITDA is significantly up at 7.2%, which is above the top of the range of our guidance, 4% to 6% EBITDA organic growth, and also above the organic growth of revenue, excluding energy prices. Thanks to the operating leverage, current EBIT is growing faster and is up 16.3%, and our current net income is up 29.7% at constant -- at current ForEx and 27.7% at constant ForEx at EUR1,162 million, above EUR1.1 billion objective.

Net CapEx remain well under control at EUR3.1 billion and net debt was massively reduced in Q4 by EUR4 billion as 99% in value of our antitrust disposals were completed in December and we also fully reversed the working capital. The net debt landed at EUR18.1 billion, allowing us to achieve a leverage ratio below 3 times, one year ahead of our initial plan.

Moving to Slide 24. You can see the quarterly growth on our main geographies. The different trends that we experienced over the first three quarters of 2022 remained more or less the same in Q4. In Q4, the acceleration of our revenue growth, 16.2%, is due to the impact of high energy prices on our district heating business, for which revenue is of course mainly generated in Q1 and Q4.

If you look at the Q4 earnings, these are the main trends. France and hazardous waste Europe are up 1.1%, water revenue in Q4 was up 2% with volumes almost stable in Q4, but the tariff indexation was good at 3.8%. Our solid waste business was slightly down due to contract selectivity and lower recycled paper prices. Hazardous waste business remained well oriented, both in terms of volume and prices up 4.8%.

All our operation in the rest of Europe were very well oriented and experienced high revenue growth, 30. -- 32.5%, boosted by very strong energy prices in Central Europe and, to a lesser extent, in Southern Europe. In the UK, our volume was good, and we benefited from higher power prices in our waste to energy facilities.

In the rest of the world, the trend remained very solid of other year between 8% to 10% every quarter. The US operation grew by 12% with both hazardous waste and municipal water growing at double-digit pace. Australian waste volume continued to be well-oriented in Q4. And in Asia, we delivered growth despite the economic slowdown in China. And, in Q4, our Chinese operation were back to an encouraging moderate growth, thanks to a good level of activity in December.

Water Technologies were up 10%, which is very good. Q4 growth was plus 8%, including WTS up 14.5%, thanks to significant price increase in the chemical business. On the other side, Veolia Water Technology was flat in Q4 with a completion of the desalination project in Q3, but the results were very good.

I'm now on Slide 25, you can see the strong increase of all our business in all geographies. Excluding energy prices, we delivered 6.5% organic growth, which is clearly very satisfactory. It demonstrates that inflation in our cost is passed to our clients in all geographies either by indexation or by voluntary price increase. And, in 2023, the trends will remain well oriented.

On the next three slides, as in Q3, we will detail the performance by activity water, waste and energy, and we start by water on Page 27. With EUR18.3 billion revenue, our water operation represents more than 40% of our total revenue. We have put a reminder of the top geographies for Veolia, France, US, LatAm and the Czech Republic. Our water business experienced a very solid organic growth at 8.2% as all our contracts are protected against the inflation by tariff indexation. The SUEZ acquisition has significantly increased the size of our water operation in the US, in Chile and in Spain, reinforcing the visibility in our operation.

In 2022, we experienced solid price indexation at 3.2%. Volume and works contributed to 3.6% to the water business growth. On water technology, we performed very well, growing by 10%, thanks to our superior technologies and a very good market positioning. Veolia Water Technology has contributed to significantly increase its EBITDA, plus 16% in 2022. The strategy to refocus activity towards more recurring services and no construction risk to restore profitability has been a success. EBITDA margin reached a record high of 7.7%. On WTS, revenue grew by 13.5%, driven by commercial successes and strict pricing policy.

I'm now on Slide 28, and you have the trend of the waste activities which represents 36.5% of the group revenue at EUR15.8 billion, up 6.8% like-for-like. The growth came mainly from our strict pricing policy complemented by a resilient volume and a small positive impact from recycling. The strong growth of our waste activities, despite the economic slowdown in Q4, is a confirmation of our ability to mitigate economic trends on our operations as we always told you, thanks to our mix and our strong pricing discipline.

Let's have a look at the different items in detail. Volumes were up 1.2% comparable to the first nine months with solid waste activities in our key geographies, especially Australia, US, LatAm and Asia. We continued to remain selective in our contract renewal portfolio, especially in our municipal activity in France, which explains the slightly negative net contribution of our commerce.

Price increase, plus 4.6%, continue accelerating compared to Q3. That was 4.2% as we progressively have the full effect of the price increases decided in H1 and the additional ones implemented in H2. The priority goes to the quality of the tons and the profitability over the volume. We are clearly looking for the best volumes to be collected and treated. Our hazardous waste business contributed to the solid performance with a 12.1% growth over the year, which is remarkable.

Veolia is an important energy producer, thanks to our waste businesses with the generation of 3.7 terawatt hours on a yearly basis. The price of the electricity and biogas produced on our waste to energy facilities and in our landfills has benefited from higher energy prices and contributed to 0.9 point (ph) of growth in our waste activities. In 2023, average foreign gas prices will continue to increase in our revenue, given our three-year rolling hedging policy. Recycled impact progressively decreased in our revenue since Q3, reflecting mainly paper and cardboard price decrease.

The scope effect, minus 4.2%, is mostly coming from the antitrust disposal of assets in Australia to Cleanaway and Remondis, and a few hazardous waste in Europe for the antitrust after we have decided to do that in Europe. In 2023, our waste operation will take into account the disposal of the Suez UK waste assets completed in early December with a record high multiple.

I'm moving to Slide 29, where you have the detail of our energy business. Energy revenue was EUR9.2 billion. It represents 21% of our total group sales. Growth last year achieved an outstanding 44.7% like-for-like in this business, accelerating from nine months because of the seasonality of the district heating business. The main driver of this high revenue growth is a sharp increase of energy prices, plus 36.6%. Our business model allows us to pass the increase to our clients, which protects our results.

Our volume have grown significantly, thanks to a very good commercial momentum in Italy and Spain, and the strong performance of our cogeneration, allowing us to increase our electricity revenue as well. Contribution to growth is 6.4%. Weather remained unfavorable due to a mild winter and fall 1.5 points (ph).

In summary, our combined heat and power generation and our district heating networks continue to drive the growth of our energy business and delivered a very solid performance due to strong increase of heat prices, very high electricity prices in Europe, and a successful commercial development.

I'm now on Slide 30 and you have the usual revenue bridge detailing the different effects. ForEx has been a tailwind for 1.8%. Negative scope effect offset the ForEx with a mix of small antitrust remedies and asset disposal. The 14.1% organic growth is fueled at 50% by energy price increases, but on top of that we benefited from good commercial momentum and volumes complemented by our strict pricing policy. These solid commercial momentum, as Estelle highlighted, is contributing 2.4% to revenue growth.

The contribution of price increases in water and waste was almost EUR1.4 billion or 3.7% revenue impact. It is a result of escalation formulas for 70% of our business and voluntary price increases for the remaining 30%. With the escalation formulas taking more into consideration the impact of the 2022 inflation, we see an acceleration of this pricing effect in our revenue, that was 2.8% in H1, 3.5% in nine months and now 3.7%. The weather impact was slightly unfavorable, minus 0.3%, and recycled prices were slightly positive 0.7% with lower paper and cardboard since August.

Let's now, on the following page, look at the EBITDA bridge, detailing the 7.2% organic growth in 2022, which is above our guidance, which was 4% to 6%. As a reminder, we were up 5.2% after nine months, meaning that the Q4 was a very strong contributor to EBITDA. Compared to the nine months, the negative scope effect is higher after the closing of some antitrust disposal like the Suez UK waste since December. Like-for-like trends otherwise are comparable to the nine months with just one exception for energy prices, on which we have been very reactive to adapt to the electricity market move in Q4.

Volume and commerce contributed EUR81 million or 1.4%. As usual, the main contributor to our EBITDA increase is the efficiency and synergies for EUR517 million with the efficiency plan delivering EUR371 million, above our EUR350 million target for 2022. And the synergy delivery has been remarkable, above our initial objective of EUR100 million, reaching EUR146 million, which is close to 30% of the total EUR500 million cumulated synergy objective.

The price cost squeeze that also include contract renegotiation, that's minus EUR220 million. Recycled impact is EUR75 million for the full year and it was EUR79 million after nine months. The price decrease of paper and cardboard and, to a lesser extent, plastic had the limited impact at the EBITDA level. As we told you, Veolia business model on recycled have been progressively de-risking in order to be less exposed to commodity price volatility. As a reminder, we have isolated one-off items in the less bridge for minus EUR116 million. They are the same two items that we showed for the first nine months.

On Slide 32, let's see the -- how the EBITDA increase is fueling the current EBIT, which is growing very strongly by 16.3% at EUR3,062 million. Renewal expenses at EUR303 million is slightly up compared to 2021, amortization up EUR40 million with stable at constant scope and ForEx. You can notice the Veolia operational financial asset repayment one-off for fixed EUR83 million in 2021.

It had only a positive effect on the EBITDA 2021 Q3 with no impact at the EBIT level. Industrial capital gains of EUR157 million are mainly linked to the divestment of a landfill in Australia in Q1 and to antitrust industrial water disposal in Q4 and were partially offset by asset impairments from minus EUR61 million. JVs had a lower at EUR127 million after the Shenzhen JV disposal in 2021.

Let's move to the Page 33, to the current net income, up 29.7%. In 2022, the current net income group share is reaching EUR1,162 million, which is above our target of around EUR1.1 billion. It excludes the PPA impact of the SUEZ acquisition, which amounts to EUR52 million. The cost of the net financial debt, EUR707 million, is a combination of the historical Veolia debt and the one we have acquired from SUEZ.

On the Veolia standalone side, in 2022, after an exceptionally low level of interest paid in 2021 with few positive one-offs, we are back to the same level as 2019 or 2020, despite the much higher interest rates. The euro and dollar debt is at 83% at fixed rate and we did not issue any new corporate bonds in 2022. So, the impact of higher interest rates has been limited.

The increase of the other financial income and expense at EUR386 million compared to the reported number in 2021 include EUR128 million of non-cash financial costs due to the Aguas Andinas inflation linked bond. These costs are factored into the tariff indexation we benefit in Chile and have only a very small impact on the bottom line due to minority interest. The EUR70 million capital gain are mostly coming from the Landrow (ph) water concession in China that we sold this year.

The income tax rate is at 26.9%. As we told you, the tax rate is not optimized in 2022 as we are creating new tax group in each country to improve our tax profile in 2023 and afterwards. Minorities stand at EUR363 million, more than doubling compared to the Veolia perimeter standalone, as SUEZ operation integrate minorities in Chile, in the US regulated business and in WTS.

On Page 34, let's have a look at the net income group share that increased by 77% to EUR716 million. The net non-recurring charges amounts minus EUR446 million, which is exceptional, because it is the first year of the SUEZ merger. The main non-current item of the following one, the SUEZ acquisition and integration costs for EUR285 million.

The second is a non-current impairment of EUR275 million, of which 100% of our Russian assets, the third one, is a non-current capital gains of EUR322 million, an antitrust remedies requested on Veolia's assets. We have generated outstanding valuation multiples crystallizing significant value creation. In other items, there is of course the EUR52 million PPA impacts.

On Slide 35, we have the free cash flow generation, which is above EUR1 billion. Both gross and net CapEx remained under control, despite inflation which is very satisfactory. Gross CapEx is stable at constant ForEx at EUR3.7 billion and the net CapEx envelope is slightly down at EUR3.1 billion with significant antitrust asset disposal in 2022.

Discretionary CapEx increase through increasing decarbonization spendings in Central Europe, so EUR165 million, and hazardous waste projects under construction in Germany, Saudi Arabia and in the US. But the strongest achievement is a full working capital reversal to register another working capital improvement of EUR48 million, despite the strong revenue increase. The very strict balance sheet and CapEx discipline allowed us to achieve a leverage ratio below 3 times one year ahead of our initial plan at EUR18.1 billion.

On the following slide, you have the main debt variation with a strong impact of the SUEZ transaction for EUR8.1 billion, net of the proceeds from the antitrust remedies and the other items, I've already mentioned.

I'm moving to the Slide 37, which is our guidance for 2023 fully in line to deliver our 2024 accretion target. Estelle recalled high 2022, we're expecting another year of solid organic growth with an EBITDA increase that will generate between 5% and 7%, driven by EUR350 million of efficiency gains, around more than EUR280 million of cumulated synergies at the end of 2023. Current net income, around EUR1.3 billion, which means a double-digit growth compared to 2022. Our leverage ratio will remain around 3 times. And, as usual, our dividend will grow in line with our current EPS.

Thank you for your attention.

[Estelle Brachlianoff, CEO]

Thank you, Claude. We'll have time for very few questions. And, of course, since there is a CMD in half an hour or so, you will have an extra time after the CMD, of course, for extra questions. So, the floor is yours for questions.

[Operator]

Thank you. [Operator Instructions] The first question comes from Michael Gallo (ph) from Societe Generale. Sir, please go ahead.

[Michael Gallo, Societe Generale]

Hello. Good morning. Thank you very much for the presentation, and thank you for taking my question. Maybe if I could start by focusing on water. So, not so long ago, water is to be somewhat risky activity from a political point of view. And I'm not just thinking about Veolia but also SUEZ and it seem like that has improved a lot in those small parts due to the energy crisis, which brings the focus on energy and not water.

So, if you could update us on your relationships with the different local governments and municipalities, whether it is in France, in the US, in Chile, and how that is going? And, also, if I could ask a second. And the second question is about -- and on the contract renegotiations, I think in terms of the contract renegotiations, we don't have much coming up aside from the service contracts in 2023, which is -- may be extended into 2024, is that right? Or is there something else that we should be keeping in mind? Thank you so much.

[Estelle Brachlianoff, CEO]

Thank you for your question. I will start with first part. And you will have the exact answer in the CMD in a few minutes about what is up for renewal in the next few years, but you're right, the answer is not much apart from the usual suspects you've just mentioned. So, in terms of what is our relationship with the political landscape in general and our customers, local authorities, in the water sector, and they are very good and it's fair to say that it's probably due to two things.

One is the quality of the service we give to those customers, which has been over and over the year, as you know, delivering good performance, efficiency, and delivering the best value for the end customers. That's probably an important part of it. And, as mentioned, just one figure this morning, which is 320 million cubic meter of water saved, thanks to the efficiency of the distribution network and I think our customers are sensitive to these type of statistics as much as like the planet is asking for it.

The second probably reason for that is that COVID helps everybody realize that it's a social service and its super important to have a reliable partner to deliver this type of service when we are in big crisis time and we've been always there during the COVID crisis and want to thank again all the teams in Veolia who've been in and out to actually go on delivering the goods service.

So, I guess, the quality of our service plus like being resilient and always there, including when bad times comes, are probably to larger element of the answer. And, in a nutshell, we typically have 90% or over 90% renewal rate of all our contract worldwide and this is a KPI we monitor closely, and which is consistent.

[Michael Gallo, Societe Generale]

Thank you very much. That was really helpful. Thank you.

[Estelle Brachlianoff, CEO]

We maybe have time for another question.

[Operator]

Yes. Thank you. The next question comes from Arnaud Palliez from CIC Market Solutions. Sir, please go ahead.

[Arnaud Palliez, CIC Market Solutions]

Yes. Good morning. I just have one question about your financial leverage target for 2023. I just would like to understand why you keep it stable at 3 times? Does it imply that you're going to accelerate on acquisitions or on CapEx?

[Estelle Brachlianoff, CEO]

I guess, we always, over the last few years, have set ourselves a target of being around 3 times EBITDA as a leverage. So, we will maintain this target as we think it's a sustainable good way of being able to seize the opportunity, but being very rigorous on our balance sheet as well. So, no specific idea in mind in terms of acquisition, but that's a typical target we've had over the years and we will maintain for 2023.

[Arnaud Palliez, CIC Market Solutions]

Okay. Maybe a second question also on the working capital requirement. Can you be a bit more specific about the 2022 evolution? And what we can expect at this level for this year?

[Claude Laruelle, CFO]

So just to answer your question, Arnaud, regarding working capital, we have the usual evolution of the group with a lot of revenue and working capital negative in Q1 and Q2, with the reduction in Q3, but in Q4 we have a stronger push on working capital every year. Each year it has been a positive contributor to the free cash flow, some year it's more and some year it's a little bit less, EUR48 million is a very strong achievement. If you look at revenue increase, 14% revenue increase, and working capital contribution of EUR48 million, which is slightly positive, is a massive effort of our teams in order to work on the collection and we achieved a record high collection in December.

We will continue to work on the cash flow generation and working capital improvement, I would say, in the countries where we see some potential as well. So, we keep the best-in-class as best-in-class and we will continue to improve where we have to improve in the other different countries. So that will -- so, I don't -- I'm not expecting for 2023 a different level of working capital. We have the same kind of the same yearly curve as we have seen in 2022, but we expect, again, the -- I would say, the less performing be used to improve significantly in 2023.

[Estelle Brachlianoff, CEO]

And if I want to wrap up in a way your two questions in one, you have a team here which is very dedicated to maintain the rigor we've seen in the last few years in terms of balance sheet as well as cash management.

[Arnaud Palliez, CIC Market Solutions]

Okay. Thank you, and congratulations for these good results.

[Estelle Brachlianoff, CEO]

Thank you. Maybe, time for just one last question, if there is one.

[Operator]

[Operator Instructions] We have a new question from Arthur Sitbon from Morgan Stanley.

[Arthur Sitbon, Morgan Stanley]

Question, just first a quick follow-up on the leverage target, around 3 times, I was wondering if that means you expect a stable leverage compared to 2022 or if you would still expect some deleveraging versus 2022? That's the first question. And the second question, I see there were some capital gains in your results in 2022. I was wondering if you could provide a bit more details around that? Thanks a lot.

[Estelle Brachlianoff, CEO]

Claude, maybe.

[Claude Laruelle, CFO]

So, on the leverage target, what we expect we will see how the year will come, but we continue to have a very strict balance sheet management. So, we -- as we are looking at -- as Estelle said, we have the room and balance sheet, so if we can see some opportunities, we will see them. But regarding -- and we will continue to keep the balance of the group. And you have to keep in mind that we have to keep our BBB rating, so a key driver for us is to keep the leverage and to keep the BBB rating with S&P.

On the capital gains, we have few capital gains in 2022. The biggest one, if I remember correctly, was in Australia, where we have sold a landfill and the big one, which was also -- was the mobile unit we sold for -- we sold to Saur at multiple -- the record high multiple of 19 times EBITDA. It was around EUR150 million, but it is in non-current items.

[Estelle Brachlianoff, CEO]

Thank you. And I suggest that you close the floor for now, because we'll see you in half an hour for our Capital Market, and you have the opportunity to ask extra questions obviously. Thank you very much.

[Operator]

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