News

Results compared with the first half of 2008, a period in which the Group recorded very strong growth.

• Consolidated revenue stable at €17,427 million (up 0.2% at constant exchange rates, a decline of 0.8% at current exchange rates).
• Operating cash flow of €1,978 million (-4.9% at constant exchange rates and -7.1% at current exchange rates). Growth of 3.7% at constant exchange rates, excluding waste management activities. Decline of operating cash flow in waste management by 22.4% at constant exchange rates.
• Net income attributable to equity holders of the parent of €220 million versus €501 million in the first half of 2008. This result includes the writedown of assets in the waste management business in Italy and the adjustment to market value of assets to be sold for a negative impact of approximately €100 million. It does not include the expected capital gains on the divestments committed to at June 30, 2009.

Cost-cutting measures and the reduction of net investments allow stabilization of net debt at €16.8 billion

• Cost reductions of €146 million in the first half, under the company's Efficiency Plan and adaptation plan for Veolia Environmental Services (waste management division).
• Net investments of €1,133 million, a decline of 39% compared to the first half of 2008.
• Disposal program consistent with expectations: €268 million booked at June 30, 2009 and a further €545 million committed to but not yet booked at an average 2008 EBITDA multiple of 11x.
• Net debt stable compared to March 31, 2009 at €16.8 billion.

2009 objectives maintained

• €180 million of recurring savings, in addition to the €100 million of savings under the adaptation plan for Veolia Environmental Services (waste management division).
• Asset disposals of €1 billion.
• Operating cash flow less net investments = ~€2 billion at constant exchange rates.
• Positive free cash flow (1) after the dividend payment.

(1) See definition in Appendices.

At June 30, 2009, the company recorded consolidated revenue of €17,426.9 million versus €17,565.7 million at June 30, 2008, a slight decline of 0.8% compared to the first half of 2008. The change in recycled raw material prices accounts for 1% of the revenue decline. Three of the four business segments (representing nearly 75% of revenue) demonstrated good resilience to the current environment.

Revenue in waste management continued to decline in the second quarter (lower volumes and prices of recycled raw materials). Growth in engineering-construction and works in the Energy and Water divisions also began to slowdown at the end of the period. In addition, revenue in Energy was impacted by the decline in energy prices in the second quarter, particularly in France.

At constant scope and exchange rates, revenue declined by 1% in the first half of 2009. Revenue from Europe (outside France) in Water, as well as more favorable weather conditions and a rise in energy prices at Dalkia during the first few months of the year, did not completely offset the decline in revenue from waste management (decline of 10.3% at constant scope and exchange rates), mainly due to the economic slowdown.

External growth amounted to 1.2% (€219.3 million). The share of revenue generated outside France rose to €10,460.6 million or 60.0% of the total compared to 58.5% of the restated figure at June 30, 2008.

The negative impact of foreign exchange linked to the evolution of the average exchange rates in the first half of 2009 as compared with the first half of 2008 was €180.1 million. This was essentially due to the depreciation against the euro of the pound sterling for a negative impact of €172.7 million, the Central European currencies (mainly in the Czech Republic and Poland) for a negative impact of €135.4 million and the currencies of Northern Europe (mainly Norway and Sweden) for a negative impact of €78.1 million. These were partially offset by a stronger US dollar against the euro (with a positive impact of €210.6 million).

Operating cash flow amounted to €1,977.5 million at June 30, 2009 compared with €2,127.8 million at June 30, 2008, a decline of 7.1% at current exchange rates and 4.9% at constant exchange rates. This decline was due to lower performance in the waste management business, despite the cost-cutting efforts across its global operations due to the economic downturn and the decline in sales. At the Group level, this decline was limited by:

• a greater resilience of the other businesses to the economic downturn;
• the implementation of the "Efficiency 2010" plan, with an impact of €101 million at June 30, 2009.

The total negative currency impact of €46.3 on operating cash flow was mainly due to the depreciation against the euro of the pound sterling (€29.0 million), primarily in the Water and Environmental Services divisions, and the currencies in Central Europe (€31.5 million), particularly in the Energy division. This was partially offset by a stronger US dollar against the euro (€21.1 million), mainly in the Environmental Services division.

Operating income amounted to €1,000.8 million at June 30, 2009, compared to €1,292.2 million at June 30, 2008. This takes into account the variation in the operating cash flow, a writedown of operating financial assets in Italy in the waste management business for €35 million, as well as a negative impact of €32 million as compared to June 30, 2008, due to the reduction in the discount rate on provisions for site remediation.
Recurring operating income amounted to €1,000.8 million versus €1,287.2 million at June 30, 2008.

The cost of net financial debt was €378.8 million compared to €423.5 million at June 30, 2008.

The decline in the cost of net financial debt was due to lower variable exchange rates on borrowings, particularly those denominated in euros and pounds sterling, partially offset by the increase in the average financial debt and the lengthening of debt maturities. The financing rate (defined as the cost of net financial debt excluding variations in the fair value of instruments not qualifying as hedges, divided by the monthly average net financial debt over the period) decreased from 5.41% in the first half of 2008 to 4.47% in the first half of 2009.

At June 30, 2009, the Group recorded a net tax expense of €196.8 million versus €221.7 million at June 30, 2008. The lower tax expense at June 30, 2009 was mainly due to the decline in income (in the waste management division). The apparent tax rate was 33.2% in the first half of 2009, compared to 25.7% in the first half of 2008. The increased tax rate was mainly due to losses not generating tax savings (in Italy, Germany and China).

Net income from discontinued operations at June 30, 2008 was €0.4 million as compared to a net loss from discontinued operations of €56.4 million at June 30, 2009. The net result from discontinued operations at June 30, 2009 was mainly affected by an adjustment to fair value of the Freight business (Veolia Cargo) in the Transportation sector. It also includes the results of the Waste-to-Energy incineration business in the United States in Environmental Services.

Net income attributable to equity holders of the parent amounted to €220.3 million at June 30, 2009 compared to €500.5 million at June 30, 2008. Recurring net income attributable to equity holders of the parent at June 30, 2009 was €276.5 million, compared to €497.9 million at June 30, 2008, which has been restated for discontinued operations.

Total cash flow from operations amounted to €1,984.3 million at June 30, 2009, including €1,977.5 million of operating cash flow (versus a restated amount of €2,127.8 million at June 30, 2008).

The Group disposed of industrial assets and entered into new partnerships to strengthen its ability to develop in specific regions. The total contribution from the disposals and these partnerships amounted to €268 million.

In addition to borrowing costs and taxes, the Group's cash resources covered the dividend payment for the 2008 fiscal year, all its maintenance capital expenditures (€858 million), growth and development investments related to its existing operations (€360 million), new operating financial assets (€127 million) net of repayment of operating financial assets (€263 million), as well as variations in its working capital. In addition, the Group continued to develop its businesses and invested €319 million in new projects, particularly BOT projects in waste management in the United Kingdom and in the Water division in Asia. After these investments, net financial debt amounted to €16,827 million at June 30, 2009, as compared with €16,528 million at December 31, 2008. Refinancing transactions (a bond issue in excess of €2 billion in the first half of 2009) allowed the Group to maintain an average debt maturity of approximately 9.5 years. Liquidity, net of short-term debt, has risen sharply to €6 billion from €3.9 billion at December 31, 2008.

In the current economic environment, Veolia Environnement's priority for 2009 is to generate positive free cash flow after the payment of the dividend.

To attain this objective, the Group expects net investments of no more than €2 billion in 2009, including an asset disposal plan, confirmed at June 30, 2009, of €1 billion for fiscal year 2009. To date, the Group is engaged in advanced negotiations to dispose of certain assets in the waste management division in the US and France and in the freight business of Veolia Transport. The objective is to finalize these divestments by the end of 2009.

Additionally, the Group has entered into exclusive discussions with the Caisse des Dépôts with the aim of merging Veolia Transport with the company Transdev. This merger project remains subject to the conclusion of a definitive agreement which is itself dependent on regulatory approvals.

The operating and financial performance during the first half of the year and the advancement of the disposal program allow the Group to confirm its objectives set for 2009: to generate positive free cash flow after the payment of the dividend for fiscal year 2008 and to generate operating cash flow less net investments of around €2 billion at constant exchange rates.

Veolia Environnement is a corporation listed on the NYSE and Euronext Paris. This [document/press release] contains "forwardlooking 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 forwardlooking 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 acquisitions may not provide the benefits that Veolia Environnement hopes to achieve, the risks related to customary provisions of divesture transactions, 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 Veolia Environnement's financial results and the price of its shares, the risk that Veolia Environnement may 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.

Marie-Claire Camus:
Tél +33 (0)1 71 75 06 08