December 7, 2021

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Edited Transcript of SCHP.PA earnings conference call or presentation 10-Mar-20 7:30am GMT

Changé Apr 2, 2020 (Thomson StreetEvents) — Edited Transcript of Seche Environnement SA earnings conference call or presentation Tuesday, March 10, 2020 at 7:30:00am GMT

Ladies and gentlemen, good morning. Thanks for joining us this morning for the presentation of our annual results 2019.

At my side, you recognize Maxime Séché, Chief Executive. He’ll recall the highlights of the year 2019 that has many strategic achievements and promising for the future on the strength of its financial and nonfinancial performance. 2019 was a year that places Séché on the pathway for profitable growth that we’ve set for the mid-term. Then it will be Baptiste Janiaud, the Chief Financial Officer, who will present the financial statements for 2019. You’ll see that our results are sharply up over 2018. Our gross operating margin is improving as well as our ability to generate cash. And we have a strong balance sheet to deliver our growth strategy.

The year 2019 was for Séché Environnement a year of major achievement from the strategic standpoint as well as operational, financial, nonfinancial performance. All the targets that we set for the 2020 were achieved this year. So our group has confirmed its internationalization strategy by strengthening its sites in Latin America, in Peru and in Chile and taking strong positions in Southern Africa with the acquisition of Interwaste and, of course, Italy with the acquisition of Mecomer. Revenue achieved internationally has grown 25% of consolidated revenue. It’s a year ahead of our initial goal.

On the international markets, Séché Environnement is on growth platforms that will accelerate its profitable growth strategy. Markets where we operate, Latin America, South Africa but also Italy, offer very significant growth potential and also generate levels of profitability that are higher than our legacy business in France. It’s accretive growth that is underway internationally.

And in 2019, on our historic scope on the markets of the circular economy, combating climate change and preserving biodiversity, Séché continues to advance most of its financial and nonfinancial indicators. On its historical scope, the group confirms once again a pace of organic growth that is strong, improvement of its gross operating profit, strong generation of operating cash flow and improved balance sheet through enhanced liquidity and flexibility.

In 2019, we reached our organic growth target set for 2020 with revenue at EUR 586 million on our historic scope. Let me remind you that in 2020, we have a range of between EUR 550 million and EUR 600 million. What’s more, the directions that we give to our organization, in particular for greater industrial efficiency, positioned us with even greater relevance close to our clients’ needs for industrial and environmental performance.

As regards operating profitability, our 29 (sic) [2019] performance on our historic scope sets us on the targets set for 2020 of 20%. That is the EBITDA of contributed revenue. We confirm our ability to generate cash with a conversion rate of 42% from EBITDA, very much higher than our 35% target. We’re achieving our goal of rapid deleveraging excluding acquisitions. And we’re also strengthening our nonfinancial performance, both through renewed governance, better distribution split of functions between Chairman and Chief Executive, revamping of the Board of Directors as well as through our performance in terms of energy — renewable energy performance, reduced greenhouse gases or greater strides towards biodiversity.

Our self-sufficiency in energy was above 200% in spite of the program stoppages to modernize certain of our facilities that produce energy. In 2019, we’ve increased by 50% the reduced tonnes of CO2. That’s the result of our specialty or, should I say, our unique expertise in the treatment of industrial gases in 2020. Investments for energy enhancement on our facility at Salaise will reduce CO2 emissions of our industrial clients by about 120,000 tonnes per year. That’s the equivalent of about 80,000 households.

We commit to preserving biodiversity. It’s a long-standing commitment that’s the heart of the industrial plan that I’ve set for Séché. In 2019, we decided to combine our forces to those of other companies around the EpE project, Act4nature. I’ll return to this dimension of Séché in due course because I don’t want to separate our financial performance from our environmental and social performance.

The financial targets that we set out in December last for 2022 are thus fully confirmed. Of course, the current concern linked to the coronavirus leads us to view the next few months with prudence. To date, today, this health crisis has not had any particular consequence on our organization or our business because very early on, we took prevention measures to protect our personnel, and that’s the most important point today. Even if we remain extremely vigilant as to how this crisis progresses, our 2020 expectations don’t include a full crisis linked to the coronavirus on industrial production in regions where we operate. In spite of this uncertain context for 2020, I would like to express my trust in the ability of our company to successfully deliver the ’22 road map that we set out last December.

For this 2022 horizon, this road map shows a group with an even greater international profit with gross operating profit up 2% over the current status with significant deleveraging excluding acquisitions. This road map is clear with growth profitabilities and financial and nonfinancial value creation targets for all our stakeholders positioned on growth and high visibility markets of the circular economy and climate change. Séché Environnement is characterized by its specialist approach in technical, high value added with barriers to entry. It’s a pure player approach for industrial and hazardous waste, where Séché remains strongly positioned for the future.

This strategy and this positioning allows it to ensure steady, sustainable, profitable growth in France and overseas, where the group is successfully replicating its growth model. We expect consolidated revenue of close of EUR 800 million in 2022 with 30% international excluding M&A. It’s also operating profitability up above 20% of contributed revenue. Operating profitability and selective investments must contribute to improving our financial flexibility with a leverage ratio clearly below 3x EBITDA, leading to significant deleveraging. This virtuous circle that I’ve just described will assure sustainable and profitable growth and dynamics for growth going forward. The company is in a strong position to continue in the coming years, growth that will create both financial and nonfinancial achievements in France and abroad, responding to the key challenges of our world.

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Maxime Séché, Séché Environnement SA – CEO & Director [2]

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Good morning to all. So I’d like to return briefly to the achievements of 2019 and illustrate in greater detail the components of our strategy.

Before that, an item of news addressed by Joël, coronavirus. To remind you, our core business is Hazardous Waste. Our teams are already prepared, and we already have strict procedures in place to do our business in the best conditions. With the support of health, safety and human resources, we’ve been monitoring this situation since the end of 2019. We’ve prepared operational continuity plan and apply strengthened procedures in our businesses. We immediately came to grips with the matter. We contacted the authorities. Our immediate priority is the health and safety of our personnel, and we present to them the latest developments on the epidemic. This epidemic represent a major uncertainty. We’re cautious in our investments, but we remain confident in our strategy as stated.

Let’s now return to the results. As I mentioned to you during the Investor Day in 2019, our strategy allowed us to deliver our targets of revenue growth and profitability. Joël has just mentioned the rollout of our internationalization acquisitions policy. These external growth transactions represent EUR 115 million for the full year. 2019 was a defining year because there were opportunities that arose, strengthening our position as a pure player on promising and technical markets, positioning on managing hazardous waste, the circular economy and industrial services.

We continued our selective acquisition policy. We’re pleased to announce an increase of our contributed revenue, up 23%; strong growth of organic revenue of 24%; and EBITDA of 24% (sic) [up 25%]; but above all, our gross operating profitability of 25% of revenue. Our goal is now to integrate and expand these acquisitions, placing personnel at the heart of this acquisition. We’re convinced that the success will come about, thanks to the core values of sustainability and of our family group. Given the financial leverage ratio of 3.1x EBITDA that’s under control, we seek to achieve a leverage ratio of 3x. Our core business is sustainable development, so we’ve also reached nonfinancial targets that I’ll come to in a moment.

Shown here is the contribution of international with a focus by zone. International is a key growth driver in 2019 since we went from 11% in 2018 to 25% of revenue in 2019. Back in 2015/’16, we were at 5%. We see here that South Africa contributes 9.4% revenue; Europe, excluding France, 8.3%; Latin America, 3.6%, primarily Peru and Chile. In 2019, external growth operations represent acquired revenue of EUR 103 million, Mecomer in Italy, Interwaste in South Africa, Kanay in Peru and Ciclo in Chile.

Mecomer, this is a collection and hazardous waste site in Milan that deals with hazardous waste from all Northern Italy. It’s the most industrial region in Southern Europe. This acquisition meets a vertical integration log. We capture flows of hazardous waste and also new skills. Over 9 months, Mecomer represent revenue of EUR 35 million. We’ll return to this. But we planned the expansion of this subsidiary, an investment to double the site capacity. The timing might be adjusted depending on how the epidemic evolves with its impact on subcontractors and supply.

The other major acquisition is Interwaste in South Africa. So it’s the second player in the sector in the country with revenue of EUR 65 million. It’s a growth platform in a new area where we’ll deploy our expertise in technology. In 2020, we’ll focus development on more development and energy recovery.

Kanay in Peru is the acquisition of 100% of Kanay. That’s to say EUR 3 million in revenue. We strengthened our positioning on service to industrial corporations, remediation and hazardous waste treatment. In 2019, there was a one-off due to macro uncertainty in the country. We continue to respond to contracts and expect a recovery on pollution removal. We’re working on cost synergies after the merger of our 2 units, Kanay and Taris in Peru.

Lastly, in Chile, we’re rolling out our expertise on the treatment of hazardous waste with the acquisition of a project in the Santiago region, the capital of the country. This acquisition meets the various pillars of our growth strategy at the heart of the current challenges for sustainable development, climate change and the circular economy.

We’re expanding into new areas whilst remaining positioned on promising market. 2019 revenue reflects our position as a specialist player for hazardous waste. That 65% of our revenue, that is up 3 points over 2018. The increase of the share of revenue with industrial corporations, also up 3 points, going to 82%, strengthens our position in chemistry, pharma and oil and gas sectors.

In 2019, we benefited from buoyant markets and our favorable position in treatment and recovery activities, representing 2/3 of our business. Our position means we can benefit from price and volume effects as well as the circular economy. Internationally, we’re leveraging the constant increase in environmental requirements to offer bespoke solutions to local needs based on our know-how and expertise. Concerning the service activity that represents 1/3 of our revenue, we’re benefiting from our position on value-added operations such as pollution removal in cases of environmental urgency. Service development is part of an interventionist strategy that allows us inter alia to accompany our clients internationally and to better meet their needs.

I’d like to illustrate now how the organization has as its priority industrial performance. Our industrial efficiency plan is focused around 5 areas. Structuring our supply chain allows us to optimize the waste mix for a better availability of our tools. Thanks to execution discipline, we will be able to increase tool availability with a focus on health and safety by relying on our regulatory and social ethics, likewise, internationally, in the way we roll out operations. There’s a major example in 2019, which is the revamping of Salaise to the goal of improving the availability, and productivity is underway. This project of revamping was conducted in a professional manner with 0 accidents, 0 delays and 0 cost overruns. We’re aiming for a significant increase in our annual capacity, thanks to better availability with a reduction in facility stoppages.

Another example is the OSIRIS project on Salaise 3 that demonstrates our determination to determine energy recovery, making Séché play in the circular economy whilst boosting our profitability. This pipe project with our hazardous waste incinerator will triple the sale of steam from Salaise. OSIRIS is an industrial platform that produces hazardous waste close to our incinerator.

The efficiency plan is part and parcel of operating performance. We’ve set in hand a EUR 10 million plan over 2 years. Thanks to the professionalization of purchasing department, the various pillars will be rolled out across the group. You’ll see our group rationale to roll out across the business units, the best practices and to make them the group’s benchmarks to reinforce our organization.

Séché Environnement is and continues to be a sustainable development player as indicated by the nonfinancial performance indicators. For energy transition, our action in favor of energy transition is measured in terms of our energy production. Over 730 gigawatt hours for a consumption of over 300 gigawatt hours were produced, twice as much energy as we used to treat waste.

In terms of combating climate change, in 2019, our activity emitted 900 million tonnes GHG equivalents. We avoided 100,000 tonnes of GHG equivalent, thanks to energy recovery. That’s the equivalent of power of a town of 10,000 inhabitants, Dinard in France. And the treatment of highly heated gases, maybe we’re able to reduce emission gases. These are cold gases, SF6 that have 25,000 times the heating per CO2. That’s the equivalent of a town of 500,000 inhabitants, Toulouse or twice the size of Strasbourg.

In terms of biodiversity, the group is embarked on the preservation of this biodiversity since the ’80s and is extending its scope internationally. We integrated 2 sites internationally, Spain and Peru, in the Act4nature initiative that I mentioned at the Investor Day. The group is involved in sponsorship activities with the National Museum of Natural History. We’re combating marine pollution through the Marinarium of Concarneau. With this Act4nature program, we’re supporting the earthbound program to restore biodiversity in the countryside. Following up on its commitment on Act4nature in 2018, the group has signed up for the initiative of the Environment Ministry Act4nature company last December.

At the end of 2019, we achieved most of the 2020 targets. The growth of revenue and controlling our financial leverage, it’s important to set new targets for 2022. We want to continue to improve our gross operating margin, thanks to a good price/volume mix, as I indicated earlier, but also thanks to the effect of our industrial and operational efficiency plan and our saving plans to reach our 2022 targets.

2019 is a year of transition. They create the growth momentum for our 2022 road map. Selective revenue growth, thanks to our positioning, organic growth in France on the circular economy and internationally on services and treatment. We also aim for an improvement in operating profitability with our industrial excellence plan, the development of recently acquired growth platforms. Lastly, the creation of shareholder value rests on continued selective investments while preserving high liquidity and budget control.

I’m going to hand over to Baptiste for a detailed view of the 2019 financials.

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Baptiste Janiaud, Séché Environnement SA – Chief Administrative & Financial Officer [3]

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Yes. Thank you very much, Maxime, and good morning, one and all. Now we’re going to get into the nitty-gritty together for maybe 10 minutes. I’d like to summarize the financial performance of the group for financial year 2019. Finance is also a part of the biodiversity world.

A normal graph on which you can see the main drivers of our financial performance for last year. The takeaways are, first of all, dynamic activity in organic and also external growth of our performance, up 23% revenue, as we said. Strong readability of our results, given the scope and the implementation of IFRS 16, which is the new set of standards, which has been applied to all companies for rent contracts. I’ll be able to come back to this later to try and explain it in the most simple terms possible and explain how it impacts our accounts.

During the Investor Day last December, we shared with you some information on our revenue target. We are at EUR 687.8 million, so at the top of the prediction margin with a significant scope effect, EUR 102.5 million, but also organic growth, which remains dynamic with plus 4.4% versus 3.2% in the first half of 2019, which goes to show the high level of quality of the financial performance. In that EUR 137.4 million, we said between EUR 130 million and EUR 135 million. So again, we’re plus 25% versus last year for EBITDA. But this was, of course, impacted with — by IFRS 16, an EUR 18.4 million negative effect there.

Operating profit is at EUR 46 million as well, which has enabled us to stabilize our operating margin at 6.8%. Net profit, 17 — up 17%. Net income group share up 14%, EUR 17.8 million, which has enabled us to increase the earnings per share, EUR 2.27 (sic) [EUR 2.27] versus EUR 2 (sic) [EUR 2.20] last year. Investment in — industrial investment CapEx is under control, as we’ll come back to that later, and also the net banking debt is up, which is a clear reflection of our acquisition strategy. As we have already said, investments in growth were decided based on our operating cash flow performance. Today, we generate free cash flow in the black, which means that we can deleverage excluding acquisitions.

Very briefly on the business. Published revenue, EUR 604.4 million (sic) [EUR 704.4 million], up 23% over last year. Non-contributed revenue, EUR 13.6 million (sic) [EUR 16.6 million], no need to come back to that. That’s down EUR 9.3 million over last year. So contributed revenue, plus 22.7%, up 4.4% like-for-like — 0.4% (sic) [4.4%] like-for-like. So excluding scope effects overall, business like-for-like is good, EUR 13.7 million positive effect, which is due to French and international effects due to the industrial markets, which have held solidly throughout the year and also the solidity of the markets with local authorities that have maintained their appetite for circular economy business.

Comparing France to international business. International business was very buoyant last year 167 — EUR 171 million, 25% of our revenue, as Maxime mentioned. EUR 102.5 million in scope effect, EUR 64 million from Interwaste, slightly down over 2018. This is due to the closing of a storage center. EUR 35 million from Mecomer, only over 9 months though. The 2019 business being particularly strong for Mecomer with an increase of revenue from them of about 40% over 2018. A very poor year for Kanay, we were expecting some depollution contracts that didn’t end up coming through due to the economy in Peru. Excluding scope effects, we have seen an increase of 6.7%, so this is like-for-like. With waste management particularly up, Chile being a significant contributor to that performance. Valuation was impacted also by our Spanish subsidiary as well with business that was slightly slower than in 2018. And services with Solarca mainly being the impact here, slightly down versus 2018, which, as you may remember, was particularly good.

In France, all businesses are accretive. We have seen organic growth going up plus 4.1%, so a positive strong contribution of French business to overall business. Treatment is particularly dynamic. So this is recycling of waste. Also in services, as Maxime mentioned, this is mainly due to emergency depollution contracts, which are classified as hazardous waste treatment in the second semester. We explained during the Investor Day that this was a significant growth driver for us, and that was shown through the second half of the year. We mentioned Lubrizol, Notre-Dame as well for lead depollution and other things as well.

Moving very quickly on to the quarterly breakdown. What’s interesting to take away from this is that we’ve already shown you the first part of the year. The second half of the year, as you can see, also was strong, especially Q4. If you split between Hazardous Waste and Non-Hazardous Waste, you can see very strong performance in Q4 for Hazardous Waste for the reasons that I just explained and also a business that remains solid and recurring in the Non-Hazardous Waste segment.

Broken down by business line. Again, this is like-for-like, no scope change for these graphs. If you look at treatment, recycling, recovery, treatment accounts for 50% of our business today, is up EUR 13.3 million, roughly split between Hazardous Waste and Non-Hazardous Waste. Hazardous Waste has seen strong growth especially on our platforms in France, a strong dynamic, as I said, on our treatment equipment in Chile. On Non-Hazardous Waste, the storage centers of Non-Hazardous Waste have seen particularly good business as well.

On recovery, 15% of our overall business, we have seen an increase of EUR 5.9 million. As I explained during the Investor Day, we are not specifically seeking out any new business in this field, but we’re looking for higher added value activities such as solvent treatment and purification. For Non-Hazardous Waste, we are at plus EUR 4.5 million with an increase in energy recovery there in our sorting centers and our combustible treatment plants.

Services account for 35% of our overall activity. We have seen an increase of EUR 5.5 million there with a drop in the first half of the year, as we mentioned during the Investor Day, on the work side of things, which explains the drop in Non-Hazardous Waste business. But that has been offset by a significant increase in our services through our emergency interventions for hazardous waste treatment.

So after business, moving on to operational performance or profitability. Starting with EBITDA, EBITDA is strongly up at plus 25% with scope and business effects that remain strong. The increase of EUR 26.7 million is due to the plus EUR 8.3 million from the application of IFRS 16 to the account. This is a correction of the rent effects on EBITDA which is coming into play. This is simply an accounting effect. It has no relation to our operational performance. EUR 18.4 million scope effect, so 18% of earned revenue, this is mainly from Interwaste with about EUR 10 million and another EUR 10 million from Mecomer, with slower performance, as I explained, of Kanay.

Kanay, as Maxime explained, does have synergies that need to come in with tariffs and also a business plan action that will be implemented in 2020. They did suffer from the lower activity. Remember that Kanay, the scope effects give us a 20.2% margin effect in the first year, which contributes to an accretive impact on international EBITDA, which remains interesting and relevant. Like-for-like at constant scope, so inside the box on the graph, you can see that the volume effect is up EUR 15.6 million, significant, 1/3 in France, 2/3 abroad, mainly in treatment and services, as I explained.

Price effects are very strong, EUR 28.1 million. This comes mainly from France. This is related to the changes in business and in prices which affect all of our activities, and that’s very good for us. However, EBITDA was weighed down by variable operational expenses, which went up. This is related to waste being sent to external sites when our own ovens weren’t available. So this is mainly an impact on the second half. We did discuss the revamping of Salaise 2, these repairs during which we had to take the waste and send that waste to elsewhere, which meant that, of course, we weren’t able to take advantage of them.

There was also an increase in our maintenance and repair costs under other expenses. There was also the fire at Lubrizol, which led to an impact on our Rouen oven. We also had the calibration period for — so between the repairs and the revamping and everything else, there was a negative effect, so about EUR 4 million of nonrecurring effects, as we explained previously, due to nonrecurring operational expenses, which did have a negative impact on our performance in 2019.

On this graph, we don’t need to dwell on it. This is a drill-down on H2. You can see that EBITDA is at EUR 72.1 million. This shows the very good and highly contributive effect of the second half with an IFRS 16 impact of EUR 4 million, acquisitions for about EUR 11.8 million, 19.9% therefore of the EBITDA margin.

Coming back to the operating income. We have here a breakdown based on France and international operating income. For France, you can see the impact of — the positive impact of EBITDA, EUR 1.1 million; a negative impact of amortization, up EUR 5.5 million, EUR 2.8 million of which you can see right on the right side. So that’s the alvéole amortization, which is a nonrecurring effect that will not have any impact on 2020. And this is due to at the early phases of massif, which cost more than expected, a nonrecurring effect, therefore, in the 2019 books.

For international operating income. So the second rectangle on your screens, you can see a scope effect of EUR 13.5 million. This is important and positive because 13 — it’s a 13.2% contribution to the acquired revenue. So as you can see once again, our acquisitions were accretive to our operating income. However, the international part did suffer from the intangible asset amortization. What this comes from is when we carried out the acquisitions, we recognized the intangible portfolio on the client side, then we applied IFRS 3 to that because we use the IFRS standards. IFRS 3 standard requires us to amortize that intangible asset. So the client portfolio over between 4 and 7 years, so that has an impact on our operating income.

From a business standpoint, this does not mean that the client portfolio has gone down in value at all since the acquisition. In fact, on the contrary, as I explained, it actually increases our business. So actually, the portfolio probably went up in value. But this is an accounting effect due to the booking of the acquisitions and the recognition of intangible assets. So overall, excluding the nonrecurring effects of the amortization of alvéole, when you go back to recurring operating income, so basically, operating performance, as I would like to describe, is 7.8% of our turnover contributed in terms of the operating margin.

Continuing to move down the account. About EUR 1 million difference with the group net income. The implementation of the IFRS 16 standard accounts for EUR 0.5 million of that and then further acquisitions, which account for the further EUR 0.6 million. EUR 17.5 million, part of that due to IFRS 16; EUR 9 million, thanks to the increase in financing. Basically, we increased financial debt. We refinanced for EUR 80 million over longer maturities. We will be coming back to that later. And also the financing rate is 3.4%. We have a variation, EUR 1.8 million, which is related to a product that we recognized in 2018 after an effect that came recently. And that had an impact of driving down the financial impact in 2018.

Taxes, EUR 8.8 million. Our tax rate is still stable at about 35%. This is slightly higher than the standard rate. This means that our net income group share at EUR 18.9 million — EUR 17.8 million — excuse me, net income before minority interest, EUR 18.9 million; net income, EUR 17.8 million, so an increase over the second half, which did, however, experience the EUR 0.4 million impact of the implementation of IFRS 16. An increase in minority interest, EUR 1.1 million. This came from Interwaste, the subsidiaries within Interwaste, from Mecomer as well with EUR 0.2 million from Solarca well. So the net income would enable us to go to the next GM and maintain the dividend at EUR 0.95 with a payout ratio of 82% — 42%, excuse me.

We have industrial investment at EUR 72.5 million, EUR 48.4 million of which is recurring CapEx, stable at 7% of contributed revenue. This is a target that we explained during the Investor Day. Excluding IFRIC 12, which was an impact on the 2018 accounts, about EUR 14.4 million, we said that we needed to renovate the Salaise oven and other investments, EUR 5.4 million in already acquired companies, Interwaste, alvéole and transport equipment. So these are investments that are under control and overall reflect our overall growth strategy.

Operating cash flow is up 42%. And this is mainly due to the changes — the increases in EBITDA. WCR is down 0.5 million — EUR 5 million, which is due to the Lubrizol event. We — that company still owe us money. And this means that available cash flow before development CapEx and before financial investment is at EUR 56.7 million. And the conversion rate is at 42%, which is in line, if not higher than our 35% stated target.

Coming back to net banking debt. All in all, changes in net banking debt reflect our acquisitions policy. We have EUR 70 million in investment, EUR 27 million in debt and a free cash flow which is at — in a positive with EUR 23 million, as you can see on the left side, just on the operational side of things. If you remove IFRS 16, that’s EUR 15 million. So debt at the end of the year at EUR 399.4 million.

Regarding capital structure. This is an important component of our accounts. Liquidity is strong, EUR 287 million with debt maturities that are even over the period and average maturity at 5.5 years. A low number of debts will come to maturity in 2020 but have been refinanced already. A positive change on the credit impact of 5 basis points, so the rate was improved since July 1, 2019. And the ratio, as I said, 3.1, which is an improvement over the midyear point, which was 3.2. Remember that this only takes into account 9 months of Mecomer, so the financial ratio is around 3, which is properly under control for the full year if you include the first quarter of Mecomer.

And this slide comes from the Investor Day. These are the development investments that we’re planning over 2020. We do have a lot of opportunities ahead of us. We presented them during the Investor Day internationally in South Africa, Mecomer in Italy as well to increase capacity in Chile after the acquisition of Ciclo. To be clear, these investments are flexible. And what I mean by that is that the kickoff of these investments can be adjusted and tweaked depending on the situation. This has always been our policy, to make sure that we match the operating cash flow and our investment. If we were to see an impact of the coronavirus on our operating cash flow, which is not the case today, in that case, we could simply adjust the go date on these investments and transactions. The Chile plan is being deployed over 3 years, so CapEx, [EUR 6 million] for 2020.

As Joël and Maxime mentioned, the important takeaway here is that we are maintaining our targets for 2020. In December, we described our ambitious 2020 road map. It’s ambitious for business activity, also increases in profitability. We are maintaining those targets. And if we needed to come back to some components of this road map, basically for 2020, we are expecting growth in our activity, high-quality growth at that. And internationally, we are expecting dynamic growth even with operating profitability at 20% of our contributed revenue and an investment plan, which will be maintained at a high rate, which, as I explained, will depend on changes in our cash flow. We will continue to prioritize liquidity, going to continue to prioritize cash generation. We can reconfirm our leverage ratio target at 3x.

For 2022, as I said, we’re expecting between EUR 750 million and EUR 800 million contributed revenue, 30% of which comes from abroad; EBITDA between 20% and 21% of contributed revenue; investment, as I explained, for maintenance investment, we were at 7%, we’re expecting between 7% and 8% in investment, the rest of that part being flexible. And we are going to keep our 30% EBITDA free cash flow target with a target again of the financial leverage ratio being below 3x. Thank you.

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Joël Séché, Séché Environnement SA – Chairman & President [4]

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Thanks, Baptiste, for that very detailed presentation on financial performance. In conclusion, I’d like to recall that Séché’s business model is not just an efficient financial model. When I created Séché Environnement 35 years ago, it was on the bedrock of human and corporate values with the aim of creating environmental and societal value for territories.

My approach was simple. Planet’s resources are getting scarcer. There’s greater need for them to increase our living standard or simply because there are more of us living on this planet. It’s from there that I resolved to devote my company to the circular economy so that the waste of some become the resources of other. With strong commitments in terms of protection, biodiversity and combating climate change we developed around environmental challenges and then the company accumulated expertise. It supplied raw material resources for value-added industries, green energy and all renewables for territories. It became a player in combating greenhouse gases through the GHGs that it can avoid and its initiatives to reduce GHGs produced by other economic players. Therein lies primarily our core business. It’s fully consistent with the anti-waste law for a circular economy adopted last February.

Recycled materials. That’s our priority, in particular scarce resources vital for value-added industries. Secondly, recover energy, that’s a strong focus as the vital energy for human activity reduces its carbon footprint. Three, maintain and control waste hazardousness, it’s our specialty. No human society can flourish in a soiled and contaminated environment. Through these operations of energy recovery, that’s to say to produce scarce resources or renewable green energy, treatment, that’s to say to reduce hazardousness, 3 confined ways that is isolation of the biodiversity, Séché is involved at the crossroads of human impact on the economic life, addressing health and well-being issues through the preservation of biodiversity and natural resources because it masters the consumption of resources and the impact linked to discharge into the environment.

It’s to this global value creation, both financial and nonfinancial, that I plan to assess our performance and the success of our development strategy. Economic performance, financial performance, energy performance, performance in combating greenhouse gases, performance in favor of biodiversity are the key and inseparable metrics for assessing our progress as a corporate citizen serving the planet. On the basis of all these indicators that I would like our company to be globally assessed and recognized by its stakeholders.

In closing, I’d like to thank you for joining us this morning because I know that it wasn’t easy. And secondly, for — thank you for coming in your numbers, slightly more of you than expected, and we’re now happy to take your questions.

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Questions and Answers

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Unidentified Analyst, [1]

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I’m from MainFirst. I have a few brief questions. For the 2022 targets, EBITDA margin, do we take an IFRS 16 impact of around EUR 8 million like in ’19 a bit more, a bit less, if we could have an idea of the EBITDA margin targeted, excluding IFRS 16? I’d also like to pick up on Mecomer. You said that to date, thus far, there’s no coronavirus impact. But I assume that, I don’t know if it’s here, it’s stopped or if it’s just the situation today, if I could have more color on Milan. On Kanay, wanted to know if the losses were reduced in H2.

On Salaise, to the EUR 4 million in revenue addition, is that as of 2020? I also wanted to have an idea of total revenue for the Salaise 2 facility, also the revenue that you generate in emergency interventions. I know it’s not a lot, but the change is quite significant. On Lubrizol, also wanted to know what’s left for the insurance company. Has everything resumed operational or there are still activities that have stopped? And on the deconsolidated factoring, has that increased? Or is it of the order of last year? I think it was EUR 22 million.

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Maxime Séché, Séché Environnement SA – CEO & Director [2]

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Answer to your first point, Mecomer. So Mecomer, as we indicated, Italy, Milan, Northern Italy, so in quarantine in Lombardy now, it affects the full country in quarantine. Today, there are no absentees from work this morning. We can say that. So no absentees because we had communication this morning before. No absentees. The activity continues because it’s a stoppage of travel for individuals, not people who are working today. But we’ll see how that decree evolves. Those who are working can still move about because on our side, that is to say in the Mecomer activity, there’s an activity of public interest because we also deal with processing medical waste for hospitals in Milan. So we’ll see how things develop. But for the time being, there’s no impact as things stand on Mecomer in Italy. For Lubrizol, now Lubrizol for our part, activities resumed. Then of course, there are some financial issues that were mentioned by Baptiste with the insurance front. I’ll let you speak to that.

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Baptiste Janiaud, Séché Environnement SA – Chief Administrative & Financial Officer [3]

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Yes. So on Lubrizol, activity has resumed. Basically, you saw the WCR changes, about half that’s external and so that’s receivable at June 2020 from the insurers. We’re currently finalizing the issue of steam production that impact our profitability. But on the operation of the site and the Rouen furnace, all that’s working. On deconsolidated factoring, we’re at EUR 24 million. We were at EUR 23 million last year. So it’s the rounding of the changes, but no impact on our cash flow linked to deconsolidated factoring. On the EBITDA margin, well, we’re in a year of transition with IFRS 16. We’ll have turned the page next year because — with IFRS 16 because we’ll have the IFRS financial statements for 2019. So if — so yes the ’21/’22 target incorporates IFRS 16. If we had to extrapolate, there’s no need because these targets are like-for-like, very different impacts of EUR 8.3 million EBITDA impact.

Turning to Kanay. Was the loss reduced in H2? Slightly, we’re not talking anything material here. We’re working on commercial and operational action plans in order to improve that, too. But we haven’t secured a significant improvement in activity in H2 or even marginal. I won’t give you the revenue by business line because it will confuse things if I start giving you the figures by unit and especially not by sectors within a subsidiary. However, what we can say on Salaise 2 that is an important point is that the revamping has been completed. Maxime said it was delivered without delay, without cost overruns. So we could say that even if there’s a time for fine-tuning, there’s a significant improvement in the availability rate that’s expected as of 2020.

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Jean-Francois Granjon, ODDO BHF Corporate & Markets, Research Division – Analyst [4]

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ODDO BHF. First question. On the EBITDA margin, can we return the reasons that if we reason, excluding IFRS 16, the deterioration in the margin, that linked to the nonrecurring items, in other words, it won’t be repeated in 2020? Second question, you mentioned solid growth in France and strong international growth in 2020. Can we try and quantify that? When you look at your 2022 targets, average top line growth of between 3.5% and 5.5%, we’re up 4% in organic 2019. Where to locate you — or where do you stand in 2020? Third question, we have a margin that’s lower, 18% for the scope year 1 2019. So we have a dilutive impact in 2019. How do you see that margin trending? Can we expect an improvement into 2020 and beyond? And you guided on EBITDA margin, 21%, 22%. What are your margin — EBIT margin, please?

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Baptiste Janiaud, Séché Environnement SA – Chief Administrative & Financial Officer [5]

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Baptiste. I’ll answer that. So first off, the — we were very clear and transparent on the split in terms of EBITDA margin, in terms of how the EBITDA is trending with how the operating costs are developing and operating and maintenance costs. There are one-offs that directly impact the EBITDA that we can clearly identify to the tune of EUR 4 million. They’re clearly one-offs, nonrecurring as such. So if restating those EUR 4 million, we can readily find what would have been an EBITDA — I won’t say normative because every year is somewhat different. But I deliberately isolated IFRS 16. I clearly identified the EUR 4 million so that we can rebuild, if you put a growth rate on the top line, what our EBITDA margin would be in 2019 and beyond.

On the margin of the earned scope, 18% for the first year, our acquisition strategy, we try and be pretty explicit. That’s to say we acquire scope. We transfer our expertise on those scopes, and we try and grow them on the basis of our skill sets, our expertise in treatment services in order to grow that EBITDA margin to buy and to already have an 18% margin. We’re very pleased. Objectively, we’re already very happy with that. We’re going to try and do better. We’re going to continue to do better because it must be accretive going forward on our EBITDA. That is, by 2022, as you said, the 21%, 22%, in our minds, of course, those growth platforms are contributive and don’t have a margin lower than the average EBITDA. But the first year, year 1, have 18%. We weren’t expecting that. We recall acquisitions back in 2017, we were lower than 18%. So it’s a starting point that’s significant.

Let’s not forget that when we have different development, that Mecomer is strongly contributive via vertical integration. They’re different stories because, of course, when we buy Mecomer, we’re benefiting immediately from the hazardous waste for our facility. So it’s immediately contributive. It’s different in Interwaste, where we have to transfer the skills, the expertise, our know-how, that takes longer. It’s even more different for Kanay, as we mentioned, where clearly the integration between Taris and Kanay and building a base — development base in Peru with a fully fledged commercial strategy and operational strategy built in, that takes time. We guided on an EBITDA margin, 21%, 22%. Barring exceptional or normative events, logically, the improvement will be found in the EBIT margin. But be careful, this year, we’re in a situation, where there’s IFRS 3. That impacts the amortization of the intangible asset. So that’s why all that logically will accrue to the EBIT margin, barring unforeseen events that would contaminate the reading of the EBIT margin.

On the top line growth, I think that, today, we have to be prudent. That’s to say that you see the 2020 guidance, we maintain them. We continue to be confident. But objectively, given what’s happening in other industries and throughout the world, even if we find waste, we’ll be impacted probably more towards the end. Because compared to other industry — because we’re at the end of the chain of the — I mean that encourages. Given what’s happening today in the world, even if, as we said, there’s no impact on our activities thus far, it could indirectly have an impact on global growth, on industrial output in areas where we’re present. And so indirectly, we might — we could be impacted. So we would urge caution. We’re really getting ready to weather the storm. What I said, I mean, that was important. That’s why I took all precautions. That’s to say that, today, the priority is to manage our operations in full autonomy. Flexibility of CapEx and operational cash flow continues to be key.

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Nicolas Royot, Portzamparc BNP Paribas Group, Research Division – Financial Analyst [6]

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Nicolas Royot. Maybe we can come back to some of the reasons why the performance in the end of the year was so good, Lubrizol and Notre-Dame, the depollution efforts there. What are we looking at for an end of those contracts? Is it going to be Q1, Q2 of this year? Senerval as well, is that back to normal at this point? And to come back to Mecomer as well, the growth in 2019, of course, is a poor base for comparison. But will we see similar effects as we saw for Solarca with 2020 that is sluggish because of what we’re seeing in Italy today? And what is the share of net profit today that comes from France?

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Maxime Séché, Séché Environnement SA – CEO & Director [7]

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For Senerval, that business will resume — resumed in August 2019. From August 2019, it ramped up over the second half of 2019 so that the incineration activity gets back to normal levels. For the first half of 2020, we’re working at energy production. We should be back to normally in the second half of 2020 for Senerval.

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Baptiste Janiaud, Séché Environnement SA – Chief Administrative & Financial Officer [8]

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On Mecomer, once again the situation leads me to be prudent in my predictions. There won’t be any volume effect because we’re already topping that out in 2019. The pricing effects were heavily contributive. And that explains a lot of the growth that we booked. As a base for comparison, it remains relevant and good today. But remember, we’re in March today. And even if traffic is business as usual today, we may see an impact further down the line of simply the closure of part of the industries that work with Mecomer in Italy. And that would have a ripple effect that could be direct or indirect on Mecomer. I can’t give you any figures at this point. But like-for-like without coronavirus, yes, we would have been looking at, given the pricing effects, a strong dynamic in Italy that would have seen significant growth in 2020, yes. Given the current paradigm, we don’t know what the impact is going to be on Italian industry. But we — it’s fair to assume that it will be some kind of impact.

On Lubrizol, Notre-Dame, these are spot contracts. What that means is that they’re a shot in the arm of [2009] business. This is emergency intervention business, which is something that we’re working to develop anyway. We’re giving that activity as much — as many means as possible so that they can get recurring contracts and framework contracts but don’t expect to see Lubrizol and Notre-Dame every year, so yes, nonrecurring activity there. Lubrizol is coming to an end. And Notre-Dame, there were some lead depollution things that needed to be done in schools and other public buildings that are ongoing. But it’s not regular. They’re simply out there. On net profit, what I can say is that you’re looking at about 60% France and 40% abroad.

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Unidentified Analyst, [9]

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Bryan, Garnier. Two questions from my side. Firstly, on the competitive environment a few days ago, Veolia presented its new strategic plan. One of its pillars is precisely hazardous waste. For them, it’s not very contributive. It’s about 10% of EBITDA. At the end of their plan by 2023, it will be reaching almost 20%. All this to say that they have high ambitions on hazardous waste. Today, do you see the competitive environment intensifying? Do you see the impact on your business? Is there pressure more generally? How do you view the interest of kind of mainstream players moving into specialty waste there is? How are you gearing up for that? And how do you respond to this new “competition”? The second question, could you give us a feel for your utilization rate saturation of your facilities on Non-Hazardous Waste? And what’s your capacity today to pass on new price hikes to your industrial clients?

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Maxime Séché, Séché Environnement SA – CEO & Director [10]

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So to answer on the competitive landscape environment, I think there’s a spotlight on Hazardous Waste. We see that. Clearly, in France, these are players we’re talking — we’re mentioning Veolia, but we could also mention SUEZ. These are players who are part of the competitive landscape. What’s interesting is that there’s a kind of societal factor around sustainable development and waste. I mean all that’s very, very positive for our business. I mean we’re not going to change attack. Our — the course we charted is clear, set out at our first Investor Day and repeated at the December Investor Day. We have strategic plans that are very clear. We’re positioned in countries and geographies where we’re going to continue to expand.

You know that today, the competitive market in France, I mean, we’re not expecting any significant changes. And the world is a big place. So I mean I don’t know what the development strategies taken by our competitors. Well, I mean hazardous waste covers great, many things. We saw a development of the unit you mentioned in the United States. We’re not present in the United States. So they have lots of ways to develop, to expand. We’re not going to define our strategy based on the competition. We define our strategy by playing to our strengths. We’re describing it to you. We’re going to grow our growth platforms. It doesn’t, in any way, impugn our strategy on the utilization of our — on DND. I mean I’m not quite sure that I understand your question or what I can say.

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Unidentified Analyst, [11]

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These are Non-Hazardous Waste incinerators at your reservoir?

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Maxime Séché, Séché Environnement SA – CEO & Director [12]

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Well, Non-Hazardous Waste incinerators. These are our public service contracts. We have one at Senerval. We have — we mentioned the issue on Senerval is more to ensure swiftly that we have a utilization and availability rate that is at the optimum. 2019, we had the [Ouest 2] settings because we put back into service this public service contract at the end of August. And then there was the adjustment phase. It’s operational. We have steam production issues that we’re working on to optimize. So the increase in the utilization is really linked to the resumption. The other public service is at Nantes. Alcéa is working very well. And we have a utilized — and availability rate that’s very high. So on that, we’re going to maintain — our target is to maintain high availability rate.

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Joël Séché, Séché Environnement SA – Chairman & President [13]

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Another question? Thank you, everyone, for coming in. It’s really nice to see you. It really gives us courage for the future. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

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