Q2: ACCELERATION OF REVENUE GROWTH AND IMPROVED MARGINS
2016 OBJECTIVES CONFIRMED
- REVENUE OF €11,956M: -1.0%  AT CONSTANT EXCHANGE RATES – TREND IMPROVEMENT: +0.1% IN Q2 FOLLOWING -2.1% IN Q1
- EBITDA IMPROVED 5.6%2 AT CONSTANT EXCHANGE RATES TO €1,580M (+6.9% IN Q2 VS. +4.4% IN Q1) DUE TO SIGNIFICANT COST SAVINGS (€121M).
- CURRENT EBIT GREW 8.2%2 AT CONSTANT EXCHANGE RATES TO €750M
- CURRENT NET INCOME INCREASED 6.4% (+10.1% AT CONSTANT EXCHANGE RATES) TO €342M. RESTRUCTURING CHARGES OF €95 MILLION DROVE PUBLISHED NET INCOME-GROUP SHARE OF €251 MILLION
- NET FINANCIAL DEBT AMOUNTED TO €8,678M, DOWN €545M VS. JUNE 2015 (DOWN €199M EXCLUDING EXCHANGE RATE MOVEMENTS)
THE GROUP CONTINUES TO REFOCUS: TRANSDEV DIVESTMENT PROJECT WITH THE CAISSE DES DEPOTS
Antoine Frérot, Veolia’s Chairman & Chief Executive Officer declared: “The results achieved during the first half of 2016 were once again satisfying. We continue to see the benefits of strict management, with savings ahead of our plan, which translated into further margin improvement and an increase in all our results. Revenue growth at constant exchange rates turned positive during the second quarter. This result was achieved due to good commercial momentum and significant contract awards in our priority markets. We have just signed a major contract in China with SINOPEC, the largest Chinese petrochemical company, for industrial water treatment amounting to €3.3 billion in cumulative revenue over 25 years. I am also pleased to announce that we have concluded a draft agreement with the Caisse des Dépôts, regarding the divestment of our stake in Transdev which will allow the Group to complete its strategic refocus. As a result of our continued commercial momentum and cost reduction efforts, we confirm our 2016 objectives and remain highly confident in the achievement of our 2018 targets.”
- Revenue declined 1.0% at constant exchange rates (-2.9% at current consolidation scope and exchange rates) to €11,956 million during the first half of 2016 compared with €12,318 million in the first half of 2015.
During the first half of 2016 the Group recorded a limited scope impact on revenue.
The unfavorable impact of exchange rates penalized the Group’s revenue growth in the first half of 2016 by -1.9% (-€237 million). Lower energy prices negatively impacted revenue by -€106 million (-0.9% on revenue growth) and reduced construction activity (given progressive downsizing in the business) weighed on revenue in the amount of -€206 million (-1.7%).
At constant exchange rates, and excluding construction revenue and energy prices, revenue in the first half of 2016 progressed 1.5%, mainly due to good commercial momentum (contract wins, good volumes, particularly in hazardous waste, and the commissioning of new assets).
At constant exchange rates, revenue growth turned slightly positive in the second quarter of 2016 to +0.1% after -2.1% in the first quarter of 2016.
The Y-Y revenue trend improved in all zones in the second quarter, with the exception of France. At constant exchange rates, the recorded revenue variations in the first half of 2016 were as follows:
- In France, revenue slightly declined by -0.2% in the first half (+0.2% in 1Q and -0.7% in 2Q). Water was stable. The Lille contract offset the impact of contract renewals and weak price indexation (+0.2%). Waste revenue declined 1.6% due to reduced municipal collection activity and the fall in scrap metal prices.
- Europe excluding France segment revenue declined by -0.3% in the first half of 2016, but increased 0.3% in 2Q after -0.9% in 1Q, mainly due to the impact of lower energy prices. Germany revenue progressed 2.8% given good growth in Waste. UK revenue was stable excluding construction activity. Central and Eastern Europe revenue declined slightly (-1.0%), penalized by the decline in energy prices, but benefited from an overall favorable weather impact compared to the first half of 2015 and good Water volumes.
- The Rest of the World segment recorded a significant improvement in the second quarter of 2016 (+1.9%), following a first quarter revenue decline of -2.4%. North America revenue declined by 9.4% in the first half, marked by lower energy prices, milder weather compared to 2015 and the decline in Industrial Services activity. Improvement measures were initiated at the beginning of the second quarter. Latin America revenue increased 8.5% and Africa Middle East increased 9.1%. Finally, Asia revenue progressed 2.9%, while Australia revenue declined by 3.2%.
- Global Businesses revenue declined by 1.9% in the first half, but with a lesser revenue decline in the second quarter (-0.9% vs. -2.9% in 1Q). Hazardous Waste revenue continues to grow nicely (+4.2%). The SADE business was able to offset the decline recorded in the first quarter with the start of new international contracts in the second quarter, resulting in stable performance for the first half of 2016. As expected, Veolia Water Technologies revenue was down by 10.7% during the first half of 2016, due to the end of some large projects and lower activity in the Solutions business.
- Successful development in both our traditional businesses and our growth markets.
- In the municipal sector, Veolia has won several large contracts and has carried out a number of development projects that will fuel growth in the coming quarters. For example, the city of Milwaukee in the United States renewed its wastewater treatment contract for 10 years ($500 million in cumulative revenue), four waste incinerator operations contracts were renewed in France (€425 million in cumulative revenue), and the UK has been awarded several contracts within its Waste business. In addition, Veolia will now operate the Prague Left Bank district heating network, expected to generate approximately €50 million in revenue per year, and Veolia has taken over the Pedreira landfill in Brazil (revenue of €30 million per year).
- Within the industrial sector, Veolia has just signed a significant 25-year water treatment contract in China with Yanshan Petrochemicals, a subsidiary of Sinopec, with expected cumulative revenue of €3.3 billion. This contract is a successful example of the Group’s strategy to grow strong value-added business with industrial customers, especially in the oil and gas sector, via long term contracts. In addition, contracts have also been signed with BAE Systems and BMS in the UK, and Carrefour in France. Veolia also conducted two operations in the United States in the first half of 2016: the acquisition of Kurion, the market leader in the treatment of low level radioactive waste (closed March 31, 2016), and the sulfur products division of Chemours (closed at the end of July).
- Strong growth in EBITDA, up 5.6% at constant exchange rates (+3.2% at current consolidation scope and exchange rates) to €1,580 million compared with €1,531 million in the first half of 2015.
- The unfavorable impact of exchange rates negatively impacted EBITDA growth by 2.3% (-€36 million).
- At constant exchange rates, EBITDA growth was primarily driven by cost savings (€121 million during the first half of 2016), the impact of good commercial development (net impact of €8 million) and despite lower price indexation in Water and Waste contracts.
- EBITDA margin improved in the first half of 2016 by 80 basis points from 12.4% to 13.2%.
- In France, EBITDA fell 10.7%. The Water business EBITDA declined given a 1% decline in volumes, price indexation of only +0.2%, an impact of -€16 million from contract renegotiations and -€12 million associated with the Brottes law. EBITDA of the Waste business also declined due to lower scrap iron prices and the absence of a positive non-recurring item that benefited the second quarter of 2015. EBITDA in the Rest of Europe segment recorded strong growth (+17.4% at constant exchange rates), with all countries posting higher EBITDA. Central and Eastern European countries benefited from favorable volumes and significant cost reductions. Growth in the UK was driven by good PFI performance. Germany recorded good waste volumes as well as a good contribution from cost savings. The Rest of the World segment posted good performance (+3.2% at constant exchange rates), where the EBITDA decline in the US and Australia were more than offset by strong growth in Asia. Global Businesses posted very strong growth (+38.6%) due to good performance in Hazardous Waste and measures facilitating cost reductions in the engineering business (Veolia Water Technologies).
- Current EBIT grew 8.2% at constant exchange rates (+5.3% at current consolidation scope and exchange rates) to €750 million, compared with €712 million in the first half of 2015.
- Current EBIT was negatively impacted by exchange rate movements in the amount of -€21 million.
- Excluding exchange rate impacts, the strong growth in Current EBIT was driven by EBITDA growth. Depreciation and amortization charges (including reimbursement of operating financial assets) increased slightly from €769 million in the first half of 2015 to €785 million in the first half of 2016. The contribution of the current net income of joint ventures and associates amounted to €43 million in the first half of 2016 (compared with €53 million in the first half of 2015), due to various changes in scope. Provision reversals were similar in each period (+€29 million in the first half of 2016 vs. +€28 million in the first half of 2015).
- Current net income grew 6.4% (+10.1% at constant exchange rates) to €342 million, compared with €321 million in the first half of 2015.
- Current net income primarily benefited from the strong growth in Current EBIT.
- The cost of net financial debt continues to improve, with a year-over-year reduction of -€22 million (including a €6 million favorable exchange rate benefit). The average financing rate was 4.97% in the first half of 2016 compared with 5.22% in the first half of 2015.
- The current tax rate remained stable at 29%.
- Non-controlling interests were slightly lower in the first half of 2016, amounting to €74 million compared with €82 million in the first half of 2015.
- Current net income includes financial capital gains of €41 million in the first half of 2016, down compared to €63 million recorded in the first half of 2015. Excluding these capital gains, current net income increased 15.7%.
- Net income attributable to owners of the company amounted to €251 million, compared with €353 million in the first half of 2015. First half 2016 net income includes a positive contribution from Transdev in the amount of €22 million, as well as €95 million in restructuring charges, of which €63 million is related to the voluntary departure plan in French Water.
- Significant reduction in net financial debt to €8,678 million at June 30, 2016 compared with €9,223 million at June 30, 2015.
- Excluding a favorable exchange rate impact of €346 million, net financial debt decreased by €199 million compared to June 30, 2015.
- Net financial debt includes the reimbursement of Transdev intercompany loans for €345 million and the acquisition of Kurion.
- Net Free Cash Flow excluding the seasonal variation in working capital requirements amounted to €581 million in the first half of 2016 compared to €552 million in the prior year period.
- Net Free Cash Flow generated in the first half of 2016 amounted to -€105 million.
- Capex discipline continues, with industrial investments amounting to €553 million in the first half of 2016 compared with €565 million in the first half of 2015).
- The seasonal variation in working capital requirements was -€686 million.
- Project to sell the Group’s stake in Transdev to the Caisse des Dépôts
- Veolia continues to refocus its operations with the planned divestment of its stake in Transdev.
- Veolia and the Caisse des Dépôts have established a draft agreement valuing Veolia’s 50% stake in Transdev at €550 million, plus a dividend of €10 million. The result of this agreement is expected to generate a significant capital gain.
- Divestment of 20% expected in 2016 for €220 million, with capital gain to be booked on a pro rata basis.
- An option to sell the remaining 30% portion would be granted to Veolia, exercisable in two years under the same pricing conditions as the initial transaction, with sharing of any excess capital gain in case of divestment of Veolia’s remaining 30% stake to a third party within the two year period.
- Objectives fully confirmed
Following the satisfactory start to 2016, the Group confirms its outlook.
- 2016 Objectives*
- Revenue and EBITDA growth
- Net Free Cash Flow before divestments and acquisitions of at least €650 million
- Current net income of at least €600 million
*at constant exchange rates
- 2016-2018 Outlook
- The Group expects a progressive increase in revenue growth to achieve average annual revenue growth between 2% and 3%, based on the current economic environment
- Average annual EBITDA growth of around 5% per year
- More than €600 million in cost savings over the period
- Current net income greater than €800 million in 2018
- Net Free Cash Flow of €1 billion in 2018
- Dividend policy
From 2016-2018, the Group expects to be able to provide around 10% annual dividend growth, while reducing the payout ratio.
- 2016 Objectives*
Veolia group is the global leader in optimized resource management. With over 174,000 employees worldwide, the Group designs and provides water, waste and energy management solutions that contribute to the sustainable development of communities and industries. Through its three complementary business activities, Veolia helps to develop access to resources, preserve available resources, and to replenish them. In 2014, the group Veolia supplied 96 million people with drinking water and 60 million people with wastewater service, produced 52 million megawatt hours of energy and converted 31 million metric tons of waste into new materials and energy. Veolia Environnement (listed on Paris Euronext: VIE) recorded consolidated revenue of €25.0 billion in 2015.
Veolia Environnement is a corporation listed on the 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 other risks described in the documents Veolia Environnement has filed with the Autorités des Marchés Financiers (French securities regulator). 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 from Veolia Environnement a free copy of documents it filed with the Autorités des Marchés Financiers.
This document contains "non‐GAAP financial measures". These "non‐GAAP financial measures" might be defined differently from similar financial measures made public by other groups and should not replace GAAP financial measures prepared pursuant to IFRS standards.
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 Results in process of being audited
 At current consolidation scope and exchange rates : Revenue declined 2.9%, EBITDA increased 3.2% and Current EBIT increased 5.3%