VEOEY (VEOEY) Q3 2026 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Veolia 9 Months 2026 Key Figures Conference Call and Webcast with Estelle Brachlianoff, CEO; and Emmanuelle Menning, CFO. [Operator Instructions] This call is being recorded on Thursday, November 5, 2026. I would now like to turn the conference over to Ms. Estelle Brachlianoff. Please go ahead.

Good morning, everyone, and thank you for joining us today to review Veolia's 9-month performance. I'm here with Emmanuelle Menning, our CFO, and I will begin with the key highlights on our strategic progress before handing over to Emmanuelle to take you through the detailed financials. I'm on Slide 4. Veolia continues to stand out with resilient growth quarter after quarter, and this is thanks to our unique positioning and our international footprint. Indeed, in Q3, the strengthening of our growth to 5% in the quarter, which I'm very happy about, is solely driven by 80% international activities, a testament to our strategy of [ geographical ] diversification, in particular outside Europe, the U.S.A. being now our second country. Water performance was very strong, and this summer has shed light more than ever on the value of our unique solutions to secure water supply as heat wave spread across Europe. We have also continued to deliver on EBITDA margin progression in spite of a challenging European macro and trans-geopolitical environment. This is thanks to our recurring efficiency program, enhanced by specific initiatives to compensate for diesel cost rise, for instance. This quarter was moreover, a good illustration of the accelerated portfolio transformation with the successful first few months of Clean Earth acquisition in the U.S. and the swift execution of our divestment program. We already have signed EUR 570 million of divestitures at an average valuation multiple of 10.4x ahead of both our schedule and valuation expectations, making me very confident about our EUR 2 billion total objectives. This transaction will continue to improving the quality of our portfolio. supporting stronger growth and returns and reinforcing long-term value creation. Let me now turn to our key figures on Slide 5. Over the 9 months of '26, revenue reached EUR 33.3 billion, up 2.6% at constant scope and ForEx and 3.3% including scope. There was a marked acceleration in Q3, where revenue increased by 5% at constant scope and ForEx. EBITDA reached EUR 5.4 billion, up 5.1% at constant scope and ForEx. Now EBITDA margin reached 16.2%, an improvement of 50 basis points. This margin improvement quarter after quarter is fueled by two levers: On the one hand, our strategic choices and portfolio transformation towards more international footprint and technology-driven activities. On the other hand, our continuous operational efficiency, EUR 294 million accumulated in the first 9 months of the year. Current EBIT increased by 6.7% to EUR 2.95 billion. The group has kept up with a strict balance sheet discipline. Our leverage ratio remains under control and exactly as planned following the acquisition closed this year. These excellent results enable us to be confident for Q4 and fully confirm our full year '26 guidance and our GreenUp trajectory. I'm now on Slide 6. Our sustained performance is all the more to be noted, given the subdued [ European ] macro and the war in Iran and its consequences on diesel price or inflation. And this is not by chance but by design and a result of key strengths we've built. Our unique positioning with proprietary solutions to critical needs such as securing water supply or sourcing local energy, key factors of strategic autonomy and competitiveness, as we see clearly those days, our international footprint with 80% outside France and 40% outside Europe, offering diversification of risk and opportunities. Our choice as well to be in the top 3 in each country by activity, which gives us pricing power, which is so useful as we see now with diesel price, for instance; as well as the unique combination of infrastructure-like activities, which is our Strongholds; and technology-driven activities, our Boosters, which offer complementary profiles as we see this year with good performance of our Stronghold and Water activities; and last but not least, a constant and disciplined execution of our operational priorities and an agility to react quick and fast when needed with specific actions. I'm now on Slide 7. Our world is now shaped with numerous geopolitical tensions. Extreme weather events multiply from heat waves to droughts or hurricanes. And climate is changing and adaptation is needed. If you add to this rising population concern around industrial pollution and legislation to protect human health, you have what may seem like the perfect storm, but as well the exact trends supporting Veolia over the long term. All those trends have been felt particularly vividly across the planet this year. They underline the importance of resource security, supply chain safety and health protection. This is exactly what Veolia offers, environmental security that is securing access to water, local energy and strategic minerals as well as removing pollution. Industries and countries now realize the critical nature of those services and technologies. We have built with Veolia a unique environmental security powerhouse, addressing critical needs for our clients. On Slide 8, we see how our geographic footprint is contributing to our growth. The strengthening in Q3 was largely driven by our 80% international activities, which grew by 6%, while France continued to be broadly stable. Europe grew by 2.8% and even 6.9% in Q3 stand-alone, which is remarkable and mainly thanks to our Water activities, but also the excellent performance of our Solid Waste activities in the U.K. [indiscernible] and Europe grew by 4.7% and 6.2% in Q3 alone with particularly strong dynamics in America. Finally, Water Technologies rebounded to 6.4%, excluding project in Q3, and we have enjoyed a significant increase in bookings during the quarter. France was broadly stable. As you know, France represents 20% of the group, but only 40% -- 14%, sorry, of our EBIT. Our exposure to political context or tax pressures is very limited as we hold local contracts. We don't depend from national budget nor subsidies, and we benefit from non-activity tax loss carryforwards. Indeed, our international businesses are growing faster and are more profitable. This diversification is an important source of resilience and supports the quality of our growth. Let me highlight on Slide 9, some of the commercial momentum I've just mentioned, beginning with our Stronghold activities, which have been partly successful this year. In Spain, we won a 25-year drinking water services contract in Catalonia worth EUR 1 billion. In Colombia, we secured a landmark EUR 2 billion contract to modernize the water infrastructure of Cucuta. In the U.K., we won 2 new waste contracts with East London and Surrey, worth GBP 700 million. This success is underlying the long-term nature of our business, and our teams deliver essential solutions that matter directly to communities and customers. On Slide 10, we see promising awards in our Booster activities. First, I'm very happy to comment on the new desalination contract we signed in the Middle East, in Oman and the UAE for a total capacity of 490,000 cubic meters per day, which follows that in the [ Chilean ] mine earlier in the year when -- if you remember. Veolia is a world leader in desalination technologies with 18% of the worldwide installed base having our technology embedded, which is remarkable. Our innovation has enabled us to cut the desalinated water price to below EUR 0.50 per cubic meter, making it affordable and energy efficient, thanks to our unique proprietary technologies. This is a promising growing market fueled by climate change and innovation. The group has also signed in Q3 several contracts with MicroE industries in Asia as well as North America, leveraging from our highly technological Boosters and well aligned with our EUR 1 billion targeted revenue in 2030 in -- sorry, AI Industries, which we announced last April. This is interesting to note that Veolia revenue growth with AI industries will come from all Boosters and notably Hazardous Waste and Water Tech. Operational efficiency on Slide 11 remains another key part of our value creation model. At Veolia, recurring efficiency is embedded in the way we run our businesses, combines operational improvement, procurement discipline and careful management of overheads. At the end of September, we reached EUR 294 million of gains, well on track for our annual target of EUR 250 million. How are those cutting composed of, cost cutting? It is really a bottom-up and top-down initiative combined. In addition to specific cost cutting driven locally in each of the thousands of water, energy and waste plants we operate across the globe, we are now driving a global initiative using AI and digital to enhance performance. We have already tested dozens of those operational AI tools to check their value for money and are now scaling some up. Just to illustrate, we are now deploying a unique AI tool in our wastewater plants in France, which results ranging from 2% to 5% energy savings. Our ambition is for 50% of operational gains to be generated through digital and AI by 2030. And this is not a substitute for disciplined management on the ground. It is an additional lever to improve performance and sustain gains over time. On Slide 12, you will see how recurring efficiency plan are complemented by specific action plan with the aim to protect our margin when external headwinds occur. For instance, in '26, we have proactively launched pricing campaign in order to offset the rising diesel and chemical costs. In total, pricing and indexation represented 2.9% of revenue growth in Q3 stand-alone. We also put in place specific cost-cutting plans in France and Germany in order to protect and even enhance margin despite the lack of top line growth. Finally, we started a specific action plan in Water Tech, including systematic price increase in chemicals, commercial action in projects, enhanced cost cuttings while maintaining a swift delivery in merger synergies. We saw a revenue rebound in Q3 with new contracts and a high level of bookings. Our focus is on converting a strong pipeline into profitable growth while maintaining pricing discipline and careful execution. Let me now turn to portfolio transformation on Slide 13. Our GreenUp strategy is clear, enhanced value creation through an accelerated portfolio transformation of Veolia towards more international presence and more technology-driven activities. Meanwhile, to ensure balance sheet discipline, three criteria for divestitures are as clearly defined as the investment bid. Those three criteria are: first, the activities which don't fit in our strategy, and we've decided to exit, such as construction of facility management. Second, subscale business, i.e., when we're not in the top 3 in the country for this activity and don't expect to be anytime soon. Three, mature activities where we don't see the path for further improving the bottom line unless very big investments. This portfolio transformation enhances Veolia's asset quality, growth profile and value creation. In other words, the criteria for us are EPS accretion and overall [ ROCE ] increase. I'm on Slide 14. After 4 years, we will have rotated more than EUR 8 billion of assets, which is really an accelerated portfolio transformation. The investments we've made so far have been clearly prioritized with 80% of acquisition outside Europe, for instance, and 90% in Booster activities. At the same time, we are progressing with disposals of nonstrategic assets, and the plan is to dispose of EUR 2 billion by mid-'28. And EUR 570 million have already been signed year-to-date, ahead of target with an average valuation multiple of 10.4x. All other processes have been launched. I will detail the key transactions in a minute. This active portfolio management enables us to redeploy capital towards our priorities and sharpen the group's profile. On Slide 15, I would like to say a few words about Clean Earth. The acquisition, which completed in June for $3 billion, marks an important step with doubling our size in the attractive U.S. hazardous waste market. Integration is off to a successful start, and our teams are fully engaged in delivering the plan. We are targeting [ $120 million ] in cost synergies over 4 years. The acquisition is expected to be accretive from 2027. Beyond the cost synergies, we see significant potential to accelerate growth by combining Clean Earth's strong U.S. platform with Veolia's technologies, expertise and broader range of services. I must say first customer feedback is excellent. Now Veolia generates more than $6 billion of revenue in the U.S. that is the second country for the group. Finally, on Slide 16, our disposal plan is well underway. We have already signed ahead of schedule EUR 570 million of disposal as part of our plan to divest EUR 2 billion of assets by mid-'28. Average disposal EBITDA multiple was 10.4x, which is remarkable. The assets identified include activities that are nonstrategic activities. For instance, we sold our facility management activities in France as well as industrial cleaning in Belgium. We signed also the divestiture of our used oil recycling activities in Europe. Second criteria is outside our top 3 position, and we've sold recycling activities in South Korea or the Netherlands and a minority stake in an energy from waste facility in the U.K. All mature. And we've divested our solid waste activities in Czech Republic. This is deliberate and disciplined process designed to improve the strategic focus of our portfolio whilst supporting our investment priorities. To conclude, our 9-month performance confirms the strength of Veolia's positioning and the consistency of our execution. Growth strengthened in Q3. EBITDA continued to progress and our margin improved. Our commercial momentum remains strong. Our efficiency plans are on track, and our portfolio is becoming more international and more technology driven. Therefore, I am very confident for Q4, and I fully confirm our 2026 guidance as well as our GreenUp trajectory. Thank you for your attention. And Emmanuelle, I will now hand over to you.

Thank you, Estelle, and good morning, everyone. Let me start by highlighting the key financial achievements of these 9 months. Our results are continuously progressing with a solid operational execution and positioning, combining resilience today and attractive growth for tomorrow. We delivered a new quarter of strong performance with a significant acceleration in Q3. As Estelle has just explained, our revenue in Q3 progressed by 5%. At constant scope and ForEx, we achieved the highest level reached in quarters. This brings us to 9 months revenue amounting to EUR 33.3 billion, up 2.6%, excluding energy prices. And we have another improvement of our EBITDA by 5.1%, well in line with our annual guidance. EBITDA margin increased by 50 bps up to 16.2%, and this EBITDA performance is excellent as we no longer benefit from synergies and given the temporary negative impact of diesel prices, which continued in Q3, meaning that our intrinsic EBITDA growth is plus 6%. We continue to enjoy a strong operating leverage, leading to an EBIT progression of 6.7% with a good quality of earnings. Worth noting, ForEx impact has become positive since Q2 and increased again in Q3. As expected, net debt landed at EUR 25.4 billion, including the closing of Clean Earth acquisition and the seasonality of working capital. Moving to Slide 19, you can see the revenue and EBITDA evolution by geography. As Estelle mentioned earlier, all the geographies had a very strong Q3. Our growth intensified, driven notably by international activities. Now let's take a look at our performance by business, and I start with Water, which you remember represents around 40% of our revenues. If anything, this year has shed a light on the importance of water security in the context of recurring droughts, desalination unit becoming strategic and data centers facing [ cooling ] challenges. We delivered a very strong 9 months performance in Water. Total revenue was up by 2.6% and 4.5% in Q3, thanks to the excellent performance of Municipal Water and recovery in Water Technology. Municipal Water grew by a remarkable 4.5% year-to-date and 5.3% in Q3. We benefit from very good Water volumes in all geographies. Volume were up 3.8% in France, 2.7% in Spain and 1.9% in Central Europe. It's combined with positive indexation in Europe and in the U.S., except in France due to lower electricity prices. And we also signed many new contracts, notably in Spain and Colombia. Water Technology continued to be impacted by lower project booking but rebounded in Q3 by 6.4%, excluding projects leading to plus 2.6% year-to-date. The rebound come from the action plan we put in place with pricing initiatives, notably in chemical, commercial actions; which led to a significant increase in booking. Booking reached EUR 2 billion at the end of September, so it's 18% more than last year. Moving to Waste. Waste activity progressed notably in Q3 and especially Solid Waste, while Hazardous Waste delivered in spite of unhelpful weather conditions in Europe during the summer. Starting with Solid Waste, revenue was up 1.1% year-to-date, but plus 4.3% in Q3, which is excellent and come notably from the U.K., up 15% in the quarter and outside Europe, compensating France and Germany evolution. In all BUs, we largely invoiced fuel surcharge to our industrial and commercial clients after the diesel cost increase, and we expect to recover the cost overrun over time. Hazardous Waste grew by plus 2.6%, so it's 6.3%, including tuck-ins. Europe rebounded in Q3 by 5.2% in spite of heat wave. Growth remains solid in the U.S., plus 4% Clean Earth integration started swiftly, and we expect synergies early next year. And we had a good global performance of our last year tuck-ins. Finally, moving on to Energy on Slide 22. Energy performance was quite strong with revenue up by 3.8%. District Heating and Cooling Network revenue progressed by 3.3%, excluding energy prices with a very good heating season in Central and Eastern Europe, notably in Poland and Czech Republic. We registered less [ CHP ] revenue, but benefit from good electricity volumes in Q3. Energy prices were down to a much lesser extent than last year. But as you know, this is regulated and our margins are protected. For 2027, we start the discussion in order for a price to fully reflect cost of energy. And regarding electricity, for 2026, we are fully hedged in terms of gas, CO2 cost and electricity revenue. For '27, we start our hedging in terms of fuel costs and electricity hedged at 70% on average. We have also enjoyed very strong activity in energy efficiency, up 4.8%, thanks to Spain, Italy and LatAm. The revenue bridge on Slide 23 explains the driver of our resilient growth in the 9 months '26. ForEx impact reversed in Q2 become quite positive in Q3, so that the impact on revenue was reduced to only minus 0.3%. Scope added 1.2% of growth, including Hazardous Waste tuck-ins in the U.S., Japan, Brazil and Australia and 4 months of consolidation of Clean Earth. The impact of energy prices was as expected, more than divided by 2 compared to last year. [ Recyclate ] prices were nearly neutral. The weather effect on heating activity amounted to EUR 83 million due to a cold winter in Europe with no impact in Q3. The contribution of Commerce volumes and pricing was [ 2.3% ] with a marked acceleration in Q3, reflecting our pricing action and our commercial momentum. Over the 9 months, pricing in Water and Waste contributed 1.7% to organic growth. Volume contribution, which was relatively low in H1, accelerated in Q3 to reach 1.8%. We delivered a new semester of strong performance with another improvement of our EBITDA. Let me walk you through the bridge, which illustrates the strong operational performance. So ForEx translation impact was positive in Q3 by EUR 22 million. 9 months impact represents only 0.1% of EBITDA, and it's not significant at net income level. Scope effects contribute positively to EUR 73 million, representing an EBITDA margin of 19%, which illustrates the benefit of our asset rotation strategy to boost our growth and enhance our margins. Energy and [ recyclate ] material price had an impact of minus EUR 74 million due to higher diesel costs incurred after the crisis in the Middle East, which we progressively passed to our clients. The most impressive component is our growth and performance contribution of 6% higher than last year in spite of [ no ] synergies. This includes first net efficiency gains with a very good retention rate of 55%. Second, EUR 30 million from Water Tech synergies and volumes and commerce contribution, thanks to strong commercial momentum and better volumes in Water and Hazardous Waste. This brings us to an organic growth of 5%, which is good, considering the adverse external impact of energy prices for minus 1.4%. Let's now analyze our performance below EBITDA, and I am on Slide 25. Going down to current EBIT 9-month performance illustrates again perfectly the operational leverage of our business model, 2.1% revenue growth, 5.1% EBITDA growth and 6.7% EBIT increase. Current EBIT grew to EUR 2.95 billion at a faster pace than EBITDA with renewal expenses comparable to last year, amortization and OFA slightly up, stable industrial capital gain and provision showing a continued strong quality of results, joint venture marginally increasing due to onetime items. Net free cash flow generation, which is key and net financial debt, I am on Slide 26. We are satisfied with our free cash flow in the 9 months, stable year-on-year despite the usual seasonality of working capital and extended collection delays in the Middle East and less advance payments on project activities. We had a very strong CapEx discipline. Net CapEx stood at minus EUR 2,578 million compared to minus EUR 2,621 million last year. Net financial debt is well under control. It has increased in '26, of course, due to the acquisition. But our leverage ratio only slightly above 3x at the end of '26, will be back to 3x next year. The financing rate was stable at 3.82% at the end of September. Worth noting, our strategy remains stable and is not correlated to French [ OAT ], as evidenced by our 2026 issuances. Therefore, our cost of debt will only increase smoothly as 78% of our debt is fixed, but this increase will be offset by contract indexation. Liquidity is high at EUR 4.1 billion. Our balance sheet, therefore, remains very strong. And you remember, both rating agencies confirmed strong investment-grade rating beginning of 2026. Before concluding, this slide reminds you of our 2026 guidance, which we have improved this summer. Continued solid organic revenue growth, EBITDA organic growth between 5% and 6%, current net income of minimum 8% at constant ForEx, now including Clean Earth; leverage ratio equal or slightly above 3x with Clean Earth acquisition. And as usual, our dividend will grow in line with our current EPS. As you see, we are very confident for 2026. We delivered a strong 9 months with higher growth in Q3, robust underlying EBITDA progression well in line with our annual guidance. So very confident for Q4 and in the delivery of our EUR 2 billion disposal plan to be delivered by mid-'28, EUR 570 million were already signed and the rest will follow. Last, we obviously fully confirm our GreenUp trajectory. Thank you for your attention.

Thank you. And with Emmanuelle, we are now ready to take your questions.

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

So I have two. The first one is, I think a few weeks ago, there was an unconfirmed press article that you could be considering opening your Waste business to a financial partner. Look, I imagine you cannot comment much on the article itself. But however, I was thinking more generally speaking, how do you think currently about noncontrolling interest in the business? Recently, with WTS, you attended to try to reduce them. But I think today, you announced that you sold a minority stake in an incinerator in the U.K. just now. So do you see it as a way to crystallize value, show evidence of how much value there is in some of your activities or more as a source of inefficiency in the business? So that's my first question. The second one is so as of 9 months, you're towards the bottom end of the organic EBITDA growth guidance, so 5.1% and the range is 5% to 6%. I was wondering, how confident you are in an acceleration? And how material could that acceleration be in 2027, given, if I'm not mistaken, you should have more synergies, there should be more inflation, energy prices are higher? You were alluding to the diesel catch-up as well. So with all these elements in mind, what could we imagine in terms of organic EBITDA growth trajectory for next year?

Two interesting questions. On the French Waste business, I can give you some element on that one before moving to your question on minority interest overall. On the French Water business, we're talking here about the French Municipal Waste business. So just to be clear, so it's just part of the Waste business, and it's in France. The thinking here goes as such. There is a very big potential in France to basically transform what used to be quite old, say, energy from waste and actually incinerators into power plants in the next 10 years. This is a big potential for the country as being able to rely on local sources of energy with a stable price, locally sourced type of fuel is, as you can imagine, with a Strait of Hormuz situation; very much of interest for all the local authorities in France. It can provide not only power, but heat, feed district heating and so on and so forth. So there is a big potential here. It goes with a big CapEx investment, which public authorities estimate at EUR 7 billion in the next 10 years. So the question we are asking ourselves is -- we are very well positioned here, a very good feedback from our customers, and they are calling us to accompany them in this transformation. So the question we're asking ourselves is, would it not be better to go alongside a financial partner as opposed to just build it alone? So that's the way we're thinking about it. So how do you unlock growth in the Municipal Waste business without putting everything on Veolia's balance sheet basically. So you can imagine, yes, it would create value for the group plus growth in this market. That's the way you can think about it. In terms of minority interest, there is no unique answer. Have a look at the GreenUp strategy, and you will have the answer. So one is -- first things first, we want to invest in priority in our Boosters and outside Europe in particular. Hence, are buying back the minority of Water Tech, which is half of it in the U.S. plus in the Water Tech Booster activity. It's not the same when you would be in a stronghold activity or in Europe, for instance. That's the first angle to it. The second angle to it is the top 3. When we are in an activity, we want to be in the top 3 of this activity. It enables us to have pricing power to count on the market, if you wish. So having a minority share in something where we are subcritical is a criteria for selling. And that was exactly what was behind the sale of the minority share in the U.K. We are very happy about the energy from waste in the U.K., but a minority share in one specific plant was not exactly the sweet spot for us. That's more the way to have a look at it. So we can be happy to have partners typically to accompany us in some Stronghold activities. And we like when those minority partners are, say, local usually. That's what we do in Eastern Europe quite a lot. We have Hungarian partners in Hungary and Czech partners in Czech Republic and Polish partners in Poland and so on and so forth. So I guess that's the global idea. When you're outside Europe and in Booster activities, we tend to try to do it full bill, if you wish. That's the second answer. In terms of the bottom-end part of the 5% to 6%, I would say something a little bit differently. So one is I'm very confident about Q4 and the overall guidance for the year to 5% to 6%. And I'm very proud we've been able to achieve 5.1% so far despite many headwinds. The headwinds in figures are what Emmanuelle presented on Slide 24, which is basically the EBITDA bridge. And roughly, it's minus -- it depends how you count, but it's minus 0.9% of headwind. So basically, the intrinsic growth of our EBITDA, if we have not had those headwinds, would have been 6%. That's the way to look at it. So I'm very happy about this performance. In terms of the -- and it leads to your last part of the question on '27 and beyond. '27, I confirmed our growth trajectory. We are very confident we're on track. And there is no reason why all those underlying trends in terms of interesting growth wouldn't go on for a very long time for '27 and beyond because we've built a group which is stronger than ever. So no reason that this type of intrinsic growth would stop anytime soon. In terms of the diesel squeeze, if you want, it's diesel and chemicals, I could add the two; but we, as you know, have 70% of our contracts which are indexed and 30%, which are a question of pricing. The pricing is almost, I would say, it takes a few months. And as Emmanuelle mentioned a few figures, we have a lot of pricing effect that we see in Q3 and will go on in Q4. I guess it takes a few months. In terms of the indexation, it's a bit longer to catch up if you want with diesel price going up, say, 6 to 12 months would be the classical. So my guess would be that by the spring, we have compensated, if you want, for this squeeze, which started roughly in March this year. So progressively, we should see this squeeze reducing as time goes.

And your next question comes from the line of Wanda Serwinowska with UBS.

Wanda Serwinowska, UBS. Congratulations on the results and two questions from me. The first one is on the disposal. You still have a bit of to go. Should we treat 10.4x [ EV ] to EBITDA on average as a good proxy for the remaining disposal program? And the second one on the Middle East impact, are you able to basically quantify the impact year-to-date? And if the current situation persists into next year, should it impact your growth in 2027?

So thanks for your congratulations. I'm very happy about the performance, as you said. So am I about the big advance we've taken in the disposal, not only in timing, but as you said, in terms of valuation. Very happy about this price. And as Emmanuelle has put it regularly, I have a lot of ambition when we sell business. So I won't stop -- have a lot of ambition about the type of price we expect when we sell a business. That's what I can say about it. In terms of the second part of the question, Emmanuelle?

So the second question, Wanda, if I'm not mistaken, it was around diesel?

Middle East. It was Middle East, the Middle East situation. Yes, sorry.

No, no. All good. So on although the 2...

At the end of the day, if I may.

At the end of the day, it's the same answer. So Middle East, we communicated about that. Thanks to the strength of our business model, which is multi-local, protected against indexation; we have been able to pass through energy prices in 2022, thanks to the structure of our contracts, very well protected against macro. We -- the impact of Middle East has been really limited. And if I may, I just wanted to say one word on to the team, which have succeeded to protect our margin despite the situation this year. So very good performance. The only impact we see Middle East is 60%, it's Water, 30% it's Energy and 10% it's Waste. So the main effect we have seen is a slowdown in Water Tech project that we have communicated about it, and you have seen the rebound in Q3. So if you look at the impact we have, it's -- at the end of the day, it's only the increase of diesel prices, which is around EUR 45 million. And thanks to all the actions we have launched, you know us with pricing, commercial momentum; we have a fantastic top line in Q3 and a very strong EBITDA delivery.

So in other terms, you have the direct impact of the Middle East and the indirect impact in the Middle East. The direct impact is on the region, was very limited apart from in the Water Tech project. But I must say I'm very happy that we signed -- that was another news from this morning. We signed a new desalination plant in Al Hamriyah, which is in the UAE. So I said earlier on that like it gels, the [indiscernible] gels projects, obviously. I'm not saying it's the end of the gel, but it was a very promising sign of -- at one point for next year and the years to come. And as far as the indirect, indirect being on diesel and chemical, Emmanuelle answered.

Just to clarify on the projects -- on the new projects in the Middle East, do you expect now basically no further delay, something that you faced in H1 this year, given that you accelerated in Q3?

No, that would be inappropriate. I guess like everything was -- I mean, all new order books were stopped, if you want. Still a lot is gel, but there is one which was ungelled as in signed. Does it mean that all the others will be anytime soon? I cannot promise that because the situation is very uncertain in the region. So I cannot say that. I think it was very promising still that despite the war still there, we were signed -- we had signed this big desalination unit. So promising, not out of the woods yet in terms of projects. But I guess I expect, and I said that last quarter, when the war stops or kind of resumes -- sorry, stops or is on a low ground, we -- I expect really a big rebound because if anything, this crisis has shown that those assets are absolutely critical and they should have backups, and they don't have backups always. So in a way, the need for those type of desalination unit, and we have the same with Industrial Water in the refineries in the Middle East; will be, in my opinion, more than ever strong after the war.

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

Just a couple of questions from me, please. The first is on thinking about the kind of growth areas into '27. You've been ramping up the Hazardous Waste facilities this year in Germany and the U.K., and you're going to have new capacity opening in the U.S. So does that -- should we think of Hazardous Waste, given that increase in average capacity, as being one of your biggest growth areas into '27 compared to a normal year? And then also just coming on to the free cash flow, the free cash flow is quite similar to last year. Would you expect a more -- should we expect more meaningful growth in Q4? And just thinking about how should we think about free cash flow progressing in 2027 versus 2026, given there's a step-up in EBITDA?

So for 2027 -- and Emmanuelle, I will let you answer the second part of the second question. For 2027, like I would expect the Water activities and all the components to go on having a good year. That's because the foundation we've built are super strong. In terms of Hazardous Waste, you're right, it will be probably a good year for Hazardous Waste because of the sustained demand for our services with industries and what you said, which is opening new facility. The only thing I wanted to say on the opening of new facilities, it takes a while to get to 100% capacity, basically 2 years. So from the first year until the full capacity that will be this type of range. Those are super sensitive assets. That's why you wouldn't expect them to be at full capacity between somewhere in '28. So there will be a ramp-up, but the full capacity will be probably more in '28 than anything. And in terms of the growth for next year on geographical components, I would expect, again, the outside France and outside Europe growth -- support growth of the group unless we have a big surprise in this country -- a big positive surprise, I mean. The results of this quarter, you've understood are really the product of our strategy, which was, in particular, diversification of our geographies. I'm super happy that the U.S. is the #2 country in the group. And honestly, had we been with the same portfolio that the group had 5 or 10 years ago, we would never have been able to produce such results. But now the group is stronger and very international, and that helps. In terms of the second question on free cash, Emmanuelle?

Yes. So free cash flow for us and cash generation, it's very important for all the organization. You have seen our figures. So free cash flow -- net free cash flow at the end of September is stable. And what is very positive is that it's despite the increase of interest cost, meaning that our operational free cash flow has increased by close to EUR 150 million at the end of September. It's taking into account extended collection delay in Middle East and less advanced payments on project activities. So we have been very disciplined on CapEx. You have seen that with minus EUR 2.5 billion at the end of September compared to minus EUR 2.6 billion last year. All the team is committed to continue to improve the free cash flow. You may have seen that our DSO on top of the decrease of last year, has decreased again at the end of September, minus 2 days. We have a lot of action launch, not only on collection, but also on reducing the time to invoice, and it will continue. We expect in Q4, the usual reversal and a very strong cash generation in Q4. You know the target we have in terms of -- we have because we will cover our dividend payments. So very confident on cash generation and fully confirming generation covering dividends to come to debt, which will be slightly above 3x.

And your next question comes from the line of Bartek Kubicki with Bernstein.

Just two things from me as well, please. Firstly, I would like to come back to the disposals, and I need to say the valuation -- the exit multiple is very nice. So congratulations on this one. But if you can maybe tell us a little bit about the -- two things on those. First of all, what is the ROCE. As this is one of your key KPIs? What is the ROCE of the assets you are selling? And secondly, whether you will book any capital gain from that transaction and whether this will impact recurring earnings, I guess, next year? And secondly, if maybe you can comment a little bit on the U.S. and the new political landscape, whether in your opinion, it could have any impact on your business in the near term, especially if there may be a clash between the President and the Congress?

So on the first question, so the ROCE of our disposal...

Yes. So Bartek, thank you for your comment on the good valuation. You know that for us, capital allocation is strategic. We want at the end of the day, with all the movement we do in M&A, so buying and selling to increase our ROCE. We have an amazing track record. You know that when we did the merger with Suez, we bought to 9 to 10x. And when we did the disposal, antitrust disposal, we were able to sold to [ 16x ]. So on the disposal we have now, we want to have the same discipline in terms of value creation, so in terms of valuation, and the same discipline in terms of quality of execution. So far, we have demonstrated we have delivered ahead of schedule, and we hope ahead of your expectation in terms of valuation. So we are not communicating on the ROCE of the disposal we do. What I can tell you is that the ROCE of the element that we have sold, it's slightly below the average of the group. We are very happy with the valuation you mentioned. So it's to 10.4x. And in terms of capital gains, we have a very clear guidelines, so accounting guidelines. So meaning that if it's nonsignificant, so below EUR 50 million or well below EUR 50 million, it's in our accounts. If it's above that, it's nonrecurring.

Just wanted to add something to what Emmanuelle just said. The two important KPI, or KFI for us, are ROCE and EPS really, which means that, as Emmanuelle said, ROCE improvement is part of the objective in the transformation of the portfolio of activity. But I say ROCE increase. So when I say, for instance, we divest mature activities, I'm not talking about activities which will be at low ROCE because at times it happens for 1 or 2 years, but there is a big potential for increasing this ROCE in the years to come. So I guess it's more of the trajectory and the dynamics than only the picture on one specific year. I just wanted to highlight that specifically. So the idea is the increase and the potential or the non potential of increasing it rather than just the absolute value in 1 year. In terms of the U.S., so you're right, U.S. is now the #2 country in the group. So I'm happy that you asked a question about the outcome of the election and the impact on Veolia. The answer is none, roughly. Why is that so? In the same way as I answered exactly the same when Trump was elected in the White House 2 years ago. We are not dependent from Washington decision roughly in Veolia. We are more multi-local. So we rely on the demand from cities and from industries as opposed to federal contract or federal decisions that protects us from like a political change in Washington. And I think that's a super important element, which goes for pretty much all big countries, by the way. So demand for our service, as I expect, is as strong now as 2 days ago in many different sectors. We're talking about health protection and PFAS removal, for instance, that supports our Water business in the U.S. as well as our Hazardous Waste business in the U.S. We're talking about reshoring of strategic industries, so microelectronics. I don't expect anything like that to change, given the global context. So I'm very confident that our growth in the U.S. is not at all impacted in a positive or negative way in a way by the outcome of the election.

Maybe we can clarify on this capital gain, meaning there will be a capital gain in recurring earnings next year or not really because it will be above EUR 50 million?

Yes, it's not going to be very significant, Bartek.

It's quite classical for us. We publish it every -- we've sold businesses in the last few years, and we had like a few elements like that. So it's a classical one for us.

And just for you to know, so for the EUR 570 million, we will have closed at the end of the year, EUR 200 million and the rest will be closed next year. So very limited impact.

And your next question comes from the line of Philippe Ourpatian with ODDO BHF.

For the results. I have three questions. The first one is concerning your disposal, which is a hot topic of today's conference call. I was wondering if you may give us a kind of, I would say, granularity about the ones you already did, means the EUR 570 million. Just to have an idea about are we discussing in all these numerous number of trade you did, what was or what is or what were the most significant 1 or 2 assets you disposed? That's the first part of the first question. And the second one, regarding the remaining portion, which is EUR 1.5 billion, are we discussing about, let's say, 1, 2 or 3 big objects? Or we will still be in the same kind of profile with a numerous number of, let's say, midsized disposal to reach the EUR 1.5 billion? The second question is concerning Middle East. Could you have an idea about the size of the current order book in Veolia on this specific area and also the timing you're estimating that we will move from book to bill in this area? I know it's difficult because it's geopolitical situation, it's not clear. But just to have an idea about what could be the impact of all these projects, when they're going to be unfreeze? And the last question is concerning what you say about the incinerator in France. I mean I was wondering through your answer, you were saying that financial partner could support Veolia in the CapEx to be done. But I was -- in my mind, the fact that most of the assets were, let's say, delegated management contract or concession contract. Your answer supposed to understand that the CapEx is primarily financed by Veolia first and then recovered through the tariff or there is, in some area, only the public authorities means municipalities or syndicate, which are financing the assets and your impact in terms of balance sheet is limited. Just to clarify this point.

So first, you said the disposal was a highlight of the day. I would love to disagree on that one. I'm super happy about the 5% growth in the quarter, Q3. Honestly, this is really a super good achievement. So I would debate the fact that winning new contract is as important as disposal. Although I'm going to answer your question on disposal. Disposal, the big object within the EUR 570 million, you have a few EUR 10 million, EUR 20 million and a few which are more EUR 100 million, EUR 150 million, EUR 200 max, this type. The larger ones would be in oil recycling activity and in Czech Republic [ Solid Waste ] as well as Rookery in the U.K. Those are the larger ones, say more 100 plus. The others are more a few dozen millions roughly, just to give you what are composed of. So you have 3 objects which make the big numbers and a few others, which are smaller numbers, but we are kind of cleaning the portfolio. In terms of what's next, the next EUR 1.5 billion or a little bit less than EUR 1.5 billion to come, we've given on purpose the criteria for us, which are the nonstrategic, non-top premature so that you understand the logic we're in and what is typically in the list. So the answer will be there will be small, medium and large objects for the next EUR 1.5 billion. But the criteria will stand -- still be exactly those because those are the value creation. And the -- it starts from a strategic decision of what should be in the portfolio of year and what shouldn't be. And then we sell as opposed to the opposite way around. So we're selling what's not as important for us to create value in the next few years as what we keep or what we invest. So strategic come first and then [ execution]. Size of the order book, honestly, a desal plant or a big industrial project in the Middle East is typically EUR 100 million, EUR 200 million each, EUR 300 million for the largest. But the projects are, by definition, super ups and down. They come in terms of revenue and then they go. So that's why we always said that within Water Tech, 70% was relatively recurring and 20 -- 30%, sorry, was mainly projects. And therefore, you would have ups and downs, and that's why we give you the idea. What do I expect? You know what, we are here to support our customer. They appreciate the fact that we haven't left the Middle East, and I can tell you they told us that super clearly that they know we're there. Can I anticipate the end of the war in the Middle East? I'm sorry, I cannot. So it could be an end to the war. It could be a deescalation, which would be akin to an end in the war. You can imagine various scenarios. But we are ready. We have projects under discussion, but they are not signed. Therefore, they are not yet in the bookings. They are just in the pipeline, if you want. Bookings for us is when we sign them real, like [indiscernible] this quarter. In terms of the model in France, we are only starting the strategic review. That's why I won't give you all the details of how we're going to do it. But let me say that we have various models in the concession of the Waste -- Municipal Waste in France and typically energy from waste. You have models where we are operators, models where we are asked to basically invest and then we are reimbursed a model where we invest and we amortized during the duration of the concession, and then we give back the keys to the local authorities. We have all type of models really. So the question is not only the existing model. The question is how can we offer something like all-in-one financing plus capabilities and know-how to the local authorities to unlock this potential for years to come. This is more the way to see it. So in a way, that would be a new way of thinking about it.

And your next question comes from the line of Arnaud Palliez with CIC.

I have two remaining questions. The first one is on the synergies. Can you be a bit more specific about where you are in terms of the synergies being delivered in Water Tech and Clean Earth? Are you in line with what was -- what were the initial expectations? And the second question is on the Energy business. Can we have some idea or rough indication about the level of the coming energy price pass-through in Central Europe? And do we see an early start of the heating season in Central Europe?

Emmanuelle?

Yes. Arnaud. So regarding your synergies, you know that efficiency delivery for Veolia, it's absolutely key. We have a strong track record, and we will keep it. So starting with Water Tech that we have signed last year, midyear, we are, I would say, even in advance. We are targeting EUR 90 million. We generate in 2025, EUR 20 million. At the end of September, we are -- we have generated for the year EUR 30 million. So it's EUR 50 million for the year, EUR 50 million over the 2 years, and we will be at the end of the year, around EUR 60 million. So the team, very committed, working very hard on the synergy delivery. Regarding Clean Earth...

Yes. I may add something, which is, of course, Emmanuelle refers to cost synergies, which is the only thing we've given you figures and targets, but I expect revenue synergies in addition to those.

Yes, absolutely. So when we communicate, you're absolutely right, Estelle, we are communicating on the cost synergies. And you have seen the rebound in Q3 showing all the actions that we have put in place also regarding the top line. Now coming to Clean Earth, we are very happy with the beginning of the integration. It's very promising, successful day 1, fully merged team, organization is in place. We have started our operational integration journey. And so far, the feedback from customers are excellent. So we are targeting $120 million synergies and -- but it's starting next year. So the organization is in place, and we have everything we need to be able to deliver and to continue to confirm the very strong track record we had as we did with the merger with Suez.

So Energy business, so in Central Europe, the heating season had a few weeks of being relatively warm in October, and now it's better. So I won't tell you anything specific apart from commenting on the weather, which is not exactly fascinating. Neither can I do any prediction, of course, on the weather for the next 2 months. In terms of the pass-through, which is an important element, you're right, some fuel -- the fuel we consume, if you want, have gone up. and we've been able to pass through the tariff. So I don't expect any specific squeeze here. As opposed, though, to 4 years ago in '22 when the war in Ukraine started, when we have a positive effect by -- a byproduct, if you want, of the gas price spiking, which was electricity price in Europe had spiked at that time at the same time. This is not at all what we see this year. So electricity prices are really like quite subdued actually in some way. There are many reasons why. So I don't expect any specific positive effect from producing [Technical Difficulty] electricity as a byproduct, as you know. So it protects our margin, but I don't expect a positive as we had seen in 2022.

[Operator Instructions] And I'm showing no further questions at this time. I would like to turn it back to Ms. Estelle Brachlianoff for closing remarks.

Thank you very much. I think you've understood. We are very happy about the results. Typically, the top line growth in Q3 was very good and a testament to the power of the decision we've made in terms of strategy with international really leading the way in many different ways in top line and bottom line at the same time. So testament to our strategy, which is bearing fruit, which I'm very happy. And I'm very confident for Q4 and beyond. Thank you very much.

Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.