Slide presentation analyst meeting (en anglais)

Comptes semestrielsComptes semestriels 2003 2003 –– Septembr e Septembr e 2003200311

2003 half-year resultsSeptember 24, 2003

Presentation credit analysts


Disclaimer

Veolia Environnement is a corporation listed on the NYSE and Euronext Paris. This document contains "forward-looking statements" within the meaning of the provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from the forward-looking statements as a result of a number of risks and uncertainties, many of which are outside our control, including but not limited to: the risk of suffering reduced profits or losses as a result of intense competition, the risk that changes in energy prices and taxes may reduce Veolia Environnement's profits, the risk that governmental authorities could terminate or modify some of Veolia Environnement's contracts, the risk that Veolia Environnement's compliance with environmental laws may become more costly in the future, the risk that currency exchange rate fluctuations may negatively affect VeoliaEnvironnement's financial results and the price of its shares, the risk that Veolia Environnementmay incur environmental liability in connection with its past, present and future operations, as well as the risks described in the documents Veolia Environnement has filed with the U.S. Securities and Exchange Commission. Veolia Environnement does not undertake, nor does it have, any obligation to provide updates or to revise any forward-looking statements. Investors and security holders may obtain a free copy of documents filed by Veolia Environnement with the U.S. Securities and Exchange Commission from Veolia Environnement.


SummaryWhat we What we have have achieved over the past achieved over the past 3 3 yearsyears……

A complete restructuring of the shareholder baseA historical success rate with international contract bidsContract renewal rate > 90%A well managed geographic exposureA complete restructuring of our financial agreementsIncreased financial securityA decrease in debt from €15.3 billion at 20/07/2000 to €13.1 billion at 30/06/2003

A clearly defined strategy in Environmental servicesRefocus on LT contract business in Water in the U.S.An efficiency plan with a minimum savings of €300 million in 2005

Our goals

Continued reduction in debtA revenue growth target of between 4% and 8% per yearAn ROCE target of between 8% and 9% by the end of 2005


I. INDUSTRIAL PROFILEA. Refocus for North American Water BusinessB. Half-Year Results

II. FINANCIAL PROFILEA. Financial StrengthB. Profitability


I. INDUSTRIAL PROFILE

Focus on longFocus on long--term contract business for Water in term contract business for Water in North AmericaNorth America

Good operating performance from most divisions Good operating performance from most divisions (Water excluding the U.S., Waste, and Energy (Water excluding the U.S., Waste, and Energy services):services):

Revenue of €14,048 million (€13,902 million, Revenue of €14,048 million (€13,902 million, excluding excluding assets sold assets sold in 2002 in 2002 and and 2003)2003)

EBIT of €884 million; Cash EBIT of €884 million; Cash flowflow fromfrom operations operations of of €1,346 million €1,346 million

Veolia Veolia Environnement Environnement generated generated positive free cash positive free cash flow flow of €201 million, of €201 million, allowing allowing for for the stabilization the stabilization of of debt after dividends at debt after dividends at €13.1 billion €13.1 billion at Juneat June 30, 2003.30, 2003.


A. REFOCUS FOR NORTH AMERICAN WATER BUSINESS


VE refocuses its US Water Activities on Long Term Contract Business (1)

Assessment of market value for Assessment of market value for USFilterUSFilter assets assets

WriteWrite--down of $2.5 billion (€2.2 billion)down of $2.5 billion (€2.2 billion)

Net book value of all of Net book value of all of the businesses after the the businesses after the writewrite--down: €2.0 billion ($2.2 billion)down: €2.0 billion ($2.2 billion)


Revenue of businesses sold or being sold Revenue of businesses sold or being sold

CulliganCulligan + + Everpure Everpure

Equipment / Short term servicesEquipment / Short term services

Total revenue for longTotal revenue for long--term contracts business : term contracts business :

2003 (*)2003 (*)

Estimated average operating Estimated average operating margin for restructured entitymargin for restructured entity

2003 (*) $760m

2003 (*) $1,300m

$600m

5%

(*) Estimated amonts

VE refocuses its US Water Activities on Long Term Contract Business


Provides water and wastewater services to 13 million people in over 600 U.S. communities

Leader with 41% share of outsourcing market*

29% in municipal outsourcing

53% in industrial outsourcingContract renewal rate >90% in 2002

Over $3.5B in total backlog

80% Municipal contracts

20% Industrial contracts

After its reorganization USFilter remains the market leader in outsourcing services

Municipal market shares Municipal market shares (*)(*)

VW/VW/USFilterUSFilter29%29%

Other (13 companies)

44%

* 2002 f igures Public Works Financing

Suez/ United Suez/ United Water Water

15%15%OMIOMI12%12%

Industrial market shares Industrial market shares (*)(*)

VW/USFilter

53%

VW/VW/USFilterUSFilter

53%53%

Other 47%Other 47%(12 companies)(12 companies)


Waste -- 2004 2004 targetedtargeted revenue: revenue: $1.5bn

Onyx Onyx is present throughout theis present throughout the value value chainchain for for waste waste withwith a a strong regional presencestrong regional presence (Midwest (Midwest and Eastand East))

Water -- 2004 2004 targetedtargeted revenue: revenue: $0.6bn

LongLong--termterm operating operating contracts with municipalitiescontracts with municipalities (80% of (80% of revenue) revenue) and industrial customersand industrial customers (20% of revenue). (20% of revenue). Market shareMarket share of >40% in of >40% in outsourcingoutsourcing services. services.

Transport -- 2004 2004 targetedtargeted revenue: revenue: $0.3bn

withwith a a growing regional presencegrowing regional presence in bus in bus andand commuter commuter rail services as rail services as wellwell as as the increasedthe increased impact of impact of thetheBoston Boston contractcontract ($200 m ($200 m per yearper year for 5 for 5 yearsyears). ).

In total, the targeted 2004 revenue in NorthAmerica is nearly $2.4 billion


B. HALF-YEAR RESULTS


Reported revenue 14,048 14,971 -6.2% -1.2%of which revenue (1) 13,902 13,858 +0.3% +5.4%Excl. assets solds in 2002 and 2003

Reported EBITDA 1,824 1,951 -6.5% -1.8%of which EBITDA (1) 1,820 1,864 -2.4% +2.5%Excl. assets solds in 2002 and 2003

Reported EBIT 884 1,018 -13.1% -8.9%of which EBIT (1) 883 947 -6.8% -2.3%Excl. assets solds in 2002 and 2003

∆June 30, 02/June 30, 03at exchange rate

∆June 30, 02/June 30, 03at exchange rate

June 30, 03 June 30, 02

ConstantCurrent

Key figures at June 30, 2003

(1) Excluding assets sold in 2002 and 2003. Filtration and Separations Group, Plymouth, US Distribution, as well as Bonna Sabla, sold in 2002, and Surface Prep.

€ M


Cash flow from operations 1,346 1,439Capex and financial investments 1,260 1,741

Net income (2,100) 213Non-recurring income (loss) (2,233) (3)Recurring net income 133 216

Net debt 13,106 13,066

(2) At Dec. 31, 2002

(2)

Key figures at June 30, 2003

June 30, 03 June 30, 02€ M


5 557,5

3 047,02 287,3

1 705,41 260,6

13 857,813 901,8

1 428,51 820,92 387,5

2 914,0

5 350,9

0

2 000

4 000

6 000

8 000

10 000

12 000

14 000

2003 2002

At constantexchange rates

Revenue at June 30 (excluding assets sold in 2002 and 2003)

Water+2.1%-3.7%

Waste man.+4.4%-4.4%

Energy serv.+6.0%+4.4%

Transportation+10.2%+6,8%

FCC+14.7%+13,3%

Total+5.4%+0,3%

Total reported revenue at June 30, 2003: €14,048m, of which €5,497m from water

At current exchange rates


WaterWater

WasteWaste managementmanagement

Energy Energy servicesservices

TransportationTransportation

FCCFCC

753

431

357

139

175

EBITDAin €m

constant

TOTALTOTAL 1,8201,820

+2%

+3%

+17%

-5%

+7%

+2.5%+2.5%

13.2%

15.4%

13.4%

8.7%

13.2%

13.1%13.1%

June 30, 02June 30, 03

13.7%

14.9%

14.9%

7.7%

12.3%

13.4%13.4%

Margin

(*) excluding Proactiva

(*)

current

--2.4%2.4%

∆ Exchange Rate

- 3%

- 6%

+16%

-6%

+5%

(*)

The Water (excluding the US), Waste and EnergyServices businesses achieved a good half-year


Positive free cash flow at June 30, 2003

Cash Cash flow from operationsflow from operationsMaintenance capital Maintenance capital expendituresexpendituresFree cash flow available before growth

InvestmentsInvestments for for growthgrowth (663)(663) (1,137)(1,137)Change in consolidation scope Change in consolidation scope 3333 (64)(64)Change in WCRChange in WCR (57)(57) (436)(436)DisposalsDisposals 139139 +573+573

DividendsDividends (277)(277) (243)(243)Exchange rate fluctuations Exchange rate fluctuations and other and other 194194 +340+340Change in Change in receivablesreceivables (158)(158) (365)(365)Net balance (40) (496)

1,3461,346(597)(597)

June June 30, 0330, 03 June June 30, 0230, 02

1,4391,439(603)(603)

836

Net Net debt at June debt at June 30th 30th 13,10613,106 14,77914,779

Free cash flow (228)201

Net Net debt at December debt at December 31st 31st 13,06613,066 14,28314,283

749

+188%

∆ 2003/2002


II. FINANCIAL PROFILE

Change in Change in outlook fromoutlook from 2 rating 2 rating agenciesagencies ::

Standard & Standard & Poor's Poor's Corporate: BBB+ / Positive / A2 (28/04/2003) Issue: BBB / Positive / A2 (28/04/2003)

Moody's Moody's Baa1 / Stable / P2 (06/05/2003)

Reduction Reduction in net in net financial debtfinancial debt

Strengthened financial security

Extension of Extension of thethe averageaverage debtdebt maturitymaturity fromfrom 3.8 to 5 3.8 to 5 yearsyears

Improvement Improvement in in liquidity liquidity position: position: €8.1 billion


A. FINANCIAL STRENGTH


In €m

BondsOther LT debt

Short term debt

Gross Debt

LT financial assetsST financial assets

Marketable securitiesCash

Net Debt

30/06/03

7 6625 3244 687

17 673

400773196

3 198

13 106

30/06/02

6 0157 4723 797

17 284

406639428

1 033

14 779

Variation

1 647- 2 148

890

389

- 6134

-2322 165

- 1 673

(1)(1) As As atat 31/12/2002 31/12/2002 –– Gross Gross debtdebt:: 16 70916 709 €€m / Net m / Net DebtDebt: 13 066 €m: 13 066 €m

(1)

(1)

Reduction in net debt: - €1.6 billion in 1 year


Diversification of funding sources: success of bond issues

Dec. 2000Dec. 2000

Bank Debt : 76%CP / Bonds : 17%

Syndicated loans8%

Oceanes 9%

June 200June 20033

Bank Debt : 43%CP / Bonds : 57%

Bilateral facilities 35%

Commercial paper 13%

Syndicated loans24% Bilateral facilities

52%

C/C VU7%

Oceanes10%

Bonds3%

Commercial paper 4%

Bonds 35%


Average debt maturity extended from 3,8 to 5 yearsLT debt schedule 30/06/03

In €mIn €mBondsBonds 77.7 billion €.7 billion €LT Bank Debt LT Bank Debt 5.35.3 billion €billion €

0

500

1000

1500

2000

2500

3000

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

> 2014


Liquidity Risk AssessmentLiquidity Risk AssessmentVE can manage any “stress scenario”VE can manage any “stress scenario”

Multi Purpose Facilities 1 750 1 750

Bank Facilities

Syndicated Loans 4 415 3 781

Cash 3 198

Total 8 729

December 2002

Total Available

1 300 1 300

423

4 415 2 149

2 382

6 254

June 2003

Total Available

0

1 200

4 564 0

1 541

2 941

December 2000

Total Available

200

1 200

In € m


B. PROFITABILITY


Confirmation of after tax ROCE objective of between 8 and 9 % by the end of 2005

ImplementationImplementation of an of an efficiencyefficiency plan plan withwith a minimum a minimum savingssavings of of €300 million to €300 million to improve productivity between now andimprove productivity between now and 2005 2005

purchasingpurchasing, , economieseconomies of of scale scale for for insuranceinsurance costscosts, , reductionreduction in in headqurtersheadqurters offices, offices, improvedimproved laborlabormanagement…management…

ContinuedContinued policypolicy of of selectiveselective growthgrowth investments investments

Less capitalistic Less capitalistic operating operating contracts contracts

Positive impact of Positive impact of maturing contractsmaturing contracts (J (J curvecurve))


"J curve” trending upward Example 1: Shanghai Pudong

-100

0

100

200

300

400

500

Year 1 Year 5 Year 10 Year 15 Year 25

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Revenue

EBIT

Net Op. CashFlowsRCI

50 year contract valued at approximately 10 billion euros

Initial investment of $245 million in joint-venture with Shanghai Water Assets Operation and Development Co. Ltd.

Creates strong platform for future operating contract opportunities in China

RCI (%)Euros (M)


“J curve” trending upwardExample 2: Czech Republic

0

50

100

150

200

250

300

350

400

450

500

Year 1 Year 7 Year 8 Year 10 Year 200%

2%

4%

6%

8%

10%

12%

14%

16%

18%

RevenueEBITNet ProfitRCI

Model of a group of operating contracts with limited investment (initial entry, maintenance, other contractual investments)

Customer payments based on an adjusted cost + fee basis (adjusted for increase in inflation with the ability to retain productivity gains)

RCI (%)Euros (M)


Strategy to refocus water business in the U.S. continued reduction in debt

RefocusRefocus of US of US activitiesactivities strengthensstrengthens cash cash flowflow stability and stability and improves the risk improves the risk profile: confirmation of profile: confirmation of targeted mediumtargeted medium--termtermrevenue revenue growthgrowth of of between between + 4 % and + 8 % per year.

ImprovementImprovement in in ROCE after tax which should reach between 8 % et 9 % dby the end of 2005 :

maturitymaturity of of contractscontracts (J (J curvecurve) )

efficiencyefficiency plan (minimum plan (minimum savingssavings of €300 million end of of €300 million end of 2005).2005).

DebtDebt reductionreduction targettarget to to aroundaround €11 billion€11 billion


APPENDIXES


Key municipal outsourcing projects in the U.S.

Indianapolis, IN Indianapolis, IN

Tampa Bay, FL Tampa Bay, FL

Atlanta, GAAtlanta, GA

Oklahoma City, OKOklahoma City, OK

Lynn, MALynn, MA

Woonsocket, RIWoonsocket, RI

Great Falls, MTGreat Falls, MT

Cranston, RICranston, RI

Petaluma, CAPetaluma, CA

Leominster, MALeominster, MA

Honolulu, HIHonolulu, HI

Richmond, CARichmond, CA

AtlantaAtlanta--Fulton, GAFulton, GA

MonctonMoncton, Canada, Canada

Palm Springs, CAPalm Springs, CA

Plymouth, MAPlymouth, MA

Springboro, OHSpringboro, OH

Danbury, CTDanbury, CT

Jupiter Island, FLJupiter Island, FL

Wilmington, DEWilmington, DE

Arvin, CAArvin, CA

Burlingame, CABurlingame, CA


Alon USA EquistarWestlakeGeneral MotorsIPSCO3MAK Steel ALCOA

■ Chevron■ BP-Amoco■ Air Products■ Bethlehem Steel■ Conoco■ Sunoco■ Exxon Mobil■ Occidental

Chemical

Key industrial outsourcing projects in the U.S.


55,0

400,6

179,1 179,2

40,5119,0

882,8947,2

117,3162,1195,1

425,3

-100

0

100

200

300

400

500

600

700

800

900

1 0002003 2002

At constant exchange rates

(1) Only Onyx

EBIT at June 30 excluding assets sold in 2002 and 2003

WaterStable-5.8%

Waste man. (1)

+4.8%-4.5%

Energy serv.+11.9%+10.5%

Transportation-27.0%-26.3%

FCC+2.2%+1.5%

Total-2.3%-6.8%At current

exchange rates


The U.S. remains an area of growth for VE:Onyx achieved €1.4 billion in revenues in 2002

SolidSolid wastewaste locations in 11 states locations in 11 states withwith more more thanthan 450 municipal 450 municipal solidsolidwastewaste contractscontracts andand overover 130,000 130,000 commercial commercial andand industrialindustrialcustomerscustomers

Second Second largestlargest hazardoushazardous wastewasteservice service providerprovider in in thethe U.S. U.S.

IndustrialIndustrial services (services (hydroblastinghydroblasting, , industrialindustrial cleaningcleaning, , chemicalchemicalcleaningcleaning, etc.) to , etc.) to mostmost major major industriesindustries

Operating 10 Operating 10 wastewaste--toto--energyenergyfacilitiesfacilities withwith a a capacitycapacity of of overover10,000 tons 10,000 tons perper day day

Solid Waste 45%

Hazardous Services

24%

Waste-to-Energy 12%

Industrial Services 19%

Breakdown of 2002 North America Breakdown of 2002 North America Revenues : €1.4 billion Revenues : €1.4 billion


Cash flow from operations at June 30, 2003

-500

-100

300

700

1100

1500

June 30, 03 €1,346m

(€50m)

Disposals

(€79m)

Exchangerates

(€38m)

Operating performance

€74m

June 30, 2002 €1,439m

Difference in interest rates


Control of investments at June 30, 2003

WaterWater 293293

Waste Waste managementmanagement 143143

Energy Energy services services 5050

TransportationTransportation 4747

FCC + FCC + ProactivaProactiva 6565

GrowthGrowth

300300

136136

101101

5454

7070

663663

593

279

152

101

135

1,260Total Total 597597

MaintenanceMaintenance TotalJune 30,03

TotalJune 30,03

UK, UK, BrusselsBrussels, , AsiaAsia

Major Major projects projects France, France, UKUK

Czech RepublicCzech Republic, , PolandPoland

NorwayNorway, , EasternEasternEuropeEurope

TotalJune 30, 02

TotalJune 30, 02

891891

333333

229229

139139

147147

1,7411,741 --28%28%Total at June 30, 2002

In €m

603603 1,1381,138

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