Date: March 5, 2010
Source: Veolia Environnement
Significant reduction in net debt.
Improvement of net income.
Significant cost reductions.
2009 commitments met: divestments completed and positive free cash flow(*).
2010 objectives: priority on cash flow generation and cost reductions.
Recurring operating income improvement.
Debt reduction and cash flow generation
Significant cost reductions
Net income improvement and maintenance of dividend
In 2010, our outlook assumes economic stability in comparison with the second half of 2009:
For the next three to five years, pursue the program of divestments, with an average of 1bn divested per year, and continue to reduce costs, with 250m per year in cost savings; and depending on the recovery of the economic environment:
Business review and development trends (2)
Veolia Environnement's consolidated revenue totaled 34,551.0 million for the year ending December 31, 2009, compared to 35,764.8 million in 2008, down 3.4% year-over-year (-2.5% at constant exchange rates).
The change in revenue at constant exchange rates is principally explained by:
For the first time since the start of the economic crisis, in the 4th quarter of 2009 the level of activity in the waste sector was stable at constant consolidation scope and exchange rates, compared to the fourth quarter of 2008.
External growth was 0.2% (87.9 million contribution), resulting from acquisitions made in 2008 and net of divestments completed in 2009. The share of revenue posted outside France was 20,795.6 million, or 60.2% of the total, compared to an adjusted figure of 59.6% for the year ending December 31, 2008.
The foreign exchange rate effect on revenue related to movements in average exchange rates between 2008 and 2009 totaled negative 326.9 million, mainly reflecting the depreciation against the euro of the pound sterling (-238.3 million), Central European currencies (Czech Republic and Poland) (-173.8 million) and Northern European currencies (Norway and Sweden) (-87.5 million), partly offset by a stronger U.S dollar, which had a positive impact of 162 million.
Veolia Environnement has won and renewed numerous contracts in its priority regions of development, in France (Water: a contract with the Chartres urban authority; Transport: Mont Saint Michel public service management contract), in Europe (Water: Madrid; Environmental Services: Merseyside; Transport: Vδstra Gφtaland in Sweden), in North America (Transport: New Orleans), in Asia / Pacific (Environmental Services: renewal of the Hong Kong contract) and in the Middle East (Water: Doha). In the Transport division, the Melbourne contract was not renewed at the end of the year.
In Brazil, Veolia Water Solutions & Technologies signed a contract with Petrobras.
In addition, Veolia Transport won the Greater Rabat contract in Morocco and set up a joint venture with RATP Dιveloppement to further develop in Asia.
Lastly, Dalkia signed a partnership agreement with CEZ, the Czech Republic's largest electricity producer, with a view toward an industrial cooperation that could lead to asset exchanges.
No significant acquisitions were made in 2009.
As part of its asset divestment program, Veolia Environnement completed the following divestments in 2009:
In total, industrial and financial divestments including the capital increases subscribed to by minority shareholders amounted to 1,291 million for the year ending December 31, 2009.
In addition, Veolia Environnement continues to pursue its strategic development and its discussions with the Caisse des Dιpτts aimed at completing a merger between Veolia's Transport division and Transdev, in line with the project announced in early August 2009. In December 2009, the Caisse des Dιpτts and Veolia Environnement agreed upon a draft framework for the merged company, in particular its financial structure and aim to sign a final agreement in 2010. The projected merger between Veolia Transport and Transdev would be carried out by transferring Veolia Transport and Transdev to a new entity 50% held by Veolia Environnement, which would be the industrial operator and keep transportation as a crucial component of its range of environmental services, and 50% held by the Caisse des Dιpτts which would be a long-term strategic shareholder. Veolia Environnement has decided to divest certain Transport activities outside of France, as well as a limited number of Transport division contracts in France as part of the merger with Transdev, in line with the project announced in August 2009. These discussions are consistent with the IPO project of the Group's Transport operations.
Operating cash flow declined to 3,955.8 million at December 31, 2009 from 4,105.4 million at December 31, 2008. The small contraction (i.e. 1.7% at constant exchange rates, and 3.6% at current exchange rates) in the Group's operating cash flow against the backdrop of a deterioration in the economic environment reflects the Group's capacity to adapt costs to the decrease in volumes and prices. This slight decline in operating cash flow resulted primarily from lower results in the Environmental Services division (volumes, prices of recycled materials sold). For the Group, this contraction was nearly entirely offset by a major effort to reduce costs which led to total savings in excess of 380 million, and by the greater resilience of Veolia's other business activities to the business environment.
In the fourth quarter of 2009, operating cash flow grew 6.3% at current exchange rates compared to the fourth quarter of 2008, due notably to cost-cutting measures and stabilization of the business environment in the Environmental Services division. Accordingly, the Group maintained an operating cash flow margin of 11.5% for the full year, despite the tough business environment.
The total negative 78.4 million foreign exchange rate impact on operating cash flow is explained mainly by the depreciation of the pound sterling (-44.1 million) primarily in the Water and Waste sectors, and the depreciation of Central European currencies (-33.1 million) notably in the Energy sector. The downturn in other currencies was offset by the positive impact of the stronger U.S dollar (+19.1 million), primarily in the Environmental Services division.
Operating income totaled 2,020.1 million for the year ending December 31, 2009 versus 1,960.8 million at December 31, 2008; up 3.0% at current exchange rates and 6.1% at constant exchange rates. The variation of operating income was due to: ?? the change in operating cash flow;
The main non-recurring items are as follows:
Recurring operating income accordingly amounted to 1,932.4 million for the year ending December 31, 2009 compared to 2,275.0 million for the year ending December 31, 2008, a decline of 15.1% (- 12.4% at constant exchange rates).
Cash flows : reduction of net financial debt to 15.1 billion
Total cash flow from operations before changes in working capital and taxes amounted to 3,938.6 million at December 31, 2009, of which 3,955.8 million was operating cash flow (versus an adjusted 4,105.4 million at December 31, 2008).
The improvement in operating working capital that totaled 432 million on December 31, 2009 resulted from:
These resources entirely covered financing requirements, i.e. in addition to borrowing costs and taxes, the payment of the 2008 dividend, all maintenance investments (1,632 million), investments in growth (861 million) and new operating financial assets (500 million) net of repayments (455 million).
Moreover, as announced in its objectives, Veolia Environnement divested industrial and financial assets and forged new partnerships to strengthen its ability to grow in certain geographical areas for a total of 1,291 million (including capital increases subscribed to by minority shareholders). All the proceeds from divestments were allocated to debt reduction.
As a result, the net financial debt fell to 15,127 million at December 31, 2009 from 16,528 million at December 31, 2008, a reduction of 1,401 million, and greater than the amount of divestments.
As a result of the decline in net financial debt, the ratio of net financial debt / (cash flow from operations plus repayment of operating financial assets)(3) dropped to 3.4x at December 31, 2009 from 3.6x at December 31, 2008. Refinancing transactions (bond issues totaling more than 2 billion carried out in the first half of 2009) made it possible to maintain the Group's average gross debt maturities at 7.3 years. The average maturity of net financial debt was ten years, up 0.7 years in comparison with 2008 largely due to an increase in the Group's cash position. The Group's liquidity, net of short-term debt, improved significantly to 6.8 billion at December 31, 2009, from 4.0 billion at December 31, 2008.
At December 31, 2009, the two indicators corresponding to the 2009 objectives announced by the Group were easily reached and even exceeded in comparison with 2008:
Net financing costs amounted to 784.3 million, associated with an average debt of 16.5 billion throughout 2009. In 2008, net financing costs totaled 909.0 million associated with an average debt of 16.1 billion.
The cost of borrowing fell to 4.76% in 2009, compared with 5.61% in 2008. The 0.85 percentage point fall in the cost of borrowing was mainly due to the decline in short-term interest rates on the variable part of the debt (notably Eonia, Euribor and Libor GBP and USD), partly offset by the cost of liquidity (2 billion bond issue).
Other financial income and expenses totaled (110.3) million at December 31, 2009, versus (39.2) million at December 31, 2008 and resulting mainly from increased costs associated with unwinding of discounts on provisions totaling 83 million.
The Group had a net tax expense of 242.2 million at December 31, 2009, down from 462.0 million at December 31, 2008.
The actual tax rate fell to 21.5% in 2009 from 45.6% in 2008. This rate is mainly accounted for by capital gains incurring limited tax charges and the activation of tax losses in the United States amounting to 43 million.
The net loss from discontinued operations amounted to (42.8) million for the year ending December 31, 2009 compared to net income of 139.2 million for the year ending December 31, 2008. The net loss from discontinued operations at December 31, 2009 was primarily due to the disvestment of Freight operations (Veolia Cargo) in the transportation sector that were sold in December 2009 and the August 2009 divestment of the majority of the waste-to-energy operations in the United States in the Environmental Services division. It also includes the results of operations in the United Kingdom in the Transport sector as well as the Renewable Energies business in the Energy sector that are slated for divestment as of December 31, 2009. In 2008, this line item was boosted mainly by the capital gain on the divestment of Clemessy and Crystal in the Energy Services division for an amount net of tax of 176.5 million, of which 60 million was minority shareholders interest.
The share of income attributable to minority shareholders dropped from 304.1 million for the year ending December 31, 2008 to 257.8 million for the year ending December 31, 2009. In 2008, this income included the 60 million share of minority interests in the capital gain on the disposal of Clemessy and Crystal in the Energy Services division.
Net income after minority interests rose to 584.1 million for the year ending December 31, 2009 from 405.1 million for the year ending December 31, 2008.
Recurring net income after minority interests totaled 538.1 million for the year ending December 31, 2009, versus 687.2 million for the year ending December 31, 2008, adjusted for discontinued operations.
After-tax return on capital employed
After-tax return on capital employed stood at 7.6% at December 31, 2009, versus 8.4% (reported) at December 31, 2008.
Given the good visibility on future cash flows and the strengthened financial position of the Group, the Board of Directors will propose at the Annual General Meeting of Shareholders to be held on May 7, 2010, a dividend per share of 1.21, payable in cash or in shares of Veolia Environnement. These new shares will be issued with a discount of 10% of the average opening price on the Euronext of the shares over the twenty trading days prior to the day of the Annual General Shareholders Meeting less the amount of the dividend. The ex-dividend date has been set on May 14, 2010. The period during which shareholders may choose the option of the payment of the dividend in cash or in shares will begin on May 14, 2010 and end on May 31, 2010. The 2009 dividend will be paid - in cash or in shares - beginning on June 9, 2010.
In 2010, Veolia Environnement anticipates a recurring operating income improvement. The Group intends to continue to pursue improving profitability and will continue to prioritize cash generation. The objective of 3 billion in asset divestments over the period 2009-2011 is maintained and the global efficiency program raised to 250 million in cost savings for 2010. The Group reiterates its commitment to generate positive free cash flow(*) after the payment of the dividend in 2010.
For the next three to five years, through the recovering performance of recent acquisitions, increasing profitability of slow-return assets as well as improving the productivity and optimization of the Group's asset base, the Group has targeted, according to the prevailing economic environment, an average annual increase in recurring operating income of 4% to 8%; and in years three to five an objective of after-tax ROCE between 9% and 10%.
statements" within the meaning of the provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-lookingstatements are not guarantees of future performance. Actual results may differ materially from the forward-looking statements as a result ofa number of risks and uncertainties, many of which are outside our control, including but not limited to: the risk of suffering reduced profitsor losses as a result of intense competition, the risk that changes in energy prices and taxes may reduce Veolia Environnement's profits,the risk that governmental authorities could terminate or modify some of Veolia Environnement's contracts, the risk that acquisitions maynot provide the benefits that Veolia Environnement hopes to achieve, the risks related to customary provisions of divesture transactions,the risk that Veolia Environnement's compliance with environmental laws may become more costly in the future, the risk that currencyexchange rate fluctuations may negatively affect Veolia Environnement's financial results and the price of its shares, the risk that VeoliaEnvironnement may incur environmental liability in connection with its past, present and future operations, as well as the risks described inthe documents Veolia Environnement has filed with the U.S. Securities and Exchange Commission. Veolia Environnement does notundertake, nor does it have, any obligation to provide updates or to revise any forward-looking statements. Investors and security holdersmay obtain a free copy of documents filed by Veolia Environnement with the U.S. Securities and Exchange Commission from VeoliaEnvironnement.
The review of results by auditors is still in progress.
(1) Excluding the Veolia Transport /Transdev merger project
(2) To ensure the comparability of financial years, 2008 financial statements have been adjusted:
(3) Because of changes in the rules governing the presentation of renewal expenditures in the cash flow statement (IAS7), the ratio of netfinancial debt/(cash flow from operations plus repayment of operating financial assets) will be modified as of 2010 and lead to aredefinition of the ratio objective in the range of 3.85x and 4.35x.