2010 Annual Results

Good progression of profitability and returns in 2010, and recovery of organic growth confirmed quarter after quarter:

• Consolidated revenue: 2.5% growth to €34,787M (+1.3% at constant scope and exchange rates) with an improvement in organic growth all throughout the year: -3.3% in Q1, +0.9% in Q2, +2.7% in Q3, +4.7% in Q4.
• Adjusted operating cash flow improvement: +4.0% growth to €3,654M (+0.9% at constant exchange rates) and adjusted operating cash flow margin improvement from 10.3% in 2009 to 10.5% in 2010.
• Adjusted operating income growth of 8.5% to €2,056M (+5.3% at constant exchange rates) and adjusted operating income margin improvement from 5.6% in 2009 to 5.9% in 2010.
• €265M in cost reductions.
• Increase in adjusted net income of 11.6% to €579M. Net income was €581M, stable versus 2009.
• ROCE after tax(*) increased from 7.6% in 2009 to 7.9% in 2010.

Positive free cash flow after payment of dividend of €409M

• Net financial debt(*) of €15,218M versus €15,127M including a negative impact of €465M related to unfavorable exchange rate effects.
• Divestments completed in 2010: €1,241M, more than €2.5 billion in two years.
• Improvement in credit ratios

Finalization of the combination of Veolia Transport and Transdev on March 3, 2011: Transportation activities will be consolidated by proportional integration

Proposal to the Annual General Shareholders Meeting on May 17, 2011 to pay a dividend of €1.21 per share in cash or in shares

2011 Objectives: growing results

• Improvement in adjusted operating income in the range of 4% to 8% (2)
• Net income improvement
• Minimum cost savings of €250M
• Increased divestment program to at least €1.3 billion
• Positive free cash flow(*) after payment of dividend(1)

For the period 2011-2013 and according to the economic environment assumptions, Group objectives are:

• Average annual increase in adjusted operating income in the range of 4% to 8%(2)
• Improvement in ROCE after tax, with an objective between 9% and 10% in 2014
• Divestment program increased to €4 billion
• Cost cutting plan reinforced to obtain €300M in annual cost savings by 2013

For the year ending December 31, 2010 Veolia Environnement consolidated revenue was €34,786.6 million, an increase of 2.5% compared to re-presented revenue of €33,951.8 million for the year ending December 31, 2009.

At constant scope and exchange rates, consolidated revenue increased 1.3% during the same period.

The share of revenue generated outside France for 2010 was €20,748.8 million, which is 59.6% of total revenue compared to 59.5% for full year 2009 on a re-presented basis.

The positive effect of the evolution of average exchange rates during 2010 was €911.8 million, reflecting essentially the appreciation compared to the euro of the Australian dollar for €194.6 million, the U.S. dollar for €154.0 million, the U.K. pound sterling for €82.9 million, Central European currencies for €97.4 million, Northern European currencies (Norway and Sweden) for €75.6 million.

Revenue in the fourth quarter of 2010 showed a significant increase, with +7.9% growth marking a clear inflexion after +4.9% growth in the third quarter, +1.5% growth in the second quarter and -4.3% revenue decline in the first quarter of 2010.

This improvement was also observed at constant scope and exchange rates: +4.7% in 4Q 2010, after +2.7% in 3Q 2010, +0.9% in 2Q 2010 and -3.3% in 1Q 2010, confirming a return to positive organic growth.

This evolution in revenue growth is explained principally by the progressive improvement of the global economic environment, the increase and maintenance of recycled raw material prices, and energy prices, a positive climate effect both within and outside of France, as well as the benefits of successful commercial development.

On the other hand, 2010 full year Group revenue was negatively impacted by the non-renewal of certain significant contracts in 2009, notably in the Transportation division (-€637 million impact compared to 2009), as well as the completion of certain large construction contracts outside of France (Marafiq, Fujairah, Ras Laffan) in the Water division (-€311 million impact compared to 2009).

Throughout the year, Veolia Environnement continued to pursue strategic development and continues to benefit from favorable commercial dynamics.

Veolia Environnement has gained or renewed a number of contracts in priority areas and geographies: in the Water division, in France, the renewal for 12 years of the water production and distribution contract for the Syndicat des Eaux d'Ile de France (SEDIF, or Paris suburbs), with estimated cumulative revenue of €3 billion; in the Lille metropolitan area, the reconstruction of the largest wastewater treatment plant in the North of France (4 years of construction and 6 years of operation for estimated cumulative revenue of more than €100 million); on the island La Réunion, the design, construction and operation for 20 years of a new wastewater treatment plan in Sainte Marie (estimated cumulative revenue of €270 million); in the Environmental Services division, in the United Kingdom, Veolia renewed the waste management and recycling contract in Westminster for 7 years (estimated cumulative revenue of €298 million) and the Private Finance Initiative (PFI) contract for the treatment of waste for the Staffordshire county for 25 years (estimated cumulative revenue of €1.1 billion); in Hong Kong, the design, construction and operation for 15 years of a sludge treatment plant, combining the technologies and know how of Veolia's Water and Environmental Services divisions (estimated cumulative revenue of €700 million).

In the beginning of 2011, the Group has won additional contracts, including: in the Energy Services division, in Canada, the operations and maintenance of the Centre Hospitalier Universitaire de Montreal (CHUM) for 30 years (estimated cumulative revenue of more than 1.6 billion Canadian dollars); in Abu Dhabi, the design, build and operation of three central cooling facilities for 29 years (estimated cumulative revenue of €373 million); in the Environmental Services division, in Haringey, within the United Kingdom, a contract for street cleaning and waste collection and recycling for 14 years (estimated cumulative revenue of €270 million); in the Water division, in the United Kingdom, within the Vennsys consortium (Veolia Water 51%), a contract to Thames Water metering services for 10 years (estimated revenue of € 280 million).

In 2010, Veolia continued with its industrial and financial asset divestment program. Divestments* amounted to €1,241 million in 2010. The following divestments were completed during the year:

• On February 2, 2010, divestment of the Miami-Dade county waste-to-energy operating contract for $128 million (€93 million) in enterprise value, in accordance with the announced financial terms,
• On March 22, 2010 the redistribution of joint subsidiaries in France in the Water division was finalized between Suez Environnement and Veolia Environnement,
• In June 2010, continuation of the reorganization of Energy Services activities in the Czech Republic, notably related to the partnership signed between Dalkia Ceska Republika (Dalkia Czech Republic) and CEZ, for a total of €271 million,
• In August 2010, the financial reorganization of Energy Services activities in Poland,
• On December 1, 2010, divestment of 29% of Veolia's 40% holding in Delfluent BV, based in the Netherlands in the Water division, for €118 million in enterprise value.

In total, the decline in revenue resulting from net divestments completed in 2009 and 2010 amounted to -€495.6 million (-1.5% versus full year 2009) and is composed of: -€150.7 million in the Water division, -€312.4 million in the Environmental Services division (principally Veolia Propreté Nettoyage et Multiservices or VPNM), -€26.5 million in the Energy Services division and -€6.0 million in the Transportation division.

At the same time, the Group proceeded with targeted acquisitions, totaling €653 million in 2010.

These investments notably included:

• On June 25, 2010 finalization of the purchase of New World Resources Energy (NWR Energy), initiated in January 2010 for €97 million (enterprise value),
• On November 9, 2010 the purchase of certain non-regulated water activities of the Group United Utilities in Central and Eastern Europe and the United Kingdom for an enterprise value of €193 million.

Finally, Veolia Environnement finalized the combination of Veolia Transport and Transdev on March 3, 2011.

On December 12, 2010, Henri Proglio informed the Veolia Environnement Board of Directors of his decision to leave the post of Chairman of the Board. Mr. Proglio remains a Director on the Board.

In accordance with the recommendations of the Nominations and Compensation Committee, the Board of Directors decided to combine the functions of Chairman of the Board and Chief Executive Officer.

As a result, the Board of Directors appointed Antoine Frérot Chairman and Chief Executive Officer of Veolia Environnement, with his additional responsibilities taking effect December 12, 2010.

Adjusted operating cash flow increased 4.0% (+0.9% at constant exchange rates) to €3,653.8 million for the year ending December 31, 2010, compared to €3,513.6 million for the year ending December 31, 2009 (represented for discontinued operations).

The improvement in operating cash flow during a continually challenging economic environment testifies to the Group's ability to adapt its cost structure in a competitive environment.

This progression is essentially due to the following factors:

• recycled raw material prices remaining at elevated levels;
• the positive effects of the adaptation plan related to the economic environment realized in 2009 and 2010; 
• the efforts of the Group's Efficiency Plan contributed €265 million to adjusted operating cash flow growth, in line with the objective announced in March 2010;
• the positive contribution of CO2 quota sales, as well as a significant positive climate effect in the Energy Services division.

On the other hand, adjusted operating cash flow growth was negatively impacted by:

• the loss, finalization or non-renewal of certain significant contracts, notably in the Water and Transportation divisions;
• margin pressure associated with contract renewal or contract wins, due to a competitive economic environment.

The adjusted operating cash flow margin improved 20 basis points from 10.3% in 2009 to 10.5% in 2010.

The positive impact of the evolution of average exchange rates on adjusted operating cash flow was €107.2 million, reflecting principally the appreciation of the Australian dollar for an impact of €19.2 million, the U.S. dollar for an impact of €18.5 million, the U.K. pound sterling for an impact of €14.8 million and the appreciation of the Central European currencies for an impact of €18.7 million for the year ending December 31, 2010.

Operating income increased 7.0% (+3.8% at constant exchange rates) to €2,120.3 million for the year ending December 31, 2010, versus €1,981.8 million for the same period in 2009. 2010 operating income includes:

• net goodwill impairment of -€25.9 million;
• the effect of changes in discount rates associated with site rehabilitation provisions for €26 million for the year ending December 31, 2010, versus -€56 million for the year ending December 31, 2009
• €227.2 million in capital gains on industrial and financial asset divestments for the year ending December 31, 2010 versus €213.5 million for the same period in 2009. 2010 capital gains include a €89.0 million capital gain on the divestment of Usti Nad Labem in the Energy Services division, while 2009 figures include a €99.0 million capital gain related to the divestment of Veolia Propreté Nettoyage et Multi-Services (VPNM).

Adjusted operating income grew 8.5% to €2,055.7 million for the year ending December 31, 2010, compared to €1,894.1 million for the same period in 2009. 2010 adjusted operating income includes capital gains on industrial or financial asset divestments, totaling €138.2 million versus €114.5 million for the same period in 2009.

Adjusted operating income margin improved 30 basis points from 5.6% for the twelve months ending December 31, 2009 to 5.9% for the same period in 2010.

Net financing costs increased from €768.2M in 2009 (re-presented) to €793.3M in 2010, while average net financial debt declined from €16,466 million in 2009 to €15,566 million in 2010. Higher net financial costs are due to an increase in the financing rate (defined as the cost of net financial debt excluding variations in the fair value of instruments not qualifying as hedges, divided by the average monthly net financial debt for the period) from 4.76% in 2009 to 5.09% in 2010. The higher financing rate in 2010 was due to:

• the change in inflation on CPI indexed bonds;
• the increase in cash and cash equivalents, which were slightly remunerated in 2010 due to low interest rates (cost of carry);
• partially compensated by the decline in short-term interest rates on the variable portion of debt.

Other financial income and expenses moved from -€104.8 million at December 31, 2009 to -€114.0 million at December 31, 2010.

For the 2010 year, the Group recorded income tax expense of €336.3 million versus €239.1 million in 2009. As a percentage of pre-tax income from continuing operations (adjusted to eliminate our share of net income of associates), the effective income tax rate is 27.7% for the year ending December 31, 2010 versus 21.6% for the same period in 2009. The higher income tax rate resulted mainly from the impact of the preparation of the combination of Veolia Transport with Transdev, as well as limited deferred tax assets recognized related to tax losses carried forward within the French and U.S. tax groups. The apparent tax rate remains moderate due to significant capital gains that were subject to limited tax charges.

The share of net income of associates increased from -€0.9 million for the year ending December 31, 2009 to €18.5 million for the same period in 2010. The variation is primarily due to the 2009 divestment of Compagnie Méridionale de Navigation in the Transport division.

Net income from discontinued operations changed from -€26.9 million for the year ending December 31, 2009 to -€23.6 million for the same period in 2010. The net income from these activities in 2010 principally relates to a capital gain on the February 2010 divestment of the operating contract for the Miami-Dade County waste-to-energy plant in the United States in the Environmental Services division, net of an impairment loss of -€89.6 million resulting from the fair value measurement of assets in the Transportation and Energy Services divisions. It also includes, income from the following assets, recorded pro rata on the basis of ownership, which were in the process of divestment during 2010:

• United Kingdom operations in the Transportation division,
• German operations within the Energy Services division,
• A portion of Gabon operations in the Water division,
• Norwegian operations in the Environmental services division.

In 2009, net income from discontinued operations included a capital gain on the divestment of waste-to-energy operations in the United States in the Environmental Services division for €134.5 million net of taxes, and a loss related to the divestment of freight activities within the Transportation division.

The share of income attributable to non-controlling interests increased from €257.8 million for the year ending December 31, 2009 to €290.5 million for the year ending December 31, 2010. The increase primarily relates to a portion of the capital gain paid to minority shareholders in the Energy Services division.

Adjusted net income attributable to owners of the Company increased 11.6% to €579.1 million for the year ending December 31, 2010, versus €519.0 million (re-presented) for the same period in 2009.

Net income attributable to owners of the Company was €581.1 million for the year ending December 31, 2010, versus €584.1 million (re-presented) for the same period in 2009.

The average number of shares outstanding for the year ending December 31, 2010 amounted to 481.2 million, versus 471.7 million for the year ending December 31, 2009. The net income attributable to owners of the Company per share (non-diluted) was €1.21 for the year ending December 31, 2010, versus €1.24 for the year ending December 31, 2009. Adjusted net income attributable to owners of the Company per share (non-diluted) was €1.20 for the year ending December 31, 2010, versus €1.10 for the year ending December 31, 2009.

Total cash flow from operations before changes in working capital and taxes amounted to €3,741.5 million for the year ending December 31, 2010, including €3,653.8 million of adjusted operating cash flow (versus €3,513.6 million in re-presented adjusted operating cash flow for the year ending December 31, 2009), -€18.3 million of financing cash flow (versus -€1.4 million for the year ending December 31, 2009) and €106.0 million of cash flow from discontinued operations (versus €65.5 million in re-presented cash flow from discontinued operations for the year ending December 31, 2009).

The €83M favorable variation in operating working capital at December 31, 2010 resulted from:

• action plans targeting accounts receivable in certain countries,
• increases in activity in the Environmental Services and Energy Services divisions,
• reduction of activity in Veolia Water Solutions & Technologies due to the end of desalination construction contracts in the Middle East.

These resources, together with the repayment of operating financial assets (€424 million) entirely covered financing requirements, i.e., in addition to interest expense and taxes, payment of the 2009 dividend, all maintenance investments (€1,075 million), growth investments (€2,181 million) net of financial and industrial divestments (€1,241 million), and contributed to free cash flow of €409 million, versus €1,344 million for the year ending December 31, 2009.

The change in free cash flow between 2009 and 2010 is due to:

• a larger portion of dividends paid in cash in 2010 compared to 2009: 86% of the dividend was paid in cash in 2010 versus 42% in 2009;
• a higher level of gross investments in 2010 compared to 2009, a largely equivalent level of divestments, reflecting the desire to augment the Group's organic growth with targeted acquisitions (notably the United Utilities assets in the Water division);
• a lower contribution from the change in operating working capital.

As a result, net financial debt amounted to €15,218 million at December 31, 2010, including an unfavorable exchange rate impact of €465 million, versus €15,127 million at December 31, 2009.

The ratio of net financial debt / (cash flow from operations + repayment of operating financial assets) dropped to 3.65x at December 31, 2010, versus 3.75x at December 31, 2009.

The after tax Return on Capital Employed (ROCE)(*) of the Group is as follows:

Given the good visibility on future cash flows and the strengthened financial position of the Group, the Board of Directors will propose at the Annual General Meeting of Shareholders to be held May 17, 2011, a dividend per share of €1.21 for the 2010 fiscal year, payable in cash or in shares of Veolia Environnement. These new shares will be issued at a price equivalent to 90% of the average opening price on the Euronext Paris of the shares over the twenty trading days prior to the day of the Annual General Shareholders Meeting, less the amount of the dividend. The ex-dividend date has been set as May 23, 2011. The period during which shareholders may choose the option of the payment of dividend in cash or in shares will begin on May 23, 2011 and end June 7, 2011. The 2010 dividend will be paid, in cash or in shares, in either case from June 17, 2011.

In 2011, Veolia Environnement envisions a year of growing results:

• Adjusted operating income improvement in the range of 4% to 8%, excluding the impact of the combination of Veolia Transport and Transdev.
• Net income improvement.
• Minimum cost savings of €250M.
• Increased divestment program to at least €1.3 billion.
• Positive free cash flow after dividend

For the period 2011-2013, and according to economic environment assumptions, Veolia's objectives are:

• Average annual increase in adjusted operating income for the period of 4% to 8%
• Improvement in ROCE after tax, with an objective between 9% and 10% in 2014
• Divestment program increased to €4 billion
• Reinforcement of our cost cutting Plan to obtain €300M in annual cost savings by 2013

(1) Pending the approval at the Annual General Shareholders Meeting scheduled for May 17, 2011

(2) Excluding the impact of the combination of Veolia Transport and Transdev

(3) 2009 financial statements have been re-presented, in order to ensure the comparability of periods,

• for the reclassification into « net income from discontinued operations » of the German operations in the Energy Services division, the Norwegian operations in the Environmental Services division and operations in Gabon and the Netherlands within the Water division; the assets and liabilities of these four cash generating units have been reclassified in the lines for assets and liabilities held for sale;
• for the reclassification into "continuing operations" the Renewable Energies business within the Energy Services division.

As of January 1, 2010, due to the application of the new amendment to IAS 7, adjusted operating cash flow for the full year 2009 has been represented
for replacement costs by an amount of €360.9M, of which €245.7M is within the Water division and €115.2M is within the Energy
Services division.

(*) Refer to Page 11 for definitions

Veolia Environnement is a corporation listed on the NYSE and Euronext Paris. This [document/press release] 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 acquisitions may not provide the benefits that Veolia Environnement hopes to achieve, the risks related to customary provisions of divesture transactions, the risk that Veolia Environnement's compliance with environmental laws may become more costly in the future, the risk that currency exchange rate fluctuations may negatively affect Veolia Environnement's financial results and the price of its shares, the risk that Veolia Environnement may incur environmental liability in connection with its past, present and future operations, as well as the risks described in the documents Veolia Environnement has filed with the U.S. Securities and Exchange Commission. Veolia Environnement does not undertake, nor does it have, any obligation to provide updates or to revise any forward-looking statements. Investors and security holders may obtain a free copy of documents filed by Veolia Environnement with the U.S. Securities and Exchange Commission from Veolia Environnement.

The review of results by auditors is still in progress.