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Veolia Environnement S.A. (NYSE:VE)

Q4 2012 Earnings Call

February 28, 2013 3:30 am ET

Executives

Antoine Frérot - Chairman and Chief Executive Officer

Pierre-François Riolacci - Chief Finance Officer

François Bertreau - Chief Operating Officer

Jérôme Gallot - Chief Executive Officer of Veolia Transdev

Analysts

Nathalie F. Casali - JP Morgan Chase & Co, Research Division

Olivier Van Doosselaere - Exane BNP Paribas, Research Division

Martin Young - Nomura Securities Co. Ltd., Research Division

Ignacio Perez Cossio - UBS Investment Bank, Research Division

Antoine Frérot

[Audio Gap]

accounting standards, and in particular, the ending of proportionate consolidation. I'll then give the floor to François Bertreau, our new Chief Financing (sic) [Operating] Officer in charge of the transformation of the group drive, who will talk about our cost-cutting program. And then I'll take the floor again to give you our guidance.

To kick off, I'd like to say that at the end of the first year of the Transformation program, Veolia is ahead of its objectives and is now clearly on the path I had defined for the group a little bit more than a year ago. 2012, first of all, witnessed a major change in the group's governance and organization. Also in 2012, an asset divestment and refocusing of our business activities being implemented and that led to a sharp drop in its debt. Furthermore, the cost-cutting program was vigorously launched, and the savings at the end of this first year exceed expectations. As a result, thanks to those savings, as well as the good performance of our growth platforms and also the fact that our Environmental Services held up very well in late 2012 despite a rather bleak environment, our operating cash flow has significantly improved in the -- at the end of the second half, and we are somewhat ahead of the priority targets we had set for our growth.

Last year, Shareholders Meeting, as you all remember, appointed 4 new directors including Groupama, Maryse Aulagnon, Nathalie Rachou, Jacques Aschenbroich and Groupama. And this year, Henri Proglio resigned and Marion Guillou was coopted.

The group also changed its organization, appointing a new Chief Financial -- Chief Operating Officer in charge of the group's transformation, and in particular, in charge of industrializing our work methods, i.e., François Bertreau, whom I'm delighted to introduce today for the first time as we present our results. François, as you already heard, will be talking to you in a few minutes.

With respect to the group's refocusing. First of all, we wrapped up 2 major divestments, regulated water activities in the U.K. and solid waste in the U.S. But furthermore, we finalized 30 smaller transactions, along with the usual financial divestments and that totaled EUR 3.7 billion. Furthermore, changes in the Berlin Water company shareholding led to additional deleveraging of EUR 1.4 billion. So all in all, we have reduced our debt by EUR 5.1 billion, whereas we had projected this program over 2 years, and some transactions that have already been signed have yet to produce their results, for instance, our pullout from transportation.

And as of 31st of December, 2012, capital employed by the group was constrained on 48 countries. In the last 18 months, we have sold business units because we wanted to pull out from countries, you can see them here in red. We have closed down loss-making operations, in yellow here; Or sold assets we wanted to discard, although we did not want to pull out from the country, and that's where you have green dots.

At the end of 2013, capital employed by the group will be concentrated on 40 countries. Thanks to this divestment program, but also the keeping in check of CapEx, as well as the excellent performance of working capital requirements, in particular, in Q4, debt has contracted to a significant extent. Because at 31st of December, 2012, it was down to EUR 11.3 billion. You remember now, our objective was to lower it under EUR 12 billion as of the 31st of December, 2013, so we are more than a year ahead of this objective. Our group's debt dropped by EUR 3.4 billion, and since November 2009, it's dropped by more than EUR 5 billion.

Given the advance we had built up over our initial objectives, we have reviewed our deleveraging objective, and I will confirm this when giving you guidance, and our target at 31st of December, 2013 will be ranging between EUR 8 billion and EUR 9 billion. And as Pierre-François will explain, this will lead to an adjusted net financial debt of EUR 6 billion.

Given this major decline in debt and deleverage and the good conditions of our divestments, the group's leverage has increased from -- further dropped from 3.88 to 3.26 as of the 31st of December, 2012.

The second component of our Transformation program was cost cutting. As you know, we have a 4-year program with EUR 500 million in savings, adjusted savings, by 2015. The objective was to reduce costs by EUR 100 million in 2013, and that's what you can see on the right-hand side in red. Once more, we have topped our objective, because savings total EUR 142 million versus EUR 82 million in terms of implementation costs, so a net saving of EUR 60 million that can be found in general and administrative costs.

Actually, in this slide, what we can see is that adjusted operating cash flow has improved despite the deterioration in our environments. This increase, of course, results partly from saving, cost savings, but also the excellent performance of Environmental Services and the good contribution of our growth platforms.

Lastly, in 2012, we also stepped up the group's repositioning on high-growth markets and recorded some superb successes with our new business models. These new business models, for instance, in Water, led to successes in the United States, in New York, recently in California, but also in Pittsburgh and in Winnipeg, but also in France. In India, for the drinking water -- operating the drinking water network of the City of Nagpur, we have been awarded that contract. And we've also renewed most of our contracts in France.

In Environmental Services, in the United Kingdom, we were awarded a major PFI contract for residual municipal waste treatment in Leeds with a 25-year duration. In China, in Hunan Province, we were also awarded a contract for a hazardous waste treatment center. In France, we commissioned 2 new lines of recovery, one for used motor oil recycling in Le Havre, Normandy and another one in North France, close to Arras, for anaerobic digestion of waste.

In Energy Services, in Central and Eastern Europe, we increased our order backlog by around EUR 1 billion with the operation of the urban heating network in Romania, and in France, where we also renewed contracts and we commissioned the largest biomass plant in Europe.

I will now give the floor to Pierre-François. He's going to talk to you about the financial statements in detail, also talk about the consequences of the change in accounting standards. And I'll come back to talk about 2013 and our outlook.

Pierre-François Riolacci

[French] Good morning. Well, this is going to be a double serving. You're going to have the accounts and then the new IRS -- IFRS standards.

Let's get down to brass tacks. Antoine has already pointed out some of the highlights for 2012. You also heard the main figures from GDF if you're listening to the news. In any event, 2012 was a good year of organic growth for us, 1.5% against a very, very negative business climate. We have stock performance of adjusted operating cash flow with the divestments in Italy that haven't had an impact in the second half of the year. So this means that we've seen a welcome brightening of the picture in the second half of the year. You can look, this year, we've had significant capital gains from our divestments instead of the write-downs that we saw last year. And you can see that the free cash flow is down at around EUR 3.7 million -- EUR 3.7 billion.

Here's the breakdown of revenue by division. Again, this is the direct impact of the drop in secondary raw materials from 2011 to 2012. This accounts for about 16% to 17% of our revenue. We would have been flat in Environmental Services. But nonetheless, we've held up well despite the drop in industrial output. In Q4, we've seen 2.9% increase in organic growth. We were down at 0.8% in the second quarter and -- or minus 0.3% in the third quarter, so we saw a marked improvement towards the end of the year.

Okay, let's go through the details of each of our business activities. Water, we're looking at revenue of about EUR 12 billion with just 1.3% of organic growth. You can see something that is quite surprising is that France posted a growth rate of 1.3%. This is due to the continued contractual erosion of EUR 500 million versus our lower volumes, which represent about EUR 15 million in revenue, but we've got the positive impact of pricing construction activities, up 3%. And also we've seen strong performances of services, all of the construction activities that is sort of an appendix to all of our other activities and that's contributed some EUR 30 million in revenue.

Outside France, we saw a decline of 1.1%. This is due to some specific developments, for example, the negative price impact related to the Berlin contract and also with the contract in Indianapolis that kicked in, in 2011 and that's a drop that's equivalent to what we saw in Berlin. Then we also saw a slowdown in some of our construction projects, for example, in Japan, Fukushima, we didn't have the same volumes this year as a result of that. And also in Australia, we saw the end of the Adelaide contract, which took place in 2011. And also in China, we had fewer construction projects for our concession contract. However, in China, we have seen strong growth in volume terms and also favorable price developments. In Central Europe, we've also seen very strong growth, a double-digit growth in organic -- in terms of organic growth in Water in Central Europe.

Technologies and Networks, up 5% with double-digit growth for industrial sectors, which just shows how well we've been doing and how attractive it is as an addition to our Water [indiscernible].

Adjusted operating cash flow, EUR 1.172 billion. It's down by 8.4%, down 9.4% at constant FX. Again, these are some of the developments we've already talked about. In France, contractual erosion and lower volumes. This is something that's firmly in line with what we'd announced last year. We had anticipated these developments. There was also an operational accident in Guadeloupe, where we had to deal with EUR 20 million in accounts receivable. There's also a change in the system, which we had to contend with. That was a one-off development. However, it has nothing to do with the contract per se. In Berlin, again, on constant exchange rates, we have, first of all, the proportion of consolidation as of November. That's about EUR 30 million. And also, we had lower prices that I've already pointed to, accounting to EUR 35 million. But at the same time, there are 2 areas we're performing very well with organic growth between 15% and 20%. That's China and Central Europe. 2012 was a very good year. In fact, we're above our expectations in those parts of the world.

Adjusted operating income declined 23% to EUR 674 million.

In 2011, we had a tax break from the Taxe Professionnelle in France that amounted to about EUR 30 million. It was reflected in our operating income, so we didn't have that same effect this year. And there were also some contractual risks that we had to cover, especially in France, and that amounted to around EUR 30 million. We also had an increase in our write-downs in China and in the Central European countries, amounting to about EUR 20 million. So that covers Water.

Environmental Services now. We're looking at revenue of 9.83 -- EUR 9.083 billion. It's just up 0.8%. And adjusted operating cash flow of EUR 1 billion. Again, the business environment is very complicated for us. We have raw material prices, which has had an impact on us. Remind -- just remember that prices started to take off in the first half of the year, so we hope that things will stabilize in 2013, especially as of the second half of the year. Volumes generally in Environmental Services are flat and this is a bit strange given that industrial activity is going down. But what's happening is that the foundation is shrinking, but all of this is offset by the excellent operational performance, especially in France, of our treatment centers, which have been operating at nearly full capacity. And also the strong growth in the hazardous waste sector, which is a very small part of our business for the time being, but it is growing and it's something that offsets drops in volumes elsewhere.

Price increases, that is, the prices that we can pass on to our customers, it's 0.8%, and we'll talk about that later on when we start talking about adjusted operating cash flow. But the tighter the market, the harder it is to pass on price increases, and you can see that we had better success with this type of approach in the first 2 quarters of the year than we did in the second 2 quarters -- the last 2 quarters of the year.

In any event, we're -- overall, we're happy with the situation of our adjusted operating income, despite the fact that what we saw in Australia was something that was a one-off development.

Now there's one thing that I know is something that we always have to talk about when we speak about things in geographical areas. In France, first of all, we had a slight drop in volume over the year, but we did have an increase in incineration volumes of 4.3%. That shows that we have increased capacity of our treatment centers. And also the increase in our hazardous waste processing centers, for example, [indiscernible], which kicked in, in the second half of the year. In the U.K., revenue declined 2.1% with Q4. That was especially difficult. There's also downward pressure on prices in the U.K. If you're operating outside of a PFI arrangement, things are very complicated. Now we did have some rates that were revised. And we've also seen increase in our volumes because of increase of our market share, which gives us about 4% increase with the municipal clients and that's very good compared to 2011.

This is the end of landfills in the U.K., so you look at incinerator volumes that have gone up by 12% to offset the 12% loss in landfill. So you can see that there is the shift going into PFI contracts, where we have a real market edge.

In Germany, we saw a drop in constant scope and also lower prices in volumes of raw materials. We can tell that things are still going to be tough, but we have seen a pickup in activity in the fourth quarter.

Adjusted operating cash flow, 2.7%, down 0.3% at constant FX, standing at just over EUR 1 billion. We have the unfavorable impact of raw material prices, which is about 20% of our adjusted operating cash flow, so we're looking at minus EUR 32 million. We also had high diesel prices, about EUR 10 million higher than we did in 2011 and this price increase of 0.8% doesn't offset inflation that applies to our costs and that amounts to about EUR 50 million.

We were able to overcome all of these different negative trends by, first of all, not accounting for the accidents that we saw in 2011. Those were one-offs that we didn't see in 2011 and also we've made considerable improvements in productivity and that's helped us offset these decreases elsewhere. And this has also been helped by our hazardous waste platforms in the U.K.

Adjusted operating income declined 14.6%, standing at EUR 356 million. This is largely due to changes in landfills in the U.K., EUR 20 million, and also hedging our risks in Germany, and also a recalculation of our Marine Services fleet, which meant that we had a EUR 30 million write-down this year. And now we've got about EUR 80 million -- $80 million in asset values there.

Energy Services revenue at EUR 7.7 billion, up 5.8% at constant scope and FX. France is looking at organic growth of 10%. In fact, we're running full steam ahead, especially with favorable weather conditions and also price increases, EUR 50 million. And we've also seen the CRE projects, increasing construction activities in France and that's also helped us out. Internationally, we're looking at 2% organic growth, with energy price increases that are much lower overall because energy prices have gone down in the United States and also the weather impact has also been flat. In Italy, the situation is stabilized.

Our operating, adjusted operating income -- or cash flow is -- went down 7.6% at constant FX. But in Italy, the receivables write-downs accrued expenses of -- would have had an increase of 6.3%. And despite all of these developments, we've nonetheless managed to limit the damage. But it's true that our operating cash flow in France has gone down by 20%.

Let me say that Dalkia International, excluding Italy, would have had organic growth of its operating cash flow of 11%. And we also had the changes in our scope, which has improved the performance of Dalkia International.

Adjusted operating income declined 22.9%, minus 22.5% at constant FX to EUR 298 million.

Now to summarize all of these different changes in our adjusted operating cash flow, we're now going to look at IFRS 5. You're used to this now. And if we compare our 2011 figures and our 2012 figures, you can see the changes in scope have, more or less, been offset by foreign exchange. You also have the growth platforms' contribution of Veolia, EUR 68 million; then you have the write-downs and other accrued charges, Dalkia Italy, that's down EUR 82 million; France, minus EUR 72 million including the Guadeloupe incident; then the price impact of Berlin Water, down -- minus EUR 35 million; Environmental Services pricing impact, down EUR 94 million; and then we have Convergence and others that brought in EUR 85 million. So that gives you our adjusted operating cash flow of EUR 2.7 billion. That's a good for the first half of the year, excluding Italy. You can see that things were down, but they were stabilized in the second half of the year, which is quite reassuring.

We've seen an increase in of write-downs of EUR 90 million. The EUR 30 million comes from changes in foreign exchange, the rest comes from write-downs.

Depreciation and amortization also includes the risk that we have in the U.K. And Water, we have a provision for contractual adjustments and we also have a provision for SNCM, EUR 50 million provision, which gives the value of SNCM on our accounts at just above EUR 12 million and that also limits our future risks in that shareholding.

With respect to adjusted operating income, well, this, of course, is in line with what I've already talked about. Note that this includes EUR 79 million in implementation costs of cost-saving programs. The larger part is seen as recurring as set out by these accounting standards. And if you look at the appendices, you'll see that the general and administrative costs decline had an impact on adjusted operating income and that appears directly on our financial statements.

In the other line, you can see that there's a slight deterioration. That's where we have the booked -- the provision on SNCM. In Q2, we had a provision we booked as part of the redundancy plan at the head office of Veolia. And the EUR 709 million, we have a one-off cost, the buyback of bonds we carried out at the end of last year and that is directly linked to the proceeds from divestments. The borrowing rate is at 5.25%, reflecting the optimization in our cash position, because in 2012 we had a lower cash position than in 2011. So therefore, the carrying cost was improved and that improved our overall cost of net financial debt. 100% of our debt is at fixed rate. And then we have a 35 basis point decline in our investments because of the decline in the Veolia right [ph].

Debt management. As you know, we were very proactive in 2012 and we will remain proactive in 2013. We have smoothed our sort of redemption maturity. We have restricted to EUR 1 billion redemptions. And we have tried to optimize the proceeds from divestments, so we bought back debt and we have, as planned, managed to do so without changing our cash position. I'd like to point out the hybrid bond we issued in January. That went very well, as you know. I'd simply like to talk about the rationale behind this transaction.

First, we were seeking to free up some leeway with respect to the ratio set by rating agencies. As you -- of course, there's also been the increase in adjusting cash flow -- adjusted cash flow. We also wanted to add some more -- somewhat more flexibility, so to have the possibility of buying out partners should be accretive transactions that would enable us to ultimately de-consolidate these assets and there will be one -- there was one such transaction in 2012.

With respect to tax, the apparent tax rate is at 58%, but of course we have to look at the restated 39.2% rate, adjusted for one-off -- onetime, one-off items. And that obviously reflects the toughening of the tax environment for the group, in particular in France. The main challenge is to restore the French group's tax position, because we're not a regular tax payer.

As for measurement purposes, we suggest using the effective tax rate, which is closer to 35%.

Then we have the results from discontinued operations. As you know, we carried out several divestments under very positive conditions, with more than EUR 400 million in capital gains from the divestment of our regulated water operations in the U.K. and our businesses in the United States.

We have on VTD, Veolia Transdev, we recorded a capital gain of about EUR 20 million, Citelum, which is a Dalkia subsidiary. And then, of course, Morocco Water, a Dalkia unit that was sold for EUR 40 million.

As for operating income from discontinued operations, well, they total about EUR 386 million. And we have about EUR 117 million from other transactions, because of the CapEx incurred in our windmill business that we sold at the end of the year.

As for our net income, adjusted net income is about EUR 60 million. That's not really representative, fortunately, of our earnings capacity in 2012. It includes, in particular, EUR 50 million of the negative impact from Dalkia Italy. It also includes the provision on SNCM for EUR 30 million and the fair value adjustment of Marine Services. So our earnings capacity is closer, in fact, to EUR 160 million when adjusted for those items.

As for the cash flow statement, the statement of cash flows. Well, Antoine has already said the most important points, like the sharp rise in net financial debt up to EUR 3.5 billion with EUR 600 million from discontinued operations. We also have asset divestments. But change in working capital requirements is positive by about EUR 100 million. That wasn't certain at the 30th of September. We've benefited from several developments, the reclassification of our windmill business, we managed to complete that before the end of the year. So what was in WCR was transferred to CapEx. The securitization market in Italy picked up and we were able to securitize EUR 170 million in Italy, down from more than EUR 200 million in previous years, so that obviously helped us. And overall, there was an improvement in our sort of DSO by about 2 days. So all of this played -- so all of the indicators turned green. The ForEx impact remained negative because of the appreciation in the main currencies against the euro.

As for CapEx, I need to talk about this a bit more because this is of importance for you and we had made commitments in early August, freezing CapEx in 2013 and '14 -- 2014. So what has happened? We bought out minority interests, more than EUR 400 million in 2012, particularly the joint venture in Middle East and in North Africa, some other noncontrolling interests here and there, and then EUR 180 million from windmill business. We also bought SPEC for EUR 227 -- SPEC -- for EUR 227 million in 2011. You can also see the benefit of the reduction in investments, EUR 180 million and that leads us to the ultimate figure of EUR 3.3 billion.

As we said in the Investors Day, we have completed about EUR 9 billion in divestments since 2009. These divestments were carried out in more than 150 operations. Out of 23 transactions, more than EUR 150 million, as you can see in the footnotes here, these transactions were carried out at more than 10x EBITDA. So they're quite homogeneous, really, to every year. 2011 was a superb year. There are differences, of course, by division. But in reality, all of this depends on the quality of each asset. So all in all, EUR 9 billion in divestments in very positive conditions. So we believe that our asset divestment program has started very well.

To finish with financial statements, with respect to cash flows. Quite a few people have wondered how much cash flow was generated by Veolia. We've broken it down into -- what is on the left-hand side, i.e., normal business and the right-hand side, everything from discontinued operations and divestments. At left, you can see sort of the repayment of OFAs, the change in WCR and all this totals about 2.1 -- EUR 2.02 billion. On the right, we have tax and dividends.

So we end up with about EUR 100 million at the end of the day. But as you know, we're very proactive in terms of our asset management, in particular financial transactions, worth EUR 400 million in the buyouts of partners. And this leaves us with the balance of EUR 4.4 billion.

So at the end of the day, our available cash flow comes in at EUR 4.276 billion. 8% was allocated to our lenders through our deleveraging drive and the rest to our shareholders with a minority and noncontrolling interest of the parent company. So that's the overall picture with respect to our cash flows.

We're finished with financial statements. Let me say a few words about changes in IFRS. You will have an opportunity to talk about this at length with the IR team later on, but I'll try and skim through this very quickly. As you know, we're moving from IAS 27 to IFRS 10 and 11. The difference between these 2 worlds is the aim of proportionate consolidation, they have a major, massive impact on Veolia because most of our joint ventures are concerned by the stand [ph]. Very few can maintain proportionate consolidation. Which JVs have been affected: Dalkia International, were owned 75% by Dalkia, 25% by EDF; VTD where we have a 50% stake; Proactiva, our joint venture in Latin America, with 50% stake held by Veolia and 50% by the Spanish company, FCC; our equity interests in the Chinese joint venture in Tianjin; and a joint venture in Northern Europe, Denmark and the Czech Republic in Environmental Services, where we have a family-owned foundation as a partner plus several other small transactions -- operations.

So in this world, financial statements will have to be read somewhat differently and that's important for Veolia given the number of joint ventures that have been affected. So of course, we will specify very clearly the contribution of these businesses. Thanks to IFRS 12, you will have a lot of additional information about operational activities.

In our income statement, we will have the contribution of companies accounted for by the equity method. They will appear in adjusted net income. We haven't yet taken a decision as to how the accounting treatment will end up, but we also have loans that have been granted to joint ventures. Income from these loans will be recognized under operating income, though the biggest impact, of course, will be on the balance sheet, and in particular, on net financial debt. Since the proportional -- the proportionate consolidation has been ended, intercompany loans, of course, will now be booked under net financial debt.

That's why we're introducing an additional indicator, i.e., adjusted net financial debt. And we deduct from it loans granted to joint ventures. We no longer have the EBITDA and that's very important, accordingly, to adjust the existence of this complementary asset. But once more, you'll find all the additional information in the appendix, thanks to IFRS 12.

So what are we talking about here? Well, real money, about 1/3 of restated 2011 EBITDA, were the largest contributors here in pro forma 2011 accounts, under the former standards. We are preparing the new figures under the new IFRS standards, but this gives you a reference basis. So Berlin, of course, Dalkia International, all this totals around EUR 70 million in EBITDA. There's also a decline in adjusted net financial debt and this is more -- this is more or less in line with the group's gearing.

Of course, on the other hand, we can see the challenge in terms of financing and a lot of these joint ventures are self-financed internally, with EUR 1.8 billion and to Dalkia International.

Now this gives you some information about 2012 that will help you fine-tune your calculations. And let's immediately look at the impacts on the likelihood of meeting our objectives. The first impact is on CapEx, we're at EUR 3.3 billion in CapEx in 2012, unchanged from what we said earlier. In 2013, there will be an impact because of assets divested, but of course, closing dates of transactions in 2013 are not yet known. In fact, that could easily lead to EUR 50 million to EUR 100 million in CapEx moving, but roughly speaking, we're talking about EUR 600 million. IFRS 11 and 12, so investments in proportionately consolidated companies that will no longer transit via Veolia's cash flow statement. That's about EUR 500 million. And then the additional effect on CapEx we had announced, the freeze in CapEx, so that's another EUR 400 million in additional reduction in CapEx and that leads us to EUR 1.7 billion.

So we would like to keep a bit of leeway to buy out partners. We'll talk about that later on, again. But this is important for us. Like in 2012, we want to have a bit of flexibility and seize opportunities when they're attractive to have swift, accretive benefits from operations or buy out partner, either for synergies or for a complete withdrawal, as is the case, for instance, in Morocco.

With respect to our objectives. We had a commitment of EUR 5 billion, automatically Berlin is withdrawn, according to Veolia's definitions. So it's treated separately, but it appears automatically for EUR 1.4 billion in divestments. Our objective has been raised to at least EUR 6 billion, since Berlin is now included. And we will see up to a further amount of EUR 400 million, what trade-offs will remain. It will all depend on valuation, of course. That's our flexibility.

And the EUR 6 billion, we include the repayment of loans from joint ventures. Not loans from refinancing, but in companies that are accounted for now by the equity method, we carry out divestments and proceeds allocated to reimbursements. This will be included in our budget here. So repayment of loans related to divestments will be recognized in our divestment program. By the way, let me point out that those divestments will have an impact on net financial debt that will reduce net financial debt, but not adjusted net financial debt. We'll have to learn how to operate with these new definitions. But these divestments won't change adjusted net income, but they do have an impact on net financial debt. But we will talk about that later on at length.

As you can see, our objectives are quite ambitious, precisely with respect to our deleveraging. Our historical objective was EUR 12 billion. At Investor Day, we had said that it was EUR 4.3 billion in proportionately consolidated companies. This is automatically reduced if we include deleveraging apart from these internal financing costs. We issued a hybrid bond in January and we keep EUR 800 million in flexibility, EUR 400 million in terms of trade-offs of assets, as I mentioned earlier, and the possibility to buy out partners. So that's our financial flexibility.

Now depending on whether we use this flexibility or not, that will have an impact on EBITDA. If we don't, of course, our debt will be lower. So we end up with an adjusted net debt objective of EUR 6 billion.

Our refinancing objective, as you can see, including VTD, totals net financial -- leads to a net financial debt of EUR 8 billion to EUR 9 billion.

On the following page, side-to-side, you have our former objectives and our new ones. Because we don't want our assets to reduce our debt and generate cash to be -- unfortunately, wiped out by suspicions that we're window dressing. Divestments up from EUR 5 billion to EUR 6 million. Net financial debt to 6 -- in 2013, adjusted net financial debt between EUR 6 billion and EUR 7 billion. Cost reductions, we talked about EUR 420 million. We have lifted that to EUR 470 million, all cost reductions for the entire consolidation scope, including proportionate consolidation. But in adjusted cash flow, you won't see these savings, because about 20% of these savings will be carried out in the former proportionate consolidation scope that will appear, of course, in our net income. So keep that in mind when you're monitoring these figures.

As for leverage, we had an objective of 3% and we maintain it for 2014, adjusted leverage. So we have adjusted debt for the amounts we've talked about earlier.

And we'll reassert, without any problem, our 3x objective. As for organic revenue growth, nothing changes over the next 3 to 5 years. 5% growth in adjusted operating cash flow. And 3% in organic revenue growth. So we can really -- we have upside potential for our profit margins. That's what we have to say about our financial statements.

Thank you for your attention.

Antoine Frérot

Thank you very much for all of the explanations, not just about the figures for 2012, but also the impact of these changes in accounting. We now have an understanding of what we have to do. We are still working through all of the details. And our people who liaise with you, investors, are available to give you any further details if you're so interested.

Now let's look at the outlook, and in particular, 2013. 2013 will be the second year of the group's transformation. A lot has already been accomplished, but there's still a large amount of work to be done. And in particular, we have to start by tapping our full potential of productivity gains. François Bertreau is now going to tell you how we're going to improve our performance and bring down costs.

So I'll give the floor to François.

François Bertreau

Good morning. Just very quickly, everybody is familiar with the strength of Veolia, which are many. Markets are growing. We are the world's largest environmental services group in the world. We have a genuine technical expertise in all our divisions, Energy, Water Management, Environmental Services. We really are the world's unchallenged leader. And we are refocusing our activities. And also, this is a company that is improvable, significantly so. And that is why it has made it possible for us to have an additional savings plan of EUR 470 million. And I think we're even going to be able to go beyond that.

Now just to start by talking about costs, let's look at trade. First of all, our objective is to increase the size of Veolia, to increase the share of our industrial comments without -- clients, without reducing the amount of municipal customers that we have. But we really have to look at trade and marketing. We have to determine exactly what we're going to be selling and to whom.

One thing that we can improve on is in expanding the market of municipalities for water. You know that they account for about 80% of water distribution around the world. And you can see that it makes a huge difference with the operating of the network. But we have enough know-how in this group to offer to local authorities services that are à la carte services.

Another thing that we need to do is standardize our product offers for some segments, especially for industrial clients, or we can come up with comprehensive standardized packages. We can do things that are very attractive to our industrial clients. And that is why we decided to set up key account managers. I was very surprised when I arrived in Veolia to see that for an oil refinery, for example, we would provide water treatment services for 3 of the refineries out of its entire fleet of 16 refineries. But we need to grow in that direction. It has a huge impact on the top line. But also we have to make sure that our country managers are empowered to actually drive business growth in their different regions.

And one last thing that I should focus on is R&D. Once again, we've refocused our efforts in R&D. This is one of the things that really sets us apart from our competitors. We have to finely hone our R&D effort to make sure that we do things that have a huge impact on our business operations and that we avoid becoming too dispersed.

When it comes to performance within each one of the divisions, we have a huge amount of potential for improvement when it comes to establishing division-by-division benchmarks. We also have a broad range of different services in each one of the divisions. So in each of the divisions, it's very different from one another. So we are starting to benchmark all of these activities within the divisions at the group level and global level.

And I'll also go into greater details in a few minutes talking about the rationalization of R&D programs, so that we can avoid excessive dispersal.

Another key point, which will have impact about 1 million -- EUR 1 billion is our geographic mutualization. We have some clients that don't bring in any value to the divisions' services, mainly, that are transactional services, accounts payable, general accounting, payroll, IT, infrastructure. They don't really bring in a lot of money or new business to the division, so we're starting to mutualize all of this on a country-by-country basis. And after that, we'll move it up to the global level by having a Chief Administrative Officer who will be the person keeping watch on all of these transactional activities. And this could represent a savings of 1 million -- EUR 1 billion in the short to medium run.

Another key area, our information systems. We spend about EUR 500 million per year on IT. It's not that much, but we could rationalize this cost area. I've already carried out a review and have introduced conventional measures to save costs, rationalizing our infrastructure with a limited number of data centers. We've also been rationalizing our computer programs and applications, basically trying to do some housecleaning. We had a plethora of different applications that have been piggybacking on one another as time has gone by, which gives rise to certain amount of waste. Now we're looking at making cost improvements there, and we've already identified EUR 40 million in cost savings.

Another important thing are -- important area is purchasing. We have EUR 14 billion in purchases per year, about EUR 9 billion are addressable. And what we see to-date is that there's been a lack of discipline in the decision-making process with a lot of dispersal of decision-making, especially when it comes to our choice of suppliers. And so we're going to have a standardized process of assessing our true needs and a shortlist of different suppliers so that we can benefit from the volume effect in negotiating larger contracts with a smaller number of suppliers.

We've already carried out a pilot project in Poland to see what kinds of cost savings we can make and we're looking there at about 8% in savings of total purchases on a constant business baseline. So if we can make 5% savings in all of our purchases, it seems like a reasonable objective.

Just a couple of key points. The plan that was started last year for cost savings is highly credible. We're very comfortable with the fact that the objective that we've stated and just increased will be met. We are also trying to beef up this plan. And in just a few weeks' time, I'll come back and talk with you about a plan that will have been enhanced for increased net cost savings by 2015.

Antoine Frérot

Thank you, François. I shall continue looking at the outlook. As you can see, we are well on track with bringing down the group's debt, and I think we will reach the end of the line by the end of 2013. You can see this on this chart. We're looking at nearly EUR 17 billion in debt at September 2009. We will bring this down to EUR 8 billion to EUR 9 billion by 2013 and even lower than that with adjusted net financial debt.

The same thing applies for our leverage. Even just a few years ago, we were close to 4x and now we're at 3.26x. This shows that our objective of 3.0x for 2014 is something that we're very confident will be achieved. So the group now has a solid financial footing in 2012, as Jean François (sic) [Pierre-François] has just said. Free cash flow was positive before net financial divestments. The same thing will apply to 2013. And by sticking to the target of positive free cash flow in 2013, the group will also be generating its own resources in order to make investments in growing markets. 2013 will be the second year of transformation and we'll be focusing mainly on accelerating our cost-cutting program.

And looking at what we have achieved in 2012. We are fully confident that we will be able to meet all of the objectives that we shared with you on Investors Day. We will, first of all, be proposing to the General Shareholders Meeting, for 2012 payable in 2013, is a dividend payout of EUR 0.70 per share, but we will also be carrying this over for 2013 payable in 2014, again EUR 0.70 per share.

Now where do we want to take the group once we have transformed its structure by the end of 2013? Let me just mention some key figures in our main growth platforms. As you can see on this slide that these growth platforms are available. These are the ones that we already have in hand over the last 3 years. And especially in a pretty tough global economic environment, these growth platforms have given us an overall annual increase in our adjusted operating cash flow of about 10% and this is going to be driving a renewed Veolia group. Now these aren't the only effectors of growth. I think that we can also start deploying new business models, working with new business areas, new customers, new geographical areas and based on new business models.

Let's look at our new activities. First of all, we will be looking more and more at the main environmental challenges, the most complex environmental challenges in the world. They will bring in not only new -- additional volumes of business, but also better value. We've seen this already with hazardous waste or coming up with solutions to address scarcity of raw materials, water or other raw materials, and also the increase in provision of public services to major metropolises.

But there are some new environmental challenges that will have to be met as well. For example, wastewater management or dismantling of nuclear power plants or clean solutions to tap into alternative energy sources, such as shale gas. So these are new business areas, new customers as well, as I've already mentioned. As François has already said, we will have a systematic, methodical approach to lobbying all of our main industrial clients who are operating in dynamic parts of the world and they can no longer afford to pollute the environment. Our objective between now and 5 years from now is to make sure that our share of revenue from industrial clients should go up from 35% to 50% in just a 5-year timeframe. So new businesses, new clients and also new geographical areas. Again, this is the way in which Veolia will be able to capitalize on the business dynamism of some parts of the world, of course, Central and Eastern Europe, but also Asia. We've often spoken about China, but we're also going to start looking at India as well, the Middle East and also Latin America. And again, in 5 years, our objective is to shift part of our revenue elsewhere.

We're looking about -- today, about 30% of our revenue comes from these dynamic growth areas. And by 5 years from now, we want to see that figure go up to 50%. And also, we have to evolve our business models. New business models for new markets, of course, but also to see a full recovery, a new dynamism in our traditional markets.

Let's look at large-scale markets with significant environmental issues. These are things that are going to bring in more volume, but they're also very complex and bring in more value. One example is dismantling of nuclear power plants. Now this is a huge potential market because it represented about more than EUR 200 billion over 20 years, about EUR 30 billion of which will be in France. It's also a highly technical market. It requires a 100% guarantee of success, and the clients would be willing to pay a premium in order to have that guarantee.

This is also a market in which Veolia really does have a unique position, even at present. First of all, we have recognized expertise in hazardous waste management. We also have proven expertise in the management of radioactive waste. We are a subcontractor to Andra and we manage all of the weekly radioactive waste in France. We also have a strong position because of the challenges that we met last year in Fukushima, where we dealt with all of the highly-radiated wastewater in the power plant and we managed to do all of that in record time.

And one additional point is that we have a strategic partnership with the CEA, the Atomic Energy Commission. This will make it possible for us to work further upstream and CEA will be our prime client for the dismantling of its own facilities.

Another example of a growth market for our group and for the oil and gas businesses. Veolia is one of the world's rare companies that can come up with a solution that will make it possible to have shale gas extraction without any water pollution and recycling all of the water that's used for this. It's this critical know-how that stems from our dual expertise in wastewater management and environmental services. We are currently testing out these solutions in the United States and Poland. And what we are seeing is a pattern of new demand that is emerging, for example in Australia as well.

And lastly, reinventing Veolia means renovating our traditional businesses, which often are wrongly interpreted as mere commodities. We have to reinvent our historical businesses in order to enhance the value thereof vis-à-vis our conventional clients. You can see how this transformation is going to take -- is going to roll out, collective incentive, incineration, intelligent use of alternative raw materials such as biomass, or smart metering for Water or for Dalkia. We also have to change the way in which we market our products and services. Instead of being just the operator, but we have to serve the operator as well. That's a break with our past experience. We also have to see changes in profit sharing. We can be paid on the basis of performance achieved as stated by the customers and not just on a proportional basis of the volumes delivered. So basically, what we're trying to do by transforming the group is to base our future, not just on a special contractual model that is our conventional approach, but also to build on our expertise. We can market this expertise in a variety of different ways, globally or on an à la carte basis, as François has just said. And we also see that there are markets, which hitherto, were difficult for us access. Now we can move in by providing a broad range of different management services. Now this presentation has been a bit lengthy because of the change in the accounting standards. But there's just one thing that I would like to say is that the results that I'm sharing with you today are those that give you a snapshot of a much longer road trip that Veolia is on.

Veolia, from my viewpoint, is now on the right path and we can confirm all the medium-term objectives we had reported at the Investors Day and we've even improved some of them. We've talked about that, with respect to divestments, net financial debt and savings. And François gave you an appointment for a few weeks' time, you can see the figures here on the screen.

And we'll now have a Q&A session. Thank you very much for your attention.

Question-and-Answer Session

Operator

[Operator Instructions]

Unknown Analyst

I'm from Credit Suisse. I have 3 questions, if you don't mind. First, with respect to the implementation of your cost-cutting program. You have gross objectives and then net after implementation costs, but should we understand that, that net part will be transferred to your income statement or will some of it be transferred to your customers under contractual arrangements, for instance? With respect to your -- second question, with respect to divestment program, it's working well from what we understand. Will that have an impact on your cash flow, and particularly, given the impact it will have on your volumes of businesses, since you're going to have divestments, but also changes in accounting standards? Then third, you talked about nuclear power and shale gas. There's a large European market in nuclear power, but not very soon, and shale gases for the moment, mostly relevant in North America. Could you give us some figures in terms of 2015 as to what this might mean for Veolia's revenue?

Antoine Frérot

Well, 3 different questions. I'll answer the first. Pierre-François, please, could you do the second. And then the we'll both answer the third one. As for your first question, with respect to the 2 examples I gave, the new growth markets, let me point out that the figures I gave you, EUR 200 billion over 20 years, 20 years as of now, and EUR 30 billion in France, well that's another short figure, that was estimated by the French auditing, supreme auditing court. You know that 9 nuclear plants have already been stopped in France. Some of them have been stopped for quite a while and they have not yet been dismantled, because up until now, nobody knew how to do that. And as soon as all the expertise and technology will be available, that will enable us to map correctly the scale of the radioactivity or the various components of the nuclear plants, well, dismantling will immediately begin. EUR 600 million has already been allocated by the CEA to dismantling nuclear plants. And the CEA, the French nuclear energy center, will start giving us contracts in 2013. So the market is now, as long as you know how to operate. There's still a few technical -- technological bricks I'm missing before we can offer a sustainable business model. Until now, the only alternative was to bury all of that in a very deep surface. But that's now obviously obsolete. We believe that within 3 to 4 years' time, the revenue from that activity for Veolia, an estimate is always just an estimate, be close to EUR 400 million in revenue. But then, of course, outside France, you have the German market, the U.K. market, the U.S. market and the Japanese market, and these are, quite obviously, markets where there'll be a need for dismantling plants that are stopping operations. As for shale gas, coal, seam, gas, you talked about the large U.S. market. Don't forget the large Chinese market, and now above all, Australian market, and in the last few days, the German market has been opened up. Not all countries have the same policies in terms of environmental protection. The most advanced, in fact, are the Australians. In their country, they have huge reserves and they have decided that building permits would be granted only to operators who can provide solutions that provide total guarantees for the entire environment, including water. So the first calls for tenders have already been launched, to be awarded the first permits. I'm convinced that Germany, that has just authorized and their conditions, and in part of the country, a similar procedure, I'm sure the Germans will have similar precautions. And I'm sure that the Americans are ultimately, gradually, will move forward in this direction. Therefore, I believe that, one, everybody knows that extracting this alternative energy is a huge economic challenge for the countries that can do it, and a lot of these countries have decided or want to use this resource. And if they want to do that in a clean manner, there is a market for us. I don't know what the assessment of potential revenue in a few years' time, but as you know, the first or largest call for tenders have been launched in Australia and we are bidding. Second question, Pierre-François, could you answer that one?

Pierre-François Riolacci

Well, with respect to the first question, net savings. Well, net savings as recorded in the income statement. There's also the operational performance plan that led to EUR 208 million in savings, that will be continued. But most of the savings, indeed, are used in our business negotiations. Convergence goes to income statement. Well, as for disposals, IFRS often can be criticized, but here, they're an advantage. IFRS 5 that was so tough for us for several years, but now, with the new standards, it's possible to understand what needs to be done. Most of the divestments we have yet to carry out, you already know, most of the dilution, you can see it directly in the figures. Any other questions?

Unknown Analyst

I'm from Barclays, and I have 5 questions. First, I'm afraid this is going to be unpleasant. Why don't you give us short-term guidance, insofar as you have just said that the dilution to the extent from -- expected from additional divestments will be relatively restricted, the macroeconomic environment, although it remains uncertain, at least there are possibilities to make assumptions. So I'd like to know why can't we have a short-term guidance? My second question relates to the expected contribution in your EBITDA from growth platforms. I believe that earlier you talked about EUR 400 million. In this slide, Slide 61, you talk about EUR 270 million. Is it only because of the impact of IFRS that there's such a divergence? Another question would be with respect to your adjusted net financial debt. What is the attitude of credit rating agencies with respect to adjusted net financial debt? Are you confident that your rating will be maintained and that the rating agencies will have an economic and not an accounting interpretation of your figures? Lastly, with your divestment program, you now have EUR 6 billion as your target, if Berlin is included. I'm sure that the list of assets you had initially identified 18 months ago, leads me to the question, why not raise your target beyond that figure?

Antoine Frérot

That's a lot indeed. We're going to break this down. I'll start off with respect to guidance. As you well understood, 2013 is a second transformation year for Veolia. A lot of work has been carried out in the first year, in particular with respect to debt, the balance sheet and the group's configuration. The second year, 2013, we'll see the cost savings program further implemented. So we're focused on cost savings this year. The snapshot of what the group's consolidation scope will eventually be has not yet been definitively decided. As we all know, the macroeconomic context, not only in Europe, but throughout the world, is very uncertain. You're saying you could make macroeconomic assumptions and then give us guidance on that basis. That's meaningless if we're going to provide guidance that is conditional on assumptions. We have a fairly good idea of what would happen if we had a normal economy. But nobody can say, for instance, with respect to industrial output in Western Europe, nobody can say how it's going to move in the next few years -- months and by the end of the year. Lastly, in our cost savings program, we have really robust implementation measures and they require costs. We kept them in check in 2012, more or less, at their expected level. But these implementation costs include redundancy costs, and redundancy costs, of course, are subject to random developments. We are dealing with a group undergoing an overhaul. The macroeconomic context is highly uncertain. Restructuring implementation costs are also uncertain. All this has led us to say, right now, it would not be reasonable to give short-term guidance on our income statement. What we can do is give guidance for our cash, as we did last year. And in fact, last year, our guidance was stretched over 2 years. With respect to debt and divestments, we have renewed that guidance and we've added an additional year for the dividend, so that we can work this year in-depth on overhauling our growth and start 2014 with a new Veolia. Second question, growth platforms. You shouldn't make a confusion here. The figures I presented today, i.e., the EUR 270 million growth over 3 years and the EUR 400 million we'd announced last year, if I remember well, it went until 2015. So we wanted to show that EUR 400 million figure is perfectly in line with what we've done between 2009 and 2012. So it's really to bolster our assumption that we would create adjusted cash flow from these growth platforms.

Unknown Analyst

[indiscernible]

Antoine Frérot

Yes, that includes the IFRS impact because out of the 5 platforms, Dalkia International and China Water have been impacted by the change in accounting standards. What we're doing here, of course, is reasoning at constant standards. Pierre-François, could you take the next question?

Pierre-François Riolacci

Well, as you know, Veolia was one of the first groups to apply the new IFRS, so because -- since we are listed in the States, we have a strong incentive that we, before, have applied as of the 1st of January, 2013. Credit rating agencies, at first sight, will not have an overall position, although with each analysis, decide whether there needs to be a recalculation according to the position of each company. As you know, there's a bit of leeway in Moody's rating of Veolia. And in our first informal contacts, we got the impression that they would be quite neutral. No, their viewpoint is we want you to improve your operating income to net financial debt. So as long as you've achieved progress there, we're quite -- remain quite flexible. As you know, for Standard & Poor's, we are in a rather more strained position with a 20% target for our objective. I believe that adjusted net financial debt is not the way agencies will look at that, but how we restate cash flows. So for some joint ventures, in fact, I believe that the cash flow cannot be withdrawn from the calculation of the ratio. The key point is the change in accounting standards cannot lead to a change in the perception of a company's debt or then there was a methodological problem beforehand, which might be the case. So they certainly have the idea that operational reality needs to be taken to account to adjust the calculation of ratio. We're working on that. I mean, we will have a chance to talk about that later on with them. They know about the quantified assessment of the change. They haven't sort of screamed blue murder saying that changes everything. Now they only said, "there's a problem there. We'll need to discuss it." So they're very open-minded and very reasonable. As for divestments, of course, if we sell at 9.6x EBITDA when our valuation is 5.8x, some might believe we should sell all assets, all our assets. But fortunately, financial criteria are not the only ones in this world. So we have objectives in terms of refocusing. We've done a lot of work on that and I'd like to draw your attention to the fact that out of the EUR 3.7 billion in divestments that have been completed, EUR 200 million from industrial operations and EUR 500 million from other, apart from the 2 large transactions we've talked about. So there are all sorts of assets there. And that's the whole point. Our refocusing is on our core business and we will press ahead with that. And that appears in our discontinued operations line. The second guideline was deleveraging, so there's 2 major divestments that have helped us achieve major progress. We can see that we are on track to meet our deleveraging objectives. We've left ourselves some leeway, because we don't want to end up with debt that would be too low. I know it's a bit of a paradox. But given the way in which we've reduced our net financial debt, remember, EUR 11.3 billion does not include sort of IFRS statements. We had announced EUR 12 billion in 31st of December, 2013. Even if we don't include Berlin, we are already at EUR 12.3 billion. So we're going faster than expected. But of course, it's partly because we've sold our assets at a higher valuation than expected. Should we continue selling the assets? Yes, of course, we need to. We maintain our objective of reducing the countries in which we operate to 40 and we're going to work on that. But should we sell assets that we don't need to sell in terms of deleveraging and that would have a dilutive impact on our earnings? Of course not, we won't sell it. We'll see. If the bids aren't good enough, we will keep those assets. So we have that kind of flexibility and we will use it.

Antoine Frérot

I can see that with our new lining system we have a question put by telephone, 4 questions on the telephone line. Let's take the first one.

Nathalie F. Casali - JP Morgan Chase & Co, Research Division

Nathalie Casali from JPMorgan. I have 2 questions. The first one is whether or not we can go back to the financial equation that's simplified that you gave us at the end of 2011. It's actually quite useful for us. And how could it apply to 2015, the medium term, as adjusted operating cash flow, if we start from EUR 2.7 billion in 2007 and take out EUR 900 million for the consolidated, for instance, with 5% growth, [indiscernible] EUR 2.1 billion and then I look at CapEx at EUR 1.7 billion, then we have repayments, et cetera. And then taxes on minority interest is about EUR 700 million there. That gives me free cash flow before disposals, divestments, of about EUR 300 million and a dividend of about EUR 350 million. So could you give -- make any comments on whether or not the medium-term picture will be confirmed following IFRS 11? And my second question has to do with joint ventures that are going to be de-consolidated and the economic impact. What will be the cash figures associated with that? Is it significant, or if it's because it's something that is just a reprocessing the figures, will it be more or less neutral? And I would like to know what would happen at the next Investors Day? Is there going to be guidance for the next 3 years or is it simply going to be an update on the progress of the cost-cutting program?

Antoine Frérot

Well, you've spoken to us about the picture. Of course, we couldn't see you, but we definitely heard you loud and clear. For your last question, it's not an Investors Day on the 3rd of June. We are working hard on bringing down costs, and we are coming up with new PKIs, validating all this. We want to make sure that on the 3rd of May, we can come back to you with an update on this part of our financial data.

Nathalie F. Casali - JP Morgan Chase & Co, Research Division

And why is it on the 3rd of May instead of the 2nd of May?

Antoine Frérot

Because the 2nd of May is the presentation of the first quarter's results. And so Pierre-François will be telling you his -- he'll present with you his business case.

Pierre-François Riolacci

On a more consolidated basis, the normalized free cash in 2015, well, let me perhaps answer your first question on joint ventures to begin with. You're right. There are some joint ventures that are in the process of being divested, for example, VTD, you've understood that. But for the rest, we are looking at joint ventures that are actually growing. They've consumed a lot of capital over the past few years. They haven't really generated positive cash flow, but at the same time these joint ventures are now moving into the black. And especially in China, we haven't mentioned this in detail, but last year, in terms of cash flow, China was -- we're at the breakeven point. But this year, we're looking at a positive figure of about EUR 30 million. And so this is a factor that's starting to kick in, in China. Cash might seem like or might have seemed like a rather abstract issue just a couple of years ago, but now it is becoming a critical point. The cash that we anticipate coming from joint ventures in the future will largely be due to refinancing, that is, they'll be going through a phase of excess cash and then excess cash will come back to us. That's the best way to get cash back into the group in any company I've ever seen and that is to get its debt repaid by its subsidiaries and it's a much more straightforward accounting procedure. In any event, that's the way we've been approaching this. Our debt will be reimbursed before it goes into the dividends line. So cash will be coming up from joint ventures since the excess in operating cash flow will be used to repay our debt. Now when it comes to standardized cash flow presentations on the Investors Day, of course, the metrics change because of proportionate consolidation. You can see that our CapEx target has also been revised downwards. We were talking about EUR 1.7 billion for 2013 in CapEx. You can see the figures for 2011. We had over EUR 2 billion. But again, it's the same equilibria that we're talking about. So objective for 2015, and I do apologize that I didn't have the details of all of the calculations that you shared with us. I'm sure that you were right in your calculations. But again, you were going so quickly through the figures that I didn't have the chance to note them down, but I would just invite you to meet with our staff to talk about this, but the basics of our outlook for 2015 haven't changed.

Nathalie F. Casali - JP Morgan Chase & Co, Research Division

Well, for free cash flow, you had a target of 5% per year. Is this a target that applies to the operating cash flow figures after IFRS 11, that is, after the consolidation of all of the growth platforms, or is it going to be for the pre-IFRS 11 picture?

Pierre-François Riolacci

Well, look at it from a different sense. If you look at operating cash flow minus CapEx, you won't see the contributions of what we call the growth platforms. Cash flow will be coming from debt reimbursements or loan reimbursements from the subsidiaries. So it's not going to be -- you're not going to see it in our operating cash flow, but you will see it on the line where we talk about reimbursing our loans. Also, don't forget in your calculations that out of the EUR 1.7 billion that I mentioned, there were new AFOs. You shouldn't forget those either. Again, they will have to be posted as revenue. And also, let's not forget that there are investments, the EUR 1.7 billion is gross investments, but there are always industrial divestments in the group. Now you might say that these are basically just peanuts, but if you look at EUR 150 million to EUR 200 million of AFOs and also EUR 200 million to EUR 250 million in industrial divestments, well, you could see that it does actually have a significant impact. But again, I would suggest that you meet with our staff to go through all the details of your calculations.

Antoine Frérot

And perhaps another question from the floor before we field another question from -- by phone.

Unknown Analyst

Morgan Stanley. You've been talking about long-term outlook.

Antoine Frérot

Well, please, don't go on at length in your question.

Unknown Analyst

Well, first question has to do with Environment Services. Could you just give us an update on volumes processed in collection, incineration, et cetera, in your European platforms for 2012 year-on-year and for Q4? You've explained to us the changes in revenue and in EBITDA, with a volume effect outside of this that's 0. I think it's on Slide 18 where you can see that you mentioned it's 0. In fact, the volumes -- but I would have thought that the volume impact would have had a negative impact. And also, when it comes to waste, you've mentioned hazardous waste management with sharp growth there. Could you just give us an idea of just how much business we're talking about as a part of the division's overall volumes? And then in Dalkia France, you already mentioned the negative impact of changing -- changes in the regulatory environment in 2012 in France. There's also been a sharp drop in CO2 prices and electricity. Do you anticipate a negative impact in 2013 or 2014 because of these changes in your operating environment? And then a small question on one of your -- on a nonfinancial indicator that you've included in your plans that struck us 1.5 years ago, and that is the number of countries that you have activities in. How is that panning out for you? And lastly, looking forward, for the growth platforms on Slide 61, you mentioned a program of EUR 210 million in operating cash flow in 2012. Can you give us these figures in recurring terms and also, how much CapEx is going to be invested in these growth platforms by the end of 2012 that will actually start bearing fruit over the next few years?

Antoine Frérot

Well, that is a long very menu of questions. I'm not sure if we're going to be able to answer them all. I see that Pierre-François has noted them all down. First, let me talk to you or answer your question about volumes for hazardous waste. We're looking at about EUR 800 million in revenue from Europe and the United States and we can add to that what we have in China. We're close to EUR 1 billion now. Pierre-François, on the first question on waste?

Pierre-François Riolacci

Well, let me just give you some raw data here and perhaps other people from my team could round out some of my answers. And again, they'll correct me if I get anything wrong. Now volumes of revenue, it does not exclude -- the figures that we've given you is collection and processed. It includes collection as well. The only thing is that collection volumes have gone down, but this is offset by improvements in commercial performance or operation -- operational performance in processing waste treatment. So we've had a decrease in volume, but we've managed to offset it in other areas. Now when it comes to volumes of waste treated, I don't have all the figures on top of my head. I've mentioned that for the U.K., landfill volumes have gone down by 12%, but incineration has gone up by 12%. In Germany, we don't have a lot of capacity for waste treatment. We operate much more in the area of recycling and there we really are dependent on volumes collected. In France, we have strong performance in incineration, up 4.5%. And the volumes for landfills is, more or less, holding steady with a slight change in the mix with polluted soils. It's not really the exact same price. So it's the fact that we have to bear in mind, but more or less, we could say that our volumes are holding steady in France. Dalkia France now, CO2 and electricity prices. In France, we have been short in CO2 starting in 2013. So when prices go down, it doesn't have an automatically negative impact because we are basically purchasers of CO2 rights. Okay, small to small amounts. But when it comes to electricity prices in France, again, it's a highly regulated market. The unregulated segment of the market is quite of marginal importance in France. It's greater internationally, of course. And so we are a bit more exposed, especially in Central Europe, where we have to sell excess electricity. But it's all a very complicated picture because there are annual negotiations on heat and then sales of electricity, which is following market prices. As I said at the end of 2012, we have operations in 48 countries, with permanent employees and about EUR 500 million in capital employed, but we are trying to bring that down to 40 countries. Now when it comes to your question of going further down the income statement and looking at the volumes for each one of our growth platforms, perhaps you've asked for a very specific information that we won't be able to give you right now. But what we wanted to demonstrate was that the forecast that we made last year, when it came to these growth platforms and what they could contribute to Veolia, well, those forecasts were confirmed. We're also looking at about EUR 50 million in write-downs for the growth platforms or depreciation for the growth platforms in 2012, so that gives you an idea of changes in our amortizations and depreciations. Now in China, we are reaching the end of a very long cycle of major CapEx. You can see that things are starting to stabilize, especially with our depreciations and amortizations in China. In Dalkia International, you know that we are continuing to make investments in Poland, because in SPEC, we anticipate that 2014 will be a major year for us because we'll be starting a new combustion cycle for hazardous waste. Again, we are moving forward there, but we already have new operations, major operations, coming onstream in 2013 but we have no committed CapEx there. Well, I'm just going to talk about changes in hazardous waste volumes. In 2012, we had growth of about 7%. This is organic growth of hazardous waste volumes. We had strong growth in the U.S. and also in Europe, not in France, but elsewhere in Europe. And I've already mentioned to you about our European hazardous waste treatment network, but this network is almost complete. And we've seen an increase in our volumes processed elsewhere in Europe, excluding the U.K. and France, where we have a very slow presence -- a small presence, but that's increasing. And we've done very well with our processing center in Poland. So in 2012, I'd say it was a very strong performance, especially given the general business climate. Now for PFI, we do have some embarked, or onboard CapEx there, about EUR 500 million, if I recall correctly, off the top of my head.

Antoine Frérot

Let's take another question by phone. Question from Olivier Van Doosselaere from Exane.

Olivier Van Doosselaere - Exane BNP Paribas, Research Division

Olivier Van Doosselaere. Just some quick questions. Perhaps if we begin by looking at your business, you said that the macroeconomic climate is somewhat difficult. Nonetheless, I would like to know if you can give us some indications concerning, first of all, volumes of waste expected for 2013. You were flat in 2012, but I got the impression -- well, there was a press conference this morning, where you seemed to say that there might be a decrease in volumes for 2013. Could you explain why you think that's the case? Afterwards, could you confirm volumes in water in France, will we see a similar trend? And also for France, over the next 2 to 3 years, do you anticipate a negative impact of about EUR 50 million from EBITDA because of negotiations? And then a second question, can you give us greater details on the improvements of your working capital requirement. I've tried to determine how much of that is linked to securitization. It's my understanding that part of this has already been covered by what's happening in Italy and France. And then lastly, your medium-term dividend payout outlook. It's my understanding that as of 2014, your dividend, you might be hitting a historical payout. Can you give us an idea of what that would be? And do you anticipate there are any risks associated with that?

Antoine Frérot

Well, again, a real mixed bag of questions. Let me start with the last one. We haven't given any guidance on dividend payout beyond the year that's just started. And in new Veolia, once we hit our cruising speed, once we've streamlined the operations, we will be going back to a payout that will be about 70% of what we did in the past. Now when it comes to Water, Pierre-François has already said that volumes have gone done by 1% per year. And the trend we saw in 2012 confirm that. When it comes to commercial renegotiations, again, there's downward pressure on prices. This amounts to a loss of about EUR 50 million for us every year. Now we have made a lot of progress in renegotiating all of these different contracts that started in 2012 and we started doing this before our competitors, with the largest contract in France starting in 2010. There's still a bit more work to be done there, but we're already well underway. You also raised a question, perhaps I've forgotten what was it about. Pierre-François, perhaps you could talk about the working capital requirements and volumes in France?

Pierre-François Riolacci

Well, let me just tell you a little bit about the rationale behind the dividend policy. We had another year of dividend payout at EUR 0.70 per share, so this would be on the basis of 23 -- 2013 results paid out in 2014. Now, if we decide to do this, it's because we felt that the EUR 0.70 is something that, over the long haul, because of what we are anticipating we will achieve, will be viable payout. Now in 2014, we'll probably go see an increase in our results. And in 2015, we might have a historical payout. I mean, if you look at all of the series before the crisis, we're looking at between EUR 0.70 and EUR 0.80. And of course, the financial director would say we could always have a 100% if our results are stable. No, that's not what we're going to do. We have to have an improvement in our results year in, year out. So what are the rationales behind this? Well, I already told you that our baseline figure for 2012 was about EUR 150 million to EUR 200 million. The figures that I already shared with you, you know that we also have Convergence. This will leave some money aside for minority interests and for taxes. But between 2012 and 2014, this will be turned into results. We don't pay much taxes in France. And so this has a nice impact on the bottom line. It's nice to know that the world doesn't just have bad news for us. There's also some good news, and we're looking at another EUR 500 million -- EUR 150 million on the bottom line. Now for the growth platforms, here we have some minority interests. We'll also be paying taxes, but we're anticipating another EUR 50 million. And then we also have some divestments, we have Water in France, the end of the lines of business in the U.K. These are all challenges. There's also a tightening of the regulatory framework in Dalkia France and this will probably continue for the next year or 2. And so all of these headwinds could have a slight negative impact on our bottom line by 2014. Also, debt reduction, we haven't really gauged the full impact of that. We won't know until the end of the year. But we're looking at another EUR 100 million in financial expenses. If you go through all these figures, you'll be looking at a net result that will probably similar to what we had, or more or less on a par with the dividend payout. But here, we're looking at a hypothesis of 0 recovery between now and the end of 2014. Now, that's something that could really happen. That's at least something that's guiding our thinking right now. In any event, we can all hope that the clouds will break and that there might be sunshine once again shining on the European economies. And if that happens, then of course there is potential for change in our dividend policy. But we set it at EUR 0.70 because we also felt that it reflects our confidence in our earning power and that's a very important feature. When it comes to the working capital requirement, again it's EUR 100 million. There's EUR 80 million in write-offs, so actually our working capital requirement is flat. If you look at our cash working capital requirement, it's at EUR 220 [ph] million. Now how did things improve between the 30th of September and the 31st of December? Well, as I already mentioned, on 30th of December, we had EUR 100 million of consolidated WCR because of our wind generation plant. We took that divestment and turned it into CapEx and so that's how that happened. This has lightened our working capital requirement. We also had securitization in Italy. That amounts to EUR 170 million by the end of the year and it was 0 by the end of September. And also, there's the seasonal nature of WCR historically in Q4. And that's also fact -- been factored in. And we're also very pleased with all of the payments of accounts receivable and also advance payment, because many of our clients wanted to secure their contracts before the end of the year. So that's also helped us out. I mean, it's not a huge amount of money, but we're looking at EUR 50 million that was posted in December and that helped us go beyond our WCR target. We weren't expecting it to be what it was. And I think that covers all of your questions.

Unknown Analyst

I'm from Credit Suisse. In fact, I've got 3 questions that you'll be able to answer in one go. First, with respect to Slide 59, when we see how you move from leverage at 3x in late 2013 and it goes over, what would have been 3.26x under new standards? I want to see that there's not a distortion between JV and group standards? And then second question, with respect to debt from JVs. Does the new accounting treatment not give an incentive to have a nonrecourse financing at the level of the JV itself and that would facilitate interpretation? And I'd like to come back to what you said about S&P. You said that credit ratings are strained. Is maintaining a BBB+ an objective for you per se? Because a BBB flat is a perfectly acceptable rating level. With BBB flat, should that be the landing point for the new Veolia be acceptable, or are you going to fight to maintain your BBB+?

Pierre-François Riolacci

Well, that's financial strategy, obviously. A word about the divestments, so that you understand what's happening. 2012 divestments affect the consolidation scope 100% with 2 huge transactions. What remains is divestments in the companies accounted for under the equity method. So in the divestment program, there were 2 phases. In 2012, the large divestments that immediately had an impact on debt and in 2013, a large deleveraging with the divestments in the companies accounted for under the equity method. What we want to do is straightforward. We want our net financial debt, adjusted net financial debt, to converge. On that viewpoint, the consequence is that having debt in subsidiaries that were historically financed by the group, well, that's not the optimum in terms of net financial debt, because Veolia, right now, can borrow money at very good rates, as we saw with the hybrid bond, and that obviously is not possible for a joint venture and our partners don't always have all the financial resources as us. It's not the case with Dalkia or Transportation, of course. But not every other partner has such financial clout as EDF and CDC. So right now, we're going to focus our net financial debt. But at some point, we will want to simplify and it will be easier if net financial debt is equal to adjusted net financial debt. The other question about joint ventures, yes, we're going to refinance joint ventures. Yes, some JVs are strategic and we need to remain with them because of agreement reasons or market reasons. But otherwise, either we manage to take over controlling interest or we can't, and as you've seen, there are lots of other companies that were consolidated proportionately. So either we will take over control or we'll pull out from them. So all of that will have an impact on our rating, of course, because here, you have a huge liquidity problem. If we refinance JVs, that means more liquidity. We can buy bonds, of course. But at some point, it will be tougher and tougher. We were helped by our best bankers. But it's not that easy to buy back bonds, but we were forced to pay a high price in the states, we really had to pay an expensive price. So there's a limit there. Now the rating, no, we are not hooked on our BBB+ rating. Nevertheless, we do believe that this rating is part of the resources of the group. It is not a traditional utility, straightforward utilities company. Our partners like to have the feeling that we are financially solid. It's one of our competitive advantages. So we need to be extremely vigilant with respect to this kind of issue. In January, people who subscribed to our hybrid securities, with a 2-notch difference, BBB-, I'm not sure if I would be all that happy if we were to let our rating deteriorate. I believe it'll be a good idea to maintain our BBB+ rating. But if we were to be downgraded for 18 months or 2 years during the transformation phase, as you rightly said, there's nothing crucial there. We're not bound by covenants. So it's really fundamentally a problem in terms of the visibility of Veolia as a long-term partner in long-term contracts, financial -- financing concerns, sorry. I haven't calculated the 3.26 and adjusted net financial debt, but the figure wouldn't be bad. If I had calculated it, I can assure you it won't have impact.

Antoine Frérot

So we'll take a question over the phone now, if you don't mind. No more questions over the phone? Well.

Operator

We have a question from Martin Young from Nomura.

Martin Young - Nomura Securities Co. Ltd., Research Division

Hopefully, some relatively easy questions. The first relates to the discussion around the dividend. Are you going to base your midterm payout on your net recurring income or the EPS as adjusted by the cost of the hybrid, hopefully that's an easy one to answer. Secondly, in terms of the divestments, you've done 5.1, surely Transport alone will take you to, ballpark, EUR 6 billion. So are we done when the Transport divestment is delivered, or should we be thinking about other divestments on top of that? In terms of the U.K. waste market specifically, one of your competitors is starting to talk a more bullish picture from 2014 onwards. Just wondered what your view on the outlook for the U.K. waste market was? And then the final question is really just an information request, hopefully this can be sent across by email, and that's the information on Page 44, which is the accounting treatment changes. Would it be possible to have those aggregate metrics broken down by individual company, particularly given that Berliner Wasser has already been taken out of the accounts?

Pierre-François Riolacci

With respect to the payout -- thank you for those questions, Martin. Well, payout will be based on adjusted net income, post-hybrid transaction, because the hybrid bond will have a priority. With respect to EUR 6 billion in terms of net debt, VTD has to be computed at EUR 500 million. We don't need to deleverage by EUR 900 million on VTD, because we won't sell immediately our 40% equity interest. In all likelihood, some of these shares will be sold very swiftly after 2013 and that will partly complete our deleveraging. But the deleveraging expected from the VTD transaction as agreed with the partner is closer to EUR 500 million net of the investment we would make then in SNCM. Are we at ease with the EUR 6 billion objective? Well, as you've understood, if we don't use that flexibility of EUR 800 million, we should meet that objective quite easily. If you just look at discontinued operations, that should easily lead us to the bottom of the range. Are we bullish about the waste market in the U.K. from 2014 onwards? Jerome, what would you say? Are you bullish? It doesn't look like it.

Jérôme Gallot

Well, I can't be turned into a bull. I'm already a bull. Well, let's say that the waste market in the U.K. is undergoing an overhaul and you mentioned that earlier, because the landfills are declining and incinerators are gaining market share. We have fewer landfills than our competitors. But in the PFI segment, as you said earlier, we are going to invest about EUR 400 million in the next few years, so our market share there is good and is growing at its expected pace and generating the cash flow we would -- operating cash flow we're expecting. As for sort of waste, well, we depend to a great extent on trade and consumers. And I haven't got a crystal ball. I can't tell you what's going to happen there.

Antoine Frérot

Let's have the last question from the room this time. If there aren't any questions, well, we've got another one on the phone. All right, now we'll take the question over the phone.

Operator

We have a question from Ignacio Perez Cossio from UBS.

Ignacio Perez Cossio - UBS Investment Bank, Research Division

It's Ignacio from UBS. I have a couple. One on the waste business, could you give us some guidance on how has the year started? I know Q4 was quite good with 3% revenue growth, but could you give us some clarity on Q1 and what do you expect for this year? Sorry, if this has been asked already, but the line was not too good. And second, on the French Water business, apparently there is a EUR 72 million EBITDA erosion from the contract renegotiations. How do you see this going forward? Do you see a similar EBITDA cut, or how should we think about this going forward, especially given that there has been some municipalities, large ones, being renegotiated this year? And lastly, I would like to come back to Slide 59, which was also mentioned by another colleague. On this one, you mentioned debt reduction from EUR 16.5 billion to the EUR 6 billion to EUR 7 billion target. Could you please explain us how much of this is really coming from pure accounting from the hybrid and how much of this is real cash flow generation?

Pierre-François Riolacci

[French] Well, with respect to your last question, how we dropped from EUR 16.5 billion to EUR 6 billion. Well, EUR 1.5 billion in the hybrid bond, the EUR 4 billion result from the change in IFRS, so that means there's about EUR 4.3 billion in the accounting part, including Berlin. It's about 1/2 of this reduction, 1/2 from divestments and cash flow and 1/2 from hybrid and accounting treatment. As for EFR in France, Water France, EUR 72 million in 2012, but EUR 20 million related to Guadeloupe and that's because of a very specific operating problem. The erosion remains at around EUR 15 million per year. It's flattening out at that level and that's what we project over the next 2 to 3 years, given the renewal of our contractual portfolio. Then everything will level out in 2015 at the end of this phase of renewal. As for the waste market, well, this is the very start to the year, so far we're in line with what we saw in Q4, volumes tend to be declining. There's no inflection point. Let me draw your attention to the sorting of primary materials. It has been dropping since Q2 2012, so that will have a comparison effect, but no major change.

Antoine Frérot

Well, thank you very much all of you for having come to this presentation. Don't hesitate to get in touch with our financial teams if you want additional information. Thank you, all of you, and enjoy the rest of your day.

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