TO DEFEND AND PROMOTE YOUR INTERESTS
AS EMPLOYEE SHAREHOLDERS

In your opinion, does being a shareholder in your company represent a risk or rather an opportunity for employees?

Antoine Frérot : Being an employee shareholder in one’s company is above all an opportunity for employees, who can thus be associated with the success of their company and become more deeply involved in its development. The level of employee shareholding at Veolia, which currently represents around 5% of the capital (and probably more in the future), enables employee shareholders to be real players who can influence the Group’s decisions. More generally, employee shareholding is a tool that gives employees greater control over their collective professional destiny. In addition, employees’ investment in their company’s shares can also represent a significant additional income.

In summary, the current level of ownership of Veolia’s capital by the Group’s employee shareholders and the appointment of a third director to represent employee shareholders will enable them (i) to be real players, stakeholders in their company, with the possibility of playing a political role by influencing the company’s decisions, (ii) to have an additional vote in the decisions of the Board of Directors in addition to the two votes of the existing directors representing the employees,. The opinion of these 3 directors representing, employees on the one hand, and employee shareholders, on the other hand, will undoubtedly be listened by the other directors, in particular when the Board has to “legitimize” its positions.

Accelerating the sense of belonging to Veolia group of the “new joiners” (ex-Suez) will also be done through employee shareholding. They have high expectations (they have not had a Group plan since 2019). What can we tell them about the next steps?

Antoine Frérot : They will be fully involved in the next employee share ownership plan that will be open to them next September. Once this next employee shareholding operation is completed, the overall level of employee shareholding should exceed 6% of VE’s capital.

What obstacles do you see to the development of employee share ownership?

Antoine Frérot : In the first place, the limit to this development is set by the authorizations for capital increases reserved for employees voted by the shareholders, which cannot reasonably exceed 2% of the capital per year. This is, in fact, the maximum annual level of capital increase reserved for employees accepted by investors.

In addition, employees can sell their shares after 5 years to benefit from the tax advantages linked to this investment. This exit from the capital leads to an erosion of the level of employee shareholding. To compensate for this, the Group has decided to set up recurring employee share ownership plans with an attractive leveraged investment formula. Although this attractive leveraged investment formula represents a significant cost for the company, it maximizes employee investment and ownership of the company’s capital. The success of these employee shareholding operations remains, however, dependent on the confidence of employees in the prospects and development of their company. If this confidence has been regained today, it was severely damaged when the group was going through difficulties until the beginning of the 2010s.

What do you expect from AAVE?

Antoine Frérot : Above all, I would like this association to bring employee shareholding to life within the Group and to play a full role in animating the Group’s community of employee shareholders.

How do you see your role as of July 1, 2022, when you become non-executive Chairman of the Group?

Antoine Frérot : I would like the Chief Executive Officer who will be appointed to have all the prerogatives associated with her position and it will be her responsibility, in particular, to propose the Group’s strategy to the Board. My role as Chairman of the Board of Directors will be to define and lead the work of the Board. It is essential that the Chief Executive Officer assumes all the prerogatives of general management and, as far as I am concerned, it will be my responsibility to remain the guarantor of the commitments made in the context of the merger with Suez. The Group’s objectives must be in line with Veolia’s success in becoming the benchmark company for ecological transformation. The completion of the merger with Suez will lead to the definition of a new strategic plan. I will, of course, remain fully available for any advice that the General Management may wish to ask me.

Will the integration of Suez have an impact on the organization of the Group?

Antoine Frérot : There will be no fundamental change in the current organization of the Group, but essentially larger or denser geographical zones with a greater number of countries covered by the Group’s activities. All the directors of the geographical zones have become members of the Group’s Executive Committee (ExCom). While this reorganization of the geographic zones may be accompanied by decentralization and greater autonomy, the Group’s headquarters will retain its central “steering” role to ensure that the Group’s strategy is deployed in a coherent manner across the world.

Will the integration of Suez open up new avenues for innovation?

Antoine Frérot : This subject remains to be explored in greater depth in the context of the future strategic plan but, at this stage, the inventory carried out has not revealed any truly new innovation themes. Consequently, the existing major themes should not change, but the number of “seeds” (new development projects) within these existing major themes should multiply.

What do you think will be the impact of this geopolitical crisis on the Group on a macro-economic level?

Antoine Frérot : This crisis will increase customer interest in locally produced renewable energies. As regards the general increase in the cost of energy used by the Group, its effects on our contracts should be fairly limited due to (i) the indexation of a large number of our contracts and (ii) the implementation by the Group of a policy of protecting its energy purchases by entering into forward purchase contracts with our suppliers, which make it possible to secure prices for the duration of these contracts. This protection of energy purchase prices over the term of these contracts gives us time to prepare for the renegotiation of energy purchase prices by mid-2023.

Regarding inflation in general and its impact on the cost of labor for employees, we will have to manage this potentially significant “bump”. As regards the effects of this inflation on the prices of our contracts, and in particular our public procurement contracts, the indexation provided for in these contracts and the lessons learned from the past in a similar context have shown that the Group knows how to manage this type of context and adapt. We will have to pursue our strategy of upgrading the services offered by the Group.

What impact could a stagflation scenario have on our customer portfolio?

Antoine Frérot : Our municipal customers will certainly ask to share the price of recycled materials. Given our long-term municipal water and utilities contracts, which are indexed with formulas that generally reflect our cost structure, we are fairly well protected. There could be an impact on our industrial and waste collection contracts, given the strong competition.

On the other hand, in our contractual formulas, we have a fairly conservative coverage policy. On the price of energy, as we are both seller and buyer, the balance sheet is fairly well balanced.

Could the current geopolitical crisis lead to disruptions in the supply chains for certain key raw materials and fuels used by the Group’s facilities? In this context, how are relations with the group’s suppliers evolving?

Antoine Frérot : At this stage, few sites are affected by a supply chain disruption problem. There is the case of the water treatment facilities in Armenia, where there is currently a difficulty in obtaining supplies of chlorine. In addition, the Group is subject to gas purchases in Hungary.

As regards relations with suppliers, in general they are trying to impose sharp price increases. The management of this situation aims to renegotiate “long” contracts with them in order to obtain greater price stability through long-term commitments.

What is the Group’s level of exposure to the geopolitical risk of the Russian-Ukrainian conflict?

Antoine Frérot : The Group’s economic exposure in these two countries is low, since they represent total revenues of approximately €120 million (i.e., 0.3% of revenues) and €130 million in terms of capital employed (i.e. less than 0.5% of the capital employed of the Veolia-Suez group). The activities conducted in these two countries are mainly dedicated to the provision of essential services to the population (1,800 employees in Russia and 350 in Ukraine). In the context of this conflict, Veolia will of course comply with all the sanctions applicable to Russia, which require that it no longer buy or sell goods or services to it. Regarding the centralization of the Group’s cash flow, financial relations with Russian subsidiaries have therefore been suspended.

In the context of a review of the Group’s strategy, will there be a change in the content of the Group’s plural performance?

Antoine Frérot : The Group’s purpose (“raison d’être”) will remain the foundation of this plural performance. In terms of communication, it will be necessary to produce a summary of this purpose (raison d’être) and put it together in a short title. It is true that the criteria for the plural performance of this raison d’être are probably a little too numerous (18). It would be advisable to reduce the number of these criteria to improve their readability for our investors and stakeholders. For the allocation of performance shares, the number of non-financial criteria, which has been nine until now, could be reduced to four. While remaining faithful to the Group’s raison d’être, the idea is to keep the criteria related to the mix of people, the volume of recycled plastics, the GHG emissions avoided, the number of inhabitants benefiting from access to essential services (water and cleanup activities)

In the context of the recycled products produced by the Group, does the Group plan to develop recycling or recovery of rare earth or metals?

Antoine Frérot : The recovery of rare metals, particularly lithium, requires time to develop the processes. In this case, it would be necessary to convince customers of the benefits of paying a slightly higher price because of the difference between the market price of these rare metals and the price of the same recycled product, at least for a few years, the time it takes to increase the volumes recycled.

At a time when there is strong pressure on the job market in certain BUs, what measures are envisaged in terms of “talent retention”, given that for some years now salary reviews have been “very measured” and that there may be a possible discrepancy with the remuneration conditions of Suez employees? Do you think that the feeling of usefulness of our businesses is sufficient to retain talent?

Antoine Frérot : On the one hand, we need to mobilize employees on the company’s purpose (“raison d’être”) and the usefulness of our businesses. On the other hand, as far as compensation is concerned, the HR Department periodically checks through internal and external benchmarks that compensation is well within the market range. In fact, there are no major differences compared with Suez employees. While Veolia’s compensation is not really “higher” compared to other businesses, it can be considered “resilient. The Group is attractive because its businesses are buoyant, pleasant, and changing, and have the advantage of not being relocatable. Veolia has fully understood the importance of its stakeholders and its employees, who are an integral part of the company. In today’s unstable times, for many employees, work is an important “compass” in their lives and a “fixed point” of stability.