2003, first half results

2003 first2003 first--half results half results –– September 2003September 200311

2003 first half results

September 24, 2003


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.


First half 2003: continuation of balanced growth

Revenue (excluding assets sold in 2002 and 2003) up Revenue (excluding assets sold in 2002 and 2003) up 5.4% at constant exchange rates5.4% at constant exchange rates

Good operating performance in water excluding the Good operating performance in water excluding the U.S., Waste, and Energy servicesU.S., Waste, and Energy services

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

Other Other USFilterUSFilter assets to be sold and a reassessment of assets to be sold and a reassessment of the market value of all of the market value of all of USFilter's USFilter's assetsassets

Control of investments and positive free cash flow Control of investments and positive free cash flow before dividendsbefore dividends

Debt stableDebt stable


Review of strategy for U.S. Water businesses

Focus on longFocus on long--term operating contracts and engineering term operating contracts and engineering contracts (80% to municipalities and 20% to industrial contracts (80% to municipalities and 20% to industrial customers)customers)

Disposal of the equipment and shortDisposal of the equipment and short--term industrial term industrial contract businesscontract business

Disposal of the Consumer and Commercial business Disposal of the Consumer and Commercial business ((Culligan Culligan & & EverpureEverpure))


North American Water figures

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

CulliganCulligan + + Everpure Everpure

Equipment / Short term contractsEquipment / Short term contracts

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

2003 (*)2003 (*)

Estimated average operating Estimated average operating marginmargin

2003 (*) $760m

2003 (*) $1,300m

$600m

5%

(*) Estimated full year amounts


Extraordinary write-down of water assets in the U.S.

Reassessment of market value for Reassessment of market value for USFilterUSFilter assets assets

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


Veolia Environnement's activities in North America

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

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


Reported revenue 14,048 14,971 -6.2% -1.2%of which revenue (1) 13,902 13,858 +0.3% +5.4%(excl. assets sold 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 sold 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 sold 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 (in €m)

(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.


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 (in €m)

June 30, 03 June 30, 02


First half impacted by exchange rates

% of consolidated revenue during

1st half 2003

Currency Av. rate H12002

(€1 = …)

Av. rate H1 2003

(€1 = …)

H1 2003/H1 2002

12% US dollar 0.885 1.115 -21%

8% Pound sterling 0.616 0.690 -11%

2% Czech koruna 31.206 31.610 -1%

2% Australian dollar 1.677 1.789 -6%


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


Contribution to EBITDA excluding assets sold in 2002 and 2003

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%

(*)


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. +4.8% (1)

-4.5% (1)

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


EBIT trends by division

Water

FranceFrance Profit margins improved due to a good level Profit margins improved due to a good level of volumesof volumes

Rest Rest of Europe, of Europe, AsiaAsia, , AfricaAfrica

DoubleDouble--digit growth in operating performance digit growth in operating performance and positive impact from the J curve: good and positive impact from the J curve: good contribution from Berlin and Central Europe, contribution from Berlin and Central Europe, satisfactory growth in satisfactory growth in PudongPudong in Asiain Asia

Veolia Water SystemsVeolia Water Systems Operating income affected by business Operating income affected by business slowdownslowdown

EBIT, excluding assets sold in 2002 and 2003: €401m (stable at constant exchange rates)

North AmericaNorth America Equipment: low margin levelEquipment: low margin levelLongLong--term services: startterm services: start--up costs for certain up costs for certain contractscontractsDecline in operating performance for the Decline in operating performance for the overall businessoverall business



Waste

FranceFrance Improved margins:Improved margins:good operating performance in many regionsgood operating performance in many regionsimproved profitability in municipal servicesimproved profitability in municipal services

USAUSA 2% increase in EBIT excluding exchange rate 2% increase in EBIT excluding exchange rate impact: very good performance in solid waste but impact: very good performance in solid waste but fallfall--off in industrial activities due to economic off in industrial activities due to economic conditionsconditions

Rest Rest of of EuropeEurope

Good results supported by favorable developments Good results supported by favorable developments in the UK (new contracts and improved profitability in the UK (new contracts and improved profitability for existing contracts)for existing contracts)

Asia PacificAsia Pacific Margins maintained at high level but profitability Margins maintained at high level but profitability affected by decline in volumes treatedaffected by decline in volumes treated

EBIT: €179m (+4.8% excluding Proactiva at constant exchange rates)



Energy services

FranceFrance Margin stable, as the positive impact of Margin stable, as the positive impact of prices and buoyant performance of prices and buoyant performance of cogeneration offset weak performance in cogeneration offset weak performance in engineering activitiesengineering activities

InternationalInternational 54% growth in EBIT54% growth in EBITProductivity gains in the UKProductivity gains in the UKContinued growth in ItalyContinued growth in ItalyGood weather conditions in Central Good weather conditions in Central Europe and startup of Vilnius contractEurope and startup of Vilnius contract

EBIT: €179m, (+12% at constant exchange rates)



Transportation

FranceFrance Favorable trend in resultsFavorable trend in results

USAUSA Startup of Boston contractStartup of Boston contract

Rest Rest of Europeof Europe Strongly penalized by the difficult situation Strongly penalized by the difficult situation in certain markets and contracts (in in certain markets and contracts (in particular Great Britain)particular Great Britain)

FCC

Good performance in municipal services.Good performance in municipal services.Impact of a cement plant stoppage during the Impact of a cement plant stoppage during the first quarter.first quarter.

EBIT: €40.5m

EBIT: €119m


EBIT 884 1,018

Recurring financial expense (370) (379)

Notional tax charge (182) (226)

Share in net earnings of companies accounted for by the equity method 26 25

Minority interests (112) (97)

Recurring net income before goodwill 246 341

Recurring goodwill amortization (113) (125)

Recurring net income after goodwill 133 216

Non-recurring income (loss) (2,233) (3)

Net income (loss) (2,100) 213

From EBIT to net income (in €m)June June 30, 0330, 03 June June 30, 0230, 02


Evolution of financial charges at June 30, 2003

Net financial expenseNet financial expense

Cost Cost of of financingfinancing

(in €m)(in €m)

(314)(314)

(137)(137)

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

Average interest Average interest rate: 4.28%rate: 4.28%

Provisions and miscellaneousProvisions and miscellaneous

(316)(316)

(63)(63)of whichof which USFilterUSFilter assetsassets (72)(72)

amortization ofamortization of Oceane Oceane premiumpremium (15) (15) (15)(15)treasury stocktreasury stock (10) (10) (25)(25)exchange rateexchange rate (16)(16) (10)(10)otherother (24)(24) (13)(13)

(451)(451) (379)(379)


Non-recurring loss (in €m)

WriteWrite--down of North American Water down of North American Water division assets division assets (2,232)(2,232)

Restructuring costsRestructuring costs (9)(9)

TaxTax +44+44

OtherOther (36)(36)

Total (2,233)


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


Financial equilibrium: positive free cash flow

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 340340Change in Change in securitized receivablessecuritized receivables (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


Debt structure

Average maturity extended from Average maturity extended from 3.8 3.8 years years to to 5 years

65% of of debt debt in in euroseuros, , 20% of of debt debt in dollarsin dollars

Fixed Fixed rate/variable rate: rate/variable rate: 51/49%

Cash position strengthened: €8 billion

Ratings:Ratings: Standard & Standard & Poor'sPoor's BBB+ / Positive / A2Moody's Moody's Baa1 / Stable / P2


STRATEGY AND OUTLOOK


A clearly defined strategy

To To strengthen Veolia Environnement’s market strengthen Veolia Environnement’s market positions positions in longin long--term contractsterm contracts

Medium term growthMedium term growth of of businesses betweenbusinesses between 4 4 andand 8% 8% per yearper yearExamples Examples

Marseille (preferred-bidder) France WaterMetz France WaterThuringia Germany WaterWeisswasser, Saxony Germany Multiple servicesCamden (London) UK Waste Schleswig-Holstein Germany Transportation

Numerous industrial contracts WaterUS Municipal contracts Water(Alabama, California, Iowa, Oklahoma …)

Beijing region China WaterBaillonggang (Shanghai) China WaterShanghai Huancheng China Waste

In Europe

In North America

In certain Asian countries


Improved financial flexibility

Increase financial flexibility to accelerate our growthIncrease financial flexibility to accelerate our growth

Focus growth on the model of longFocus growth on the model of long--term contracts term contracts with a longwith a long--term partnership with our customersterm partnership with our customers

Debt after disposals stabilized at €11 billionDebt after disposals stabilized at €11 billion


"J" curve trending upward Example: 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)


1998

1999

2000

1996

2001

Pilsen

VOSS Sokolov

SCVK (Bohème du Nord)1.JVS (Bohème du Sud)AQUA Příbram VODOSPOL KlatovySMV (Moravie)

Prague I – 66%

2002 Prague II – 34%

3.4 million people served

2003 ProjectsBohème Centrale : Kladno Melnik

Mlada Boleslav Moravie: Zlin

RA

Prachatice

Český Krumlov

Tábor

Domažlice

HBBN

J curve trending upwardExample: Czech Republic (group of contracts)

Entry of contracts


J curve trending upwardExample: 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)


Profitability improvement

Implementation Implementation of of VeoliaVeolia Environnement Environnement productivity improvement productivity improvement plan plan with targetedwith targetedminimum minimum savings savings of €300m (of €300m (purchasingpurchasing, , consolidation of consolidation of insurance costsinsurance costs, , reduction reduction in in headquarters headquarters offices, offices, improved labor improved labor management)management)

Favor less Favor less capitalcapital--intensive operating intensive operating projectsprojects

AfterAfter--tax tax ROCE of ROCE of between between 8% 8% and and 9% 9% at the at the end of end of 20052005


Veolia EnvironnementOur Our concrete achievementsconcrete achievements ……

A complete restructuring of the shareholder baseThe total transfer of our contractsA renewal rate of our contracts of >90%A high historical success rate with contract bidsA well managed geographic exposureA complete restructuring of our financial agreementsA decrease in indebtedness An increase in free cash flow

A clearly defined strategyA leader in environmental services with an integrated offeringFurther increases in market share

Our medium-term goals

A reduction in the debt and improved financial flexibilityAn efficiency plan with targeted minimum savings of 300 million euros by the end of 2005A proven business model and profitable growth

… … over over a a three three year periodyear period


Appendixes


Contribution by geographic area

Revenue, excluding assets sold in 2002 and 2003,

at June 30, 2003EBIT, excluding assets sold in 2002 and 2003,

at June 30, 2003France 46%France 46%

ROW 7%ROW 7%

USA 11%USA 11%

Rest of Europe (excl. France) 36%


USA 11%USA 11%

France 40%France 40%ROW 5%ROW 5%




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


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

Appendix: USFilter – 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)


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 ■ Equistar■ Westlake■ General Motors■ IPSCO■ 3M■ AK Steel ■ ALCOA

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

Chemical

Key industrial outsourcing projects in the U.S.


Appendix: Onyx North America: Most comprehensiveprovider of integrated waste services

Onyx Environmental Services

Onyx Waste Services

Montenay Power Corp.

Onyx Industrial Services

Locations: 295


Appendix: Onyx North America: Most comprehensive provider of integrated waste services

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


Nathalie PINON, Directeur des Relations avec les InvestisseursDirecteur des Relations avec les Investisseurs

38 Avenue Kléber 38 Avenue Kléber –– 75116 Paris 75116 Paris -- FranceFrance

TelephoneTelephone +33 1 71 75 01 67+33 1 71 75 01 67

Fax +33 1 71 75 10 12Fax +33 1 71 75 10 12

ee--mail mail [email protected]

Brian SULLIVAN, Vice President, US Investor Relations

1605 Main 1605 Main StreetStreet, Suite 710, , Suite 710, SarasotaSarasota, FL 34236, FL 34236-- USAUSA

TelephoneTelephone (941) 362(941) 362--24352435

Fax (941) 362Fax (941) 362--24992499

ee--mail mail [email protected] Web sitesite

http://www.veoliaenvironnement-finance.com

Financial Communication

2003, first half results

Business

half res ults

half results

targeted revenue

excluding assets

documents veolia environnement

veolia environnements

veolia environnementmay

total revenue