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Veolia Environnement S.A. (VE)

H1 2013 Earnings Call

August 05, 2013 2:30 am ET


Antoine Frérot - Chairman and Chief Executive Officer

Pierre-François Riolacci - Chief Finance Officer

François Bertreau - Chief Operating Officer


Olivier Van Doosselaere - Exane BNP Paribas, Research Division

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

Philippe Ourpatian - Natixis S.A., Research Division

Lawson Steele - Berenberg, Research Division

Martin Young - RBC Capital Markets, LLC, Research Division

James Brand - Deutsche Bank AG, Research Division

Julie Arav - Barclays Capital, Research Division

Patrick Hummel - UBS Investment Bank, Research Division

Michel Debs - Crédit Suisse AG, Research Division

Emmanuel Turpin - Morgan Stanley, Research Division



Ladies and gentlemen, welcome to Veolia Environnement First Half Results. I now hand over to Mr. Antoine Frérot. Sir, please go ahead.

Antoine Frérot

Thank you very much. Good morning, ladies and gentlemen, and thank you for being with us for this conference call for the first half results of Veolia. With me this morning, our CFO, Pierre-François Riolacci; and our COO, François Bertreau.

Let's start with me summarizing the main achievements of this semester, and I am on Slide 4 of the slide show. First half results, especially second quarter results, are encouraging, and we will now present them to you. Moreover, our company's strategy has been implemented at a vigorous pace, leading, in particular, to a further reduction in debt, raised objectives for our cost-cutting plan, the implementation of a more integrated organization with a reinforced management team, dynamic commercial success in the countries and segments we have targeted, and the reinforcement of our position in Latin America, one of our priority geographies, with the purchase of FCC's 50% stake in Proactiva underway. As a result, at the end of this first half, the company is progressing firmly on its path toward recovery and profitable growth.

Slide 5 show that first half of the results, and especially the second quarter, are encouraging. First, the refocusing and tighter management of operations have led to a better risk control. Therefore, the cleanup operations is completed. Secondly, the reduction in the level of activity has slowed down except for construction. But even in construction activities, which are result of -- from the slowdown in orders from local governments, bookings are up. Finally, the benefits of the ongoing cost-reduction plan are starting to show. Thus, in the second quarter, excluding restructuring cost, adjusted operating cash flow was up slightly. Over the first semester, it would have grown significantly due to Dalkia International and our Chinese Water concessions if they were still consolidated on a proportionate basis. But as you know, they are now consolidated by equity method. as a result, adjusted operating income and adjusted net income are up significantly.

Slide 6. At the end of June, net financial debt stood at EUR 10 billion, down EUR 800 million since last December. And we continue our objective of bringing it down to between EUR 8 billion and EUR 9 billion by the end of this year. Since September 2009, when net financial debt totaled EUR 16.9 billion, it will have been cut in half. Today, the leverage ratio is getting closer to 3, in line with our 2014 target.

Slide 7. Following the announcement of the company's reorganization last May, we raised our objectives for cost cutting to EUR 750 million net of implementation costs by 2015 and according to the time table shown on the slide. For the first half of 2013, we have achieved EUR 74 million in cost savings so that the EUR 170 million objective for 2013 is clearly within reach.

Slide 8. The new organization was put in place in July. Its main features are one Veolia per country, one Veolia headquarter, the management by country and the reinforcement of marketing and performance management. As a result, we will become a more simple, nimble and efficient company.

Slide 9. As we have announced, the company's growth have focused on the priority business segments we have selected, the most complex and remodel issues with volume and value, industrial clients and the most dynamic geographies. As you can see on this slide, commercial business success has been strong [indiscernible] in the oil and gas sector in Australia and Saudi Arabia, in the paper industry in Brazil or in the other sector as well, in Singapore, the Middle East or Bratislava. All of these significant wins are contractual operations and technology that require little CapEx.

Slide 10. Also, as part of our strategy to grow profitably by concentrating on priority segments and geographies and due to improved financial strength, we will boost our position in Latin America by purchasing our Spanish partner, FCC's stake in our joint venture, Proactiva. Proactiva is present in 8 countries of the zone and have seen a steady and significant increase in both revenue and [indiscernible] . The price of this purchase is reasonable as the closing is scheduled for the fourth quarter of this year. We intend to give Proactiva the support it needs to grow its business with the big industrial clients present in this region.

And now what about our priorities for the second half? And I'm on Slide 11. On what actions we will concentrate our efforts in this second semester? First, we will continue to execute our restructuring plan, continue with the cost-cutting plan in order to reach or even exceed the EUR 170 million objective, and complete the asset refocusing program. But the second half will also be mainly reporting to business development as we continue to deploy the company's strategy throughout our new organization. You know the themes that are at the core of Veolia's growth: the most difficult forms of pollution, the circular economy or large scale public services. These themes will be addressed through new offerings centered on the benefit promised to the customer. We will highlight the value we'll bring to each -- to our customers and share that added value with them.

We have designed how we want to build, package and promote our new global offerings, and that is on Slide 12. In the offerings listed on the left, some of which we already provide, others which are currently developing, we intend to systematically leverage our expertise worldwide, align our sales force and push these targeted offerings to the key clients we have identified. Our goal is to commercialize the first 4 offerings worldwide by the end of this year. We plan to have the next 4 offerings commercially available to the market 6 months later. We will also redeploy a network of key account managers to leverage the full scale of the group in the priority markets listed on the right by the end of this year.

And now Pierre-François will address our financial results in more detail. And after the presentation of our first half accounts, we will be happy to take your questions. Pierre-François, please.

Pierre-François Riolacci

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