Veolia Environnement S.A.
Q1 2022 Earnings Call Transcript

Published: 12 May 2022

[Operator:]

Ladies and gentlemen, welcome to Veolia Conference Call on 2022 Q1 results with Antoine Frérot, CEO, Estelle Brachlianoff, COO, and Claude Laruelle, CFO. I now hand over to Antoine Frérot. Sir, please go ahead.

[Antoine Frérot:]

Thank you. Good morning, ladies and gentlemen, and thank you for connecting to this Conference Call, on Veoli's Q1 2022, results which are once again, very solid and growing strongly. As usual, I am with Estelle Brachlianoff, our CEO, and Claude Laruelle, our CFO, who will detail our Q1 operational and financial performance. Today, ladies and gentleman, is my last results presentation. As you know, after 12 years as head of Veolia, and as Veolia is opening a new chapter in its history with the acquisition of Suez, I suggested to the board that it interest the group's general management to Estelle Brachlianoff, starting July 1, 2022. This split of the Chairman and CEO positions and the appointment of Estelle will be submitted to the annual shareholders meeting on June 15th. The Board has expressed the wish that I continue to serve Veolia as non-executive Chairman of the Board and will propose this to the annual shareholders meeting as well. So at the next presentation of results, Estelle, will be one to welcome you. I would like to take this opportunity to thank you for the interest and trust you have shown me over the years. These years where not without difficulties, especially in the beginning, but they were successful years and Veolia has become a very strong group ideally positioned on the most essential issue of this century, the ecological transformation. Let's now move to our Q1 publication and our main achievements since the beginning of the year, and I am on Page 4. We had a very strong start to the year despite the direct and indirect consequences of the war in Ukraine, of which an economic slowdown that is beginning to materialize in the global economy, and which is reinforced by the COVID lockdown restrictions in China. The merger with Suez is progressing very well. We had another acceleration in revenue growth in Q1, notably due to the increases in energy and recycled materials prices. Bet also driven by price increases for our services, which confirms our capacity to pass full cost inflation into our tariffs. EBITDA grew strongly in Q1, which allows us to confirm our annual guidance. Let's come to the Suez integration process, and I am on Slide 5. The official acquisition of Suez on January 18th was followed by the progressive arrival of Suez employees as of January 19th in every country, except for the UK, and water technology services are breeze pending the green light from the UK discussed authority. The first joint management committee were together for two days, executives coming from Veolia and Suez. And demonstrated how easily the Veolia and Suez teams are already working together, and the unanimous desire to make this measure a full success. The integration process for Suez employees has been implemented at all levels and is progressing very well. It confirms that we have always been convinced of that both Veolia and Suez teams share the same culture and have the same concern for paramounts and excellence to serve a common goal, acting for the good of the planet by making our world the global champion of ecological transformation. The UK antitrust process is progressing normally and should be decided during the summer. The antitrust qualities required by the EU are well underway and the [indiscernible] divestitures are already closed. We have just signed the divestment of some other Hazardous Waste assets in France to new Suez for an EV of €690 Million as well as some automobile units to sell for an EV of €190 million. In total, we expect more than €900 million of proceeds from this EU antitrust process. On the table on Page 6 now, you can see the key figures of the first-quarter but compared to the figures Veolia reported a year-ago on a standalone basis and compared to Q1 2021 of the combined perimeter, which is obviously more relevant. To fully understand these figures, please note that they do not include the Suez contribution for the full quarter since we have owned Suez at least since January 18. For the Suez part, they do not take into account the first 17 days of [indiscernible] in both Q1 2021, and Q1 2022, to make them comparable. Moreover, thought the combined Suez, Veolia 2021 figures still include the European and Austrian assets that the competition [indiscernible], they are no longer included in 2022 figures. And this perimeter impact is therefore included in the Scope column you can see on the slide. And coming now to the Q1 results themselves. Revenue reached close to €10 billion and is up 14.7% at constant scope and Forex, compared to the combined Suez Veolia revenue in Q1 2021. Growth was fueled by strong momentum in each of our activities, water, waste, and energy and was amplified by the very strong increase in energy prices in the quarter with response to a [indiscernible] period. Excluding this energy price impact, the underlying organic growth was plus 7.1% which is above the normal [indiscernible] of Veolia and shows our capacity to grow and increase the prices of our services. The assets taken over from Suez also progressed very well by 6.6%. EBITDA also grew sharply by 7.6% at constant scope and forex compared to 2021. Reported EBITDA is €1.456 billion. Respective for the 17 missing days it would have been €1.505 billion. Strong EBITDA growth is due to revenue growth, showing the efficiency of our inefficient model for 70% of our portfolio, and our capacity to increase the prices of the remaining 30%, as well as our energy hedging policy. Meanwhile, we have, of course, maintained our discipline in terms of cost. Efficiency gains amounted to €87 million in the first quarter, complemented by the first synergies resulting from the merger of €21 million. Thanks to the strong provision of EBITDA, current EBITDA reached €692 million, a very strong increase of 18% at constant scope and forex. And I now hand over to Estelle who will detail our commercial and operational performances for the first quarter. Estelle, the floor is yours.

[Estelle Brachlianoff:]

Thank you, Antoine. I would like to give you a little color on this very strong result in Q1, starting with new innovation and development projects launched in the last few months, and I'm on Slide 7. Considering the context we found ourselves in and our ambition to limit our imports of fossil fuel and materials, you will understand why I'm enthusiastic about these developments which held very promising growth for our group in the future. In fact, these innovative development enables us to produce locally-sourced sustainable energy and materials, instead of importing them. In the greater Paris area, we have opened the largest biomethane production unit in France, and one of the biggest in Europe, with a 120 - gigawatt hour. Further east in the low-end region, we are replacing coal by a turnkey fuel produced from non-recyclable waste, hence helping our customer, Solvay, a large chemical company as you know, to reduce their CO2 footprint by 50%. In Finland, we are building with Metsä Fiber a CO2 neutral bio methanol plant from bio refining pulp mill waste. In Rochester, USA, our unique evapo crystallization technology helps recover metals from used electric car batteries. Meanwhile, we have grown our revenue in Q1 across all our activities, as you can see on Slide 8, both at Veolia and in the strength geographies that have done Veolia. I will comment on them together as we are now one company and I manage our eight geographical zones and 40 countries in exactly the same way, whatever their origin. Growth in the first-quarter was boosted of course by high energy price. But even when we exclude these impacts, we have grown our business by 7.1% thanks to our solid organic growth accelerated by price increases, strong tariff indexation, and continued recycled module price increases. Starting with Municipal Water. Indexation and tariff increases have allowed us to compensate for volumes, which have not been particularly strong in France, Eastern Europe, and in Chile, where drought has imposed water restriction, leading to minus 3% decline in volumes. In Water Technologies, our order book has been very strong in technology and service. Whilst on the other hand, major desalinization projects were nearing their completion and the number of flat projects has been reduced. This is a direct translation of our strategy, which aims at focusing on margins and value-added, rather than tool revenue, especially in very differentiating technologies where we are in the top tier providers and which translated in increased EBITDA margin in Q1. Our newly acquired WGS activity grew 7% in the first quarter. In solid waste, our 9.6 revenue growth has been supported mainly by increasing recycled prices, as well as by sustained pricing in C&I, 6% to 10% in the first quarter in France to mention just one example, as well as by solid volumes of 1.7% in Q1. In hazardous waste now, again, a very good quarter, notably in Europe and in the USA, with good volumes as well as price increases, typically in excess of 10% in North America, or 5% in Europe since the beginning of the year alone, whilst China was slowing down as you would expect due to lockdowns. In our local energy activities, we've had an astounding quarter with very high energy prices and good tariff increases, boosting our revenue whilst our hedging policy had secured a close base. In addition, the quarter has been very good in co-generated electricity production. Last but not least, our energy efficiency services to buildings, typically in Southern Europe and in the Middle East, has shown a very good quarter thanks to very high path through energy prices, as well as a very good uptight for our energy savings services. Moving on to our results now, our efficiency program -- and I'm now on Slide 9. Our efficiency program and synergies plan have played a very important part in our EBITDA progression of 7.6% in the first quarter. Claude, will detail later on. Although we've had Suez employees joining the group aggressively from the 19th of January and we are just starting to deep dive into all sales operations world-wide, we had prepared a lot and had embarked in advance, more than 400 managers in the journey, this is how we've been able to ensure a smooth transition, as well as to quickly announce a detail organization in each country. Each manager knows exactly what their objectives are for the year. Preparation and anticipation where key to meet the €87 million of cost cutting and €21 million of synergies in the first quarter. As far as synergies are concerned we've already started to implement action plans, put that HQ level and in the first diverse business units. And our first delivery has started with real estate optimization and a drastic reduction in external costs, which will in turn be gradually topped up by operational cost cutting and asset optimization. Of course, I intend to maintain the pace for the rest of the year and can confirm our annual target of €350 million efficiency plan, as well as a €100 million of synergies which support our annual guidance. Let me share with you now, and I'm on Slide 10, how Veolia [indiscernible] to confirm its guidance, despite the economic, general and geopolitical context. I will therefore try to answer beforehand the first question you may have in this regard and to run you through the various reasons for our confidence linked primarily to Veolia's positioning and actions. Starting with the war in Ukraine my thoughts go first to supporting our employees and the Ukraine population. Economically speaking our operation in Ukraine and Russia are minimal and account for less than 0.3% of our capitals employed. The consequences of the war go well beyond these two countries, of course. And in particular impacts Central and Eastern Europe, which is welcoming millions of refugees as we speak. In Central and Eastern Europe our €4.2 billion annual turnover is derived very largely from essential services such as water redistribution, and [indiscernible] heating, which means resilient volumes and index price. 95% of our energy purchases are secured for 2022, and price increases have already been granted based on past inflation, mainly 2021 inflation effect. In fact, we've been -- we have even benefited from a net positive impact in first quarter in our results. Thanks to good price increases and energy per stage earlier on, as well as exceptional power generated through cogeneration. Our energy mix in district heating is composed of 50% coal, 20% biomass, and 30% gas. Our gas is sourced from national producers and all distributors, not directly. As far as coal is concerned, we have no exposure to Russian coal, and are pursuing our decarbonization projects in line with our goal to exit coal by 2013. This enables us to enhance our share of renewables, which is typically the case in Brunswick, Germany, was a brand-new biomass plant due to open at the end of the year. Moving to Slide 11 and inflation. Our results in the first quarter show that inflation is neutral or slightly positive for Veolia, as stated earlier. This is thanks to 70% of contract portfolio being indexed, although with some lagging effect, typically in municipal contracts. The other 30% relying on proactive price increases, typically in hazardous waste or C&I for commercial and industrial collection. Since the beginning of the year, we've seen a 6% to 10% increase in France C&I, 10% to 13% in hazardous waste in the U.S., and this is in addition, of course, to 2021 increases. This shows our ability to protect our margin in those activities, as well as municipal services. Finally, a few words about the slowdown of GDP growth, which is now predicted in most countries this year. Our portfolio of activities is very resilient and even more thanks to the municipal water activities of Suez. And the impact of an economic slowdown is probably limited largely to none miscible waste activities which accounts for less than €7 billion annual turnover in Europe in the new group. As importantly, we've demonstrated our ability to react quickly and strongly recently with the COVID crisis. Just a reminder, thanks to our Recover Adapt plan we were able to erase the full impact of what had been a major drop in GDP into negative territory as much as minus 10% to minus 15% in most European countries in the spring 2020, as you may remember, as early as the autumn of 2020, so less than six months. Starting now and covering 2022, as well as 2023, we are rolling out a specific plan focusing on optimizing our energy [indiscernible], as well as our energy production throughout Veolia. We have reallocated CapEx with [indiscernible] to allow these projects to be prioritized. The context we are experiencing is the confirmation of the needs to find alternative sustainable sources of energy instead of importing fossil fuel. This is precisely something Veolia can offer and we certainly can and will do more and quicker. Thank you.

[Antoine Frérot:]

Thank you, Estelle. And on Slide 12 now, you can see the key figures of our 2022 guidance, which we confirm thanks to our very strong first quarter delivery. Despite the current difficult international context. Let me recall them quickly. We target solid organic revenue growth. Organic growth of EBITDA of between plus 4% and plus 6% versus combined 2021, including more than €350 million of efficiency gains complemented by €100 million of synergies from the merger with Suez. We target current net income of around €1.1 billion, an increase of more than 20%, confirming an EPS accretion of around 10%. The leverage ratio is expected of at around three times. And our dividend policy will remain the same with dividend growth in line with current EPS growth. I will now hand over to Claude, who will detail our Q1 results and then we will answer your questions. Claude, the floor is yours.

[Claude Laruelle:]

Thank you, Antoine. And good morning, ladies and gentlemen. I'm on Slide 14. And I'm very pleased this morning to report the combined Q1 numbers. We will focus on the combined valuation showing a very strong revenue growth plus 14.7 at constant scope and forex with a significant boost from the energy prices, and EBITDA plus 7.6% at constant scope and forex. Again, we will focus on constant scope and forex in the whole presentation, as Antoine explained, because we have onto 12 disposal that will go along the year. As energy specks owing a vast majority of our contracts, this is unusual environment for energy prices, it's normal to have revenue growing much faster than EBITDA. Combined group current EBIT is growing very strongly by 18%, and we will see the details later. The net debt is €21.3 billion, and we'll see also later in the presentation that after the antitrust disposal and few asset rotations, we will achieve leverage of around 3 at the end of the year. And moving to Slide 15. And it's important that we share with you the seasonality of the Suez scope that we have just acquired. As you know, majority of assets that we're integrating as Estelle said, our municipal water operation in Spain, U.S., and Chile. The main driver for the revenue is a seasonal effect and the high consumption of water in the U.S.. and Spain during the summer in Q3 and to a lesser extent in Chile during Q1 and Q4. You can see the seasonal effect on revenue on the left-hand side of the slide. The second topic is purely an accounting one. We have significant property taxes to pay in our regulated business in the U.S. Around €50 million every year. And under IFRIC 21 accounting rules, we have to take the full yearly expense in the P&L in January. That's the reason why you have more seasonal EBITDA than revenue on the right-hand side with a lower Q1 and stronger Q3 and Q4. As the rest of the old Suez business as was much less seasonal, those variation where are never highlighted by Suez management in the past. I'm moving now to Slide 16, where you have our revenue variation by geographical segment. After the integration of Suez, we have adapted our organization with a new geographical segmentation to align financial reporting with management reporting lines, with the main change being France segment includes now hazardous waste in Europe, and industrial services in France. Which means that our global business is now limited to water technology combining -- including WTS and Veolia water technology. So we changed the segment to Water Technology. The two other segments, rest of Europe and the rest of the world have not changed in terms of geography, we go later in more details segment-by-segment, but you can see on the slide that the rest of Europe is driving the growth, especially our district heating business, as Estelle explained in, Central Europe and Germany, growing by 36% in Q1. Which is why the rest of Europe's segment is growing by 26.8%. France is growing by 5.4% thanks to good indexation and price increases like the rest of the world, 7.8%. So -- and water technology is plus 2.6%, but with very good bookings in Q1. Let's move to Slide 17, and you have more details than usual in the revenue bridge with solid organic growth plus 7.1% excluding energy prices. On the left-hand side, you have the Q1 proforma revenue for 2021, €8.6 billion, without the first 17 days of Suez in Q1. And you have the details of the 14.7 organic growth of the revenue; better volume, especially in west in the UK and in Australia, in energy in Europe, complemented by strong works activity; significant positive impact of energy prices for €657 million in Europe; positive impact of recyclate, €135 million with even better prices in Q1 than in Q4 last year; and a €200 million positive price increase in water and waste activities. We have also shown in the bridge the full Q1 number for the combined group on the right hand-side of the slide, as we had both Suez on January 1st, giving an additional €400 million of revenue to €10.3 billion. I'm now moving to Page 18 for the EBITDA bridge. And we have the same presentation with the bridge stopping by the proforma 2021, €1.356 billion on the left hand-side. And showing plus 7.6% organic growth, which shows a very good start to the year. What are the main drivers? The main one is still efficiency gains for €87 million in line with our objective of €350 million for the year. And on top of it, the €21 million synergy coming from the Suez acquisition fully fueling our EBITDA. As integration, as Antoine explained, is well advanced in all our countries, except of course, in the UK. I confirm that both Veolia and Suez Group have fully contributed to this cost saving and synergy in Q1 and will contribute for the full-year. And I also confirm our €100 million objective of synergies for 2021 -- 2022, sorry. Our €87 million cost-cutting is partially offset by €49 million of price cost squeeze as escalation formula reflecting the inflation step-by-step. And there can be lag between some input’s costs increase such as fuel, for example, for waste collection, and they are being taken into account in the tariff. Recyclates had a positive impact of €36 million as recyclate prices started to strongly increase last year, more in Q2. Whether it's negative, for €27 million, as we lost 12% of degree days in Poland, Czech Republic, and Germany in the heating season compared to last year with mild February and March compared to last year as well. Energy is contributing for plus €13 million of 2% margin with a lot of [indiscernible]. On the right-hand side, you have the full Q1 EBITDA for the combined group, €1.505 billion as the Suez Group was consolidated from January 1st. I'm moving to Slide 19, we have the details of the waste revenue variation with good volumes and prices and continued increase in recyclate prices, leading to a [indiscernible] organic growth of plus 11.5% for the quarter. Volumes are up 1.7% both in the UK and in Australia, C&I volumes were very well oriented. Notably in Australia, where we had in Q1 2021, the impact of the COVID lockdown. Price increases are good at plus 3.4% and are able to cover the inflation of our waste activities. [indiscernible] prices had a positive impact of 4%, while higher electricity prices had a positive 0.5% [indiscernible], in fact due to our [indiscernible] policy. I'm now on Slide 20, and we are now reviewing our business by geographical segment, and we start as you go by France, which includes -- just as a reminder, [indiscernible] Suez Europe and industrial services, Water France for the new valuation is only due to internal asset transfer and disposal. Other than that indexation is well oriented plus 2.5% and volume slightly lower than last year, minus 1%. Waste France had a very good start to the year, plus 7%, due to price increase and recyclates. Volumes are slightly down as we continue to be selective on contract renewal. Results are well oriented as Suez continued to perform very well with good volumes and good prices. With a very good operating leverage, EBITDA grew at double-digit base in France in Q1. I'm moving to Slide 21. On the rest of Europe, you can see very strong growth of 26.8% at constant scope and forex, enhanced by energy prices. It is of use in Central and Eastern Europe, plus 44.2% with a strong performance of combined heat and power generation. We also had a good tariff indexation in water and Central Europe and solid volumes in -- of waste in Germany. Northern Europe, plus 20.5% is always driven by a very strong UK waste business. Performing again, very well. And Southern Europe, plus 30.5%, which includes above and our energy businesses in Spain, Italy, and Portugal is boosted by energy prices. Agbar revenue of 6.8% with volumes plus 1.2 compared to last year, while not yet at the 2019 level, but we are making progress. EBITDA of the Rest of Europe is growing as double-digit base. I'm now on Slide 22, showing the good stuff of the Rest of the World segment growing by plus 7.8% at constant scope and forex. Asia grew by 4.4%, driven by new contracts in Taiwan, Japan, and the startup of significant projects in Singapore, Malaysia, and Indonesia for hazardous waste, plastic recycling, and bio-conversion. China is slightly up with lockdown impacts where you're seeing the growth Q1. Latin America is going again at double-digit base with solid commercial momentum and price increases, notably in Chile water activities where we had plus 4% in November and plus 4% in February. North America is growing by 9% with a high tariff increase in hazardous waste -, more than 10%. The EBITDA of the same month is impacted by lower growth in China and temporary items. I'm moving now to Slide 23. And let's talk about water technologies ways to be used. Veolia water technology on one side, and WTS from -- that we got from Suez on the other side. WTS, as Antoine explained, is still on the wholesale price management until the [indiscernible] gives us the green line, which is the reason why we cannot give you more details than the reported numbers for WTS. So let's focus on Veolia Water Technology. It had a good start to the year with good bookings and good services and technologies activities. The revenue decrease is coming from the end of large contracts and especially large desalination contract in the Middle East, as Estelle explained. And the VWT margin continues to grow in line with the transformation plan and the decision to focus on the higher-margin technology business. EBITDA for Veolia Water Technology is growing, thanks to a shift to more profitable technologies and efficiency. I'm on Slide 24, and let's see how the EBITDA increase is fitting the current EBITDA. First, Renewal Expense are slightly up to €73 million. Depreciation and [indiscernible], including of our reimbursement, are slightly up from €696 million to €734 million. And on the provision line, the difference with last year is mostly due to the capital gain coming from the Antitrus disposal in Australia that we made in January on the Veolia side. JVs are stable. All of this leading to a very strong current EBITDA growth of 18% at most on scope and products. On Slide 25, you have the details of the free cash flow in Q1. The net industrial CapEx is well on the front forward with €475 million for the year with a few asset disposals. As you roll due to the seasonality, the working capital variation is negative by €874 million. It's a higher amount in Q1 compared to 2021 for two main reasons. The first one is a significant increase in revenue in Q1, and the second one is integration of Suez activities, on which we're implementing the same tools and methods in our new perimeter. In order to be able to completely reverse the working capital at year-end, the increase of the net financial debt to €21.3 billion is a result of Suez integration for €10.2 billion and the impact of the Suez hybrid repayment at the end of Q1. As a reminder, we issued €500 million of hybrid debt in November of 2021 at 2% coupon to take advantage of favorable interest rates. Today, to issues such hybrid it would cost us more than 5%. Taking into account the proceeds from the antitrust disposal, €1 billion that are already signed or closed in April in Australia, and additional asset rotation expected in the second part of the year, complemented by the working capital reversal. I confirm our objective of a leverage ratio of around 3x at year-end. On Slide 26, you have the main debt variation items, and you can see the strong impact of the Suez transaction for €10.2 billion. After this good stuff to the year on Page 27, I can confirm the guidance for 2022 and especially the current net income increases of more than 20% to around €1.1 billion. Thank you for your attention.

[Antoine Frérot:]

Thank you, Claude. We are now all ready to answer your questions, ladies and gentlemen.

[Operator:]

[Operator Instructions] And we have our first question from Ajay Patel from Goldman Sachs. Please go ahead.

[Ajay Patel:]

Good morning, and thank you very much for the presentation this morning. Can I just ask one question around inflation? So I'm referring to Slide 18, where you have the price net of cost inflation. I'm just thinking, in terms of looking at your business model and how inflation works through it, would we expect this number to be a smaller negative and possibly even be positive as we work through the quarters as the lagged effect inflation runs through your model and you start to see revenue increases, which may not necessarily be fully matched by cost increases? Your guidance there would be really helpful. Thank you.

[Antoine Frérot:]

Thank you, Mr. Patel, Claude will answer your question.

[Claude Laruelle:]

So we will always have some price cost squeeze. But what we have seen in Q1, to explain the situation, is slight lag between the inflation in tariffs and the cost reflected in our cost base. We are well protected, but because we have this lag, we still have the price of cost inflation. And as you know, we are indexing the tariff once a year. And depending on the anniversary of the contract, it's a gradual inflation. So what we expect, we expect this price of net -- of inflation to continue to exist, but not to that extent as if we see inflation stabilizing.

[Antoine Frérot:]

Thank you, Claude.

[Ajay Patel:]

Do you mind if I just follow-up with one thing? The tariffs -- The main month for the tariff increases, is it the beginning of the year or is it more like April or just to get a sense for that?

[Antoine Frérot:]

Estelle.

[Estelle Brachlianoff:]

Hello. That's very much like throughout the whole year, and it's usually depends on the initial date were the contracts were tendered. So it could be January, could be April, could be September, it's really throughout the year. So we have mainly in the first part of the year, if I was to balance it out, but it's really throughout the year. So a lot from January to April, May, but we still have indexation which will be delivered in the rest of the year.

[Ajay Patel:]

Fantastic. Thank you.

[Operator:]

So we have another question from Juan Rodriguez from Kepler Cheuvreux. Please go ahead.

[Juan Camilo Rodriguez:]

Hi. Good morning, and thank you for taking our questions. l has three on my side, if I may. The first one is on the €21 billion net debt, which is slightly higher-than-expected. Can you give us more color on the working capital effect, especially if we can separate the Suez impact and the Central and Eastern Europe impact and how you expect to reverse that by the end of the year? That is -- that would be the first one. The second one is that you started with a 7.6 EBITDA growth on the quarter, which is actually ahead of your 4% to 6% guidance, giving you headroom for the rest of the year. Where is the addition imprudence on your side? Is this China or other segments that you see some possible slowdown? That will be the second one. And the third one is on the -- can you please give us an update you on the calendar from the CMA discussions in the UK and where the discussions are advancing in that sense? Thank you.

[Antoine Frérot:]

Thank you, Mr. Rodriguez, let me answered your second question. Claude, about the depth will consult to you precisely, and Estelle for the UK calendar. With the guidance, yes, you are right. We are a bit better with 7.6% compared to our plus 4% to plus 6% for the year. But the year isn't finished and we don't know completely all the consequences of the war, and it will also depend on the end of the lockdown in China. So we are not moving our guidance, plus 4% to plus 6%, please remember certainly that this plus 4%, plus 6% was linked to the uncertainty about the consequences of the war also. So we are staying there and we are comfortable with that. [indiscernible] the nations of how we welcome back.

[Claude Laruelle:]

Yes. So first of all, in terms of additional working capital, if you take Central Europe with the energy price increase, we're talking about around €100 million of additional working capital, and for Suez scope, around €200 million of additional working capital. So when you add that to the previous year numbers, you are pretty much very close to the €874 million I was talking about. Second, if you look at Q4 last year, because we have a large working capital, because we had a significant increase in energy prices, we had already some of energy price increase in Q4 last year. So what we see, we will see less price -- less cost increase and price increase in energy prices, and it's a smaller Q4 in terms of energy in Q4. So this is first of all, a positive effect on the working capital. Second, we are working well on the cash collection and we have no issue on DSO, so DSO are normal, so what we see in terms of cash collection is normal. So these working capital effect will be gradually reduced until the end of the year. So we expect to fully reverse the working capital at the end of the year. And you have a €21.3 billion debt, if you reduce €1.5 billion of disposal, €0.9 billion of working capital reversal, and also proceeds that we expect from the new Suez Disposal. We are still expecting from a few assets plus €0.3 billion of turn-out in November. All of these leads you to a ratio of three times -- around three times at the end of the year.

[Antoine Frérot:]

Thank you, Claude, it is clear, so I repeat €1.5 billion from disposal, €0.9 billion from reversal of the working cap, and €0.3 billion of complimentary price paying for new Suez. That is €2.7 billion in total, explaining that we -- how we will reverse the depth level at the end of the year. About the calendar for the UK [indiscernible] process, Estelle.

[Estelle Brachlianoff:]

Yes. On this calendar, we are exactly as we planned, which means that we should have a finalized version of the CMS position by the end of July. And then of course, as you know, we have roughly probably six months to sell any remedies we would have to sell. And in between now and the end of July, we'll probably have vast exchanges with the CMA. As you know, they will later in the month express their position. And, of course, we'll have an ability to react and say, we think we are in a better position than they expressed and so on and so forth. So an attractive process and negotiation from now until the end of July. So exactly as planned.

[Juan Camilo Rodriguez:]

Thank you.

[Antoine Frérot:]

Next questions.

[Operator:]

Yes we have a question from Arthur Sitbon from Morgan Stanley. Please go ahead.

[Arthur Sitbon:]

[indiscernible] taking my questions. I have two. The first one I was wondering if you could quantify the Australian capital gains that you were talking about in Q1 2022. And I was wondering for the full-year if you're expecting all the capital gains to come thanks to the antitrust remedy disposals and if they are included in your €1.1 billion definition of current net income for the year. So that's my first question. The second one is on the macro -- your current macro conditions. You were talking in your presentation about €7 billion of revenue exposure to C&I waste. We know you have quite a late cycle exposure, so I was wondering if ever there is a macro slowdown. When do you think at the earliest, this could be felt by your activities? Thank you very much.

[Antoine Frérot:]

Estelle, perhaps for the second question and Claude for the third one.

[Estelle Brachlianoff:]

Yes. So I will start with your second question. Just to make more precise our statements. So we have roughly €7 billion of annual turnover. We think maybe exposed to slowdown, which is not only C&I but they have this waste part of it, so everything which is in non-municipal and therefore more directly linked with GDP growth are slowed down. Its annual of course, if I make a basic division, we're talking about 17% basically of a group turnover, the other 85% therefore, being very, very much more resilient to GDP slowdown. And in terms of your statement that we would have a little bit of lagging effect, I would debate that. Actually, we are quite instantly seeing the volume of waste going down or up depending on GDP growth, it's relatively simultaneous. And we haven't seen any specific trend in the last few weeks. It's exactly in the same trend as what we had seen in the first quarter so far.

[Antoine Frérot:]

And Claude about the Australasian capital gain?

[Claude Laruelle:]

The net capital gain as -- for Australia, is around €30 million, to give you a number. And the main driver for the lay down in terms of net rec -- current net income is really the business performance. The capital gain now margin all in the equation, but the main -- the strong driver is EBITDA and EBIT increase, fueled by synergy cost cutting as we have explained. And that will be really the main driver for the current net income performance for the full-year.

[Antoine Frérot:]

Thank you, Claude. Next question. There's no other question?

[Operator:]

Yeah, I'm sorry. There is another question from Philippe Ourpatian from ODDO BHF. Please go ahead.

[Philippe Ourpatian:]

Yes, good morning to all of you. Just two questions from my side. The first one is a little comeback about the CMA discussion. Thanks for giving us a clear time frame and diary. I was wondering if your current discretion with CMA is, let's say, in line with your previous expectation, or is there some deviation between what you were thinking about the final perimeter and the CME potential proposal, that's the first question. It's more qualitative, I would say, than quantitative. And the second one is concerning your revenue growth for commerce, volumes, and works. Could we have the past or the portion of the works in the plus €326 million of increase? Many thanks.

[Antoine Frérot:]

Okay. About the first question, Ourpatian, the CMA is trading our case. So the discussion we have with them is about how can be the market described, what is our market share, how we'll propose the contracts and the processes -- of the tender processes, and so forth. So we're discussing to make them well understand our market. We are not discussing that one today about what they are thinking, but then we would thought of remedies that we'll ask for most. So I would say that today, the discussion with them going is actually what we wait for them, at the beginning meaning to explain deeply, strongly, matters what is our business and our market.

[Claude Laruelle:]

And to answer your question, Phillippe, good morning. Regarding the €326 million of commerce and works, 1/3 is coming from Wells swiftly.

[Philippe Ourpatian:]

Okay. Many thanks. May I just have one question, a technical one in terms of accounting. UK is still outside the scope currently. Are you going to consolidate it at the final stage when you going to have the CMA decision from -- let's say, starting from the year? Or you will take only the part that are on [indiscernible] timing due to the integration? How are you going to manage that on the accounting point-of-view?

[Antoine Frérot:]

Claude [indiscernible] on this question.

[Estelle Brachlianoff:]

So the question was referring to the [indiscernible]

[Claude Laruelle:]

To the UK integration and the UK consolidation.

[Philippe Ourpatian:]

Yeah.

[Estelle Brachlianoff:]

Yeah.

[Claude Laruelle:]

And so we can say that in Q1 -- and you can confirm the UK is fully consolidated because we don't know the scope of remedies with the CMA.

[Estelle Brachlianoff:]

At the moment we have put in place, the process to ensure the control on the activity. So it's helping us to be part of the decision regarding the main -- or the most significant decision in terms of CapEx, in terms of renewals of contracts. And for after the decision regarding the scope, which will be decided maybe at the end of July or later. We will finalize the discussion and be able to conciliated UK until the closing of the deal.

[Philippe Ourpatian:]

Very clear. Many thanks.

[Antoine Frérot:]

Thank you, Brito Patio. Next question

[Operator:]

So there no further question. [Operator instructions] So we had another question. Sorry. We have a question from Oliver Tree from Deutsche Bank. Please go ahead.

[Oliver Free:]

Thanks, good morning everyone. Two questions for me, please. The first one is on the reasonable plan that you mentioned during the presentation. Is the reasonable plan regal need plan. Could you comment on existing reaction to, and expectation of potentially slowdown later in the year. And what do you get ahead of that. The measures in place to maintain the growth that you've seen in this quarter, question. And the second one, is coming back to inflation again, please, and apologies if you answered this, l didn't quite understand. As usual. The 70% of the tariffs that are indexed. I [indiscernible] understand that the other 30% you can pass through price increases quite quickly. Index tariffs, the 70% that are often lagged with inflation, reflecting inflation from the prior year. Do you expect to see this year to squeeze on those contracts because costs will be increasing more in line with the higher figure than from last year, or are you expecting margin expansion on the index tariffs as the non-indexed tariffs this year?

[Antoine Frérot:]

Okay. Estelle, can you answer the two questions?

[Estelle Brachlianoff:]

Hello. Under resource plan, no, it's not in reaction of any potential full whatever later in the year. It's more the opposite around, as in Veolia, we would like to cease any opportunity we have. And we think with super high energy price as we see them now and probably for quite a while, not only it's a good support to our hedging policy, which is a historical one, and a very good one, but actually we can do more, hence, the resource plan. More energy production and less in exit consumption in Veolia. And when the megawatt hour in some cases is at €200 per megawatt hour instead of 45, it changes the whole dynamic of some operational aspect of everything we do. And it's the same for our customers. So we see that as an opportunity. And when we see an opportunity, we tend to try to crystallize it into opportunity for the group as soon as we can. So it is more of the way to save. In terms of inflation, so if I put the two elements of the jigsaw on one hand, you have the 30% which you're right is not natural index because we have to have an approchieve pricing approach. And on that one, we used to have a yearly price increase in C&I in our hazardous waste. But given the situation of inflation in the world, now we are going into once a year, twice a year, three times a year type of price increase because we try to avoid the lagging effect as much as we can and to have a parallelism between the price and the cost so that we maintain our margin and we've been able to do that in the last two or three quarters, and we intend to go on this way. In terms of the other part, the other 70%, which is directly indexed, there is some lagging effect as you mentioned, and its exactly what Claude mentioned when he commented on the bridge. We have a little bit small price squeezed, but it will go down again progressively as we see the indexation coming up because they tend to follow the increase in our cost base. And I guess, up to year, no more than a year, and usually less than that.

[Antoine Frérot:]

Thank you Estelle, do you have any other questions?

[Operator:]

Yes, we have another question from Ms. Verity Mitchell from HSBC. Please, go ahead.

[Verity Mitchell:]

Good morning, everyone and this is much broader question about the integration process and the business. And can you just tell us which geographies or businesses have really exceeded your expectations in Q1? There's being some very strong performances in various geographies in businesses. So what are you surprised about in terms of very good progress?

[Antoine Frérot:]

Good morning, Surowiecki, I presume we are speaking about turnover, which surprised us and I can say that turnover was so up in Eastern Europe because of the price of energy that we were surprised by this strong progress in Eastern Europe. But perhaps we have -- [indiscernible]

[Estelle Brachlianoff:]

I guess, there's two other comments in addition to what Antoine said. One is, we were super impressed by renewed performance in the UK. And after years of super-good performance, they keep on managing to even do better, which is great. Boosting revenue side and modern side and so and so forth. And in terms of the newly acquired part of the business, and I won't mention only the Quarter 1 results that the potential for growth, I guess, the water activity in the U.S. and the -- in particular the regulated water activities in the U.S. The more we visit them, the more we talk about the potential, the future the next few years, and I'm not taking about the quarter only, the more we see the potential for these businesses as well.

[Claude Laruelle:]

And one more thing to comment. In Chile, we are able also to increase tariff, as I mentioned twice. So every quarter, 4% in November and 4% in February, which is again, also a very good performance, really good decision last week also, yes. So decision in Chile, last week in the draft of constitution, there is no threat at all regarding public sector of being any takeover of our Chilean assets. So new constitution as taken this away, and it's right on our regulated business in Chile.

[Antoine Frérot:]

Thank you, Claude.

[Verity Mitchell:]

Thank you, very helpful.

[Operator:]

So there are --

[A - Antoine Frérot:]

I think --

[Operator:]

-- there are no further questions, sir.

[Antoine Frérot:]

No further question? So thank you very much ladies and gentlemen, for your presence. Have a good day for the rest of the day. And thank you for your confidence and the next time it will be Estelle with Claude together, but with Estelle, welcoming you. Thank you very much and goodbye.

[Operator:]

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