Presentation and outlook of the Waste Management Business


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Presentation and outlook of the Waste Management Business

  1. 1. INVESTOR DAYOctober 22nd, 2008 1
  2. 2. Important disclaimerVeolia Environnement is a corporation listed on the NYSE and Euronext Paris. This document contains “forward-lookingstatements” 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-lookingstatements as a result of a number of risks and uncertainties, many of which are outside our control, including but not limitedto: the risk of suffering reduced profits or losses as a result of intense competition, the risk that changes in energy prices andtaxes may reduce Veolia Environnement’s profits, the risk that governmental authorities could terminate or modify some ofVeolia Environnement’s contracts, the risk that acquisitions may not provide the benefits that Veolia Environnement hopes toachieve, the risk that Veolia Environnement’s compliance with environmental laws may become more costly in the future, therisk that currency exchange rate fluctuations may negatively affect Veolia Environnement’s financial results and the price of itsshares, the risk that Veolia Environnement may incur environmental liability in connection with its past, present and futureoperations, as well as the risks described in the documents Veolia Environnement has filed with the U.S. Securities andExchange Commission. Veolia Environnement does not undertake, nor does it have, any obligation to provide updates or torevise any forward-looking statements. Investors and security holders may obtain a free copy of documents filed by VeoliaEnvironnement with the U.S. Securities and Exchange Commission from Veolia Environnement. INVESTOR DAY October 2008 2
  3. 3. Veolia Environmental ServicesDenis Gasquet 3
  4. 4. Review of our business Veolia Environmental Services is the only worldwide operator providing a complete range of waste management services: liquid and solid waste, non-hazardous and hazardous waste, from collection to recycling/recovery, on behalf of companies and local authorities: – Upstream, the division offers waste management services: collection and transfer of waste, sewage services, cleaning, maintenance of equipment and production tools as well as soil remediation. – Downstream, it offers various recycling/recovery solutions: materials recovery, agricultural and energy recovery. Veolia Environmental Services: The reference company in its sector INVESTOR DAY October 2008 4
  5. 5. Integrated Value Chain: “Turning Waste into a Resource” INPUT Services Logistic Waste Treatment OUTPUT Waste Resource stream Recycling / Recovery Disposal management Traditional Municipal Collection Composting Agricultural Municipal Services • Street cleaning Facility fertilizers Waste • Sewage cleaning Pre-sorted Collection Secondary Raw Materials Drop-off Transfer Sorting & Recovery Paper, Wood, Center Station Facility Plastic, Metal… On-Site IndustrialCommercial Services C&I Landfill Refuse Derived& Industrial • On-site sorting, Collection Fuels (RDF) recycling, treatment Metal Waste • On-site collection Recyclable Ash Waste to • Industrial cleaning Collection Energy Energy • On-site HW HW Treatment management (Incineration, PC, Bio…)Hazardous HW Grouping Waste • Industrial Collection Platform Stabilization & Landfill Secondary maintenance Recycling Raw Materials • Remediation Unit Oil, Solvent, Noble Metals, Catalyzer INVESTOR DAY October 2008 5
  6. 6. Veolia Environmental Services is a leader in the wastemanagement and recycling markets Revenue Competitors in the Waste Mgmt. (€Bn) & Recycling markets 2007 revenue (€bn) +14%/yr. 9.2 9.2 9.1 7.5 6.6 6.2 6.0 4.6 4.6 4.2 3.2 2.8 2.8 2.6 2.2 2.1 1.8 2004 2005 2006 2007 e r MR pu C m v. gt St h S R ic t e rg a st lia s+ ) B he ste l di ita Re FC o ee en IM TS Re En Mn bl In ou er Su Wa eo it z E St AL e ric Wa on (S lie S rs A/ b V ez e D d hn Al Sc In 2007, Veolia Environmental Services was the world leader in terms of revenue, the only operator active on all continents INVESTOR DAY October 2008 6
  7. 7. Solid financial results€m 2004 2007 €m H1 2004 H1 2007 H1 2008Revenue 6,214 9,214 Revenue 3,048 4,196 5,085EBITDA 986 1,461 EBITDA 473 678 715EBITDA margin 15.9% 15.9% EBITDA margin 15.5% 16.1% 14.1%EBIT 468 803 EBIT 222 389 405EBIT margin 7.5% 8.7% EBIT margin 7.3% 9.3% 8.0%Capital 4,279 5 890employedROCE before 10.9% 12.5%tax INVESTOR DAY October 2008 7
  8. 8. …but a year of contrasting impacts in 2008 Fundamentals are solid, but 2008 EBITDA will be not very different from the 2007 one, due to difficult economic conditions and non-recurring elements Economic conditions account for approximately half the impact on EBITDA – Appreciable fall in tonnages collected and treated, depending on the markets Economic – Increase in fuel and personnel costs, only partly passed on to customers conditions – Sharp volatility in raw materials (paper, metals, etc.) Difficult economic conditions affecting all our operations, notably in France, Germany and Italy. In North America and the United Kingdom, this impact is offset by our ability to raise prices and by good PFI performances. Non-recurring elements had a substantial negative impact on EBITDA – In Italy: dispute with vendor and technical difficulties preventing us from operating plants at full capacity (will not recur in 2009)Non-recurring – In North America : temporary shutdown of the Pinellas generator elements – In Germany: • administrative shutdown of a clay mine landfill which led to increase in elimination costs in the West region • revaluation of DSD prices applicable in 2008 and retroactively for 2007 • costs of implementing the restructuring plan INVESTOR DAY October 2008 8
  9. 9. Veolia Environmental Services can offset the adverse impactstemming from the economic slowdown Veolia Environmental Services has implemented an ambitious program of measures aimed at generating additional cash resources in 2009 – Cost Savings Plan directly impacting 2009 EBITDA – Improvement of acquisitions – Non-core asset disposal program – In 2009, a reduction in the level of growth and financial investment Veolia Environmental Services intend to generate positive free cash flow in 2009 before proceeds from the disposal of non-core assets through reducing drastically its investment INVESTOR DAY October 2008 9
  10. 10. Today we have a balanced business portfolio Breakdown of 2007 revenue Operating margin by activity by activity Municipal Collection 4 - 7% 9% C&I Collection 5 - 9% 8% 22% 8% Industrial services and 2 - 8% HW collection 11% 24% 18% Sorting and Recycling 7 - 20% Treatment of Hazardous 11 - 19% Waste Municipal Collection Incineration O&M 5 - 10% C&I Collection Incineration BOT 20 - 30% Industrial services and HW collection Sorting and recycling Landfill 15 - 35% Treatment of hazardous waste Incineration Landfill INVESTOR DAY October 2008 10
  11. 11. Strong international positions Geographical breakdown Veolia Environmental Services of H1 2008 revenue activity is becoming more international, around four main 2% strongholds: 7% – France 14% – United Kingdom 37% 12% – Germany 12% – USA / Canada 16% Major positions in the rest of Europe – particularly in Norway, Denmark, Rest of World Switzerland, Italy and Eastern France Europe GB Germany Solid references in Asia-Pacific Rest of Europe – notably China and Australia North America Asia-Pacific INVESTOR DAY October 2008 11
  12. 12. Strategic positions acquired in the European marketin the past two years United Kingdom Cleanaway UK in June 2006: acquisition for €595m enterprise value and doubling ofFrance market share in the United Kingdom (15% Bartin Reycling Group versus 7% before the operation) in February 2008 for €190m enterprise value: no. 3 in Germany recycling and recovery of ferrous Sulo (undisputed specialist in and non-ferrous scrap paper and plastics recycling metals in France and organic recycling) in July 2007: acquisition for €1,308m enterprise value (after disposalItaly of container activities) and VSA Tecnitalia (formerly TMT) stronger position in Germany in October 2007: acquisition for (11%) €338m enterprise value - equivalent 100% - and stronger market share in Italy (28% of the incineration market vs. 6% ) INVESTOR DAY October 2008 12
  13. 13. In 2007 Veolia Environmental Services established very strongpositions in Germany with the acquisition of Sulo A leader in traditional waste management markets, with national coverage – No.1 in Municipal – No.2 in C&I, with over 100,000 customers Undisputed specialist in recycling, notably in paper and plastics – Over 250 sites including 60 sorting and recycling sites – Over 2m tons of paper 2008 results are adversely impacted, below the initial BP – Reduction in DSD activity – Increase in fuel and labor costs, only partly passed on – Pressures in the C&I market and appreciable fall in tonnages – Increase in elimination costs in the West region following administrative shutdown of a clay mine landfill in April 2008 These risks, amplified by current economic conditions, are not unusual folowing acquisitions on this scale (e.g; US, UK, etc.) Implementation of a solid recovery plan: – Reorganization and reinforcement of control structures – Geographical regroupings and cost savings plan – synergies, transition from 6 to 4 regions and consolidation of agencies – drastic reduction in head office costs – Plan to increase C&I and DSD profitability – Recovery, consolidation or closure of loss-making centers – Systematic analysis of profitability per contract/customer. INVESTOR DAY October 2008 13
  14. 14. Nature of contract and capital intensity: Waste management covers awide variety of economic models Breakdown of 2007 revenue Nature of contracts by activity by type of customer Capital intensity Municipal Incineration HW Own assets treatment Industrial Services Landfill niche markets (Marine 36% Own assets Services...) Sorting / 64% Recycling C&I CollectionIndustry and IndustrialTertiary Services O&M contract Incineration Landfill Volume risk INVESTOR DAY October 2008 14
  15. 15. Market trend: multiple drivers of growth Global demographic growth Growing urbanization worldwide accompanied by pressure on access to "essential" public services – Water – Hygiene and health (wastewater and waste management) – Transportation and energy efficiency Industrial outsourcing Public-Private Partnerships Regulations – Revision of the Waste Framework Directive in Europe – Cross-border transfers INVESTOR DAY October 2008 15
  16. 16. What is changing: the transition from an economyof abundance to an economy of scarcity The scarcity of natural resources and the increase in demand is resulting in pressure on raw material prices which in turn supports recovery and recycling initiatives. Extended Producer Responsibility is opening up new markets in management of end-of-life products Environmental awareness: The expectations of our customers - companies and municipalities – are reflected by a desire to provide a concrete form to sustainable development A deep-rooted change in management of waste towards recovery and recycling INVESTOR DAY October 2008 16
  17. 17. Veolia Environmental Services succeeds by supporting thismarket transformation Through its strategy of "turning waste into a resource", Veolia Environmental Services is in the lead to support and benefit from this market transformation: – A technology leap in recycling/recovery with the creation of High Performance Sorting Facilities (Ludres, Digitale, etc.) – Major recycling/recovery projects (Osilub, etc.) – Strengthening positions in the metals market, notably through the acquisition of Bartin – Targeted acquisition of Sulo, undisputed specialist in recycling – Setting up a very effective European organizational structure for Paper – Increasingly integrating the recovery/recycling capabilities in our bids/offerings – Improvement in recovery/recycling operating indicators INVESTOR DAY October 2008 17
  18. 18. Veolia Environmental Services succeeds by supporting thismarket transformation Examples of High Performance Sorting Facilities By developing second-generation sorting facilities, Veolia Environmental Services has created a technological advantage opening the way to new economic models Municipal waste WEEE C&I waste Waste Electrical and Electronic Pre-sorted collection Equipment Rillieux-la-Pape Ludres Groruddalen Angers (Lyon -Digitale) (Nancy) Miljøpark (Oslo) Inauguration: 2008 Inauguration: 2004 Inauguration: 2009 Inauguration: 2008 Capacity: 26kT/yr Capacity: 80 kT/yr Capacity: 60 kT/yr Capacity: 80 kT/yr (in a first stage) • Production of secondary • Recycling of three • Production of secondary raw materials raw materials (paper & families of WEEE: small (paper & paperboard, metals, plastics, etc.) paperboard, metals, household equipment, plastics, etc.) • Production of Refuse Derived Fuel (RDF) screens and refrigeration appliances • efficiency rate >90% • Drastic reduction in volumes going to landfill • Recycling/recovery rate >90% for refrigeration appliances and >65% for small household equipment INVESTOR DAY October 2008 18
  19. 19. In the longer term, recycling is more economically competitive than thedirect elimination of waste in mature countries Direct Cost of treating waste in a High Performance Sorting Facility(1) (€/t) elimination(1) (€/t) Income from Cost of Total cost of Cost advantageProcess recyclable Elimination residual sorting of sorting Taxes costs materials of RDF waste facility ~ 10 facility over Paper/Paperboard, (Refuse Derived direct Wood, Metals… Fuels) ~5 elimination Landfill or incineration ~ 20 ~ (20) 40 - 50 >50 30 - 40 ~5Technological "Economy of Inflation of energy Technological Sharp increase inprogress and scarcity": costs: progress: environmentalvolume effect: increase in reduction in Reduction in taxes reduction in income from RDF elimination non-conformingprocess costs Secondary Raw costs waste Material Today, depending on the markets and the type of waste, treatment in a High Performance Sorting Facility is more competitive than direct elimination. This competitive advantage is becoming even more crucial with the rise in raw material and energy costs, together with the increase in environmental taxes. INVESTOR DAY October 2008 19 (1) Theoretical orders of magnitude
  20. 20. Flows in a High Performance Sorting Facilityfor C&I Waste From C&I Waste The High Performance Sorting Facility produces: Wood Paper RDF INVESTOR DAY October 2008 20
  21. 21. Very targeted geographic developmentTaking into account specific local conditions Always take into account the specific Geographic potential local conditions & rhythms In Europe: The transition towards an "economy of scarcity" is proceeding at very variable rates depending – Maintain and develop our three on the typology and level of development of European strongholds (France, each country. UK, Germany) Veolia Environmental Services is first and foremost an integrated, effective waste – Become a major player in the management operator, that must accompany CEEC the change towards recovery and recycling, neither too fast nor too slowly In North America: "Full" countries – Join the leading trio • Limited space / high density – Capture the strong growth • Few natural resources potential of Industrial Services • Support Kyoto and recycling Asia-Pacific versus – Australia: remain leader and "Empty" countries broaden our portfolio of activities • Large spaces/low density – Asia: strengthen our positions in • Abundant resources China • Not too concerned about GHG & recycling INVESTOR DAY October 2008 21
  22. 22. An example of cross-functional working within Veolia:Recycling wastewater treatment sludge Management of sludge from wastewater treatment plants is a problem that concerns both Water and Waste Management. Treatment and recycling of wastewater treatment sludge and organic and mineral In 2001, the Water and Waste byproducts (e.g. paper manufacturing industry) – Study and monitoring of land application of Management divisions pooled sludge resources to create SEDE – Operation: transportation, storage, analysis and land application of sludge Environnement, a joint subsidiary – Dewatering (mobile equipment) that specializes in treatment and – Composting (23 platforms) recycling of wastewater treatment Numerous customer references: Sludge from Greater Paris Region (SIAAP), Arras, Angers, sludge and organic byproducts. Versailles, Aix en Provence & Orléans urban communities, etc. By pooling their skills, the two divisions have: Set up an appropriate internal solution for wastewater treatment sludge Developed a profitable activity - revenue has doubled and operating profit increased 8-fold in six years INVESTOR DAY October 2008 22
  23. 23. Strategic priorities Priority given to financial performance Improvement in profitability Very targeted growth Integration and improvement in financial performance of recent acquisitions Recycling / Recovery Geographical balance Be the Reference "Turning Waste into a Resource" No. 1 in France Operating excellence and Developing and taking full No. 1 in Europe irreproachable service quality advantage of new economic No. 3 in the USA Technological innovations models No. 1 in Asia-Pacific Commercial dynamism Ambitious recycling/recovery rate No. 1 in China Ambitious HR and safety targets targets INVESTOR DAY October 2008 23
  24. 24. Key figures €m 2011 2004 2007 target CAGR(1) Revenue 6,214 9,214 5-7% Margin EBITDA 986 1,461 > 15% Margin EBIT 468 803 9-10% ROCE before tax 10.9% 12.5% 12-13% (1) Excluding disposal of non-core asset INVESTOR DAY October 2008 24
  25. 25. Investor Relations contact information Nathalie PINON, Head of Investor Relations and Financial Communication 38 Avenue Kléber – 75116 Paris - France Telephone +33 1 71 75 01 67 Fax +33 1 71 75 10 12 e-mail Brian SULLIVAN, Vice President, US Investor Relations 200 East Randolph Drive, Suite 7900 Chicago, IL 60601 - USA Telephone +1 (630) 371 2847 Fax +1 (630) 282 0423 e-mail Web site INVESTOR DAY October 2008 25