2013-11-14 11:33:29
Key figures for the nine months ended September 30, 2013
(Unaudited IFRS Figures1)
Good revenue resilience
Significant growth in adjusted operating income
Net Financial debt at €9.6 billion
Strategic reinforcement in energy services with the proposed agreement regarding Dalkia international
Objectives confirmed
Performance for the nine months ended September 30, 2013 in line with the Company's path to recovery:
Slight decrease in revenue3 (-1.9%)
Adjusted operating cash flow3 of €1,294.2 million (-6.6% at constant exchange rates)
Adjusted operating income2 increased 20.4% at constant exchange rates to €620.8 million
Positive effect of the implementation of the transformation plan:
Reduction of net financial debt3 to €9.6 billion at September 30, 2013 versus €10.8 billion at December 31, 2012
Net cost reductions of €109 million for the nine months ended September 30, 2013
"In the third quarter of 2013,Veolia Environnement continued the implementation of its strategy. Net financial debt was reduced to €9.6 billion and cost savings on an annualized basis have continued in line with our objectives. The agreement being finalized with EDF regarding Dalkia will allow the full integration of Energy Services activities outside of France in Veolia Environnement's new geographical organization, implemented last July. In addition, with this transaction, Veolia Environnement will rebalance the share of activities outside of France from 49% to 66% of total revenue."
Antoine Frérot
Veolia Environnement Chairman and CEO
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1 The Group implemented the early adoption of IFRS 10, 11 and 12 with effect from January 1, 2013. The adoption of these standards had a significant impact on the presentation of the Consolidated financial statements, resulting in the end of the proportionate consolidation method in favor of the equity accounting of joint ventures. The Group therefore re-presented the accounts for the nine months ended September 30, 2012 accordingly.
2 Including the share of net income of joint ventures and associates of entities viewed as core Company activities.
3 See definitions on page 10 of this press release.
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Revenue
Revenue3 for the nine months ended September 30, 2013 decreased 1.9% at constant consolidation scope and exchange rates to €16,155.0 million
Water: Nine months revenue declined 3.4% at constant consolidation scope and exchange rates.
Operations revenue was stable. Construction activity in concessions remained lower compared to the prior year. While Technologies and Networks revenue was negatively impacted by the end of large projects, bookings increased significantly.
Environmental Services: Continued trend improvement since the beginning of the year and stabilization of activity.
Environmental Services continued the improvement recorded since the beginning of the year, with revenue growth of 1.0% at constant consolidation scope and exchange rates in the third quarter, after -4.6% in Q1 and -1.4% in Q2.
Volume declines slowed down: -3.5% for the quarter ended March 31, -1.1% for the six months ended June 30, and -0.7% for the nine months ended September 30.
Nine months revenue declined slightly, by -1.6% at constant consolidation scope and exchange rates, mainly due to the negative impact of recycled raw materials prices experienced during the first half of 2013 (impact of roughly -€110 million). At constant consolidation scope and exchange rates, Asia Pacific, the United States and the United Kingdom revenue grew. However, revenue in Germany remained significantly lower.
Energy Services: Revenue for the nine months ended September 30, 2013 increased by 2.0% at constant consolidation scope and exchange rates due mainly to higher energy prices and favorable weather in the first half.
Adjusted operating cash flow1 for the nine months ended September 30, 2013 declined 6.6% at constant exchange rates (-7.9% at current consolidation scope and exchange rates) to €1,294.2 million, compared to re-presented €1,406.0 million for the prior year period, and in line with the trend recorded in the first half of 2013.
Significant increase in adjusted operating income2 to €620.8 million for the nine months ended September 30, 2013, +20.4% at constant exchange rates (+19.0% at current exchange rates) compared to re-presented €521.7 million for the prior year period.
Significant increase in share of net income from joint ventures and associates, mainly Dalkia International.
Convergence Plan ahead of 2013-end objectives in terms of gross and net contribution: €109 million in savings net of implementation costs generated during the first nine months of the year.
Continued reduction of net financial debt1: €9.6 billion at September 30, 2013 compared to €10.8 billion at December 31, 2012 and €10.0 billion at June 30, 2013.
Controlled capex, with €995 million in gross capital expenditures for the nine months ended September 30, 2013, compared to re-presented €1,863 million for the prior year period, which included significant financial investments.
Continuation of asset portfolio optimization, with €431 million in divestitures for the nine months ended September 30, 2013. Completion of the sale of Marine Services and exit of Environmental Services activities in Italy.
Objective of between €8 billion and €9 billion in net financial debt at the end of 2013 is confirmed.
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1 See definitions on page 10 of this press release
2 Including the share of net income of joint ventures and associates of entities viewed as core Company activities
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Transdev: Resumption of discussions
Process for gradual withdrawal from the Transportation sector
Degradation of SNCM's operations, exacerbated by the non-payment of expected subsidies as part of complementary services provided by the company, have weighed heavily on SNCM's cash position. In addition, SNCM is at risk for the reimbursement of approximately €220 million in previously received subsidies following the decision rendered by the European Commission on May 2, 2013. A legal conciliation procedure with creditors has been opened in front of the Commercial Court at the initiative of SNCM management.
Neither Veolia Environnement nor Transdev is responsible for SNCM's commitments.
This situation has led to the postponement of the transfer of Transdev's 66% stake in SNCM to Veolia Environnement, and the Memorandum of Understanding entered into on October 22, 2012 expired on October 31, 2013. Discussions with the Caisse des Dépôts have resumed regarding Veolia Environnement's withdrawal from Transdev and the strengthening of Transdev's balance sheet.
Details are provided in the appendices of this press release.
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Dalkia: Strategic reinforcement in energy services
Separation of Dalkia France and Dalkia International
On October 29, 2013 EDF and Veolia Environnement announced that the two companies have entered into advanced discussions for the conclusion of an agreement on their joint subsidiary Dalkia, one of the world's leading providers of energy services. The two Boards of Directors met and approved the continuation of these negotiations.
If the discussions result in an agreement, EDF would take over all of the activities of Dalkia France, while Veolia Environnement would take over all of the activities of Dalkia International.
The proposed unwinding of the Dalkia shareholding would simplify Veolia Environnement's structures, and the Company's new organization by geographic zone implemented in July 2013 could be extended to Dalkia International.
This transaction would reinforce the weighting of activities outside of France in the Company's priority geographic zones of growth. Revenue outside France would increase from 49% to 66%.
Veolia Environnement would strengthen its position as a global leader in energy services.
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Recruitment of new Chief Finance Officer
Philippe Capron, currently CFO of Vivendi will join the Company in January 2014.
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Outlook
The Company confirms its medium term objectives:
Divestiture of €6 billion1 in assets, including the repayment of joint venture loans relating to divestitures;
Reduction of net financial debt to between €8 billion and €9 billion and adjusted net financial debt (net of joint venture loans) to between €6 billion and €7 billion excluding the impact of foreign exchange fluctuations;
To adjust, given changes in the economic environment, gross cost reductions to €270 million in 2013 and net cost reductions to €170 million, including, due to the new accounting treatment of joint ventures, 80% in adjusted operating income;
Dividend payment in 2013 and 2014 of €0.70 per share, in respect of fiscal years 2012 and 2013 respectively.
After 2013, the Company aims, assuming an average economic environment, for:
organic revenue growth of over 3% per year;
growth in adjusted operating cash flow of over 5% per year;
an adjusted debt leverage ratio (adjusted net financial debt/(operating cash flow before changes in working capital + principal payments on operating financial assets)) of around 3.0x +/-5%;
a payout ratio in line with the historical average.
For 2015, Veolia Environnement's net cost reduction target is €750 million, including, due to the new accounting treatment of joint ventures, 80% in adjusted operating income.
1 Including the debt reduction of €1.4 billion related to the change to equity accounting for Berlin water
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Important Disclaimer
Veolia Environnement is a corporation listed on the NYSE and Euronext Paris. This press release 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 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 may not 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 currency exchange rate fluctuations may negatively affect Veolia Environnement's 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.
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Financial information for the nine months ended September 30, 20131
Revenue (€ millions)
Nine months ended September 30, 2013
Nine months ended September 30, 2012
re-presented
% Change
2013/2012
Internal growth
External
growth
Foreign exchange impact
16,155.0
16,825.0
-4.0%
-1.9%
-0.5%
-1.6%
Revenue
Veolia Environnement consolidated revenue for the nine months ended September 30, 2013 declined 1.9% at constant consolidation scope and exchange rates (-4.0% at current consolidation scope and exchange rates) to €16,155.0 million compared to re-presented 16,825.0 million for the prior year period ending September 30, 2012.
At constant consolidation scope and exchange rates, revenue showed good resilience, with quarterly Y-Y trends of -3.0% in the first quarter, -1.0% in the second quarter and -1.5% in the third quarter, resulting in -1.9% for the nine months ended September 30, 2013.
Changes in consolidation scope negatively impacted revenue for the nine months ended September 30, 2013 by €84.2 million, including mainly:
€4.7 million in the Water division, related to the full consolidation of Azaliya as of August 2, 2012;
-€93.4 million in the Environmental Services division, primarily related to the divestiture of activities in Switzerland, the Baltic countries, the divestiture of Energonut in Italy and of Pinellas in 2012, as well as the divestiture of Offshore Marine Services in the United States in August 2013.
The foreign exchange impact of -€270.6 million primarily reflects the appreciation of the euro against the Japanese yen (-€59.6 million), the U.K. pound sterling (-€67.7 million), the Australian dollar (-€59.6 million), the U.S. dollar (-€35.9 million), the Czech koruna (-€11.2 million) and the Brazilian real (-€11.2 million).
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Operational performance
(-7.9% at current consolidation scope and exchange rates) to €1,294.2 million compared to re-presented €1,406.0 million for the same period ended September 30, 2012.
The decrease in adjusted operating cash flow for the first nine months of 2013 was impacted:
in the Water division, by contractual erosion in France, lower profitability in Germany related to the unfavorable impact of energy prices and also by the degradation of the Hong Kong sludge project in the Technologies and Networks business;
in the Environmental Services division, by the difficult macroeconomic environment, even though this division posted an improvement in its adjusted operating cash flow since the second quarter of 2013;
In the Energy Services division, by attrition in the commercial portfolio and due to the impact of an unfavorable environment and adverse regulatory environment, such as the scheduled end of Gas Cogeneration contracts or also malfunctioning problems at certain facilities during the third quarter of 2013;
also by the impact of the Veolia Environnement voluntary departure plan, and more generally restructuring costs (€46.8 million)
Conversely, adjusted operating cash flow benefitted from:
the improvement in Central and Eastern Europe activities in the Water division;
the positive contribution, net of implementation costs, of savings plans;
and the CICE Employment and Competitivity tax credit, partly offset by the "Forfait social", and other taxes.
The foreign exchange impact on adjusted operating cash flow was -€19.4 million and mainly resulted from the Environmental services division (U.K. pound sterling and Australian dollar).
Veolia Environnement adjusted operating income, including the share of adjusted net income of equity-accounted entities, for the nine months ended September 30, 2013 increased 20.4% at constant exchange rates (+19.0% at current consolidation scope and exchange rates) to €620.8 million compared to re-presented €521.7 million for the same period ended September 30, 2012.
The increase in adjusted operating income is mainly due to:
the decrease in adjusted operating cash flow, offset by;
the reversal of senior executive pension provisions in Veolia Environnement SA for €40 million;
the impact of write-downs on receivables and other accrued expenses in Italy in Energy Services recorded during
the nine months ended September 30, 2012 in the amount of €89 million in the share of adjusted net income of joint ventures; and
the positive impact of the deconsolidation of Environmental Services activities in Italy, which was offset by provisions for risks in Environmental Services (United Kingdom) related to landfills and on certain old contracts in the Water division in the United States recorded during the third quarter of 2013.
Free cash flow for the nine months ended September 30, 2013 amounted to €959 million (compared to -€22 million for the nine months ended September 30, 2012 and versus €556 million for the six months ended June 30, 2013), including the issue of deeply subordinated perpetual securities in the amount of €1,454.0 million, net of paid coupons, at the beginning of January 2013 and reflecting a cash deterioration of -€598 million associated with working capital requirements, due largely to seasonality. However, the change in working capital requirements improved by €151 million compared to June 30, 2013.
Net financial debt amounted to €9,612 million at September 30, 2013 compared to re-presented €10,822 million at December 31, 2012, and versus €10,031 million at June 30, 2013. Adjusted net financial debt (excluding loans to joint ventures) amounted to €6,484 million at September 30, 2013 compared to re-presented €7,837 million at December 31, 2012, and versus €6,729 million at June 30, 2013. Net financial debt and adjusted net financial debt have been reduced due to the combined effect of the issuance of deeply subordinated perpetual securities and the Company's asset portfolio optimization efforts.
1 The Group implemented the early adoption of IFRS 10, 11 and 12 with effect from January 1, 2013. The adoption of these standards had a significant impact on the presentation of the Consolidated financial statements, resulting in the end of the proportionate consolidation method in favor of the equity accounting of joint ventures. The Group therefore re-presented the accounts for the nine months ended September 30, 2012 accordingly.
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Analysis by operational sector
(in € millions)
Nine months ended
September 30, 2013
Nine months ended
September 30, 2012
re-presented
% Change
2013/2012
Water
7,487.7
7,882.0
-5.0%
Environmental Services
6,005.4
6,333.1
-5.2%
Energy Services
2,492.1
2,485.8
0.3%
Other
169.8
124.1
36.8%
Consolidated revenue
16,155.0
16,825.0
-4.0%
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Water
Revenue (€ millions)
Nine months ended
September 30, 2013
Nine months ended
September 30, 2012
re-presented
% Change
2013/2012
Internal
growth
External
growth
Foreign
exchange
impact
7,487.7
7,882.0
-5.0%
-3.4%
0.1%
-1.7%
Water division revenue declined 3.4% at constant consolidation scope and exchange rates (-5.0% at current consolidation scope and exchange rates), mainly due to the decrease in Technologies and Networks revenue and lower construction in concession contracts, partly offset by the positive impact of higher tariffs in France and Central Europe.
Revenue from Operations activities was stable, -0.7% at constant consolidation scope and exchange rates (-2.3% at current consolidation scope and exchange rates), and excluding construction activities, would have increased by 2.1% at constant consolidation scope and exchange rates (+0.3% at current consolidation scope and exchange rates). This relative stability reflects contrasting trends:
In France, revenue declined €82.7 million, or -2.8% at constant consolidation scope (-3.4% at current consolidation scope) in line with the slowdown in construction business (excluding construction activities, revenue was stable at constant consolidation scope), contractual erosion, and lower volumes sold (-1.4% during the first nine months of the year), accentuated by weather conditions in the spring and despite a favorable indexing effect compared to the prior year.
Outside France, revenue increased slightly (+1.2% at constant consolidation scope and exchange rates), but declined by 1.3% at current consolidation scope and exchange rates. Excluding construction activities, revenue outside France increased 4.0% at constant consolidation scope and exchange rates and 1.6% at current consolidation scope and exchange rates. In Europe, revenue increased (4.3% at constant consolidation scope and exchange rates and 3.2% at current consolidation scope and exchange rates) with good performance in Romania and the Czech Republic and favorable volume trends in Germany. In the United Kingdom, revenue was negatively impacted by the end of construction contracts. Revenue in Asia Pacific declined 6.8% at constant consolidation scope and exchange rates (-15.8% at current consolidation scope and exchange rates) due to lower construction activity in Korea and Japan. United States revenue increased 6.1% at constant consolidation scope and exchange rates (3.2% at current consolidation scope and exchange rates) given good performance in industrial, as well as municipal contracts.
Technologies and Networks revenue decreased by 8.5% at constant consolidation scope and exchange rates (- 10.3% at current consolidation scope and exchange rates). Revenue was mainly impacted by the completion of a number of construction contracts in France and internationally in the Design and Build sector, as well as the lower contribution this year from the Hong Kong sludge contract which is almost completed. SADE revenue was negatively impacted by unfavorable weather conditions in Europe and by development delays internationally.
However, bookings increased compared to September 2012 and amounted to €2,724 million at September 30, 2013.
Water division adjusted operating cash flow declined, primarily due to:
contractual erosion and lower volumes sold in France;
lower profitability of German operations given unfavorable movements on electricity, heat and gas margins;
by the non-recurrence of exceptional activity recorded in Japan in 2012 following the earthquake;
and by margin deterioration in the Hong Kong contract in the Technologies and Networks business.
Adjusted operating cash flow benefited from:
the net impact of cost reductions; and
the non-recurrence of impairment losses on client receivables and costs related to the divestiture of regulated activities in the United Kingdom which were recorded at the beginning of 2012.
Other than the variation of adjusted operating cash flow, Water division adjusted operating income was negatively impacted by charges for operational and contract risks on old contracts in the United States.
Environmental Services
Revenue (€ millions)
Nine months ended
September 30, 2013
Nine months ended
September 30, 2012
re-presented
% Change
2013/2012
Internal
growth
External
growth
Foreign
exchange
impact
6,005.4
6,333.1
-5.2%
-1.6%
-1.5%
-2.1%
As the quarters have progressed, the decline in Environmental Services revenue slowed down, and then reversed in the third quarter to limit the revenue decline for the nine months ended September 30, 2013 to -1.6% at constant consolidation scope and exchange rates (-5.2% at current consolidation scope and exchange rates) compared to represented nine months figures ended September 30, 2012, and versus -3.0% at constant consolidation scope and exchange rates for the six months ended June 30, 2013 and -4.6% at constant consolidation scope and exchange rates for the three months ended March 31, 2013. The decline in nine months revenue reflects, on one hand, the decline in prices and volumes of recycled raw materials for -1.7%, and the other, the decline in activity levels of -0.7%, mainly related to municipal collection activities. Revenue in the third quarter of 2013 increased 1.0% at constant consolidation scope and exchange rates and showed a stabilization of activity levels.
In France, revenue declined 3.4% at current consolidation scope and at constant consolidation scope, due to the unfavorable change in raw materials prices (paper and scrap metals) and waste volumes.
Outside France, revenue declined 0.5% at constant consolidation scope and exchange rates (-6.4% at current consolidation scope and exchange rates). Revenue in Germany declined 9.4% at constant consolidation scope (-9.1% at current consolidation scope) due to the combined impact of lower prices and volumes of recycled raw materials and adverse economic trends in the industrial and commercial sectors. Revenue in the United Kingdom increased 2.2% at constant consolidation scope and exchange rates (-2.8% at current consolidation scope and exchange rates) driven by integrated contracts (PFIs). Revenue in North America increased 2.0% at constant consolidation scope and exchange rates (-4.5% at current consolidation scope and exchange rates), benefitting from sustained growth in hazardous waste and activity levels in the petrochemical and refining sectors. Revenue in Australia increased 7.3% at constant consolidation scope and exchange rates (-2.5% at current consolidation scope and exchange rates) with growth posted in all activities.
Environmental Services division adjusted operating cash flow stabilized during the second and third quarters after posting a decline in the first quarter of 2013. The improvement in the third quarter was mainly due to the stabilization of activity, as well as the favorable trend in prices of recycled raw materials sold. Adjusted operating cash flow for the nine months ended September 30, 2013 declined mainly due to effects of the macroeconomic environment and pressure on prices, but these factors were largely offset by the net impact of cost reductions, and the absence of operating difficulties and related restructuring costs that occurred in 2012 in Italy and the Africa-Middle East region.
Environmental Services division adjusted operating income increased mainly due to the positive impact of the deconsolidation of Italian activities following the approval of the judicial liquidation procedure in respect of certain affiliates.
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Energy Services
Following the application of IFRS 10 and 11, Energy Services division revenue comprises:
100% of revenue of Dalkia France activities,
The revenue of U.S. operations wholly-owned by the Company.
Revenue (€ millions)
Nine months ended
September 30, 2013
Nine months ended
September 30, 2012
re-presented
% Change
2013/2012
Internal
growth
External
growth
Foreign
exchange
impact
2,492.1
2,485.8
0.3%
2.0%
-1.5%
-0.2%
Energy Services division revenue increased 2.0% at constant consolidation scope and exchange rates, and was stable (+0.3%) at current consolidation scope and exchange rates due to the favorable impact of energy prices (approximately €44.2 million compared to re-presented figures for the nine months ended September 30, 2012) and due to favorable weather conditions in France, in a difficult commercial environment.
In France, revenue increased 1.3% at constant consolidation scope (-0.3% at current consolidation scope) due to a rise in energy prices, combined with more favorable weather conditions.
In the United States, revenue grew significantly, 10.0% at constant consolidation scope and exchange rates (7.0% at current consolidation scope and exchange rates) due, firstly, to a favorable gas and electricity price effect, and secondly, an increase in steam volumes sold following a return to harsher weather conditions compared to a winter that was particularly mild in 2012.
Energy Services adjusted operating cash flow declined mainly as a result of the programmed termination of Gas Cogeneration contracts in France, as well as malfunctions at certain facilities during the third quarter of 2013, effects that were partly offset by actions taken to improve margins, particularly when purchasing energy.
Energy Services adjusted operating income increased, largely as a result of the turnaround in Italy operations following restructuring measures implemented and write-downs on receivables and accrued expenses of €89 million recognized during the nine months ended September 30, 2012 in the share of adjusted net income of joint ventures.
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Other segment
The "Other Segment" groups together certain industrial multi-service contracts and the various Group holding companies.
Revenue (€ millions)
Nine months ended
September 30, 2013
Nine months ended
September 30, 2012
re-presented
% Change
2013/2012
Internal
growth
External
growth
Foreign
exchange
impact
169.8
124.1
36.8%
3.3%
33.5%
0%
The 3.3% increase in "Other segment" revenue at constant consolidation scope and exchange rates (33.5% at current consolidation scope and exchange rates) is mainly due to the entry into the operating phase of significant industrial contracts.
