2014-05-09 16:42:29
Transformation plan: 2013 objectives achieved ; Further significant decline in net Financial debt to €8.2 billion ; Adjusted operating income increased 16.9% to €922 million ; Adjusted net income quadrupled to €223 million ; Proposed 2014 dividend of €0.70 and €0.70 for 20152 ; 2014 objectives: significant growth in results expected.
Results steadily improved throughout the year:
Stabilization across quarters of the Y-Y evolution of revenue at constant consolidation scope and exchange rates.
Cost reductions exceeded the objective.
Net improvement in the Y-Y trends in adjusted operating cash flow by the end of the year, with a stable Q4 at constant scope and exchange rates, or +2.5% excluding restructuring charges. For the full year 2013, adjusted operating cash flow declined 4.1% at constant scope and exchange rates, or -1.7% excluding restructuring charges.
Adjusted operating income increased 16.9% at constant exchange rates to €922 million.
Adjusted net income was €223 million compared to €58 million in 2012.
Net income was -€135 million due to the impact of non-recurring charges.
Outlook
For 2014, Veolia Environnement aims to achieve:
Growth in revenue.
Around 10% growth in adjusted operating cash flow and significant growth in adjusted operating income and adjusted net income.
Proposal to pay a dividend of €0.70 per share in respect of the 2014 fiscal year and payable in 2015.
2015 objectives are confirmed
The improved performance during the year reflects the initial benefits of Veolia Environnement's transformation plan. All of the objectives we set for 2013 were achieved, and certain objectives were exceeded, which allows us to approach the second phase of our strategic plan with even more confidence. The 2014 fiscal year will mark a return to growth in our results, with specific 2014 objectives3 of: revenue growth, around 10% growth in adjusted operating cash flow, and significant growth in adjusted operating income and adjusted net income. Veolia is therefore well on the path to profitable and sustainable growth.
Antoine Frérot
Veolia Environnement Chairman and CEO
[1] The closure of the 2013 fiscal year was marked by 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 year ended December 31, 2012 accordingly.In addition to assure the comparability of periods, 2012 annual results have been re-presented for divestments completed or in process, see page 19 of this press release.
[1] In view of the good progress of the transformation plan, the Board of Directors will propose the payment of a €0.70 dividend per share in respect of the 2014 fiscal year, payable in 2015.
[3] At current exchange rates
2013 Annual Results Key Figures4
Revenue: €22.3 billion
Adjusted operating cash flow: €1,796 million
Adjusted operating income: €922 million
Adjusted net income: €223 million
Net income: -€135 million
Net cumulative cost savings: €178 million
Divestments: €1,253 million
Net financial debt: €8.2 billion
Adjusted net financial debt: €5.5 billion
Adjusted leverage ratio: 2.5x
Revenue was €22,315 million compared to re-presented €23,239 million for the year ended December 31, 2012
Revenue was €22,315 million compared to re-presented €23,239 million for the year ended December 31, 2012Water revenue declined 2.2% at constant scope and exchange rates to €10,222 million
Return of organic growth in the Operations business: favorable indexation (+2.2%), but temporary slowdown of construction activities in certain contracts, lower volumes sold (-1.5%) and contractual erosion in France. Good performance in Central and Eastern Europe operations and industrial contracts in the United States.
Technologies and Networks revenue declined 7.5% at constant scope and exchange rates: completion of international Design & Build contracts and unfavorable weather effects in France, but rebound in bookings, which increased 32% Y-Y to €3.3 billion.
Environmental Services revenue declined 1.5% at constant scope and exchange rates to €8,076 million, with stability in the second half despite a tough comparison base in Q4
Improvement in the impact of raw materials prices in the second half, even though prices remained down for the full year. Raw materials volumes still declined.
Impact of volume / activity levels in 2013 was -1.1%.
?Energy Services revenue declined 1.1% at constant scope and exchange rates to €3,756 million
Benefit of higher energy prices and favorable weather impacts absorbed by the impact of the end of gas cogeneration contracts in France.
Adjusted operating cash flow amounted to €1,796 million, down 2.4% at constant 31, 2012. Adjusted operating cash flow Y-Y trends improved exchange rates and excluding restructuring charges, and compared to re-presented €1,919 million for the year ended December by the end of the year.
Water: increase of 1.1% at constant exchange rates in the Operations business. Technologies and Networks adjusted operating cash flow declined as a result of the degradation of the Hong Kong sludge contract margin and the decline in revenue. Overall, total adjusted operating cash flow in Water posted a slight decline of 1.6% at constant exchange rates.
Environmental Services: decline of 4.6% at constant exchange rates of which -1.5% associated with change in scope and -2.0% was associated with lower prices and volumes of recycled raw materials. Stabilization since the second quarter.
Energy Services: Reduction of 5.9% at constant exchange rates due to the end of gas cogeneration contracts in France.
Adjusted operating income improved significantly (+16.9% at constant exchange rates) to €922 million compared to re-presented €798 million for the year ended December 31, 2012.
Good contribution from joint ventures and associates, mainly due to Dalkia International, which had a net impact in 2012 of €65 million in write downs of receivables and accrued expenses in Italy.
Favorable impact of the cost savings plan, net of implementation costs.
Positive impact of the closure of the defined benefit plan for executives.
Adjusted net income amounted to €223 million compared to re-presented €58 million for the year ended December 31, 2012
Adjusted net income benefited from the significant improvement in adjusted operating income.
Net loss amounted to -€135 million compared to €404 million for the year ended December 31, 2012, and was negatively impacted by a €150 million goodwill impairment in Environmental Services in Germany, €141 million in restructuring charges, including the VE SA and France water departure plans, as well as €73 million in costs related to the early redemption of bonds. Transport activities had a loss of -€51M, primarily related to SNCM.For the year ended December 31, 2012, net income included capital gains on the divestiture of the regulated waster business in the United Kingdom and the solid waste business in the Unites States, for €233.3 million and €208.4 million respectively.
The Company's asset portfolio optimization policy continued at a steady pace in 2013
€1,253 million in asset divestitures, including the 25% stake in Berlin Wasser.
The gradual withdrawal from Transdev has not progressed further due to the situation with SNCM. Veolia and the Caisse des Dépôts have each converted €280 million in loans to equity of their subsidiary.
Net financial debt declined significantly to €8.2 billion at December 31, 2013 compared to re-presented €10.8 billion at December 31, 2012.Adjusted net financial debt amounted to €5.5 billion at December 31, 2013 compared to re-presented €7.8 billion at December 31, 2012.
Proposed dividend of €0.70 to be paid in cash or shares in relation to the 2013 fiscal year, and proposed dividend of €0.70 for the 2014 fiscal year.The Board of Directors will propose at the Annual General Shareholder Meeting to be held April 24, 2014 a dividend payment of €0.70 per share in respect of the 2013 fiscal year, payable in cash or in shares of Veolia Environnement. These new shares will be issued at a price equivalent to 95% of the average opening price on the Euronext Paris of the shares over the twenty trading days prior to the day of the Annual General Shareholders Meeting, less the amount of the dividend. The ex-dividend date (for ordinary shares only) has been set as April 30, 2014.The period during which shareholders may choose the option of the payment of dividend in cash or in shares will begin on April 30, 2014 and end May 16, 2014.The 2013 dividend will be paid, in cash or in shares, in either case from May 28, 2014.
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.
Results of Operations for the Year Ended December 31, 2013
In an economic environment that remains uncertain, the Group implemented the second year of its transformation plan through:
a new geographical organization set up since July 2013;
the cost reduction program;
continued optimization and divestiture of assets and;
the decline in net financial debt.
?Transformation and cost reduction plan
On July 8, 2013, as part of the transformation of Veolia Environnement, the new organizational structure of the Group was announced, continuing the strategy implemented for the last two years to establish Veolia Environnement as "The Industry Standard for Environmental Solutions" thanks to its expertise in major environmental issues in the Water, Environmental Services and Energy Services sectors.
This new organization is based on two major advances: a country-based organization for Water and Environmental Services activities placed under the authority of a single director per country and the creation of two new functional departments: one dedicated to Innovation and Markets, the other to Technology and Performance.
With the exception of globally integrated activities, business operations are now brought together within each country, with Country Directors in charge of both Water and Environmental Services activities. The integrated and direct Group monitoring, under the operational authority of the Chief Operating Officer, is organized around country groupings, representing the first level of resource allocation.
Dalkia International, a subsidiary of Veolia Environnement and EDF, retains its current organizational structure but will be integrated into this new structure in due course.
The global specialty entities, whose markets are widely globalized, are included in a specific organization.
The composition of the Veolia Environnement Management Committee and Executive Committee was revised to better reflect this geographic structure and facilitate the development of country-based synergies.
The announcement of the new organizational structure of the Group does not change the terms of performance monitoring or resource allocation for the current year and therefore does not impact segment reporting in 2013.
From 2014, the new organizational structure will lead the Group to adapt its segment reporting to better reflect the Group's performance as reviewed by the chief operating decision maker.
Over and above the annual efficiency plan, the 2015 net cost reduction objective (Convergence Plan) was increased in May 2013 to €750 million from the prior €470 million target compared to 2011. This €280 million increase breaks down as follows: €70 million in respect of increased mutualization and information system streamlining efforts, €100 million in respect of purchasing and €110 million associated with efficiency projects in the businesses and headquarters.
The Group cost reduction plan (Convergence) generated €178 million in additional cumulative net savings in the two year period ended December 31, 2013, recorded in operating income (before application of IFRS 10 and 11), out of an objective of €170 million, net of implementation costs.Post application of IFRS 10 and 11 cumulative net savings amounted to approximately €140 million.
Shareholding restructuring of the Energy Services division
On October 28, 2013, EDF and Veolia Environnement announced the launch of advanced discussions for the conclusion of an agreement on their joint subsidiary Dalkia. The Boards of Directors of these two groups met and approved the continuation of negotiations.
Upon completion of these discussions, EDF would acquire all Dalkia group activities in France, while Veolia Environnement would acquire the activities of Dalkia International; the sale of Dalkia France shares to EDF and of Dalkia International shares by EDF to the Group are inseparable parts of the planned transaction. Under this transaction, Veolia Environnement would make a cash payment to EDF to compensate for the difference in value of the investments owned by the two shareholders in the various Dalkia group entities. The amount of this cash payment, estimated at €550 million, is likely to be adjusted to take account of the definitive structure of the transaction and the cash position of Dalkia SAS as of December 31, 2013.
Given the progress to date of the different processes necessary for the completion of the transaction (employee representative bodies, anti-trust authorities, carve-out), it should be finalized in 2014.
This transaction will not lead to the Group's withdrawal from any countries or the cessation of any of the Group's businesses, in particular Energy Services.
Accordingly, this transaction is reflected as follows in the Group's consolidated financial statements as of December 31, 2013:
Transfer of Dalkia's assets and liabilities in France to "Assets classified as held for sale" and "Liabilities directly associated with assets classified as held for sale" in the consolidated statement of financial position, pursuant to IFRS 5, for a net asset amount of €1,529.1 million, including Dalkia France's external debt of €203.8 million;
Remeasurement of Dalkia France assets and liabilities at the lower of net carrying amount and fair value less costs to sell, without impact on the consolidated accounts of the Group as of December 31, 2013.
?
Furthermore, until the transaction completion date, the Group's investment in Dalkia International remains equity-accounted.
Overall, the transaction should not impact the net financial debt of Veolia Environnement, which currently provides most of Dalkia group financing.
Following completion of the transaction, Dalkia's international activities will be held exclusively by the Group and will be fully consolidated.
The transaction will secure the development of Dalkia group activities internationally, while strengthening Veolia Environnement's ambitions in the energy services sector. It will also put an end to the litigation between EDF and Veolia Environnement pending before the Paris Commercial Court.
Once finalized, the draft agreement will be submitted for approval to EDF's and Veolia Environnement's respective Boards of Directors.
Acquisition of Proactiva Medio Ambiente
On November 28, 2013, Veolia completed the acquisition of the 50% stake in Proactiva Medio Ambiente historically held by the Fomento de Construcciones y Contratas (FCC) group. This transaction will allow Veolia Environnement to consolidate its positions in Latin America in waste management and water treatment and support its development strategy in high-growth regions.
Had the acquisition been completed on January 1, 2013, the revenue and operating income contribution of Proactiva Medio Ambiente would have amounted to €510.1 million and €42.7 million, respectively.
The total transaction amount of €150 million and its breakdown are presented in Note 3.3 to the Group consolidated financial statements as of December 31, 2013.
Accordingly, in 2013, Proactiva Medio Ambiente was equity-accounted up to the date of acquisition of control and fully consolidated thereafter. In accordance with the provisions of IFRS 3R, this transaction is therefore reflected by:
the recognition of net income of €82 million, equal to the fair value remeasurement of the investment stake previously held in Proactiva Medio Ambiente;
the recognition of provisional goodwill of €193 million;
a financial investment of €238 million (enterprise value), comprising the cash payment of €125 million and additional Proactiva Medio Ambiente debt of €113 million included in Group net financial debt.
?Asset portfolio optimization policy
The Group continued to implement its asset portfolio optimization strategy with, in particular:
the divestiture of Eolfi's European activities on February 28, 2013, following the signature of a memorandum of understanding with Asah on January 21, 2013, for a share value of €23.5 million;
the divestiture of the Veolia Water subsidiary in Portugal (Compagnie Générale des Eaux du Portugal - Consultadoria e Engenharia) on June 21, 2013, to Beijing Enterprises Water Group, for an enterprise value of approximately €91 million;
the initial public offering on the Oman stock exchange of 35% of the shares of Sharqiyah Desalinisation Company (of which 19.25% held by the Group) on June 13, 2013, which resulted for the Group in the sale of 1,255,128 shares for €2.7 million. Following the listing, this entity has been equity-accounted since June 30, 2013. The impact on Group net financial debt was €89 million;
the deconsolidation of practically all Environmental Services activities in Italy, following the approval of the group voluntary liquidation plan (Concordato preventivo di gruppo, CPG) on July 17, 2013. The impact on Group net financial debt was €90 million;
the divestiture of Marine Services Offshore on August 29, 2013 for an enterprise value of €23 million to Harkland Global Holdings Limited (US fund);
the divestiture of its 24.95% stake in Berlin Wasser in the amount of €636.3 million. This transaction was carried out on December 2, 2013; and
the divestiture of Regaz by Dalkia France on December 12, 2013, for a consideration of €46.5 million.Overall, these financial (in enterprise value) and industrial divestitures represented a total of €1,253 million in the year ended December 31, 2013.
Transdev Group and SNCM:
In 2013, the difficulties of Société nationale Corse Méditerranée (SNCM) did not enable Veolia Environnement to withdraw from Transdev Group.
The Memorandum of Understanding signed by Transdev Group's two shareholders in October 2012 and providing for an increase in Caisse des dépôts et consignations's stake in the share capital of Transdev Group to 60% and the transfer by Transdev Group to Veolia of its 66% stake in SNCM, lapsed on October 31, 2013, the deadline for signature of an agreement.
Accordingly, the Group modified the accounting presentation of its investment in Transdev Group for the publication of its 2013 financial statements, transferring it from "Assets classified as held for sale" (discontinued operations) to "Investments in joint ventures" (continuing operations), accounted for using the equity method. Pursuant to IFRS 5.28 and IAS 28.21, the Group modified retrospectively the accounting presentation of its investment in 2012 and 2011. Given the Group's confirmed desire to continue its withdrawal from Transdev, the Group's investment in the Transdev Group does not represent an extension of the Group's businesses within the meaning of the French Accounting Standards Authority's recommendation of April 4, 2013.
SNCM remains equity-accounted indirectly through the recognition of the Transdev Group joint venture. During closing procedures on the Group consolidated financial statements for the year ended December 31, 2013, the Group assessed its net exposure to SNCM as a result of its indirect interest.
Given the litigation proceedings in progress as of December 31, 2013, the Group considers the best way to reflect in the accounts the exposure arising from its indirect interest in SNCM, is to recognize the amounts that would be payable under the most probable scenario, that is an appropriate collective procedure with a disposal plan associated with a transaction:
In the Group consolidated financial statements as of December 31, 2013, the equity-accounting value of Transdev Group reflects a fair appraisal of the Group's exposure to its interest in SNCM;
Veolia Environnement's receivable on SNCM of €14 million is fully provisioned in the Group consolidated financial statements as of December 31, 2013.
?Under this scenario, the repayments claimed by the European Commission pursuant to the disputes regarding the privatization process (€220 million excluding interest) and compensation paid for so-called complementary services (€220 million excluding interest, representing the majority of the €300 million amount noted associated with risks related to SNCM in our quarterly financial report ending September 30, 2013) would not be paid. Should this scenario not prevail, the Company would reassess the financial impacts.
An assessment by the Group of the value in use of Transdev Group (excluding SNCM) confirmed its net carrying amount.
Financing of the Transdev Group joint venture
To provide Transdev Group with the financial flexibility required for its development and in order to strengthen its balance sheet, on December 18, 2013, Veolia Environnement SA and the Caisse des dépôts carried out a share capital increase of €560 million (of which €280 million subscribed by Veolia Environnement SA through the capitalization of loans). Hence, the loans granted to the Transdev Group joint venture, the expiry date of which was deferred by one year (i.e.March 3, 2015), totaled €622.0 million at December 31, 2013.
5 The closure of the 2013 fiscal year was marked by 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 year ended December 31, 2012 accordingly.In addition to assure the comparability of periods, 2012 annual results have been re-presented for divestments completed or in process, see page 19 of this press release.
REVENUE AND BUSINESS DEVELOPMENT
Year ended December 31, 2013
(€ million) Year ended December 31, 2012
re-presented (€ million) % Change
2013/2012 Internal growth External growth Foreign exchange impact
22,314.8 23,238.9 -4,0% -1,8% -0,4% -1,8%
Veolia Environnement consolidated revenue declined by -1.8% at constant consolidation scope and exchange rates (-4.0% at current consolidation scope and exchange rates) to €22,314.8 million for the year ended December 31, 2013 compared with re-presented €23,238.9 million for the year ended December 31, 2012.
At current consolidation scope and exchange rates, the changes in revenue were as follows: -3.9% in the first quarter, -2.6% in the second quarter, -5.5% in the third quarter and -4.0% in the fourth quarter.
Changes in consolidation scope negatively impacted 2013 revenue by -€95.5 million, including:
-€108.2 million in the Environmental Services division, primarily related to the divestiture of activities in Switzerland, the Baltic States, the divestiture of Energonut in Italy and Pinellas in 2012, as well as the divestiture of Marine Services Offshore in the United States in August 2013;
+€38.8 million relating to the acquisition of the 50% stake held by the Fomento de Construcciones y Contratas (FCC) Group in Proactiva Medio Ambiente as from November 28, 2013.
?However, at constant consolidation scope and exchange rates, revenue showed solid resilience, with quarterly Y-Y trends of -3.0% in the first quarter, -1.0% in the second quarter, -1.5% in the third and fourth quarters, resulting in -1.8% for the year ended December 31, 2013.
This decrease breaks down as follows:
in the Water division, a reduction in construction activity, contractual erosion in France, partially offset by the higher tariffs due to indexation in France and in Central and Eastern Europe and the slowdown in Technologies and Networks activities;
in the Environmental Services division, a difficult macro-economic environment that led to a decline in recycled raw material prices and volumes and a drop in activity levels in Europe (mainly France and Germany);
in the Energy Services division, the forseen end of Gas Cogeneration contracts, partially offset by the favorable energy price impact compared to the re-presented period ended December 31, 2012 and improved weather conditions.
?Fourth quarter revenue in 2013 fell by -4.0% at current consolidation scope and exchange rates compared to the fourth quarter of 2012. At constant consolidation scope and exchange rates, revenue declined by -1.5% in the fourth quarter of 2013, due to an underperformance in Australia in the Environmental Services division which had benefited from a business turnaround in the last quarter of 2012 and in the Energy Services division less favorable climate in France and the impact of the forseen end of Gas Cogeneration contracts.
Revenue generated outside France in 2013 totaled €11,011.2 million, representing 49.3% of total revenue, stable compared with the re-presented 50.0% in 2012.
The foreign exchange impact of -€416.6 million primarily reflects the appreciation of the euro against the Australian dollar (-€100.3 million), the pound sterling (-€88.4 million), the Japanese yen (-€85.8 million), the US dollar (-€56.4 million) and the Czech crown (-€20.9 million).
Commercial Development
The Group has recorded a number of commercial successes since January 1, 2013 including:
On January 31, 2013, the city of Rialto and its concession company Rialto Water Services (RWS) awarded Veolia Water North America, a Veolia Water subsidiary, a contract to manage the city's water and wastewater systems. This 30-year contract should generate estimated cumulative revenue of USD300 million (approximately €226 million at the 2013 average exchange rate.)
Veolia ES Singapore, a subsidiary of Veolia Environmental Services, was awarded a contract for the collection and management of municipal waste and recycling in the Clementi Bukit Merah district of Singapore. This 7½-year contract should generate estimated cumulative revenue of SGD 220 million (approximately €132 million at the 2013 average exchange rate).
On April 15, 2013, QGC, a wholly-owned subsidiary of BG Group, awarded Veolia Water a 20-year contract to manage the three water treatment plants at its coal gas production sites in the Surat Basin, in Queensland, eastern Australia. This contract is expected to generate estimated cumulative revenue of €650 million and includes a 5-year extension option on expiry.
On April 29, 2013, Dalkia announced the renewal of its management contract for heat generation and distribution installations in Bratislava's Petr瀉lka district. This new 20-year contract should generate estimated cumulative revenue of €1.1 billion over the period 2019-2039.
On May 15, 2013, Veolia Water won a €130 million contract to build three units for the treatment of raw water and wastewater for the Chilean pulp and paper producer, CMPC.
On May 31, 2013, Thames Water, the UK's largest water and wastewater services company, selected a consortium comprising Veolia Water, Costain and Atkins to deliver a major tranche of its program of essential upgrades to water and wastewater networks and treatment facilities across London and the Thames Valley. The amount of work for Veolia Water could be worth as much as £450 million (€530 million) for the period 2015 to 2020.
On July 2, 2013, Marafiq awarded Veolia Water a contract to design, build and operate the largest ultrafiltration and reverse osmosis desalination plant in Saudi Arabia. This contract is expected to generate USD 310 million (€232 million) in revenue for the plant's design and construction and USD 92 million (€69 million) in revenue for its operation over 10 years, with an option to extend the contract for a further 20 years.
On July 16, 2013, MAF Dalkia was awarded a global energy and technical management contract for Abu Dhabi's flagship airports. This 3-year contract is expected to generate cumulative revenue of €40 million and includes a full range of energy savings strategies and management of all technical installations and security systems across the 4 main airports of the ADAC.
On September 11, 2013, Veolia Water and Vapor Procesos signed a contract with Codelco to recover copper contained in tailings ponds at the El Teniente mine, the world's largest copper producing mine, located in the south of Santiago de Chile. This mine annually produces roughly 400,000 tons of copper.
On November 15, 2013, Dalkia announced that it had finalized with the Canadian fund Fengate Capital Management Ltd the financing of one of the largest biomass plants in Canada. Under this Design, Finance, Build, Operate, Maintain contract, Dalkia will be responsible for industrial management and installation maintenance as well as the supply and preparation of wood biomass. This 30-year contract should generate estimated revenue of €600 million.
On December 12, 2013, Veolia, through its subsidiary Sidem, was awarded, in partnership with Hyundai Heavy Industries, the Engineering, Purchasing, Construction contract for the desalination plant of the Az Zour North complex in Kuwait. Hyundai will be responsible for building the 1,500 MW capacity electrical power station. The plant's electricity and water production will be fully purchased by the Kuwait government over 40 years. Work began at the end of 2013 and will be completed at the end of 2016. Revenue is estimated at €320 million.
?See definitions on page 20 of this press release.
OPERATING PERFORMANCE (7)Changes in adjusted operating cash flow were as follows:
(€ million) Adjusted operating cash flow
December 31, 2013 December 31, 2012 re-presented Change
at current exchange rates at constant exchange rates
Water 833.1 853.6 -2.4% -1,5%
Environmental Services 846.7 911.3 -7,1% -4,6%
Energy Services 228.7 244.8 -6,6% -5,9%
Other (112.2) (91.0) -23,3% -23,3%
Adjusted operating cash flow 1,796.3 1,918.7 -6,4%
Adjusted operating cash flow at 2012 exchange rates 1,828.4 1,918.7 -4,7%
Adjusted operating cash flow margin 8,0% 8,3%
Adjusted operating cash flow declined -4.7% at constant exchange rates (-6.4% at current consolidation scope and exchange rates) to €1,796.3 million for the year ended December 31, 2013, compared with re-presented €1,918.7 million for the year ended December 31, 2012.
The decrease in adjusted operating cash flow in 2013 was impacted:
in the Water division, by contractual erosion in France and a drop in profitability of German activities tied to the reduction in energy margins, as well as the degradation of the Hong Kong project in the Technologies and Networks business;
in the Environmental Services division, by an unfavorable recycled raw material price differential in France and Germany, in an economic environment that remains difficult in Europe;
in the Energy Services division, by the foreseen end to Gas Cogeneration contracts in France; and
finally by changes in restructuring expenses, including the impact of the Veolia Environnement voluntary departure plan.Restructuring expenses amounted to €77.6 million for the year ended December 31, 2013 compared with re-presented €35.1 million for the year ended December 31, 2012.
Excluding restructuring charges, adjusted operating cash flow declined by -4.1% at current consolidation scope and exchange rates (-2.4% at constant exchange rates) for the year ended December 31, 2013.Conversely, adjusted operating cash flow benefited from:
the positive contribution of cost saving plans, net of implementation costs;
the CICE Employment and Competitiveness tax credit partly offset by the increase in the "Forfait social";
price increases in Central and Eastern Europe and the solid performance of industrial contracts in the United States in the Water division; and
the reversal of operating difficulties and the related restructuring expenses in the Environmental Services division.
?The foreign exchange impact on adjusted operating cash flow was limited to -€32.1 million and mainly concerns the Environmental Services division (pound sterling and Australian dollar).
Operating income (before net income or loss of equity-accounted entities) declined by -29.7% at constant exchange rates (-31.0% at current consolidation scope and exchange rates) to €490.5 million, impacted particularly by:
the decrease in adjusted operating cash flow;
the increase in goodwill impairment by €103.6 million as of December 31, 2013, compared to the re-presented period ended December 31, 2012 (As of December 31, 2013, impairment losses on goodwill totaled €168.0 million recognized in the Environmental Services division in Germany and Poland. Re-presented impairment losses as of December 31, 2012 concerned impairment of goodwill recognized on non-regulated activities in the United Kingdom in the Water division and Environmental Services division activities in Estonia and Lithuania); and
the recognition for the year ended December 31, 2013 of restructuring expenses in connection with the Water division voluntary departure plan in France (in the amount of €97 million).
?Operating income after share of net income or loss of joint ventures and associates decreased by -2.7% at constant exchange rates (-4.3% at current exchange rates) to €669.2 million for the year ended December 31, 2013, compared with re-presented €699.4 million for the year ended December 31, 2012. It includes the share of net income of joint ventures and associates in the amount of €178.7 million, compared with a re-presented net loss of -€11.9 million for the year ended December 31, 2012.
Adjusted operating income includes the Group's share of adjusted net income of joint ventures and associates of €122.2 million, compared with re-presented €3.7 million for the year ended December 31, 2012. This increase was primarily due to the impairment of receivables and accrued expenses in Italy recognized as of December 31, 2012 for €65.1 million (i.e. €81.5 million before taxes).
The change in adjusted operating income breaks down as follows:
(€ million) Adjusted operating income8
December 31,2013 December 31, 2012 re-presented
% Change % Change at constant exchange rates
Eau 438.2 475.5 -7.8% -7.6%
Propreté 373.2 328.4 13.6% 16.4%
Services à l'Énergie 202.8 121.2 67.5% 68.0%
Autres (92.3) (127.0) 27.4% 27.4%
Total 921,9 798.1 15.5%
Total à change 2012 932,9 798.1 16.9%
Adjusted operating income8 rose to €921.9 million (16.9% at constant exchange rates and 15.5% at current consolidation scope and exchange rates compared with re-presented adjusted operating income for the year ended December 31, 2012) due to:
at Veolia Environnement SA, the positive impact of €40.3 million related to the closure in 2013 of the defined benefit pension plan for senior executives;
in the Energy Services division, the absence of impairments on receivables and other accrued expenses recorded in the year ended December 31, 2012 for €65.1 million (€81.5 before tax) in the share of adjusted net income of joint ventures; andin the Environmental Services division, the positive impact of the deconsolidation of activities in Italy, partially offset by the impairment of assets in Canada and the United Kingdom.
Net finance costs totaled -€576.2 million for the year ended December 31, 2013, compared with re-presented-€644.2 million for the year ended December 31, 2012.
The decrease in net finance costs between 2013 and 2012 was mainly due to:
reduction in expenses relating to the partial buybacks of bond lines in 2012 and 2013;
redemption of the bond line maturing in May 2013 for €432 million (4.875%), the USD bond line maturing in June 2013 for USD 490 million (5.25%) and;
repayment of the drawdown in Polish zlotys on the multi-currency syndicated loan facility in April 2013 in the amount of €390 million equivalent.
?The €73.1 million expense related to the buyback of bond lines in 2013 in connection with the Group's asset optimization program is recorded as adjustment to net finance costs.
The income tax expense for the year ended December 31, 2013 was €128.3 million.
The effective tax rate was -269.0%, considering asset impairments not deductible for tax purposes and the non-recognition of deferred tax assets in certain countries and tax groupings according to their respective business plans. Therefore, in France, considering the 5-year tax schedule, the Veolia Environnement tax group limited the recognition of deferred tax assets to the amount of deferred tax liabilities as of December 31, 2013, as was the case in 2011 and 2012.
As of December 31, 2013, after adjustment for the following one-off items, the tax rate was 74.8% (compared to a re-presented 52.0% as of December 31, 2012):
non-recurring net income or loss of controlled entities (as specified below),
capital gains and losses on divestitures;
impairment of intangible assets and property, plant and equipment as well as provisions for losses at completion; and
impacts of changes in income tax rates, particularly in the United Kingdom.
?Finally, after adjustments for the following non-recurring items in the net income before tax of controlled entities the income tax rate was 40.7% (compared to a re-presented 43.0% as of December 31, 2012):
goodwill impairment in the amount of -€168.4 million;
restructuring expenses for -€140.8 million; and
adjustments to net financial income in the amount of -€87.4 million.
?Other equity-accounted entities only concern Transdev Group. The share of net income or loss of equity-accounted entities whose activity is not considered core to the Group's businesses is presented as an adjustment to net income.
Key operational indicators for Transdev Group at 100% for the years ended December 31, 2013 and December 31, 2012, on a re-presented basis, are as follows:
(€ million) Transdev Group Year ended December 31, 2013 (*) Transdev Group Year ended December 31, 2012 re-presented (*)
Revenue 6,606.1 6,797.2
Adjusted operating cash flow 341.8 297.3
Operating income (**) 38.6 (291.1)
(*) after application of IFRS 10, 11 and 12
(**) including the share of adjusted net income (loss) of joint ventures and associates.
At constant consolidation scope and exchange rates, Transdev reported a slight decrease in revenues (-1.0%).
The termination of the Nice and Cannes municipal contracts in France, Friesland and ZHN in the Netherlands was partially offset by growth in international business, primarily in Australia with the new Sydney Ferries contract and the Melbourne bus franchise.
In an ongoing uncertain economic environment, the adjusted operating cash flow of Transdev Group increased by 13.1% at constant consolidation scope and exchange rates. This positive trend was attributable in France to improved operating performances, the savings realized by the plans initiated and the net contribution of the CICE Employment and Competitiveness tax credit, and for most other countries to the initial results of action plans and a decrease in overheads reflecting the impacts of measures undertaken in 2012.
Operating income for the year ended December 31, 2013, which benefitted from the increase in operating cash flow, includes impairment losses on goodwill and non-current assets, down €278 million compared to 2012 which had been marked by substantial impairment losses in the Netherlands.
The net loss of Transdev Group for the year ended December 31, 2013 was -€140.5 million.
The share of net loss of Transdev Group consolidated under the equity method in the Group's consolidated financial statements totaled -€51.5 million for the year ended December 31, 2013, compared to a re-presented loss of -€45.3 million for the year ended December 31, 2012 and reflects a fair appraisal of the Group's exposure to its interest in SNCM.
Net income from discontinued operations amounted to €27.3 million for the year ended December 31, 2013, compared with re-presented €431.8 million for the year ended December 31, 2012, which included capital gains from the divestiture of the regulated water business in the United Kingdom and the Solid waste business in the United States for €233.3 million and €208.4 million, respectively. The net income arising from these operations for the year ended December 31, 2013 mainly comprised the Water activities in Morocco in the course of divestiture and the interest in Berlin Wasser divested in early December 2013.
The net income attributable to non-controlling interests was €113.8 million for the year ended December 31, 2013, compared with re-presented €35.6 million for the year ended December 31, 2012.
This item mainly concerns the minority shareholders of subsidiaries in the Water division (€68.9 million), the Environmental Services division (€8.6 million), the Energy Services division (€36.0 million) and the Other Segments division (€0.3 million).
The rise in the net income attributable to non-controlling interests was mainly due to the increase in the net income of Dalkia international in connection with the impairment losses on receivables and accrued expenses in Italy which had been recognized in 2012.
The net loss attributable to owners of the Company amounted to -€135.3 million for the year ended December 31, 2013 compared to a re-presented net income of €404.0 million for the year ended December 31, 2012.
Adjusted net income attributable to owners of the Company amounted to €223.2 million for the year ended December 31, 2013, compared with re-presented €58.5 million for the year ended December 31, 2012.
Given the weighted average number of shares outstanding of 523.5 million in 2013 (basic and diluted) and 509.0 million in 2012 (basic and diluted), earnings per share attributable to owners of the Company (basic and diluted) was -€0.29 for the year ended December 31, 2013, compared with €0.79 for the year ended December 31, 2012.
Adjusted net income per share attributable to owners of the Company (basic and diluted), including paid coupons on deeply subordinated securities, was €0.39 for the year ended December 31, 2013, compared with re-presented €0.11 for the year ended December 31, 2012.
7 See definitions on page 20 of this press release
8 After share of adjusted net income (loss) of joint ventures and associates
Cash Flows
?Operating cash flow before changes in working capital totaled €1,970.4 million in 2013, compared with re-presented €2,173.1 million in 2012, including adjusted operating cash flow of €1,796.3 million (compared with re-presented €1,918.7 million in 2012), operating cash flow from financing activities of €88.5 million (compared with re-presented €119.4 million in 2012) and operating cash flow from discontinued operations of €85.8 million (compared with re-presented €135.2 million in 2012).
Cash associated with working capital requirements in 2013 declined by -€4 million, compared with the represented figure at the end of 2012; this stability was mainly attributable to:
measures to manage customer receivables and DSO, despite an extension, in certain businesses/countries, of days sales outstanding for customer receivables due from public authorities;
advances received at the end of December 2013 for new major projects in the Technologies and Networks activity.
?The Group continues to apply selective investment criteria, while maintaining industrial investments as required by contractual terms or required maintenance.
For the year ended December 31, 2013, gross investments decreased by almost 35% compared to the re-presented period ended December 31, 2012, due to a decline in industrial and financial investments:
Industrial investments (including assets purchased under finance leases) amounted to €1,245 million, compared with re-presented €1,708 million
for the year ended December 31, 2012. This decrease by nearly 27% reflects the management of investments, particularly:
in the Water division, with a 19% decline in growth and maintenance-related investments, mainly in France;
in the Environmental Services division, with a 18% decline in industrial investments (primarily maintenance-related investments) relating to divestiture of Solid Waste activities in the United States in 2012;
in the Energy Services division, where industrial investments dropped by 23% (mainly growth investments in France); and
finally in other operating segments, the decline involves the planned construction of a wind farm in the United States for €185 million in 2012.
?Financial investments totaled €254 million for the year ended December 31, 2013, compared with re-presented €589 million for the year ended December 31, 2012:
At the end of December 2013, the acquisition of the 50% stake held by the Fomento de Construcciones y Contratas (FCC) group in Proactiva Medio Ambiente had a €238 million impact on financial investments, comprising the cash payment of €125 million on the signature date and additional Proactiva Medio Ambiente debt of €113 million now included in Group net financial debt.
Financial investments in 2012 mainly comprised the acquisition of an additional 49% stake in Azaliya for an enterprise value of €458 million and the buyback of 6.9% of Veolia Voda in the Czech Republic from EBRD for €79 million.
?Transactions related to the asset portfolio optimization program amounted to €1,253 million for the year ended December 31, 2013, compared with re-presented €3,473 million for the year ended December 31, 2012, and comprise financial divestitures of €1,117 million (see before) and industrial divestitures for €120 million, of which €71 million in the Water division and €42 million in the Environmental Services division.
Free cash flow for the year ended December 31, 2013 (after payment of the dividend) was €2,168 million, compared with re-presented €1,910 million for the year ended December 31, 2012.
Free cash flow for the year ended December 31, 2013 mainly reflects:
the decline in adjusted operating cash flow;
relatively stable working capital of -€4 million;
the issue of deeply subordinated perpetual securities in the amount of €1,453.6 million, net of paid coupons, at the beginning of January 2013;
management of industrial investments (€1,245 million for the year ended December 31, 2013), down by more than 27% compared to the re-presented period ended December 31, 2012; and
the continued asset portfolio optimization program which contributed to the reduction in the Group's debt in the amount of €1,253 million at the end of 2013. The implementation of the divestiture program contributed to the reduction in the Group's debt in the re-presented amount of €3,473 million for the year ended December 31, 2012.
?Net financial debt totaled €8.2 billion as of December 31, 2013, compared with re-presented €10.8 billion as of December 31, 2012.
Adjusted net financial debt (adjusted for loans granted to joint ventures) fell from represented €7.8 billion as of December 31, 2012 to €5.5 billion as of December 31, 2013. Net financial debt and adjusted net financial debt declined due to the solid operating cash flow, the issuance of deeply subordinated perpetual securities and the Group's asset portfolio optimization policy.
9See definitions on page 20 of this press release.
PRO FORMA FINANCIAL INFORMATIONAs from the first quarter of 2014, considering the Group reorganization, primary segment reporting will be presented by geographical area and will be organized as follows:
France,
Europe, excluding France
Rest of the world
Global Businesses
Other
?These data exclude Dalkia France and include a 12 month Dalkia International contribution at 100%:
Revenue in € millions December 31, 2013
Pro Forma December 31, 2012
Pro Forma % change at current exchange rates
France 5,672.7 5,857.1 -3.1%
Europe, excluding France 7,670.2 7,841.5 -2.2%
Rest of the world 4,552.2 4,808.7 -5.3%
Global Businesses 4.205.7 4,617.8 -8.9%
Other 1,347.5 1,407.6 -4.3%
Total 23,448.3 24,532.7 -4.4%
Adjusted operating cash flow in € millions December 31, 2013
Pro Forma December 31, 2012
Pro Forma % change at current exchange rates
France 633.6 651.9 -2.8%
Europe, hors France 938.0 1,017.1 -7.8%
Reste du monde 421.8 401.0 5.2%
Business mondiaux 216.8 254.0 -14.6%
Autres -123.4 -239.7 -48.5%
Total 2,086.8 2,084.3 0.1%
Industrial investments in € millions December 31, 2013
Pro Forma December 31, 2012
Pro Forma % change at current exchange rates
France 313.1 354.3 -11.6%
Europe, excluding France 567.3 628.8 -9.8%
Rest of the world 335.9 515.5 -34.8%
Global Businesses 121.4 148.8 -18.4%
Other 121.4 319.2 -62.0%
Total 1,459.1 1,966.6 -25.8%
OBJECTIVES AND OUTLOOK
For the 2014 fiscal year10, in view of the progress of the transformation plan, Veolia aims to achieve:
Growth in revenue;
Adjusted operating cash flow growth of around 10%;
Significant growth in adjusted operating income; and
Significant growth in adjusted net income.
Proposal of a dividend of €0.70 per share in relation to the 2014 fiscal year.
Beginning 2015, the Company aims to achieve, in a mid-cycle economic environment:
Organic revenue growth of more than 3% per year;
Adjusted operating cash flow growth of more than 5% per year;
An adjusted leverage ratio (adjusted net financial debt / operating cash flow before changes in working capital + principal repayments of operating financial assets) of the order of 3x, +/-5%;
A dividend payout ratio in line with historic level;
Net cumulative cost savings of €750 million, of which due to accounting standards for joint ventures, 80% will benefit adjusted operating income.
