Despite a mixed economic environment, Veolia Environnement S.A. (VE) achieved a 6.6% rise in recurring net income for the first six months of 2010, which came in at €306.2 million. The six-month period of 2010 witnessed good recycled raw material prices, while recovery in waste volumes was limited and divergent.
 
Net income, on a GAAP basis, was €374.2 million in the six months ended June 30, 2010, versus €220.3 million in the year-ago period.
 
Operating Performance
 
Veolia’s consolidated revenue for the six-month period fell 1.2% year over year to €17,177.3 million. The company’s consolidated revenue for the first quarter and second quarter of 2010 declined 4% and grew 1.9%, respectively. The growth in second-quarter revenues was attributable to a positive revenue trend in all divisions.
 
The company’s revenues in recent months benefited from the rise in recycled raw materials prices, the stabilization of the economic environment and demand in certain industrial sectors, as well as Veolia’s commercial development.
 
On a segmental basis, revenues increased year over year at the Environmental Services (up 4.6%) and Energy Services (up 0.2%) divisions, while it declined at the Water (down 5.4%) and Transportation (down 3.1%) divisions.
 
On a non-GAAP basis, operating income for the six months increased 6.6% to €1,078 million, due to improved results in the Environmental Services division, implementation of the group’s efficiency plan and the impact of divestments completed under favorable conditions. Operating income (GAAP) rose 11.2% to €1,125 million.
 
Financials
 
Operating cash flow increased 2.7% to €1,885.4 million for the six months ended June 30, 2010. Overall, operating cash flow margin improved 40 basis points to 11.0% in the first half of 2010 versus 10.6% in the first half of 2009. Free cash flow, at period-end, remained flat with the first half of 2009.
 
Net financial debt as of June 30, 2010, declined 8.3% to $15.5 billion. Despite this, the cost of net financial debt in the first half of 2010 increased 8.3% to €407.9 million. The financing rate (cost of net financial debt divided by the monthly average net financial debt over the period) increased to 5.06% from 4.47% in the year-ago period and was in line with the second half of 2009.
 
Cash flow from operations totaled €1,877.5 million in the half year ended June 30, 2010, including €1,885.4 million of operating cash flow, -€6.4 million of financing cash flow and -€1.5 million of cash flow from discontinued operations.
 
Gross investments in the period were €1,333 million compared with €1,516 million, including €458 million in maintenance capital expenditures, €392 million in growth and development investments related to existing operations, €324 million in financial investments and €159 million in new operating financial assets.
 
At the same time, Veolia continued to make industrial and financial divestments, with total divestitures of €766 million in the six-month period.
 
Outlook
 
Based on Veolia’s solid position and the recent success of Veolia’s strategy of profitable growth, management confirmed its 2010 objectives for recurring operating income improvement and positive free cash flow after dividend payment. Furthermore, the company expects to realize €250 million in cost reductions through 2010. Additionally, the company targets to pursue its program of divestitures of €3 billion for the period 2009 to 2011.
 
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