Veolia Signs 25-year PFI Contract - Analyst Blog

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Veolia Environmental Services (UK) Plc1, a unit of Veolia Environnement ( VE ), has signed a 25-year Private Finance Initiative ("PFI") contract worth approximately £460 million ($731.1 million) for residual municipal waste treatment and energy recovery with Leeds city autahorities.

Per the contract, Veolia will install a high-tech recycling and energy recovery facility subject to receiving necessary planning consents. The facility will be built in the East Leeds Cross Green Industrial Area. The unit is also planning to develop a cogeneration plant that will supply heat to local users.

The construction work is expected to begin in mid 2013 with the recruitment of 300 people and creation of 45 permanent positions. The recycling and energy recovery plant is expected to come on line in spring 2016.

To meet the European Landfill Directive targets, it is important to focus on converting waste into a resource. The British government believes that it needs to invest £10 billion in waste management infrastructure by 2020 to achieve the target. This facility will allow the Leeds city authorities to save £200 million ($317.9 million) over the term of the contract in comparison to the cost of filling land with residual municipal waste.

Veolia Environmental Services (UK) Plc1 is a subsidiary of Veolia Environmental Services. Veolia Environmental Services is the global benchmark for waste management and resource recovery, and the only operator across all segments of the waste management business (solid, liquid, non-hazardous and hazardous waste). Veolia Environnement provides tailored solutions to meet the needs of municipal and industrial customers in four complementary segments: water management, waste management, energy management and passenger transportation.

Recently, Veolia Environnement registered 3.3% growth in its top line in the first nine months of 2012, stemming from higher contribution from its Water, Energy Services and Other segments. However, its Enviornmental Services segment was a marginal offset.

Total revenue in the first nine months of 2012 was €21.59 billion ($27.67 billion), up from €20.91 billion ($29.43 billion) reported in the comparable period last year. The year-over-year growth was attributable to favorable summer weather, leading to an increase in the demand for water.

Net financial debt of the company as of September 30, 2012 was €15.2 billion ($19.54 billion) increasing by €0.3 billion from €14.73 billion ($19.07 billion) at year-end 2011.

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 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. The company has also taken the initiative to reduce costs while aiming for a gross reduction of €500 million ($640.3 million) in 2015.

The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

The company mainly competes with Connecticut Water Service Inc. ( CTWS ) and American States Water Company ( AWR ).

AMER STATES WTR (AWR): Free Stock Analysis Report

CONN WATER SVC (CTWS): Free Stock Analysis Report

VEOLIA ENVIRON (VE): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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