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Veolia Posts Mixed Numbers - Analyst Blog

By: Zacks.com
Posted: 3/1/2012 2:07:00 PM
Referenced Stocks: AWK;CTWS;VE

Veolia Environnement ( VE ) announced its fiscal 2011 financial results. The company's 2011 operating earnings per share declined 40.8% to €0.58 (81 cents) from €0.98 ($1.30) in 2010. The results of the company surpassed the Zacks Consensus Estimate of 77 cents.

Loss per share, as per GAAP, during the year was €0.99 ($1.38) in 2011 versus earnings per share of €1.16 ($1.54) in 2010. The difference between GAAP and operating earnings was due to the impact of discontinued operations.

Total Revenue

In 2011, the total revenue of the company was €29.65 billion ($41.34 billion) versus €28.76 billion ($38.15 billion) in 2010, reflecting growth of 3.1%.

The growth in revenue was aided by positive contributions from all the three segments, namely Water , Environmental Services and Energy Services .

During 2011, the company continued with its asset reorganization plans to make it more competitive and profitable. The erstwhile Transportation segment of the company is held for sale after the merger with Transdev and is now classified as discontinued operations.

The top line was lower than the Zacks Consensus Estimate of $44.78 billion.

Segment Results

Water : Total revenue from this segment was€12.62 billion ($17.6 billion) versus€12.25 billion ($16.25 billion) in 2010, up 3.0%. The growth was attributable to healthy performance in Europe and Asia. The segment also benefited from the acquisitions made in United Kingdom, Central and Eastern Europe.

Enviornmental Services: Total revenue from this segment was €9.74 billion ($13.58 billion) versus €9.3 billion ($12.34 billion) in 2010, up 4.3%. The growth was fully organic in nature. The increase in prices of recycled raw materials coupled with higher treatment of non-hazardous and hazardous sources has driven the results.

Energy Services: The segment generated total revenue of €7.29 billion ($10.16 billion) versus €7.18 billion ($9.52 billion)in 2010, up 1.6%. The growth in this segment was attributable to higher energy prices, which was marginally offset by unfavorable weather conditions.

Operational Update

Selling, general and administrative expenses (SG&A) of the company for 2011 increased 1.5% year over year to €3.78 billion ($5.27 billion). Escalating cost was primarily due to expenses associated with implementing cost reduction undertaken by the company in 2011.

Adjusted operating income in 2011 was €1.7 billion ($2.37 billion) reflecting a 10.1% year-over-year decline from €1.89 billion ($2.50 billion) in 2010.

Finance costs in 2011 were €0.74 billion ($1.03 billion), marginally lower than the 2010 level of €0.76 billion ($1.00 billion).

Financial Update

Cash and cash equivalents of the company as of December 31, 2011 were € 5.7 billion ($7.4 billion) versus € 5.4 billion ($7.16 billion) in December 31, 2010.

Net cash from operating activities in 2011 was € 2.94 billion ($4.09 billion) versus € 3.45 billion ($4.58 billion) in 2010.

Net financial debt of the company as of December 31, 2011 was €14.73 billion ($19.07 billion), down from €15.22 billion ($20.17 billion) as on December 31, 2010.

Dividend

The board of directors of the company has decided to pay dividends to shareholders, given its strong financial position. The board is expected to propose a dividend of €0.70 (97 cents) per share for the 2011 fiscal year, payable either in cash or in shares. The new dividend, either in cash or shares, will be effective from June 18, 2012.

Guidance

Veolia Environnement provided a combined outlook for 2012 and 2013. The company has decided to sell assets worth €5 billion and bring the net financial debt level to €12 billion within the next two financial years. The company also plans to distribute a dividend of €0.70 per share each for the fiscal year 2011 and 2012, which are scheduled to be paid in 2012 and 2113.

The company also provided a business outlook beyond 2013. The company forecasts organic revenue growth of 3% per year from 2013, while adjusted operating cash flow is expected to be over 5% per annum.

Our View

Veolia Environnement posted a mixed performance for fiscal 2011. It is currently undergoing a business transformation that would make it more profitable in the forthcoming years.

We presently prefer to wait on the sidelines until the effects of the transformation become more evident in the financial performance of the company.

Veolia Environnement retains a Zacks #3 Rank, which translates into a short-term Hold rating). Veolia's peers Connecticut Water Service Inc. ( CTWS ) and American Water Works Company, Inc ( AWK ) currently retain Zacks #2 Rank, which translates into a short-term Buy rating.

Based in France, Veolia Environnement is a provider of environmental management services to its worldwide consumers. It operates through three segments, which are Water, Environmental Services, and Energy Services.


 
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