INVESTOR DAYOctober 22nd, 2008
Important DisclaimerVeolia Environnement is a corporation listed on the NYSE and Euronext Paris. This document contains “f...
The evolution of Veolia Environnement                3 constants                            3 levers for value creation  S...
INVESTOR DAY      October 22nd, 20081   Review of the evolution of the Group
Veolia Environnement: strong organic growth                    Revenue  In €m                    CE year-end              ...
Targeted growth in business                                                2,7%   In M€                                   ...
A balanced geographical contribution  85% of recurring operating income                               75% of capital emplo...
Operations in regions with high profitability                                            On December 31, 2005             ...
INVESTOR DAY      October 22nd, 20082      Levers for value creation
Veolia Environnement : 3 main levers for value creation   €bn              Operating financial                            ...
Analysis of Group cash flow generation                   Operating activities   Operating cash flow                       ...
Group operating activities generatingrecurring operating cash flow  Stability and quality of operating cash flow, 85% of w...
Operating cash flow benefits from high visibility  Length of contracts  Weight of concession activities not very sensitive...
Length of contracts and weight of concession activities   Contract                         Capital    Typical     type    ...
High rate of contract renewal (example France)  Water: a significant renewal rate - above 90%    –   2004-2007: €320m in r...
Operating financial assets:based on very secure contractual forms In the framework of a service contract, assets financed ...
Operating financial assets in the Groups accounts                                                                         ...
ROCE is the main indicator of value creation  ROCE: main indicator of management  Back to the economic approach linked to ...
Examples of value creation:Veolia Energy in Poland                  450                                                   ...
Examples of value creation:Waste management in the U.K.                                                                   ...
Examples of value creation:Veolia Water in China                                        Kunming             M€    CA      ...
Impact of recent acquisitions on Group profitability  Our portfolio of activities includes large assets that are not yet a...
Target medium-term ROCE before tax3 main categories of operations  Historic base in all the Groups business lines  Maintai...
Trends in ROCE before tax 2004 – 2008 – 2014for the three main categories of operations  Capital Employed (€ blns)    16  ...
Action plan 2008 - 2010           Priority given to improvement in ROCE: 10% net end 2010                                 ...
Appendices
A balanced geographical contribution:over 80% of operating cash flow generated in Europe     On December 31, 2005         ...
Capital employed 2007       In €m                                                 31/12/06            31/12/07       Net t...
Average capital employed 2007  In €m                                              31/12/06    31/12/07  Capital employed  ...
Calculation of 2007 ROCE    In €m                                                                  31/12/07    Recurring o...
Calculation of 2007 ROCE     In €m                                                           31/12/07     Net income from ...
Free cash flow before new projects                                                            2005           In €m        ...
Investor Relations contact information             Nathalie PINON, Head of Investor Relations                  and Financi...
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The evolution of Veolia Environnement

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2008-10-22

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The evolution of Veolia Environnement

  1. 1. INVESTOR DAYOctober 22nd, 2008
  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. The evolution of Veolia Environnement 3 constants 3 levers for value creation Strong organic growth Historic base generating cash flow that is (i) recurring, (ii) 85% Balanced profile and control of risks generated in Europe and (iii) benefits from high visibility Strict profitability criteria Operating financial assets based on very secure contractual forms Assets invested on the basis of consistent profitability targets (WACC + 3%) INVESTOR DAY October 2008 3
  4. 4. INVESTOR DAY October 22nd, 20081 Review of the evolution of the Group
  5. 5. Veolia Environnement: strong organic growth Revenue In €m CE year-end * ROCE after taxs 32,6 28,6 ROCE* ROCE* 25,6 10% 10.9% 22,8 ROCE* ROCE* 10.8% 10.2% 18,4 ROCE* 8.4% 14,6 12,7 11,4 +26.0% +11.4% +15.0% 2004 2005 2006 2007 2008 2009 2010 2011 Portfolio consolidation Change in size/dimension Projections phase • Strong organic growth • Robust organic growth • Organic growth • Strong external growth • Adjustments in scope INVESTOR DAY October 2008 5
  6. 6. Targeted growth in business 2,7% In M€ : +1 004 €32, 628m 2007–2 roup AG RG C €28,620m CAGR €25,570m 2004- 2007 44% €22,792m France +7.1% 47% Germany +26.3% 49% 80% UK +21.8% 51% 80% 8% Rest of Europe +13.5% 81% 7% 9% 82% North America +12.0% 7% 8% 6% 7% Asia-Pacific +25.4% 19% 7% 18% Rest of World +19.8% 18% 18% +12.7% 8% 9% 10% 9% 7% 5% 6% 6% 4% 4% 4% 5% 2004 2005 2006 2007 INVESTOR DAY October 2008 6
  7. 7. A balanced geographical contribution 85% of recurring operating income 75% of capital employed generated in Europe located in Europe On December 31, 2007 On December 31, 2007 (€2.5bn) (€18.4bn) 6% 5% 3% 9% 7% 24% 38% 13% 17% 12% 14% 22% 15% 15% France Germany UK Rest of Europe North America Asia-Pacific Rest of World INVESTOR DAY October 2008 7
  8. 8. Operations in regions with high profitability On December 31, 2005 On December 31, 2007 16% 18% Germany United Recurring operating margin Recurring operating margin 14% Kingdom 16% Germany 12% 14% United Kingdom Asia Pacific 12% 10% France North 10% Asia Pacific Rest of France 8% America Europe 8% North 6% America 6% Rest of 4% Europe 4% 2% Rest of World Rest of World 2% 0% 0% 0% 5% 10% 15% 20% 25% 0% 5% 10% 15% 20% 25% Capital employed 2005 2007 France 31.2% 24.2% NB: The size of the circles represents the amount of capital employed by geographical region Germany 6.5% 12.2% United Kingdom 11.9% 14.8% Rest of Europe 22.3% 22.4% North America 15.7% 12.8% Asia Pacific 6.8% 8.6% Rest of World 5.6% 5.0% INVESTOR DAY October 2008 8
  9. 9. INVESTOR DAY October 22nd, 20082 Levers for value creation
  10. 10. Veolia Environnement : 3 main levers for value creation €bn Operating financial Assets invested on the basis of consistant assets based on very profitability targets secure contractual (WACC + 3%) forms 25 1,3 3,8 7,6 Shareholders equity (Group) 20 5,6 2,6 Shareholders‘ 15 equity (minorities) 25,3 Historic base for all the 10 Groups operating activities generating cash flow that is 14,6 (i) recurring, (ii) 85% 15,1 Net debt 2007 generated in Europe and (iii) 5 benefits from high visibility 0 CE end 2006 Operating CE in 2007 Other assets 2007 Total CE 2007 Total capital financial assets employed 2007 INVESTOR DAY October 2008 10
  11. 11. Analysis of Group cash flow generation Operating activities Operating cash flow 4,178 - Change in operating WCR -167 Operating activities - Return on OFA -345 Return on Op. Fin. assets (OFA) 345 - Maintenance capital expenditures -1,590 - New OFA -334 + Industrial disposals 213 + Repayment of OFA 395 Operational Cash flow 2,290 Cash Flow from AFO 406 + Sub-total Cash Flow from business activities 2,696 + Financial CF and CF from discontinued activities 41 - Invests. excl. new projects and maintenance cap.exp. -1,001 + Disposal of financial assets 153 + Increase in minority shareholders equity 206 - Tax paid -417 -Interest income paid -786 + Other (Dividends on equity consolidated shares & NC) 15 Free cash flow before major projects 906 INVESTOR DAY October 2008 11
  12. 12. Group operating activities generatingrecurring operating cash flow Stability and quality of operating cash flow, 85% of which is generated in Europe: Operating cash flow 2005 proforma 2006 2007 Quote-part 2007 Total Group VE, of which : 2,110 2,112 2,290 100% France 994 1,031 1,134 50% United Kingdom 180 281 273 12% Germany 175 98 160 7% Czech Republic 132 124 179 8% Other Europe 305 230 199 9% North America 169 113 185 8% China 41 69 46 2% Asia Pacific excl. China 66 93 110 5% Detail by Division in € mln Of which Water 1,050 1,050 1,000 Of which Waste 550 650 900 Of which Energy 400 300 300 Of which Transport 100 100 100 INVESTOR DAY October 2008 12
  13. 13. Operating cash flow benefits from high visibility Length of contracts Weight of concession activities not very sensitive to economic conditions High rate of contract renewal Ability to generate productivity allowing us to maintain returns in mature zones over the longer term INVESTOR DAY October 2008 13
  14. 14. Length of contracts and weight of concession activities Contract Capital Typical type Legal form intensity lenght Water Energy Waste Transport POA/ (CE+ Contracts Contracts Contracts Contracts AFOs) used used used used DPS, service O&M >2 5-15 yrs ● ● ● ● concession DBO DPS >4 5-15 yrs ● ● ● Subcontrac- PW contracts, >4 5-10 yrs ● ● ● ● ting private contracts BOT BOT, PPP, PFI <1 10-25 yrs ● ● ● Concession Concession, PFI <1 10-30 yrs ● ● ● JV clients Asset Co/Op Co <1 10-50 yrs ● ● Industry Outsourcing <1 5-15 yrs ● ● Spot PW contracts, >1 <1 year ● ● ● ● Contracts private contracts D&B Construction >4 <3 yrs ● INVESTOR DAY October 2008 14
  15. 15. High rate of contract renewal (example France) Water: a significant renewal rate - above 90% – 2004-2007: €320m in renewed revenue, €29m lost, €31m won and net revenue won of €58m thanks to new DSP-type service contracts – Average residual length of existing contracts = 7 years - average length of newly won contracts greater than 11 years Waste management: – 2004-2007: €614m in renewed revenue, €183m lost, €291m won and net revenue won of €108m – A diversified industrial and tertiary client mix representative of the main sectors, with low exposure to any one sector (the four main business sectors making up the client portfolio represent only around 1/3 of revenue generated by industrial and tertiary clients) Energy services: renewal rate above 80% (84% in 2007) – More than offset by new contracts won and extensions, taking the average growth rate in France to +8.2% since 2003 – 38,000 contracts in France. Average contract length of around 9 years (from 3 years on average for "Facility management" to 20 years for heating and cooling networks) Transportation: a renewal rate of between 82% and 99% (2005-2007) INVESTOR DAY October 2008 15
  16. 16. Operating financial assets:based on very secure contractual forms In the framework of a service contract, assets financed on behalf of clients in return for a guaranteed payment or a series of future payments Example: concession contract with payment guarantee Assets with a limited useful life, which cannot be valued on multiples Balance sheet value on 31.12.2007: €5.6bn Assets earning a market return 6.1% in 2007 Assets whose sole risk is the counterparty risk Solid counterparties: mostly local authorities & significant industrial clients Assets typically financed by dedicated financing INVESTOR DAY October 2008 16
  17. 17. Operating financial assets in the Groups accounts 2007 (M€) • Balance sheet:(current and non-current operating financial assets): recorded at amortized cost with corresponding liability in Veolias consolidated net debt 5,627.6 • Income statement: Remuneration (i.e. interest payments) are a sub-line to revenue « of which revenue from operating financial assets » and thus also part 345.1 of the operating cash flow before changes in working capital (EBITDA) • Statement of cash flow (inflow): repayment of the principal associated with operating financial assets is not recognized in the income statement but on the level of "cash flow from investing activities" in the statement of cash flow 394.7 • Statement of cash flow (outflow): new operating financial assets, which represent capital expenditures for the year coming under the "financial assets 420.5 model" are also recognized at the level of "cash flow from investing activities" in the statement of cash flow INVESTOR DAY October 2008 17
  18. 18. ROCE is the main indicator of value creation ROCE: main indicator of management Back to the economic approach linked to the selection criterion (WACC + 3%) Recurring operating income as best measure of cash generation Change in capital employed is a good approximation of growth investments Link between capital intensity and pay-back Definition Net income from operations ROCE = Average capital employed during the year Net income from operations = Recurring operating income + Share of net income of associates – Income tax expense – Revenue from operating financial assets + Income tax expense allocated to operating financial assets Capital employed = Intangible assets and property, plant and equipment, net + Goodwill, net of impairment + Investment in associates + Operating and non-operating working capital requirements, net + Net derivative instruments – Provisions - Other non-current debt Average capital employed for the year: average of capital employed at opening and closing INVESTOR DAY October 2008 18
  19. 19. Examples of value creation:Veolia Energy in Poland 450 Lodz 16% 400 14% Net revenue 350 12% Free Cash Flow 300 10% in M Euros Operating Result 250 8% 200 ROCE after tax 6% 150 4% 100 50 2% - 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Year INVESTOR DAY October 2008 19
  20. 20. Examples of value creation:Waste management in the U.K. Hampshire Net revenue 140,0 90,0% Free Cash Flow 120,0 Operating Result 80,0% ROCE after tax 100,0 70,0% 80,0 60,0% 60,0 50,0% £m 40,0 40,0% 20,0 30,0% 0,0 20,0% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 -20,0 10,0% -40,0 0,0% -60,0 -10,0% Year INVESTOR DAY October 2008 20
  21. 21. Examples of value creation:Veolia Water in China Kunming M€ CA 20,0% 55,0 Coûts 18,0% 45,0 CFL 16,0% 35,0 14,0% 25,0 12,0% 15,0 10,0% 5,0 8,0% -5,0 6,0% -15,0 4,0% -25,0 2,0% -35,0 0,0% 2005 2006 2007 2008 E 2009 E 2010 E 2011 E 2012E 2013 E 2014 E INVESTOR DAY October 2008 21
  22. 22. Impact of recent acquisitions on Group profitability Our portfolio of activities includes large assets that are not yet at maturity: – Major projects 2006: €1.4bn • Acquisition of Cleanaway in the UK notably – Major projects 2007: €4bn, including €900 mln in organic growth • Acquisitions of Sulo in Germany, of the leading private heating and cooling network in North America (TNAi), of TMT in Italy and of non-regulated water activities in the United Kingdom primarily These major projects represent almost one third of Group capital employed at end 2007 The 2007 assets today have a dilutive impact on the Group ROCE. Our goal: to increase FCF and the profitability of these new projects through the Efficiency Plan 2010 and specific action plans (e.g. Sulo). INVESTOR DAY October 2008 22
  23. 23. Target medium-term ROCE before tax3 main categories of operations Historic base in all the Groups business lines Maintaining high levels of ROCE over the 2008-2014 period – France: maintaining a ROCE of around 18%-20% – Czech Republic: maintaining a ROCE of around 16%-18% – United Kingdom: increase of around 1% to 12%-14% Mature markets with recent operations for one or several Group business lines Gain of 2% looking to 2011 and an additional 2% looking to 2014 – North America – Germany – Rest of Europe Developing markets Gain of at least 3% looking to 2011 and an additional 3% looking to 2014. – Asia Pacific – Rest of World INVESTOR DAY October 2008 23
  24. 24. Trends in ROCE before tax 2004 – 2008 – 2014for the three main categories of operations Capital Employed (€ blns) 16 14 12 Markets with recent operations Historical base (Ger. + US + Rest of Europe excl. CZR) 10 (FR + UK + CZR) 8 6 4 2 Developing markets (China + AP excl. Ch.) 0 ROCE before tax 0.0% 5.0% 10.0% 15.0% 20.0% Figures for indicative purpose only INVESTOR DAY October 2008 24
  25. 25. Action plan 2008 - 2010 Priority given to improvement in ROCE: 10% net end 2010 Productivity improvement Improvement in contribution of recent acquisitions Implementation of "Efficiency 2010" plan: €400m in full year 2011 Positive free cash flow(1) in 2009 Net investment target 2009: €2 bn to €2.5 bn Tighter control of new investments and WCR Acceleration of the asset disposal program Geographical strengthening of organization to increase generation of commercial synergies INVESTOR DAY October 2008 25 (1) Net of all investments and disposals
  26. 26. Appendices
  27. 27. A balanced geographical contribution:over 80% of operating cash flow generated in Europe On December 31, 2005 On December 31, 2007 4% 6%3% 6% 7% 7% 16% 50% 16% 44% 9% 12% 9% 11% France Germany UK Rest of Europe North America Asia-Pacific Rest of World INVESTOR DAY October 2008 27
  28. 28. Capital employed 2007 In €m 31/12/06 31/12/07 Net tangible & intangible fixed assets 11,644 14,118 Goodwill 5,705 6,913 Investments in associates 241 292 Inventory & Work in progress 732 840 Operating receivables 10,969 12,459 Operating payables - 11,269 - 12,945 Deferred tax, net - 149 - 326 Tax on disposal of assets in North America - 85 - 61 & related restructuring Working capital requirement 198 -33 Net derivative instruments 27 79 Provisions - 3,023 - 2,964 Other long-term liabilities -207 - Capitaux employés 14,585 18,405 INVESTOR DAY October 2008 28
  29. 29. Average capital employed 2007 In €m 31/12/06 31/12/07 Capital employed 14,585 18,405 Average capital employed in 2007 16,495 INVESTOR DAY October 2008 29
  30. 30. Calculation of 2007 ROCE In €m 31/12/07 Recurring operating income 2,469 Corporate tax - 420 Tax loss linked to North American disposals + 24 & related restructuring Exceptional tax gain from recognition of tax deficits - 11 eligible for carryover in the USA Total tax expense - 407 Share of net income of associates + 17 Income from financing activities for third parties - 345 (revenue from OFA) Tax allocated to financing activities for third parties + 63 (tax OFA) Net income from operations 1,797 INVESTOR DAY October 2008 30
  31. 31. Calculation of 2007 ROCE In €m 31/12/07 Net income from operations 1,797 Average capital employed in 2007 16,495 ROCE after tax 10.9% INVESTOR DAY October 2008 31
  32. 32. Free cash flow before new projects 2005 In €m 2006 2007 adj. Cash flow from operations(1) 3,542 3,844 4,219 Principal repayment of operating financial + 321 + 438 + 395 assets Total cash generation 3,863 4,282 4,614 Maintenance capital expenditures - 1,212 - 1,411 - 1,590 New operating financial assets - 513 - 361 - 334 Change in operating WCR - 39 - 112 - 167 Tax paid - 339 - 343 - 417 Interest paid - 739 - 596 - 786 Change in capital reserved to minorities +8 + 82 + 206 Growth and current development - 834 - 1,010 - 1,001 investments Disposal of assets + 343 + 355 + 366 Others + 17 + 15 + 15 Free cash flow before new projects 555 901 906 INVESTOR DAY October 2008 32(1) Cash flow from operations = EBITDA
  33. 33. 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 nathalie.pinon@veolia.com 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 brian.sullivan@veoliaes.com Web site http://veolia-finance.com INVESTOR DAY October 2008 33

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