Antoine Frérot - Chairman and CEO Philippe Capron - CFO

Pinaki Das - Bank of America Merrill Lynch Guy MacKenzie - Crédit Suisse AG Olivier Doosselaere - Exane BNP Paribas Michel Debs - Citigroup Philippe Ourpatian - Natixis S.A. Emmanuel Turpin - Societe Generale Cross Asset Research Anna Scaglia - Morgan Stanley James Brand - Deutsche Bank AG

Thank you, and good morning, everyone, and welcome to the presentation of our 2017 first half results. I am on Slide 4 of the slide show.

First half numbers are, from my point of view, very satisfactory. The 2 pillars of our strategy are functioning well, growth and efficiency.

Regarding growth, revenue increased 4.4%. Second quarter growth was as good as the first despite a less favorable comparison base.

Europe, excluding France, and mainly the Rest of the World, drove this growth. Construction activity has normalized and is no longer decreasing.

As for efficiency, EBITDA, current EBIT and current net income excluding capital gains increased slightly, while at the beginning of the year, we anticipated a decline of these figures. Increased selling costs, 0 or negative price indexation in Europe or local political difficulties with certain contracts were more than compensated by revenue growth and associated profits, cost savings perfectly in line with the previously raised annual objective and good volume momentum.

We can therefore easily confirm our 2017 objectives. Slide 5, the decision taken at the end of last year to reinforce commercial development efforts, €40 million in annual costs, has clearly already borne fruit.

Commercial momentum was driven by accelerated contract wins and the addition of small acquisitions. A portion of this new activities have already contributed to first half results.

Another portion will occur in H2. And finally, the pipeline of opportunities has improved.

Slide 6 now, within the industrial client base, china has brought the most significant contracts, and the development of the group's most successful and value-added offerings, what we call our key offers, in each of our countries is beginning to further strengthen our geographic presence, particularly in Europe. It is one of the main proposals of our recent commercial reinforcement efforts.

Such contracts, which strengthen our activity in geographies, have already benefited from G&A and therefore do not require additional overhead spending, are the most profitable. This is where the scale effect of a group like Veolia is most strongly felt.

Slide 7, the first half of the year saw, for a change, municipal awards exceed industrial awards, 52% of the total. Both North and South America as well as France were the most dynamic geographies.

The now well-known AssetCo/OpCo model, for which we are more and more solicited by industry reforms, allowed us to gain large municipal concession contracts without relying on our balance sheet. For example, here, the very large waste-to-energy plant in Mexico.

I would also note on that slide that we renewed the Gabon contract for 5 years, which was not yet sure a few months ago. Slide 8 now, the effort to reduce costs continues unabated with three usual levers, the application of the principle of continuous improvement in industrial efficiency at all of our plants; the optimization of local purchasing by dedicated teams in each country; and continued discipline applied to G&A costs.

Cost savings in the first half of €126 million are in line with our annual objective raised at the beginning of this year to €250 million. Slide 9, the transformation of our French Water business has continued during the first half.

It involves a geographic reorganization in order to adapt to the new territorial organization of our municipal clients, adaptation and relocation of our resources and an ambitious plan to boost commercial development with first wins expected in the second half of this year. This plan, which aims to double current EBIT between now and 2020, was the subject of an additional €67 million provision in the first half accounts.

Slide 10, this satisfactory first half allows us to confirm our 2017 objectives and also strengthens our prospects for the coming years. And I will now turn the floor over to Philippe Capron, who will provide further detail regarding our results.

Philippe, over to you.

Thank you, Antoine. Good morning, ladies and gentlemen.

If we move on to Slide 12, you see our main figures. I'm very happy to say that we have a good set of figures for the first half.

We are especially delighted that revenue is showing no sign of slowing down. We remain on a steady growth path at above 4%.

The figures for this quarter and this first half are very easy to read because there is practically no currency impact. So the -- for comparison purposes, this makes things easier.

As you can see, revenue is growing by 4.4% at constant currency, reaching €12.3 billion. EBITDA is slightly up at 0.4% in spite of the headwinds we are confronted with at €1.65 billion.

Current EBIT is up 0.6% at €774 million. Current net income group share is down at -- by almost 9% at €295 million, but this is due to the fact that we had no capital gains, no significant net capital gains this year compared to €40 million last year.

So if you strip out this effect, if you exclude net capital gains, we are actually up by more than 4%. Net income group share at €205 million is impacted by the restructuring charge mentioned by Antoine earlier.

CapEx remained very much under control, actually slightly under last year's level, and net financial debt is down year-on-year. So overall, a very strong set of results.

If we move on to Page 13, you have the analysis by quarter we included last year for comparisons purposes. As you can see, in H1, we have -- we are seeing good growth in each geography.

That includes France because if you look at the minus 0.9%, you have to remember the Bartin disposal last year. If you look -- if you take out the Bartin disposal sales in France, would actually be up by 1.4% and accelerating because, as you can see, Q2 is better than Q1, whereas the Bartin effect was the same for both quarters.

Construction activity on the other hand has restarted -- has started to grow again at plus 1.7% for Global Businesses, which is mostly construction. So we've reached bottom there.

So that if you take construction out as well as the impact of energy prices, the underlying growth is now very close to the reported figures. Those impacts which we suffered last year have stopped to have a meaningful impact.

And overall, in H1, as you can see, underlying growth is 5%, which is, of course, a reason to be happy. On Page 14, you see further details on the geographical breakdown of our revenue growth.

French revenue has been supported by good water volumes in Q2, less commercial renegotiation headwinds, price declines and with volumes and prices are doing okay, especially wage volumes have been good in Q2 in spite of the fact that we had 3 less calendar working days than the previous year and 2 less than the previous quarter. Europe is doing well, overall, thanks to climate.

In Q1, a cold winter climate in Q2 as well, hot spring in Eastern Europe. New contracts, decent price momentum, so overall, many regions to rejoice especially in Central and Eastern Europe, where we've registered 10% growth.

The Rest of the World is growing double digit. The U.S., of course, benefits from the Chemours acquisition and higher energy prices.

But emerging markets are doing very, very well, especially China, plus 37%, thanks to new contracts, in particular, of course, the Sinopec contract which started in Q3 last year. Construction activities, as already mentioned, showed better momentum in Q2.

This includes SADE in France, which has increased its activity with local French contracts; and hazard waste continues on a very steady growth trend. If you move along to Page 15, this is slide is fairly easy to read.

As you can see, all engines are pushing into the right direction. We had some luck with climate, but mostly, our commercial dynamics remain very good, and the markets we're addressing are very healthy.

Page 16, you have the -- some color on our Waste activity. We've benefited from the -- from higher recycled prices, especially paper, but we also had some volume growth and a fairly supportive price environment.

So that overall growth at constant currency is 6.3%, which we had not seen for a long time in this activity. On Page 17, an important factor is that EBITDA growth is back in France, that's thanks to cost reduction that -- and with some help from climate for water volumes.

But overall, we've -- we seem to have reached the trough as planned. 2016 should remain the low point in the curve of our earnings.

And as already mentioned by Antoine, we have the prospect to do much better in Water, but also in Waste where there is also some significant restructuring at work. The Rest of Europe suffers from challenging comparables.

We had a series of positive one-offs in 2016, but there is no need to worry because, based on the top line momentum, we are absolutely confident that the balance of the year will be much better because it will not suffer from a comparison -- a tougher comparison base. Rest of the World is growing nicely, thanks to top line momentum.

We're especially happy, of course, with our China results, 14% growth at constant currency for EBITDA, thanks to new contracts. Global Businesses are slightly down, but this is due to comparison effects, which should not be recurring in the rest of the year.

So overall, very satisfactory results in spite of the headwinds we flagged earlier this year. Another way to look at EBITDA on Page 18.

As you can see, cost-cutting efforts are offsetting both the price cost squeeze and the transition costs, which we had mentioned, as well as a tough H1 2016 comparison base at the EBITDA level. Page 19.

Current EBIT is growing slightly in line with EBITDA. You have to keep in mind the fact that the provision reversals continue to include the self-insurance impact already flagged in Q1.

That explains €15 million in the provision reversal. And of course those €15 million had been stripped out of EBITDA to start with.

Joint ventures are growing nicely, especially in China. So that, overall, we succeed in having a small growth in EBIT.

The current net income is down versus last year, but that's due to the absence of net capital gains in 2017. We had no significant disposals from small pluses and minuses.

But excluding this factor, the current net income would be up 4%. Not much to report in terms of the cost of financial debt, which is stable.

Some optimization in taxes or better geographical mix enabling us to reduce our tax rate, but nothing very significant there. On Page 21, you see the noncurrent items.

Those include, mostly, the restructuring charges, €90 billion versus €100 million last year. There should be no significant additional restructuring charges in H2, so this will help, of course.

As you can see, the impact of discontinued operations in Lithuania is not as significant as we would've thought. The reason for this is that, in spite of the enduring conflict with Lithuanian authorities around the Vilnius contract, we still got a large award, a large indemnity, which we cashed in, in Q2.

This does not cover the full damage. We are still actively pursuing reimbursement at the [indiscernible] level.

But still, this explains why the actual income of the -- of applying IFRS 5, discontinued operations in Lithuania, is not as large as we would've thought. Overall, at €205 million, we have a net income group share, which is down versus last year.

But again, the impact of restructuring charges should not continue. Page 22.

As already mentioned, CapEx discipline remains high. We've had no significant large discretionary CapEx this quarter.

It does not mean that we won't have any in the future because we have lots of projects in the pipeline. But as mentioned by Antoine, we try when we can to use other people's money to pursue those large growth opportunities, which explains some moderation we have on the CapEx line.

Net free cash is negative due to seasonal working capital requirements. That's pretty much in line with prior year, and you know that -- and we know that this will reverse in the second half.

And actually, net free cash before dividends, if you exclude the seasonal impact, would be plus €537 million, which is in line with -- which is in line with the previous year and the satisfactory result. Net debt continues to trend down year-on-year as well as our leverage ratio.

So you have a similar presentation on Page 23 showing the free cash generation above €500 million. On Page 24, we reaffirm our medium-term outlook.

We're given the very strong start of the year, especially on the top line level. We're highly confident that we will reach our guidance this year.

And of course, this makes ourselves equally confident towards our 2018 and 2019 objectives. Thank you.

Thank you, Philippe. And now ladies and gentlemen, we are ready to answer your questions.

I've got two questions. The first one is just on how do you look at H2 versus H1 for this year.

Things like revenue growth, you had very strong in H1 on an underlying basis. But I guess, the contracts like Sinopec will not have that much of an impact in H2, so how do you think about that?

And also, things like your tariff indexation in H2 versus H1, and also FX, which is probably not going the right way. And probably related to this question between H1 and H2, perhaps you could comment on the Mexico with 2 energy plants.

The €886 million contract, when do you see that flowing into revenues? And finally, just on the second question on the French Water business.

You've talked about doubling the current EBIT by 2020, how do you see it in sort of '18 or '19?

Well, I will begin to answer, but Philippe will complete. It is a bit early to tell you what will happen globally during H2, of course.

We are confident because we won a lot of new contracts, and we also enjoyed a good renewal rate of contract coming for renewal during the first half. But we also benefit from good climate in term of heating services during winter and a good first or beginning of summer for water in France.

So we are optimistic, but still cautious, and we will get first information at the end of the next month before roadshow to have a better color for the Q3. Philippe, about this question, about the Mexico contract.

The Mexico contract. First, it is an AssetCo/OpCo financial structuring, so we will benefit only from the operations and maintenance turnover, which will be significant, but not the whole story, of course.

We will only have a minority in the AssetCo as the incinerator should start working in 2020, so it won't have an immediate impact on our accounts. Tariff indexation for the second half should be marginally better than for the first half, but that's only marginal because most of our contracts are annual renewal types and -- annual indexation types, and therefore, mostly, this year, indexation will reflect last year's inflation.

So even if there is a slight pickup in inflation in Europe, this will have mostly an impact next year, not this year, in H2. You're right that the Sinopec contract on some of last year's acquisitions, which started having an impact in Q3, will cease to have an impact on a comparison basis in Q3 2017.

But at the same time, we have other new contracts, which have started to be put in place and other small acquisitions, which we did at the beginning of the year, nothing very significant. But still, it adds up.

So that we may not continue to be above 4%, which frankly, we, ourselves, did not fully expect, it's an excellent surprise, but we won't slow down very significantly. If you look at our growth at constant currency and constant perimeter, it is at 3.1% in Q2, as it was in Q1.

So that makes us hopeful that we will continue on the good growth path. And if we do this, of course, as we have easier comparison basis in Q3 and Q4 2016, we are very confident that there will be a higher increase in our EBITDA and EBIT for the balance of the year.

About the French Water business, the improving of the EBIT level will be due to the restructuring, but also, the new commercial dynamic. You know that restructuring in France takes time.

We launched a new [indiscernible] plan and we hope to get the approval from the authorities at the end of this year, meaning that the departure will begin only next year, so we will not have the full effect, of course, during 2018. And for the new growth, it will [indiscernible] come.

We expect some of them -- some wins during the first half, beginning of contract will be during the year of 2018 also. So the progress of the EBIT will not be completely linear between now and 2020, and we will have a better progress in 2019.

Three questions from me. Firstly, you said in the press release the industrial services business in North America and in Australia still being under some pressure.

Just wondering if you can elaborate on what specifically you're seeing there, whether it's your Industrial Water business that's still seeing an impact from weaker oil and gas prices or if it's something else that you're referring to. Secondly, there were quotes recently in the press talking about how you guys have balance sheet capacity to potentially do larger acquisitions.

I was wondering if could elaborate at all on that and whether you're explicitly looking for potential assets. And if so, what type of businesses and geographically are you looking to expand existing markets or potentially tap into new ones?

And then finally, just on -- a follow-up on FX, I mean, your overall impact in H1 was negative €14 million, but, really, the only negative impact was from sterling, other currencies were obviously stronger against the euro. Given recent strengthening in the euro, are you able to give us some mark-to-market impact of what the full year FX impact would be and what this might mean for your targets, i.e.

at current FX, do you still think you might be able to grow your EBITDA?

Okay, Philippe will begin with industrial solutions in U.S.

Industrial services in U.S. are mostly cleaning businesses.

It's tank cleaning, it's maintenance work on waste disposal, sludge separation in refineries in the U.S., that kind of business. It's very much driven by oil prices.

In the present environment, many refineries have decided to postpone maintenance or to postpone some of their cleaning works, and that impacts our business, which [indiscernible] by about 10% in this segment last year in the U.S. It's a struggling business.

Competition is very tough, and as there is less work, prices tend to suffer as well. In Australia, it's a bit the same story, not to the same extent, but of course, the work we do for mining operators has tended to suffer from lower prices or lower activities in some cases.

On the FX side, of course, we have no crystal ball, obviously. We have a natural hedge in our various activities because we typically sell services, build services in the currency in which we incur the vast majority of our cost.

So the impact is only a translation risk when we report our EBITDA and EBIT. Frankly, the recent strengthening of the euro is not yet severe enough that we feel it would jeopardize our guidance for this year.

And about your second question about acquisitions, you mentioned what a journalist told some weeks ago. I have to summarize the conversation I had with him.

The first question of him was do you intend in to Veolia to do the said type of acquisition as well did with GE Water? And my answer was no, we did not intend to do that today, we don't have any project on the table.

But the second question of him was, but if you would have, would you have the possibility, the financial capacity to finance it? And at that question, I answered, yes, if we would have a good case, would have the possibility to finance.

But I concluded the conversation saying that, but we don't have any project today on the table. That's all.

So yes, the balance sheet of Veolia is able to finance an important investment tip necessary, but we don't have this project today. We still have some small-sized -- or medium-sized acquisitions projects to complete our organic growth as we did for now more than 1 year.

You see that we didn't increase the debt level of the group, despite these acquisitions, these small acquisitions. And if, let's say, we would have the means to finance a big one, but we don't have this project on the table today.

I have four, if I may. First one, if you could just confirm on Veolia Water Technologies on the construction.

It has been a drag on your top line for quite a number of quarters. It seems to have reversed in Q2.

Would you confirm to think that, now, the worst has passed and that indeed we could assume at least a stabilization of that activity going forward or do you still foresee some volatility in there? Second question is on Sheffield, if you could update us on the situation there.

Third one is on France. You mentioned to target to double the EBIT by 2020 in the Water business.

I wonder if you could just give us a number of where the French Water EBIT was in 2016. And then finally, in terms of where you are right now on your operating performance.

I think, in the beginning of the year when you had guided for EBITDA for 2017, you mentioned that you expected EBITDA to be down in the first half and then up in the second. However, you are not down right now.

So I wonder if you would confirm that you're probably ahead of your initial target in terms of where you are right now.

Thank you, Olivier. I will answer your 3 last questions and leave Philippe to answer the first one.

About Sheffield first, we are still operating the West incineration and the West activity in Sheffield -- in the city of Sheffield today. We are still into discussion, negotiation and the bid conflict with our clients.

But negotiating and discussion are still -- are continuing, and I am rather confident that we would be able to find an agreement in the next months. It is not say -- corporate issue, but I am rather optimistic to be able to find an agreement, and we will continue to operate this business in Sheffield for the next years.

About your second question, unfortunately Olivier will not be able to answer this question because we don't give some -- such precise information in all of our business line or business units. So I prefer not to answer it, I'm sorry about that.

And about the guidance of the year, yes, we are in advance in term of EBITDA because we forecasted a decreasing during the first half. But you know that at the beginning of the year, this year, we faced some headwinds and some difficulties.

I was cautious, but we pilot this group. We are in advance.

We still have the second half to do and to write. So we will stay with our guidance today for the full year.

So stability or a small increase of EBITDA table at the end of the year despite the fact that we are confident and we have a bit to add during this first half.

To speak of VWT, as you've seen, revenue was down 7.7% at constant currency for VWT, but we are cautiously optimistic because bookings have increased. The backlog has improved by almost 4% to €1.8 billion, and as I mentioned, meanwhile, SADE is showing good growth in France, which allows us to be more selective in overseas contract.

Of course, the very nature of those construction activities is that they are volatile. The phasing of the various contracts is irregular.

It does not have the same steadiness as our typical service contract businesses. So don't hold me to my word.

I'm not guaranteeing that every quarter from now on we would have growth there. But at least we seem to have reached the bottom point and things seem to be improving.

Meanwhile, of course, as you know, we've restructured the activity. We make sure that even at or below €2 billion of activities in VWT, we will show a profit.

And Olivier, just add something about the French Water business, you should be a bit disappointed that I don't want to answer your question. You should notice that when we launch a new restructuring plan and redundancy plan, it is not the first one during the last years.

You could understand that I don't want to give too precise numbers to avoid to jeopardize this restructuring plan.

I have three questions, please. The first one is regarding your tax rate.

You have indicated 27% for H1 2017, which is a bit lower than usual. Is that the new normal or did you have a lower than usual tax rate in H1?

My second question, back on the French Water EBIT. If you are going to double the French Water EBIT within now and 2020, then presumably, you're going to have a profit.

And that means that maybe you can start using your tax credit, the carried forward tax losses. Is that realistic?

And does this mean that if you succeed in the French Water, we have to take down the tax forecast that we have? And my last question is about Saudi Arabia.

They are apparently trying to privatize their desalination assets. Is that something you're looking at?

And if yes, what kind of role and what kind of ambition do you have there?

Thank you, Michel. For Saudi Arabia first, we are present in this country.

You remember certainly that we operated or helped to operate the Riyadh Water System during some years with good performance. So yes, we are very aware and we are following the projects of the Saudi Arabian authorities.

And [indiscernible] of the way they will privatize some activities. If it is CapEx -- sort of with big CapEx to do, we will probably use some partner and we will use our asset OpCo model.

And if it is que operational we will certainly beat, but it is too early for us to confirm the way they will do and secondly, if we will win. But we are really present.

Philippe, about the two questions on the taxes?

On taxes, it's fair to say that H1 is a bit lower than we expected. We are always trying to bring what you call the new norm down in terms of tax rate by trying to implement optimization every time we can.

H1 has benefited from the fact that, as you've seen, our activity in Eastern Europe around energy has been very strong, thanks to the climate. And of course, this means we generated more profits in countries like Poland or the Czech Republic where we enjoy a lower tax rate.

So this certainly has helped. You're absolutely right, improving of French businesses and our French earnings is of course a key element which will enable us to access our NOLs in France.

We have a dormant asset, so to speak, of 400 -- actually now more than €400 million, which it would be critical for the group to assess. As you know we have two or three drags there.

One drag is insufficient profitability of our French businesses, especially French Water, but the second is the fact that the group headquarters is not fully -- is not able, of course, to build all its expenses to the other businesses, by given the very various tax flow constraints we have. And at the same time, is bearing the bulk of the financial cost of the group because the bonds we issue are issued at the central level, at the central holding level.

So we have to overcome this in order to start being profitable, and then to access the hidden asset which are our past tax losses.

If I may just ask a follow-up on this, Philippe. If I understand your answer, basically, you're going to generate an operating profit and probably net income in general, but it doesn't mean for sure that you can translate that on the mother company that -- which is the head of the fiscal group.

Then to get the tax credit, so what you are telling me if I understand is that the likelihood of using the tax credit is less than 50% is the extent today. Is that correct?

Well, we will end up using it. The question is more a question of timing.

As you know this all is fully integrated with Veolia, so there is no drag or no lag there. So question is rather when rather than if.

Most of my questions have been answered. Maybe 2 short ones.

Can we have a bit more color on the waste volumes growth, maybe a bit of breakdown by activity and by geographies? And the second question on the capital gains that you expect by the end of the year?

On capital gains, I mean, by definition, they are difficult to predict. But we have no significant disposal in the works, so we don't expect any significant movements.

So we should be pretty flattish as we've been in the first half. I know that this maybe a disappointment to some of you, but keep in mind the fact that when we do have capital gains, [indiscernible] tell us, yes, but your current income is driven by capital gains.

So we can't have our cake and eat it. In terms of waste volumes, I mean, I won't go through the whole catalog.

Significant -- the most significant element perhaps is that our waste volumes have improved in France in Q2. We had 2.2% growth versus 0.7% in Q1.

This is unexpected, especially as we have less working days in Q2. But this is a sign that we had some, I mean, perhaps that the French economy is starting to grow a little bit and all the more significant is the fact that this growth has been driven particularly by the landfills, which as you know generate better margins.

So this is a satisfaction. As we mentioned, the negative one has been the U.S.

where the cleaning business, which is incorporated in waste, has gone down. The U.K.

continues to be fairly steady, but slight -- only slightly above average, except for landfills because of the one-off we enjoyed at the beginning of the year because of incinerators not working, and therefore, giving us the possibility to landfill more either our incinerators or SITAs incinerators.

And Philippe, if I just may, you mentioned a pick up in landfill. In Q1 you were justifying this rise mainly by construction volumes.

Is it still the case in Q2 or do you really see, because you just mentioned that your landfill activities have a positive impact on your margins, which was not the case in Q1. So if I can just understand a bit better what is going on there.

In France, it is still mostly construction waste. But even construction waste is better than fewer collection or incineration or sorting.

I have -- most of my questions have been already answered but I have 3 remaining. Could you share with us, looking the additional commercial efforts you launched last year with this €40 million of cost, what is the amount included in the gain of commercial contract, the €276 million, you recorded for the first half?

What is the amount deriving from this €20 million cost on the first half and the €40 million forecasted for the full year? That's my first question.

The second one is you mentioned that the industrial services is suffering mainly in the U.S. and in Australia.

You launched a plan on the French Water business. Are you planning to -- I mean, put in place some additional measure in order to offset or to totally cancel this backward trend of activity in the industrial services in North America and Australia?

And last, you just mentioned some outages of your incinerator in the U.K. This is part of the headwinds you are suffering in the first half.

Could you just share with us 2 points. One is the insurance cost increased in the first half.

Is this seasonal or non-recurrant or recurrent? And two, this technical outages, are they -- do we have to take these outages as a recurrent one as a seasonality or something which is, we say a little bit exceptional?

Well, leaving Philippe to prepare the answer to the other questions so we'll break -- first answer to the first one. This reinforcement of our commercial forces has been used, first, as I explained previously, for strengthening our existing countries where we have already G&A infrastructure in these countries to push the sale of our key offers when they are -- they have been not sold today on these countries.

I -- just take one example. We have, I think, a very good offer to manage utilities and especially energy services for hospitals.

We have a strong offer in some countries and there is [indiscernible] everywhere in all of our countries. So normally, we think we could sell this offer in almost all of our countries.

So this reinforcement has been done to punish the sale on that key offers which are successful and added value offers in the countries where the actual teams or the previous teams haven't been able to do it. If -- it is difficult, of course, to measure what these reinforcement brought, but I would say that on the 4.4% of our increase of turnover, I would say that perhaps around 2% could be linked to these reinforcement.

On a full year basis, 2% of our turnover is around €400 million compared to the €25 billion turnover. And €400 million reached an EBITDA level of around a bit more than 10% is €50 million, meaning that these additional spending for the commercial reinforcement will be paid in 1 year.

On industrial services in the U.S., as you may remember, we already did restructure this business in order to right size it last year. At present, we do not envisage a further restructuring for this activity.

But it's something which we are spending some time on and focusing on. We are increasingly wondering whether this activity really makes sense with us or whether we should retarget it.

Regarding insurance cost the -- actually, it's not insurance cost. It's insurance payments which we had in the first half, which have no impact on EBIT because it impact EBITDA but then we take the provision back the provision had been taken in some cases years ago and it just -- it's a nonrecurring elements meaning it just happened that we had an unusual concentration of such claimants, which in the first quarter.

The outages we had in the U.K. have been a drag on earnings locally, but they are, of course, exceptional and should not be continued.

My first question is about the flow of business development. You may have comment that so far this year, at least in Q2, the flow of new contracts was as strong for municipal clients as for industrial contrast, which is probably better than I had in mind considering your comments over the past few years so the future is largely industrial.

And could you maybe explain a little bit, is this just the fact of a small number of contract on no more or do you see a revival in the municipal pipeline on more broadly on this business development? How is your pipeline of potential contrast shipping up?

Maybe you could update us on the pipeline of tenders that is shaping up for the coming months. That would be on business development.

Purely on finances, the earnings in H1 '17 would have been -- our growth would have been even higher was it not for the €15 million of EBITDA related to one-offs booked last year and I was wondering are there in H1 '17 material one-offs that you want to highlight to us so that we can have them in mind for next year.

Yes, Emmanuel, between municipal and industrial, it's -- the first quarter for some of quarters that municipal is exceeding a bit in industrial development. But just, 52%.

So it is much too early to tell about -- to say about reversal. In our pipeline, which has been increased during the first half and during the Q2, we still have more industrial prospect then municipal ones, and we are still at 40% for municipal prospects or project and 60% for industrial.

So we could not say if we will win all of them or if we will keep this proportion 40-60 at the end after winning. But it is much too early to say that we will have more municipal projects than industrial.

But yes, we have municipal projects, perhaps a bit more than we had just last year or during the last years, perhaps because I would say Europe, but also in Europe and especially in Eastern Europe we have new projects for municipal clients.

Regarding your remark about one-offs, overall, last year we had about €50 million one-offs impacting favorably our EBITDA. Some of them had been flagged, I mean, the successful termination of the Common Creek contract.

It's not a one-off per se but it's -- the fact that it was concentrated on a very short period of time whereas normally it's spread over a longer period made it a one-off. The successful litigation or the termination of a 10-year litigation in Brussels, the Aquarius Wastewater Treatment Plant was also in that category and we had a few others.

So all told, that means about €50 million. I'm glad to report that we won't have this issue next year.

So you can rest at ease. Emmanuel, we won't tell you next year that we had positive one-offs in Q1 because we did not have any, I mean, we had some positive one-offs and some negative one-offs but they canceled each other out.

So there is no net impact to be expected, and therefore, we have a pure comparison base next year.

But Emmanuel, you remember that during Q1, we have an extra EBITDA cost of €50 million of insurance. We reversed at the EBIT level next year, of course, we will not have that.

So we will have €15 million more in EBITDA and €15 million less in EBIT also.

Just a couple of questions on the balance sheet, particularly given in light of the kind of discussion on acquisitions and scope for acquisitions going forward. I was wondering whether you could just remind us what your third, kind of, measure is for, kind of, target balance sheet gearing at the moment?

Is this still around, kind of, 2.5x net debt-to-EBITDA stripping out the loans from JVs? Is that still, kind of, measure we should be focusing on.

And there was some discussion I think last year on potentially repaying the hybrid. Do you have any, kind of, thoughts on where you'd like to be in terms of hybrid issuance whether you would like to stick with the current level or repay that?

And secondly, just obviously, kind of, highlighting your statement the fact that you have taken favorable debt market conditions and very small bonds. But the cash number although down from your end increased sharply versus H1 last year.

I was wondering if you could just give us an update on what your thoughts are and where you'd like to be in terms of how much cash you'd like the [indiscernible] to hold going forward?

Our objective in term of debt, we don't have this figure of 2.5x EBITDA. We said previously that we want to keep below 3x EBITDA.

So we still have air and sometimes I say that between €8 million and €9 million, we are comfortable. So we are still under or below 3x and around €8 million or €9 million.

About the hybrid, we'll take the decision next year, at the beginning of next year. You know that we have to decide before -- ahead of March.

So we will see, depending of our project, depending on the condition we could get, what we will do. It's too early to answer what we will do with the hybrid.

Well, to clarify, there is absolutely no uncertainty. We will reimburse the hybrid.

Whether we issue new one or not will depend on the factors indicated by Antoine. Today just about the nation premium is still north of 200 basis points, so it's not a cheap decision in today's market.

And the question will be whether or not we need it. If we don't do any large acquisitions, we might not immediately reissue a new hybrid and wait until a potential large strategic move which will -- which would then necessitate to strengthen the balance sheet.

But if in today's conditions, we would probably not immediately renew the hybrid. You're right, we have a lot of cash on our balance sheet because we took advantage of the market conditions to raise new bonds in advance of the significant reimbursements, which are due next year, if we include the hybrid, overall it would be close to €2 billion.

But you have to keep in mind the fact that we issue more than €3 billion of commercial paper. So our net cash position at the group level -- the central group level is only roughly €1 billion.

And therefore, it doesn't create a significant drag on earnings. Keep in mind the fact that with the arbitrage we do between the commercial paper we issue today at minus 33 basis points and the placements, we realize, which are today roughly at 0, we generate about €10 million savings on our financial expenses bill every year.

It's a crazy world, but it continues to be crazy. So we continue to take advantage of it.

Yes, it's me again. I have a follow-up on hybrids.

I just want to make sure I understand because in the past my understanding was that you did not want to have hybrid bonds on the balance sheet and you were gearing to terminate the hybrid. And from what you've said few minutes ago, it seems you now consider that hybrids are part of your balance sheet for the long run.

And either you will final straightaway and keep a layer of hybrid on the balance sheet or you want to use hybrid strategically to do an acquisition. So my question is this, are hybrid that important that you want to have on the balance sheet in the long run or do you just want to be equity and senior debt?

What -- how should we think about the structure of your balance sheet on the recurring basis going forward?

It's not an ordinary component of our balance sheet, and therefore, we will use it in an opportunistic manner. If we did need to reinforce the balance sheet, for example, following a large acquisition, we would examine whether it makes more sense to issue equity or to issue hybrid debt.

So that -- but it's not an ordinary component and we will look at the situation case by case. Today we would not need it.

By the way, S&P has withdrawn the equity content benefit of the hybrid to assess our rating. So we -- and we still continue -- we continue to have the same rating without the support of the hybrid.

If we did a large acquisition then we might have to reintroduce it. And therefore, commit with the S&P to making it more of a permanent component of our balance sheet.

But that's not the situation today. In other words, we'll play it by year.

We never said that we don't like to have hybrid in our balance sheet. Even without big acquisition, it would be an opportunistic decision at the end of the actual hybrid for sure we'll bought it, of course, but the decision to take a new one or not will be depending of the contact at that period, and we don't choose in principle to have hybrid in our balance sheet.

It will depend a little bit also, as -- in terms of how the IFRS evolve. There is increasingly the notion that this is really debt and it should be treated as such in IFRS, and we see that the rating agencies want to do, at least S&P has a fluctuating approach to hybrids requiring companies to take very firm long-term commitments before they actually give or maintain the equity content benefit.

So it will depend a little bit also of that element of the environment, not just the pricing differential, the subordination premium.

Two questions, if I may. The first one is regarding CapEx.

Can you just tell us what's your expectation for the run rate for the year and what the expectation is going forward? I see the numbers is still quite contained.

I'm wondering what you think about the CapEx [indiscernible] growth going forward. The second one is regarding water in France.

You talked about the recession in the business and you mentioned the expectations of new wins in France. If you can elaborate on this a little bit, please?

And the last one, regarding potential for acquisitions or costs going forward. I heard you deny that you won't be working on anything at the moment.

But I was wondering is there a business that you don't have at the moment and you think about or an area, very broadly, of course, that you would like to be in and you don't have any moment?

For the CapEx, it's difficult to predict because the budget last year was €1.75 billion and we did €1.5 billion. We are very happy to spend less.

That contributed to the excellent performance we had in terms of free cash generation. But we were a bit frustrated because maybe we thought we were not seizing all the opportunities.

Today, as you can see, our BUs were right not to spend more because we still enjoy very good topline growth while having spent less than we thought. This year again, our budget is higher than the previous year.

So we expect to spend something like €1.7 billion, €1.8 billion. But I suspect that our business will be as disciplined as last year and that we will actually not spend much more than the €1.5 billion they spent last year in spite of what we have in the pipe.

About the potential wins in the French Water business for the second half, of course, I will not be able to give you some precision because you know that we don't talk about commercial wins before to get them. So it will give too many information to our competitors.

So unfortunately, I will not answer. But of course, just after the win, the official win, if they are, you will be informed through press release.

I forgot your last question.

What new business...

What new businesses? It is a rule of a CEO to always think if the portfolio of the company is the right one, too big, too slow, too small.

So we have always some ideas and we are checking different ideas. So today, I would tell you that we don't have big project at the table.

But every day I revisit this idea with by executive team and sometimes it could come. That is not the case today.

So any other question?

So thank you very much for your presence on the call. Have a good day.

For some of you, perhaps, some good holidays. As we will have a new call in 3 months from now with pleasure.

Goodbye.