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Veolia protected from inflation via indexed water contracts
Global Banking & Finance Review®
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PARIS (Reuters) – French water and waste group Veolia is shielded from the resurgence of inflation as its water contracts are indexed to the cost of living, CEO Antoine Frerot said, as the company reported first-quarter results.
PARIS (Reuters) – French water and waste group Veolia is shielded from the resurgence of inflation as its water contracts are indexed to the cost of living, CEO Antoine Frerot said, as the company reported first-quarter results.
Consolidating for the first time the activities of former rival Suez, which it bought in April 2021, Veolia’s first-quarter revenue jumped 44.3% to 9.93 billion euros ($10.44 billion), while revenue was up 14.7% on a like-for-like basis and at constant exchange rates.
CEO Frerot, who will be succeeded later this year by Estelle Brachlianoff, said Veolia was largely protected from inflation as about 70% of its revenue comes from multi-year water contracts with cities or companies and which include a form of indexation of its costs.
“This means there is neither loss or profit on inflation as these contracts are regularly indexed,” he said.
Frerot said this did not quite mean Veolia shares are like an inflation-protected indexed bond, as its business grows every year. Even adjusted for higher energy prices, first-quarter revenue was up 7.1 %, which is well above inflation, he said.
The CEO said the rest of its business activity was mainly in industrial waste handling for corporate clients, where strategy focuses on boosting prices by providing better services. He said this worked in the first quarter, with clients accepting price increases in line with inflation.
“Overall, inflation is neutral to slightly positive, as our prices include a margin, which is also indexed,” he said.
Frerot also said Veolia had been able to largely pass through the higher cost of energy prices.
Veolia’s energy purchases are mainly for urban heating networks, notably in Eastern Europe, and since it buys primary energy – coal and gas – from local public firms it is protected by energy price caps, Frerot said.
CFO Claude Laruelle said Veolia is a net energy producer, due to its waste incinerators and its cogeneration plants in central Europe. He said Veolia was boosting energy production by increasing biogas production from its water purification stations and landfill sites.
($1 = 0.9514 euros)
(Reporting by Geert De Clercq. Editing by Jane Merriman)
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is often measured by the Consumer Price Index (CPI).
Indexed contracts are agreements where the terms, such as payments, are adjusted based on a specific index, like the cost of living or inflation rates, to maintain value over time.
Corporate strategy refers to the overarching plan and direction a company takes to achieve its goals, including resource allocation, competitive positioning, and market engagement.
Energy price management involves strategies and practices to control and optimize energy costs, ensuring that a company can effectively manage its energy expenditures.
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