2006 Annual results

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2007-03-08

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2006 Annual results

  1. 1. Investor Relations – 2006 Annual Accounts – March 20072006 Annual Accounts
  2. 2. Investor Relations – 2006 Annual Accounts – March 2007 Disclaimer Veolia Environnement is a corporation listed on the NYSE and Euronext Paris. This document contains "forward-looking statements" within the meaning of the provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from the forward-looking statements as a result of a number of risks and uncertainties, many of which are outside our control, including but not limited to: the risk of suffering reduced profits or losses as a result of intense competition, the risks associated with conducting business in some countries outside of Western Europe, the United States and Canada, the risk that changes in energy prices and taxes may reduce Veolia Environnements profits, the risk that we may make investments in projects without being able to obtain the required approvals for the project, the risk that governmental authorities could terminate or modify some of Veolia Environnements contracts, the risk that our long-term contracts may limit our capacity to quickly and effectively react to general economic changes affecting our performance under those contracts, the risk that Veolia Environnements compliance with environmental laws may become more costly in the future, the risk that currency exchange rate fluctuations may negatively affect Veolia Environnements financial results and the price of its shares, the risk that Veolia Environnement may incur environmental liability in connection with its past, present and future operations, as well as the risks described in the documents Veolia Environnement has filed with the U.S. Securities and Exchange Commission. Veolia Environnement does not undertake, nor does it have, any obligation to provide updates or to revise any forward-looking statements. Investors and security holders may obtain a free copy of documents filed by Veolia Environnement with the U.S. Securities and Exchange Commission from Veolia Environnement. This document contains "non-GAAP financial measures" within the meaning of Regulation G adopted by the U.S. Securities and Exchange Commission under the U.S. Sarbanes-Oxley Act of 2002. These "non-GAAP financial measures" are being communicated and made public in accordance with the exemption provided by Rule 100(c) of Regulation G. 2Veolia Environnement
  3. 3. Investor Relations – 2006 Annual Accounts – March 2007 2006: confirmation of Veolia’s profitable growth model Growth and profitability above commitments Confirmation of robust sales momentum (revenue +11.9%) Further improvement in profitability (recurring operating income +16.7%) Significant rise in recurring net income (+21.0%) Sound balance sheet maintained with continuation of active asset management policy (disposal of Southern Water and the transportation business in Denmark): Net financial debt / (cash flow from operations + repayment of operating financial assets) = 3.4x Strong growth in free cash flow before major new projects (€901 million) Significant improvement in return on capital employed: objective met one year ahead of schedule, after tax ROCE on tangible and intangible assets: 10.8% Further increase in dividend: +23.5% (1) to €1.05 (1) Subject to approval by the Annual Shareholders’ Meeting on May 10, 2007 3Veolia Environnement
  4. 4. Investor Relations – 2006 Annual Accounts – March 2007 2006 key figures (in €m and at current exchange rates) (1) Excludes discontinued operations. 4500 30 000 28,620 4,282 25,570 +10.8% 25 000 22,792 4000 3,863 Repayment of operating (1) 20 000 3,467 financial assets 3500 Cash flow from operations 15 000 10 000 3000 +8.9% 5 000 2500 0 2004 2005 2006 2004 2005 2006 +11.9% Cash flow generation = Cash flow from operations Consolidated revenue + Repayment of operating financial assets 2,222 1,904 762 2 000 1,629 800 700 630 600 500 477 1 000 400 300 200 100 0 0 2004 2005 2006 2004 2005 2006 Recurring operating income +16.7% Recurring net income +21% 4Veolia Environnement
  5. 5. Investor Relations – 2006 Annual Accounts – March 2007 Key performance indicators at December 31, 2006 (€ million) 12/31/05 12/31/06 Growth adjusted Cash flow from operations(1) 3,538 3,852 +8.9% Operating income 1,893 2,133 +12.7% Non-diluted net earnings per share (€) 1.59 1.93 +21.4% Net income 622 759 +21.9% Free cash flow before major new projects 555 901 +62.3% Net financial debt 13,871 14,674 - (1) Cash flow from continuing operations 5Veolia Environnement
  6. 6. Investor Relations – 2006 Annual Accounts – March 2007 Balanced contribution to growth from all 4 divisions By division By geographic region Rest of world 4% Transportation 17% Water 35% Asia-Pacific 6% North America 10% Energy Services 22% Europe ex France 33% France 47% Waste 26% Consolidated revenue at December 31, 2006: €28,620m 6Veolia Environnement
  7. 7. Investor Relations – 2006 Annual Accounts – March 2007 Balanced contribution to growth from all 4 divisions (€million) Chg. at constant 10,088 exchange rates 9,134 Water +10.3% Waste +11.1% 7,463 Energy Services +11.5% 6,749 +17.6% Transportation 6,118 5,463 VE Group +11.9% 4,224 4,951 12/31/2005 12/31/2006 adjusted Consolidated revenue at December 31, 2006: €28,620m 7Veolia Environnement
  8. 8. Investor Relations – 2006 Annual Accounts – March 2007 Strong presence in growing markets (€ million) Chg. at constant FX rates 13,403 France +7.7% 12,439 Europe ex France +14.4% North America +23.1% Asia-Pacific +16.6% Rest of world +11.7% 9,498 8,253 VE Group +11.9% 2,325 2,8171,475 1,7021,078 1,200 12/31/2005 adjusted 12/31/2006 Consolidated revenue at December 31, 2006: €28,620m 8Veolia Environnement
  9. 9. Investor Relations – 2006 Annual Accounts – March 2007 France: revenue up 7.7% to €13,403m Saint-Omer FRANCE Schenectady Europe Valenciennes Le Havre (transportation) – Length: 6 years – Cumulative revenue: €200m Le Havre Cergy-Pontoise Valence (transportation) - Length: 6 years – Cumulative revenue: €75m Sarcelles Osilub O-I group (Gironcourt site) (transportation) Saclay - 1st private domestic rail freight contract Gironcourt - Length: 5 years – Cumulative revenue: €13m Nîmes-Garons (transportation) Angers – Length: 5 years – Cumulative revenue: €25m Acquisition of SNCM (transportation) Saclay (energy services) – Length: 15 years – Cumulative revenue: €45m Roanne Cergy-Pontoise urban community (energy services) – Length: 16 years – Cumulative revenue: €270m Valenciennes hospital (energy services) – Length: 15 years – Cumulative revenue: €30m Sarcelles heating network (energy services) Valence – Annual revenue: €8m Bayonne-Anglet-Biarritz (waste) Nîmes-Garons – Length: 5 years – Cumulative revenue: €25m Osilub: Recycling of used oil in partnership Bayonne-Anglet-Biarritz SNCM with Total (waste) Narbonne Narbonne (water) – Length: 18 years – Cumulative revenue: €170m Angers (construction) (water) – Cumulative revenue: €21m Contract start-up Saint-Omer (water) – Length: 12 years – Cumulative revenue: €26m Contracts won or renewed Schenectady Europe in Béthune (multi-services) – Length: 7 years – Cumulative revenue: €12m Company acquisitions Roanne (transportation) – Length: 7 years – Cumulative revenue: €30m Partnerships with other companies 9Veolia Environnement
  10. 10. Investor Relations – 2006 Annual Accounts – March 2007 Europe (outside France): revenue up 14.4% (1) to €9,498m UNITED KINGDOM Nottinghamshire County (waste) – Length: 26 years – Cumulative revenue: €1.2bn The Netherlands Dunn Line (transportation) – Annual revenue: €22m Germany Cleanaway UK (waste) – 2005 revenue: €684m Limburg Hastings Borough Council (waste) – Length: 7 years Braunschweig Biffa Belgium – Cumulative revenue: €27m Prostejov Belgium Vodafone (energy services) – Length: 5 years – Cumulative revenue: €43m Slany Poprad BELGIUM Augsburg Czech Banska Bystrica Biffa Belgium (waste) – 2005 revenue: €85m Pforzheim Republic Slovakia GERMANY Dunn Line Braunschweig (wastewater) (water) – Length: 30 years – Cumulative revenue: €390m Nottinghamshire Augsburg (transportation) United Kingdom – Length: 11 years – Cumulative revenue: €13m in 2009 Vodafone Romania Pforzheim (transportation) Cleanaway UK – Length: 10 years – Cumulative revenue: €200m Hastings Buzau THE NETHERLANDS Ploiesti Limburg (transportation) - Length: 10 years – Cumulative revenue: €1.2bn Cona Rettagliata & Caroli CZECH REPUBLIC Prostejov (water) - Length: 25 years - Cumulative revenue: €139m Careggi Slany (water) – Length: 15 years – Cumulative revenue: €26m Italy SLOVAKIA Banska Bystrica (water ) - Length: 30 years - Cumulative revenue: €1.4bn Poprad (water) – Length: 30 years – Cumulative revenue: €566m ROMANIA Buzau (construction) (water) – Cumulative revenue: €10m Contract start-up Ploiesti (energy services) – Length: 1 year – Cumulative revenue: €5m Contracts won or renewed ITALY Company acquisitions Cona & Careggi hospitals (energy services) - Length: 30 & 15 years - Cumulative revenue: €211m (1) At constant exchange rates Rettagliata & Caroli (energy services) 10Veolia Environnement
  11. 11. Investor Relations – 2006 Annual Accounts – March 2007North America: revenue up 23.1% (1) to €2,817m NORTH AMERICA Mesa (transportation) - Length: 8 years – Cumulative revenue: €145m Atlanta- Gwinnett County (transportation) Rockland County (water) - Length: 7 years – Cumulative revenue: €34m Atlanta- Fulton County (water) Canada – Length: 5 years – Cumulative revenue: €15m Vancouver (water) - Length: 5 years – Cumulative revenue: €27m Orange County (transportation) Vancouver - Length: 5 years – Cumulative revenue: €137m Gaz Métro Antelope Valley (transportation) United States – Length: 5 years SuperShuttle Biogen New York €40m of industrial contracts won (waste) for oil rigs Orange County Rockland County in the Gulf of Mexico Mesa Antelope Valley Atlanta Industrial contract won (waste) in the pharmaceutical field New York city (waste) Shuttleport - Length: 3 years – Cumulative revenue: €51m Biogen (energy services) Industrial contracts – Length: 5 years – Cumulative revenue: €6m Partnership with Gaz Métro (energy services) Contract start-up Shuttleport (transportation) – Annual revenue: €45m Contracts won or renewed Company acquisitions SuperShuttle (transportation) – 2005 revenue: €55m Partnerships with other companies (1) At constant exchange rates 11Veolia Environnement
  12. 12. Investor Relations – 2006 Annual Accounts – March 2007 Asia – Pacific: revenue up 16.6% (1) to €1,702m CHINA Lanzhou (2) (water) - Length: 30 years – Cumulative revenue: €1.6bn Sinopec (water) - Length: 25 years – Cumulative revenue: €249m Liuzhou (water) – Length: 30 years – Cumulative revenue: €330m Chongqing (energy services) South Korea - Length: 20 years – Cumulative revenue: €20m Urumqi Qingdao & Jinan (waste) Sinopec – Length: 50 years – Cumulative revenue: €700m Jinan Foshan (waste) China Qingdao Lanzhou Kumho Rubber & Resin - Length: 30 years – Cumulative revenue: €270m Kunming (water) Changzhou - Length: 30 years – Cumulative revenue: €1.6bn Chongqing Changzhou (water) Kunming Japan - Length: 30 years – Cumulative revenue: €675m Urumqi (water) Liuzhou Foshan Saitama – Length: 23 years – Cumulative revenue: €260m Ilan County Hiroshima TAIWAN Taiwan Ilan County (waste) Singapore - Length: 20 years – Cumulative revenue: €44m SOUTH KOREA Showa Denko Kumho Resin (water) – Length: 15 years – Cumulative revenue: €53m Kumho Rubber (water) – Length: 15 years – Cumulative revenue: €38m SINGAPORE Showa Denko (water) – Length: 6 years – Cumulative revenue: €53m Australia Queensland –WCRW prg AUSTRALIA Queensland & Gold Coast Bayswater (water) – Length: 7 years – Cumulative revenue: €43m Industrial contract Queensland & Gold Coast (water) – Length: 10 years – Cumulative revenue: €210m TDU Queensland –WCRW prg (water) Bayswater Industrial contract won (waste) in the field of chemicals Contract start-up - Length: 5 years – Cumulative revenue: €37m Contracts won or renewed TDU (energy services) – 2005 revenue: €76m Company acquisitions JAPAN (1) At constant exchange rates 2 contracts to operate wastewater treatment plants in Hiroshima & Saitama (water) - Length: 3 years each – Cumulative revenue: €23m (2) 12 Signed in January 2007Veolia Environnement
  13. 13. Investor Relations – 2006 Annual Accounts – March 2007 Middle East: a new source of growth in the medium term SULTANATE OF OMAN Kingdom of Bahrain Muscat (water) Bahrain - Length: 5 years - Cumulative revenue: €11m Sur (1) (BOO) (water) – Length: 22 years – Cumulative revenue: €434m Pearl GTL Ajman Qatar UNITED ARAB EMIRATES Abu Dhabi Ajman (water) Israel United Arab Emirates – Length: 27 years Muscat – Cumulative revenue: €151m Delek Group Abu Dhabi (waste) – Length: 5 years – Cumulative revenue: €42m Sur KINGDOM OF BAHRAIN Sultanate of Oman Bahrain-Al Hidd (construction) (water) - Cumulative revenue: €275m QATAR Pearl GTL (construction) (water) ISRAEL Delek Group – Ashkelon site (energy services) Contracts won or renewed – Length: 23 years – Cumulative revenue: €83m Contract start-up (1) Signed in January 2007 13Veolia Environnement
  14. 14. Investor Relations – 2006 Annual Accounts – March 2007 Growth boosted by contract wins for large industrial clients Backlog of contracts signed in 2006 with major industrial clients: €2,189m €27m €165m €741m €624m €632m W at er Mult i divisions Energy Services W ast e Transport at ion 14Veolia Environnement
  15. 15. Investor Relations – 2006 Annual Accounts – March 2007Contracts for major industrial clients: growth in new contractsawarded since 2001 (€ million) 1,400 1,200 1,000 800 600 400 200 0 2001 2002 2003 2004 2005 2006 In the period 2001 – 2006: Total new contracts signed with large European industrial clients: €1,286m in annual revenue. Average length of contracts: 6.5 years, i.e. a backlog of around €8.5bn. One-third of contracts signed are multi-division, generating €440m in annual revenue. 15Veolia Environnement
  16. 16. Investor Relations – 2006 Annual Accounts – March 2007 Growth in cash flow from operations (1) (€ million) 12/31/05 12/31/06 ∆ current FX CFO Margin (1) adjusted rates 12/31/06 Water (2) 1,641 1,814 +10.5% 18.0% Waste (2) 1,055 1,190 +12.7% 15.9% Energy Services (2) 578 611 +5.7% 10.0% Transportation (2) 272 290 +6.8% 5.9% Other (8) (53) - - Total from continuing operations 3,538 3,852 +8.9% Discontinued operations 4 (8) Total Group 3,542 3,844 +8.5% 13.4%(1) Cash flow from operations before tax & interest expenses, as defined by the Conseil National de Comptabilité’s (CNC) recommendation dated October 27, 2004(2) Cash flow from continuing operations 16Veolia Environnement
  17. 17. Investor Relations – 2006 Annual Accounts – March 2007 Recurring operating income: up 16.7% (1) (€ million) Recurring operating income margin 12/31/05 12/31/06 ∆ current 12/31/05 12/31/06 adjusted FX rates adjusted Water 997 1,163 +16.7% 10.9% 11.5% Waste 554 648 +17.1% 8.2% 8.7% Energy Services 321 378 +17.6% 5.9% 6.2% Transportation 117 100 -14.3% 2.8% 2.0% Holding (85) (67) - - - Total 1,904 2,222 +16.7% 7.4% 7.8% (1) At current exchange rates 17Veolia Environnement
  18. 18. Investor Relations – 2006 Annual Accounts – March 2007 From recurring operating income to operating income (€ million) 12/31/05 12/31/06 ∆ current adjusted FX rates Recurring operating income 1,904 2,222 +16.7% Non-recurring items (in 2006, -€86m related to provisions and impairment charges in transportation in Germany) (11) (89) Operating income 1,893 2,133 +12.7% 18Veolia Environnement
  19. 19. Investor Relations – 2006 Annual Accounts – March 2007 Water: Revenue up 10.4% to €10,088m Recurring operating income: up 16.7% to €1,163m (€ million) 1,163 10,088 9,134 997 7,977 854 12/31/2004 12/31/2005 12/31/2006 12/31/2004 12/31/2005 12/31/2006 Revenue Recurring operating income All geographical zones contributed to the strong growth in operating income. Very good contribution from France (distribution and works). In Europe, double-digit growth in operating income (in the United Kingdom, in Germany and in Central Europe). In North America, satisfactory performance (industrial contracts and works). In Asia, significant improvement in results in China (up by more than 30%, start-up of Kunming and Changzhou contracts). Increasing contribution from Africa & Middle East (Morocco and full-year contribution from Ashkelon in Israel). Further excellent contribution from Veolia Water Solutions & Technologies. 19Veolia Environnement
  20. 20. Investor Relations – 2006 Annual Accounts – March 2007 Waste: Revenue up 10.6% to €7,463m Recurring operating income up 17.1% to €648m (€ million) 648 7,463 554 6,749 481 6,381 12/31/2004 12/31/2005 12/31/2006 12/31/2004 12/31/2005 12/31/2006 Revenue Recurring operating income Further improvement in profitability in France: increase in municipal collection volumes, strong performance at incinerators and control of structural costs. In Europe, the United Kingdom’s contribution grew by more than 30%, driven by the very good performance on integrated contracts (Hampshire, start-up of the new Sheffield incinerator) and the consolidation of Cleanaway in the fourth quarter of the year. In North America, good performance of the solid waste (with volumes and prices holding up well), industrial services and waste-to-energy businesses. 20Veolia Environnement
  21. 21. Investor Relations – 2006 Annual Accounts – March 2007 Energy Services: revenue up 12% to €6,118m Recurring operating income: up 17.6% to €378m (€ million) 378 321 6,118 5,463 253 4,975 12/31/2004 12/31/2005 12/31/2006 12/31/2004 12/31/2005 12/31/2006 Revenue Recurring operating income In France, the margin remained stable despite unfavorable weather conditions in the fourth quarter. Outside France, significant increase in the contribution from Central Europe (Poland and Czech Republic). Positive contribution from sales of surplus CO2 emission rights. 21Veolia Environnement
  22. 22. Investor Relations – 2006 Annual Accounts – March 2007 Transportation: Revenue up 17.2% to €4,951m Recurring operating income down 14.4% to €100m Operating income: €14m (€ million) 117 4,951 101 100 4,224 3,460 12/31/2004 12/31/2005 12/31/2006 12/31/2004 12/31/2005 12/31/2006 Revenue Recurring operating income In France, robust growth in urban transportation while the contribution from SNCM was in line with the business plan Outside France: good performances in Benelux, the Czech Republic and Australia, rapid development of business in North America, while the turnaround plan was further implemented in Nordic countries (restructuring of the division in Denmark: its disposal is being considered and it is treated as a discontinued operation from an accounting point of view). In Germany, start-up costs and an exceptional provision (€86 million) was booked for the Marschbahn contract 22Veolia Environnement
  23. 23. Investor Relations – 2006 Annual Accounts – March 2007 From revenue to net income (€ million) 12/31/05 12/31/06 ∆12/31/06 adjusted 12/31/05 Revenue 25,570 28,620 +11.9% Operating income 1,893 2,133 Cost of net financial debt (711) (701) Other financial income (expenses) 28 (34) Tax (422) (410) Equity in net income of affiliates 7 6 Net income from continuing operations 795 994 +25.0% before minority interests Net income attributable to minority interests (173) (236) Net income from continuing operations 622 758 Net income 622 759 +22.0% Recurring net income 630 762 +21.0% 23Veolia Environnement
  24. 24. Investor Relations – 2006 Annual Accounts – March 2007 Control of financing costs (€ million) 12/31/05 12/31/06 adjusted Cost of gross financial debt (696) (709) Revaluation of non-hedging derivative instruments 10 6 Early redemption of 2008 bond (26) - Other 1 2 Cost of net financial debt (711) (701) Cost of borrowing: 5.07% stable vs. 2005 24Veolia Environnement
  25. 25. Investor Relations – 2006 Annual Accounts – March 2007 From recurring net income to net income (€ million) Recurring net income 762 Disposal of stake in Southern Water 53 Transport division in Denmark put up for sale (52) Provisions booked in transportation in Germany (86) Restructuring of US tax group 86 Other (4) Net income 759 25Veolia Environnement
  26. 26. Investor Relations – 2006 Annual Accounts – March 2007 Growth supported by well targeted capital expenditures: €4,206m at December 31, 2006 Growth Financial (€ million) investments Operating Major new Maintenance incl. Industrial projects financial Total change in scope assets Water 498 67 353 164 262 1,344 Waste 519 44 154 945 20 1,682 Energy Services 200 72 118 64 63 517 Transportation 179 80 98 251 16 624 Other 15 7 17 - - 39 Total at 12/31/06 1,411 270 740 1,424 361 4,206 (1) Total at 12/31/05 1,212 177 657 906 513 3,465 (1) Growth capital expenditures have been restated in accordance with the definitive application of the IFRIC 12 standard. 26Veolia Environnement
  27. 27. Investor Relations – 2006 Annual Accounts – March 2007 More than €1.4bn allocated to new projects By division By geographic region Continental Asia-Pacific 7% Transportation 18% (4) Water 12% (1) Europe 19% Energy Services 4% (3) North America 10% Waste 66% (2) United Kingdom 64% Of which Cleanaway = 61% (1) o/w Poprad & Banska Bystrica (Slovakia), Prostejov & Slany (Czech Republic), Kunming & Liuzhou (China) (2) o/w Cleanaway UK (United Kingdom) for €871m, Biffa (Belgium) (3) o/w Rettagliata & Caroli (Italy), TDU (Australia) (4) o/w SNCM (France), Dunn Line (United Kingdom), Shuttleport & SuperShuttle (United States) 27Veolia Environnement
  28. 28. Investor Relations – 2006 Annual Accounts – March 2007 Net investments & capital expenditures: €3,413m (€ million) Gross investments & capital expenditures 4,206 Disposals (355) Repayment of operating financial assets (438) Total net investments & capital expenditures 3,413 28Veolia Environnement
  29. 29. Investor Relations – 2006 Annual Accounts – March 2007Significant growth in free cash flow before major new projects (€ million) 2005 ∆ 12/31/06 adjusted 2006 12/31/05 adj. Cash flow from operations (1) 3,542 3,844 +8.5% Repayment of operating financial assets 321 438 Total cash generation 3,863 4,282 +10.8% Investments excluding major projects (2,559) (2,782) Change in WCR (39) (112) Asset disposals 343 355 Rights issue reserved for minority shareholders 8 82 Tax paid (339) (343) Interest paid (739) (596) Other 17 15 = Free cash flow before major new projects = 555 = 901 +62.3% (1) o/w cash flow from discontinued operations: €4m in 2005 and -€8m in 2006 29Veolia Environnement
  30. 30. Investor Relations – 2006 Annual Accounts – March 2007 Change in net financial debt (€ million) 2005 adjusted 2006 Net financial debt at January 1st 13,059 13,871 Free cash flow (555) (901) Investments in major new projects 906 1,424 Dividends paid 374 479 Capital increase (73) (165) Impact of exchange rates and other 160 (34) Net financial debt at December 31st 13,871 14,674 Change in debt 812 803 30Veolia Environnement
  31. 31. Investor Relations – 2006 Annual Accounts – March 2007 Debt ratios 15 4 14.7 14.5 3.9 x 3.6 x 14 13.9 3.50 x 3.4 x 13.5 3.25 13.1 13 12.5 12 2.5 In € bn 12/31/2004 Adjusted 12/31/2005 Adjusted 12/31/2006 (x) Net financial debt _ Net financial debt / (Cash flow from operations + repayment of operating financial assets) Debt ratio target: between 3.5 x and 4 x 31Veolia Environnement
  32. 32. Investor Relations – 2006 Annual Accounts – March 2007 Significant increase in dividend 2006 net dividend (1) €1.05 per share (+23.5%) €1.05 €0.85 €0.68 €0.55 €0.55 €0.55 2001 2002 2003 2004 2005 2006 (e) 2006 (e) pay-out ratio = 54% (1) Subject to approval by the Annual Shareholders Meeting on May 10, 2007 32Veolia Environnement
  33. 33. Investor Relations – 2006 Annual Accounts – March 2007 Veolia 2005 Efficiency Plan Results: €406m in recurring positive impact on income in 3 years (versus the initial €300m objective) €102m in additional and recurring positive impacts in 2006 Of which €84m in operating income (€368m in 3 years) The program has mobilized all the Group’s business units Direct involvement of more than 1,000 contributors More than 700 efficiency projects in all areas (operational efficiency, optimization of structures, purchases and asset management) Systematic identification of synergies among divisions 33Veolia Environnement
  34. 34. Investor Relations – 2006 Annual Accounts – March 2007 Veolia 2005 Efficiency Plan Outlook: build on the plan’s results and move into a continuous improvement program Continued mobilization of all business units via a company-wide Continuous Improvement Program (so-called PACT) Wider deployment of the best efficiency-improving operating practices achieved in the Veolia 2005 plan Launch and expansion of new cross-cutting initiatives to increase synergies among divisions and accelerate the integration of new businesses (sharing of some support functions, standardization of practices and tools, etc.) 34Veolia Environnement
  35. 35. Investor Relations – 2006 Annual Accounts – March 2007 10.8% after-tax ROCE on tangible and intangible assets: objective met one year ahead of schedule Strong improvement in after-tax 10.8% ROCE since 2002 10.2% 9.1% 8.3% 8.3% 7.0% 6.4% 2002 2003 2004 2004 2005 2005 2006 French GAAP IFRS standards before IFRS standards with application of IFRIC 12 application of IFRIC 12 on concessions on concessions 35Veolia Environnement
  36. 36. Investor Relations – 2006 Annual Accounts – March 2007STRATEGY ANDOUTLOOK
  37. 37. Investor Relations – 2006 Annual Accounts – March 2007 How can Veolia Environnement meet the industrial challenge? Through sustainable growing markets due to solid fundamentals: Growth in urban population and health risks Climate change and environmental protection Increasingly stringent environmental regulations… (new European directive on recycling, adoption of the Water Bill in France -102 Articles on resource preservation, on water supply and wastewater services, etc.) 37Veolia Environnement
  38. 38. Investor Relations – 2006 Annual Accounts – March 2007 How can Veolia Environnement meet the industrial challenge? A leadership position strengthened by: Undisputed technical leadership: seawater desalination, sludge treatment and recovery at each stage of the process, wastewater recycling, taste of water improvement, etc. New regional zones of development (Asia, Middle East, etc.) Operation of new and essential processes: materials recycling (treatment of used/dirty oil, electronics recycling, dismantling, pollutant removal, etc.) Development of renewable energy sources and the worldwide curbing of greenhouse gases, proposed by the Kyoto Protocol Heightened efforts in R&D for new processes (automated recycling, methanization, optimization of assets managed – waste treatment and recovery/recycling centers) 38Veolia Environnement
  39. 39. Investor Relations – 2006 Annual Accounts – March 2007 2007: a renewed commitment to achieve profitable growth backed by… The ongoing maturation of existing contracts (United Kingdom, Central Europe, China, etc.) The full effect of acquisitions made in 2005 and 2006: Cleanaway, ATC, SNCM The turnaround of the Transportation division The implementation of efficiencies and the exchange of best practices … and by Ongoing sales momentum since the beginning of this year with the signature of several contracts: In transportation in France (Lyon St-Exupéry), In water in Lanzhou (China), Oman (Middle East) and Limerick (Ireland), In waste in the United States (Pinellas County), In energy services in the Czech Republic and Hungary. 39Veolia Environnement
  40. 40. Investor Relations – 2006 Annual Accounts – March 2007 2007 objectives Annual revenue growth of between 8% and 10% Maintain current level of after-tax ROCE on tangible and intangible assets while continuing to grow revenue Further increase recurring operating income and recurring net income Maintain commitment to a sound balance sheet: Net financial debt/(Cash flow from operations + repayment of operating financial assets) ranging between 3.5 x and 4 x Increase dividend per share by at least 10% 40Veolia Environnement
  41. 41. Investor Relations – 2006 Annual Accounts – March 2007 In the medium term: a development model based on profitable growth Continued growth and development of the company in each of its businesses Annual revenue growth of between 8% and 10% supported by: Natural growth in existing contracts New contracts awards in fast-growing markets in priority geographic regions: Europe, North America, some countries in Asia-Pacific and the Middle East Targeted and value-creating acquisitions in the Group’s business lines Stringent investment policy to be maintained consistent with the IRR ≥ WACC +3% profitability criterion 41Veolia Environnement
  42. 42. Investor Relations – 2006 Annual Accounts – March 2007 Veolia Environnement: a value-creating growth model A clear and consistent strategy 2006: another year of excellent performances Leadership in environmental services for municipalities as well as industry and service sector clients Long-term contracts synonymous with sustainable cash flow generation Geographic balance founded on zones enjoying robust growth: Europe, North America and some countries of the Asia-Pacific zone and the Middle East 42Veolia Environnement
  43. 43. Investor Relations – 2006 Annual Accounts – March 20072006 Annual Accounts
  44. 44. Investor Relations – 2006 Annual Accounts – March 2007APPENDICES
  45. 45. Investor Relations – 2006 Annual Accounts – March 2007 Recap Revenue = Income from Ordinary Activities under IFRS 2004 and 2005 accounts have been restated: for the impact of IFRIC 12 on concessions. for the transportation business in Denmark & Southern Water, now presented as discontinued operations in compliance with IFRS 5 45Veolia Environnement
  46. 46. Investor Relations – 2006 Annual Accounts – March 2007 France: a solid growth trend, up 7.7% (€ million) Chg. at current FX rates 4,802 4,459 Water +7.7% Waste +4.1% 3,112 2,990 Energy Services +8.6% (1) Transportation +12.7% 3,257 3,536 VE Group in France +7.7% 1,733 1,953 12/31/2005 12/31/2006 adjusted Consolidated revenue in France at December 31, 2006: €13,403m(1) Up 3% excluding increase in energy costs. 46Veolia Environnement
  47. 47. Investor Relations – 2006 Annual Accounts – March 2007 Changes in each division’s pre-tax ROCE on tangible and intangible assets Improvement in return Average tangible and intangible Pre-tax ROCE (%) assets (€ m) 2005 2006 2005 2006 Water 4,391 4,905 17.5% 18.6% Waste 4,124 4,729 12.1% 12.4% Energy Services 2,188 2,395 12.7% 14.1% Transportation 1,119 1,310 9.9% 7.4% 47Veolia Environnement
  48. 48. Investor Relations – 2006 Annual Accounts – March 2007 Return on tangible and intangible assets and operating financial assets WACC (1) = 6% 2005 2006 Return on tangible and intangible assets Average capital employed (€ bn) 12.1 13.6 After-tax ROCE 10.2% 10.8% Return on operating financial assets Average operating financial assets (€ bn) 5.3 5.5 Pre-tax return on financial assets 6.2% 6.4% (1) After tax and on the basis of the analysts’ consensus. 48Veolia Environnement
  49. 49. Investor Relations – 2006 Annual Accounts – March 2007 A key indicator: ROCE Net results of operations ROCE = Average capital employed Net results of operations = Recurring operating income less Income tax(1) plus Equity in net income of affiliates less revenue from financing on behalf of third parties plus Tax expense allocated to financing on behalf of third parties Capital employed = Tangible and intangible assets plus Goodwill plus Investments accounted for using the equity method plus Working capital requirement (2) plus Net derivative financial instruments (3) less Provisions and Other long-term debt Average capital employed : the average of the capital employed at the beginning and end of the period (1) Excluding income arising on recognition as assets of carryforward tax losses connected with disposals in North America and related restructurings and excluding exceptional tax income connected with recognition of carryforward tax losses in the USA in 2006 (2) Including deferred tax, net (3) Excluding derivative instruments hedging the fair value of debt Why are provisions deducted? Capital employed is the capital on which a “return” is paid: equity attributable to the parent companys shareholders and to minority interests, net financial debt less operating financial assets 49Veolia Environnement
  50. 50. Investor Relations – 2006 Annual Accounts – March 2007 2006 Capital employed In €m 12/31/05 12/31/06 Tangible & intangible assets, net 10,259 11,644 Goodwill 4,752 5,705 Investments accounted for using the equity method 202 241 Inventories and work in progress 635 732 Accounts receivable 10,083 10,969 Accounts payable (10,370) (11,269) Net deferred tax (70) (149) Tax on asset disposals in North America & related restructurings (117) (85) Working capital requirement 161 198 Derivative financial instruments, net (67) 27 Provisions (2,402) (3,023) Other long-term debt (204) (207) Capital employed 12,701 14,585 50Veolia Environnement
  51. 51. Investor Relations – 2006 Annual Accounts – March 2007 2006 Average capital employed In €m 12/31/05 12/31/06 Capital employed 12,701 14,585 2006 average capital employed 13,643 51Veolia Environnement
  52. 52. Investor Relations – 2006 Annual Accounts – March 2007 2006 Calculation of ROCE In €m 12/31/06 Recurring operating income 2,222 Income tax (410) Tax loss related to disposals in North America & to related restructurings 33 Exceptional tax income connected with recognition of carryforward tax losses in the USA (86) Total tax expense (463) Equity in net income of affiliates 6 Revenue from financing on behalf of third parties (351) Tax expense allocated to financing on behalf of third parties 55 Net results of operations 1,469 52Veolia Environnement
  53. 53. Investor Relations – 2006 Annual Accounts – March 2007 2006 ROCE Calculation In €m 12/31/06 Net results of operations 1,469 2006 average capital employed 13,643 Post-tax ROCE 10.8% 53Veolia Environnement
  54. 54. Investor Relations – 2006 Annual Accounts – March 2007 Active debt management policy Ratings Moody’s A3/P-2 Outlook stable (cf. report dated July 2006) Standard & Poor’s BBB+/A-2 Outlook stable (cf. report dated October 2006 ) Active bond and bank debt management Average maturity of debt: gross debt : ~6.6 years Net financial debt: ~7.8 years 74% of net debt is at a fixed rate or a capped floating rate 71% of gross debt (after swaps) is denominated in euros Group liquidity: €7.8bn including €4.9bn in undrawn lines of credit with a maturity of more than 1 year. 54Veolia Environnement
  55. 55. Investor Relations – 2006 Annual Accounts – March 2007 Investor Relations contact information Nathalie PINON, Head of Investor Relations 38 Avenue Kléber – 75116 Paris - France Telephone +33 1 71 75 01 67 Fax +33 1 71 75 10 12 e-mail nathalie.pinon@veolia.com Brian SULLIVAN, Vice President, US Investor Relations 700 E. Butterfield Road -Suite 201 Lombard, IL 60148 - USA Telephone +1 (630) 371 2749 Fax +1 (630) 282 0423 e-mail brian.sullivan@veoliaes.com Web site http://www.veolia-finance.com 55Veolia Environnement

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