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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.

Segment Results

Water: Revenue from this segment in the first nine months of 2012 was €9.20 billion ($11.78 billion) improving 2.9% from €8.95 billion ($12.6 billion) in the same period, last year. The higher tariffs rate in Central and Eastern Europe and favorable indexation effects in France boosted the performance of this segment.

Enviornmental Services: Revenue from this segment in the first nine months of 2012 was €6.75 billion ($8.6 billion) falling 0.8% from €6.8 billion ($9.6 billion) a year ago.  The marginal dip was due to the decline in recycled raw material prices besides discontinuation and restructuring of some operations in North Africa and Italy.

Energy Services:  Revenue generated in the first nine months of 2012 was €5.2 billion ($6.7 billion) increasing 8.5% from €4.8 billion ($6.7 billion) in the year-ago period. The uptrend was attributable to higher energy prices.

Others: Revenue from this segment grew 21.2% to €0.45 billion ($0.58 billion) in the first nine months of 2012, driven by ProActiva MedioAmbiente growth

Other Highlights

The company has begun to realize cost saves. Its efficiency and convergence plan has resulted in cost savings of €154 million ($197 million) in the first nine months of 2012.

Despite cost savings, adjusted operating income in the first nine months of 2012  declined 24.8% to €0.9 billion ($1.2 billion) from €1.1 billion ($1.5 billion) in the comparable period of 2011.

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.

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 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 and aims for a gross reduction of €500 million in 2015.

Our View

The company has presently undertaken many initiatives, including the appointment of a Chief Operating Officer effective December 1, 2012. Veolia has already started to derive some benefits from these initiatives, but we feel it still needs to go a long way to realize its goal and share the positives with its customers and shareholders.

Veolia Environnement currently retains a short-term Zacks #3 Rank (Hold rating). Presently, we prefer its peers Connecticut Water Service Inc. (CTWS - Snapshot Report) and American States Water Company (AWR - Snapshot Report) which hold a short-term Zacks #2 Rank (Buy rating).

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

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