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Veolia in Transition, Sales Up

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Veolia Environnement announced its 2012 financial results. The company’s 2012 operating earnings per share declined 69.2% to €0.12 (16 cents) from € 0.39 (51 cents) in 2011.

GAAP earnings during the year were €0.78 ($1.03) versus a loss per share of €0.99 ($1.31) in 2011.

Total Revenue

In 2012, the total revenue of the company was €29.43 billion ($38.86 billion) versus €28.57 billion ($37.76 billion) in 2011, reflecting growth of 3.0%.

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

Segment Results

Water: Total revenue from this segment was €12.07 billion ($15.9 billion) versus €11.92 billion ($15.75 billion) in 2011, up 1.3%. The rise was attributable to favorable effects of indexation in France, price increases in Central and Eastern Europe and the increase in Technologies and Networks industrial activities.

Environmental Services: Total revenue from this segment was €9.08 billion ($11.99 billion) versus €9.01 billion ($11.90 billion) in 2011, up 0.8%.

Energy Services: The segment generated total revenue of €7.66 billion ($10.11 billion) versus €7.13 billion ($9.42 billion) in 2011, up 7.4%. The growth in this segment was attributable to higher energy prices, favorable weather conditions and growth outside France, particularly in Poland.

Other Segments: The segment generated total revenue of €0.61 billion ($0.80 billion) versus €0.5 billion ($0.66 billion) in 2011, up 21.1%. The year-over-year rise was due to increase in waste activities in Argentina, Mexico and to a lesser extent in Brazil.

Operational Update

Selling, general and administrative expenses of the company for 2012 decreased 1.6% year over year to €3.61 billion ($4.76 billion). The decline in expenses was primarily due to the cost reduction plans undertaken by the company.

The increase in total revenues along with decline in selling, general and administrative expenses boosted the operating margin of the company. Adjusted operating income in 2012 was €1.1 billion ($1.45 billion), reflecting an increase of 10.1% from €0.83 billion ($1.09 billion) in 2011.

Finance costs in 2012 were €0.84 billion ($1.10 billion), marginally higher than the 2011 level of €0.82 billion ($1.00 billion). The increase was primarily due to the active management of debt and costs resulting from the early redemption of US private placements (USPP) in Feb 2012 and bond redemptions in the fourth quarter of 2012.

Financial Update

Cash and cash equivalents as of Dec 31, 2012 were € 5.5 billion ($7.3 billion) versus € 5.7 billion ($7.38 billion) on Dec 31, 2011.

Net cash from operating activities in 2012 was € 2.85 billion ($3.76 billion) versus € 2.94 billion ($3.88 billion) in 2011.

Net financial debt as of Dec 31, 2012 was €11.3 billion ($14.93 billion), down from €14.73 billion ($19.07 billion) as on Dec 31, 2011.


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 (92 cents) per share for 2012, payable either in cash or in shares. The dividend will be paid on Jun 14, 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 aims to lower its net financial debt to a range  of €6 billion to €7 billion in 2013 from the current level of €11.3 billion at 2012 end.

Other Company Releases

American Water Works Company Inc. (AWK - Free Report) reported fourth-quarter earnings per share of 30 cents, lagging the Zacks Consensus Estimate of 35 cents by 14.3%.

American States Water Company (AWR - Free Report) reported earnings of 37 cents per share in the fourth quarter of 2012, lagging the Zacks Consensus Estimate of 53 cents.

Aqua America, Inc. (WTR - Free Report) announced fourth-quarter 2012 operating earnings of 47 cents per share, 95.8% above the Zacks Consensus Estimate of 24 cents.

Our View

France-based Veolia Environnement is a provider of environmental management services to its worldwide consumers. The company had implemented certain measures last year to turn more competitive and pursue a growth strategy. The company has been doing well on this strategic plan and expects 2013 to bring in additional benefits.

Since, the company is yet to realize the full benefits of the transformation, we prefer to retain our Zacks Rank #3 (Hold) on the stock.

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