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Veolia Environnement S.A. (VE)

Q1 2013 Earnings Call

May 03, 2013 2:30 am ET


Antoine Frérot - Chairman and Chief Executive Officer

Pierre-François Riolacci - Chief Finance Officer

François Bertreau - Chief Operating Officer


Vincent Gilles - Crédit Suisse AG, Research Division

Olivier Van Doosselaere - Exane BNP Paribas, Research Division

Nathalie F. Casali - JP Morgan Chase & Co, Research Division

Philippe Ourpatian - Natixis S.A., Research Division

Emmanuel Turpin - Morgan Stanley, Research Division

Julie Arav - Barclays Capital, Research Division

Arnaud Joan - BofA Merrill Lynch, Research Division



Ladies and gentlemen, welcome to the Veolia Environnement Key Figures at March 31, 2013, Conference Call. I will now hand over to Mr. Antoine Frérot, CEO. Sir, please go ahead, sir.

Antoine Frérot

Thank you. Good morning to everybody for this results for the first quarter. I will introduce this conference call and leave the floor after that to Pierre-François Riolacci for the results and to François Bertreau for the including of our cost-cutting plan.

To summarize the first quarter, I will say that the resistance of the activity of Veolia was good during this semester, this first quarter, despite difficult economical context. Our recurrent operational result decreased at 1.5% to EUR 405 million but is increasing of 1.2% [indiscernible] exchange constant.

Veolia today launched a new stage of its transformation by a new organization. This organization will transform the actual organization through the 3 divisions into a more integrated organization defined by countries. We hope through this new organization to be closer to our clients locally and globally, to have a more simple, more direct organization and then to be able to move quicker in the transformation of the group, applying its strategy. And we'll have also better performance in term of economics but also in term of cost-cutting. Through this organization, we upgrade our cost-cutting plan from EUR 470 million of cost-cutting at the end of 2015 to EUR 750 million at the same date. And François Bertreau will detail this new objective for our cost-cutting plan.

Now I leave Pierre-François for the details of the results.

Pierre-François Riolacci

Thank you very much, Antoine. Good morning to all of you, and thank you for being here for this Q1 result.

I will start with the presentation on Page 4. I hope that you can all get at the presentation on the website. And I would like to draw your attention, first, on the very strong deal flow that we had during the first quarter, with very significant contracts back in line with the strategic repositioning of the group on industrial customers and growing markets. On industrial customers, you -- I would signal that the coal gas contract in Australia within -- with the Water business, as well as the potash deal in Canada, here again exactly the core business with heavy industries and the obviously highly profitable customers with very large reach over the world. I would signal also the Singapore contract with the Waste division. And renewable without tender of the Bratislava contract in Slovakia for a 20 years contract with over EUR 1 billion of backlog. I think they are really at the core of what we want to get at, and that's an important feature of the first quarter.

Turning the page, going to the key figures for the first quarter of 2013. You can see that revenue declined by about 3% at constant scope and ForEx. On Water operation, revenues are down. And this is largely due to unfavorable phasing of construction content within the construction and contract, essentially the IFRIC 12 works, which are within this operation. There is also a slowdown in works with the Technology & Network part of the business. I will come back on that one. For Environmental Services, no surprise. We are hit by the lower and the slow production in Europe on volumes and, as expected, by the decline of prices and volumes of recycled raw materials. Overall, the decline -- the adjusted operating cash flow is declined by 6.3% at constant ForEx. This has to do with the contractual erosion in the French Water business, and then you'll see the impact of the slowdown of activity in the Waste. The adjusted operating income, as Antoine mentioned, is quite resilient and it's down 1.2% at constant ForEx at EUR 405 million.

Page 6 on Water, revenues are down by about 3.8% at EUR 2.5 billion. Water operation is EUR 1.7 billion of revenue, down 2.4% at constant scope and ForEx. Once again, the construction content within this operation is down by EUR 60 million, which account for the total of the decrease of the revenues of the operation. It means that, excluding this construction content, the operation, that is volumes of Water and the price effect, are overall stable. In France, if you -- especially in France for operation, if you exclude the IFRIC 12 construction variation, here again as the top line, is stable with a negative impact of the contractual erosion of about 2%; volumes, which are down 1.5%. And in this 1.5%, you've got the impact of the leap year. We have 1 day less in this quarter. And if you correct this impact, the volumes are down by about 0.5%, so quite in line with the general trend. But on the upside, we benefit from the indexation clauses, which are still close to 3% during this first quarter and offset the other 2 impact. On the international business of Water operation, here, again, excluding construction contents, which is mainly in Japan, we have the benefit of higher tariff in Europe. And we can post a per slight progression, slight improvement of our activity in this international part.

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